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Premier Exhibitions 10-K 2008 Documents found in this filing:Table of Contents
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
COMMISSION FILE
NO. 000-24452
PREMIER EXHIBITIONS,
INC.
Registrant’s telephone number, including area code:
404-842-2600
Securities registered pursuant to Section 12(b) of the
Act:
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (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 þ No o
Indicate by check mark 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
At August 31, 2007, the aggregate market value of the
registrant’s Common Stock held by non-affiliates of the
registrant was approximately $428,606,815, based upon the
closing price for such Common Stock as reported on the NASDAQ
Global Market on August 31, 2007. For purposes of the
foregoing calculation only, all directors and officers of the
registrant have been deemed affiliates.
The number of shares outstanding of the registrant’s common
stock, as of April 25, 2008, was 29,100,165.
Portions of the registrant’s proxy statement, which will be
filed within 120 days of the close of the registrant’s
fiscal year in connection with the registrant’s 2008 annual
meeting of shareholders, are incorporated by reference into
Part III of this
Form 10-K.
Table of Contents
Except for historical information, this Annual Report on
Form 10-K
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that involve
certain risks and uncertainties. The actual results or outcomes
of Premier Exhibitions, Inc. (hereinafter sometimes referred to
as “we,” “us,” “our,” or the
“Company”) may differ materially from those
anticipated. Although we believe that the assumptions underlying
the forward-looking statements contained in this report are
reasonable, any such assumptions could prove to be inaccurate.
Therefore, we can provide no assurance that any of the
forward-looking statements contained in this report will prove
to be accurate.
In light of the significant uncertainties and risks inherent in
the forward-looking statements included in this report, such
information should not be regarded as a representation by us
that our objectives or plans will be achieved. Included in these
uncertainties and risks are, among other things, fluctuations in
operating results, uncertainty regarding the results of certain
legal proceedings and competition. Forward-looking statements
consist of statements other than a recitation of historical fact
and can be identified by the use of forward-looking terminology
such as “may,” “expect,” “will,”
“anticipate,” “estimate,” or
“continue,” or the negatives thereof or other
variations thereon or comparable terminology. We do not
undertake an obligation to update publicly any of our
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
PART I
We are in the business of developing and touring museum quality
exhibitions. We generate income from our exhibitions primarily
through ticket sales, third-party licensing, sponsorships and
merchandise sales.
We first became known for our Titanic exhibitions, which we
conduct through our wholly-owned subsidiary R.M.S. Titanic,
Inc., and which honor the ill-fated ocean liner. The Titanic has
captivated the imaginations of millions of people throughout the
world since 1912 when she struck an iceberg and sank in the
North Atlantic on her maiden voyage. More than 1,500 of the
2,228 lives on board the Titanic were lost.
Since 1994, we have maintained our
Salvor-in-Possession
status of the Titanic wreck and wreck site as awarded by a
federal district court. As such, we have the exclusive right to
recover objects from the Titanic wreck site. Through our
explorations, we have obtained and are in possession of the
largest collection of data, information, images and cultural
materials associated with the Titanic shipwreck. We believe that
our
Salvor-in-Possession
status puts us in the best position to provide for the
archaeological survey, scientific interpretation, public
awareness, historical conservation and stewardship of the
Titanic shipwreck.
We currently have the ability to operate seven concurrent
Titanic exhibitions, six of which are known as “Titanic:
The Artifact Exhibition” and one of which is known as
“Titanic Science.” We intend to continue presenting
Titanic exhibitions throughout the world in an enlightening and
dignified manner that embodies respect for all of those who
sailed with her.
In 2004, we diversified our exhibitions beyond the Titanic and
into human anatomy. We currently have the ability to present
sixteen concurrent human anatomy exhibitions, which are known as
“Bodies...The Exhibition,” “Bodies Revealed”
and “Our Body: The Universe Within.”
In February and March 2008, we further diversified the scope of
our exhibition offerings to include both exhibitions of sports
memorabilia entitled “Sports Immortals, The Traveling
Exhibition” and exhibitions exploring a world without sight
entitled “Dialog in the Dark.” We acquired the rights
to offer these exhibitions pursuant to long-term licensing
arrangements.
We operate all of our exhibitions through wholly-owned
subsidiaries. We adopted this holding company structure in
October 2004. Prior to that, we conducted all of our business
activities exclusively through R.M.S.
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Titanic, Inc., our subsidiary which is the
Salvor-In-Possession
of the wreck of the Titanic and which operates our Titanic
exhibitions. R.M.S. Titanic, Inc. was incorporated in 1993. We
intend to continue to expand the number and types of exhibitions
we offer and will organize additional subsidiaries as needed.
Our principal executive offices are located at 3340 Peachtree
Road, NE, Suite 2250, Atlanta, Georgia 30326 and our
telephone number is
(404) 842-2600.
We are a Florida corporation and maintain web sites located at
www.prxi.com, www.rmstitanic.net, www.titanicscience.com,
www.bodiestheexhibition.com, www.bodiestickets.com,
www.titanictix.com, and www.bodiesrevealed.com. Information on
our websites is not part of this report.
We presently operate
and/or
present and promote or have plans to operate
and/or
present and promote four different types of exhibitions:
We expect that our first Sports Immortals and Dialog in the Dark
exhibitions will open during the later part of our fiscal year
ending February 28, 2009, which we refer to as fiscal 2009.
Our exhibition offerings are described in greater detail below.
Our Titanic exhibitions have been presented in more than 60
venues throughout the world, including in the U.S., Canada,
Germany, Norway, France, Greece, Japan, Switzerland, Chile,
Argentina, China, Mexico, Hungary, South Korea, and England. We
currently have the ability to operate seven concurrent Titanic
exhibitions, six of which are known as “Titanic: The
Artifact Exhibition” and one of which is known as
“Titanic Science.” During our fiscal year ended
February 29, 2008, which we refer to as fiscal 2008, we
presented six separate Titanic exhibitions at fourteen venues.
We presently have the rights to multiple human anatomy sets,
each of which contains a collection of whole human body
specimens plus single human organs and body parts, which are
known as “Bodies Revealed,” “Bodies...The
Exhibition,” and “Our Body: The Universe Within.”
We acquired the rights to produce these exhibitions through
separate exhibition agreements. Most recently, on
December 3, 2007, we acquired the license rights to present
and promote three additional full sets of human anatomy
specimens pursuant to an agreement with the sole owner of The
Universe Within Touring Company, LLC., whereby we acquired all
of the outstanding membership interests of such entity.
These specimens are assembled into anatomy-based exhibitions
featuring preserved human bodies, organs and body parts to offer
the public an opportunity to view the intricacies and
complexities of the human body. The exhibitions include displays
of dissected human bodies which are permanently preserved
through a process called polymer preservation, also known as
plastination. In essence, the bodies are drained of all fat and
fluids, which are replaced with polymers such as silicone
rubber, epoxy and polyester. This preserves the flesh and
maintains its natural look. Skin from the bodies is removed, or
partially removed, to reveal musculoskeletal, nervous,
circulatory, and reproductive or digestive systems. The full
body specimens are complimented by presentation cases of related
individual organs and body parts, both healthy and diseased,
that provide a detailed look into the elements that comprise
each system.
Our “Bodies Revealed” exhibition debuted in August
2004 in Blackpool, England and was the first non-Titanic
exhibition we produced. During fiscal 2008, we presented fifteen
separate human anatomy exhibitions at 28 venues.
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On February 25, 2008, we expanded our exhibition portfolio
beyond those related to the Titanic and human anatomy when we
entered into a long-term license agreement to present an
exhibition series entitled “Dialog in the Dark.” Our
Dialog in the Dark exhibitions are intended to provide insight
and experience to the paradox of learning to “see”
without the use of sight. Visitors will be escorted through a
series of galleries immersed in total blackness and challenged
to perform tasks without the use of vision. We are planning to
open our first North American engagement in the latter part of
fiscal 2009, and anticipate producing multiple concurrent Dialog
in the Dark exhibitions.
On March 13, 2008, we entered into a long-term license
agreement with Sports Immortals, Inc. to present, promote and
conduct multiple “Sports Immortals, The Traveling
Exhibition” exhibitions, each of which will feature sports
artifacts and memorabilia.
Our Sports Immortals exhibitions will draw upon what we believe
is the largest and most extensive known collection of sports
memorabilia in the world. The collection consists of over
1,000,000 artifacts from the world’s greatest athletes,
including video footage, artwork and other artifacts. Our
agreement with Sports Immortals also grants us the exclusive
right to manufacture and sell “Sports Immortals” brand
merchandise in conjunction with our exhibitions. We are planning
to open our first Sports Immortals exhibition in calendar year
2008, and anticipate producing multiple concurrent Sports
Immortals exhibitions.
We intend to acquire, develop and present additional new
exhibitions for presentation in the future, including
exhibitions both related and unrelated to our currently ongoing
and recently announced exhibitions.
On March 12, 2008, we entered into a lease agreement with
Ramparts, Inc., the owner and operator of the Luxor Hotel and
Casino, located in Las Vegas, Nevada. We leased from the Luxor
Hotel and Casino approximately 47,164 square feet of space
within the Luxor Hotel and Casino and intend to use the space,
among other things, to present our “Bodies...The
Exhibition” and Titanic exhibition, and an additional
exhibition for Sports Immortals.
The ten year lease is expected to commence in June 2008, which
we expect will coincide with the completion of the design and
construction work related to the opening of our
“Bodies...The Exhibition” exhibition, which is
projected to be completed prior to the end of the third quarter
of fiscal 2009. We believe that the Luxor Hotel and Casino,
which is one of the most recognizable resorts on the Las Vegas
strip, will provide us with tremendous exposure to a substantial
market of corporate and individual patrons.
On September 20, 2006, we entered into an agreement
pursuant with Sam Tour (USA), Inc., JAM Exhibitions, LLC and
Concert Productions International, which we refer to
collectively as “JAM,” to jointly present several of
our human anatomy exhibitions. Pursuant to the agreement, we
agreed to present at least nine human anatomy exhibitions
jointly with JAM in the following locations: Tampa, New York,
Atlanta, Mexico City, Seattle, Las Vegas, Amsterdam,
Washington, D.C. and San Diego. The exhibitions in
Tampa, Atlanta, Mexico City, Seattle, Amsterdam, San Diego
and Washington D.C. have completed their runs and have closed.
With respect to the exhibition in Las Vegas, our agreement with
JAM only lasts through the exhibition being presented at the
Tropicana Hotel and Casino and does not involve our lease at
Luxor Hotel and Casino. Our agreement with JAM does not include
certain of our human anatomy exhibitions which we are presenting
independently or under separate license agreements. The
agreement provides that JAM will not compete directly or
indirectly with us in the presentation of human anatomy
exhibitions for the one-year period following the closing of the
last jointly-presented exhibition.
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On November 28, 2007, we entered into an agreement with
Live Nation, Inc. pursuant to which we co-present human anatomy
exhibitions with Live Nation. With respect to each
jointly-presented exhibition, we are responsible for exhibition
design, installation and licensing, including the provision of
expertise, exhibitry and specimens. Live Nation is responsible
for marketing, public relations, exhibition operations, and
security. Under this agreement, we intend to co-present between
six and nine concurrent exhibitions at all times. In general,
Live Nation’s right to jointly present exhibitions with us
is exclusive on a worldwide basis, except for North America,
China and certain other limited geographic locations as well as
certain exhibitions which are subject to agreements that
pre-date our agreement with Live Nation. JAM Exhibitions, LLC
will act as Live Nation’s exclusive co-promoter for
exhibitions jointly presented under this agreement.
We also earn revenue from the sale of merchandise, such as
catalogs, posters and Titanic-related jewelry (which utilizes
coal we have recovered from the shipwreck). In addition, we also
publish exhibition catalogs, which are sold at our exhibition
gift shops.
On March 27, 2008, we acquired MGR Entertainment, or
“MGR,” a full-service entertainment merchandising
company. We intend to have MGR serve as our in-house
merchandising division and be responsible for developing an
overall long-term strategy for generating and maximizing
sustainable retail revenue for our current and future
exhibitions. MGR has experience in developing profitable
celebrity and lifestyle brands to increase annual revenue,
manages merchandise sales for hundreds of events around the
world and handles brand management for a number of its
customers. We plan to integrate MGR with our current
merchandising personnel in order to enhance our existing
merchandising revenue stream. We also intend to expand our
strategies for the development of new products to increase our
merchandising revenues and maximize the revenue potential for
our recently announced Sports Immortals and Dialog in the Dark
exhibitions.
Titanic Ventures Limited Partnership, or “TVLP,” a
Connecticut limited partnership, was formed in 1987 for the
purposes of exploring the wreck of the Titanic and its
surrounding oceanic areas. In August 1987, TVLP contracted with
the Institute of France for the Research and Exploration of the
Sea, or “IFREMER,” to conduct an expedition and dive
to the wreck of the Titanic. Approximately 2,000 objects were
recovered during the course of the 32 dives in that original
expedition. The French government subsequently conveyed to us
title to these artifacts. In 1993, our subsidiary R.M.S.
Titanic, Inc. acquired all of the assets and assumed all of the
liabilities of TVLP. In July 2004, the U.S. District Court
for the Eastern District of Virginia concluded that such
conveyance was not valid and sought to deprive us of title to
these artifacts. We appealed that decision to the
U.S. Court of Appeals for the Fourth Circuit. On
January 31, 2006, the Court of Appeals reversed and vacated
the ruling of the lower court. This decision reconfirmed the
validity of our title to the approximately 1,800 artifacts
recovered during the 1987 expedition.
We completed additional expeditions to the wreck of the Titanic
in, 1994, 1996, 1998, 2000 and 2004. With the depth of the
Titanic wreck approximately two and one-half miles below the
surface of the North Atlantic Ocean, our ability to conduct
expeditions to the Titanic has been subject to the availability
of necessary research and recovery vessels and equipment for
chartering by us from June to September, which is the “open
weather window” for such activities.
Upon recovery from the Titanic wreck site, artifacts are in
varying states of deterioration. Having been submerged in the
ocean for almost 100 years, artifacts have been subjected
to the corrosive effects of seawater. The restoration of many of
the metal, leather and paper artifacts require the application
of sophisticated electrolysis and other electrochemical
techniques. When not on display or being conserved at other
conservation facilities, almost all of our Titanic artifacts are
housed in our warehouse.
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The Titanic bequeathed to the world a classic story of tragedy
at sea. Today, this shipwreck is treated as an archaeological
site, historic structure, attraction for adventure tourism,
ecological phenomenon, international memorial, and as valuable
property to be recovered and shared with humanity. With the
exception of adventure tourism, we believe that all of these
purposes are legitimate and beneficial to society. We also
believe that the multiple values associated with the Titanic and
its status as a social and cultural icon demand the attention of
many experts in scientific interpretation and stewardship of the
site. We have developed a partnership with the Center for
Maritime & Underwater Resource Management, a nonprofit
corporation, for services in archaeology, scientific research
and resource management to aid in stewardship of the Titanic
wreck site.
In May 2001, we acquired ownership of the wreck of the
Carpathia, which was sunk by a German torpedo during World War I
off the coast of Ireland. The Carpathia rescued more than 700 of
the Titanic’s survivors in the early morning hours of
April 15, 1912. On February 28, 2007, our wholly-owned
subsidiary R.M.S. Titanic, Inc. entered into a sale agreement
with Seaventures, Ltd. pursuant to which Seaventures acquired
from R.M.S. Titanic all of its ownership interest in the
Carpathia for $3,000,000. We received $500,000 from Seaventures
on February 28, 2007 and we received the remaining
$2,500,000 from Seaventures on April 15, 2008. Also, on
February 28, 2007, Seaventures purchased an option from us
to present the first exhibition of objects recovered from the
Carpathia together with certain of our Titanic artifacts. We
received payment of $1,500,000 from Seaventures for the sale of
this option on February 28, 2007. At the time we entered
into the transaction with Seaventures, its principal, Joseph
Marsh, was a holder of more than 5% of our common stock.
Our exhibitions tour regularly outside the United States.
Approximately 21% and 4% of our revenues in fiscal 2008 and
fiscal year ended February 28, 2007, which we refer to as
fiscal 2007, respectively, resulted from exhibition and
merchandising activities outside the United States. Because our
financial arrangements with our foreign vendors have
historically been based upon foreign currencies, we are exposed
to the risk of currency fluctuations between the
U.S. dollar and the currencies of the countries in which
our exhibitions are touring. See “Risk Factors” and
“Quantitative and Qualitative Disclosures About Market
Risk” in this report for more information.
The entertainment and exhibition industries are intensely
competitive. Given our limited capital resources, we can provide
no assurance that we will continue to be able to compete
effectively. Many enterprises with which we presently compete or
intend to compete have substantially greater resources than we
do.
We believe that our many years of experience in the exhibition
industry have enabled us to present exhibitions with mass appeal
to consumers of entertainment, museum, scientific and
educational offerings. These consumers recognize the quality and
value of the educational experience that our exhibitions offer.
While our Titanic exhibitions do have competitors, none of the
competitors have artifacts recovered from the wreck site at the
ocean floor. Our human anatomy exhibitions have some direct
competitors.
In addition, the success of our merchandising efforts will
depend largely upon consumer appeal and the success of our
exhibitions. We believe that our merchandise effectively
competes because of its unique character and quality. In
addition, we believe that our acquisition of MGR Entertainment,
discussed above under the subheading “Merchandising
Strategy,” will improve our existing merchandising efforts.
Although we are currently the only entity that exhibits
artifacts recovered from the wreck site of the Titanic, we may
encounter competition from other Titanic exhibitions or events
in the future.
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“Bodies...The
Exhibition,” “Bodies Revealed” and “Our
Body: The Universe Within”
We compete with other human anatomy exhibitions that are similar
to ours.
Although we believe that our Sports Immortals and Dialog in the
Dark exhibitions will be unique in character and quality, our
success in the presentation of these exhibitions may cause
competitors in the future to bring similar exhibitions of their
own to the market.
Our ability to successfully introduce our Sports Immortals and
Dialog in the Dark exhibitions will depend on our ability to
build infrastructure, secure venues and otherwise strategically
market and produce these new exhibitions.
We are subject to environmental laws and regulation by federal,
state and local authorities in connection with our planned
exhibition activities. We do not anticipate that the costs to
comply with such laws and regulations will have material effect
on our capital expenditures, earnings or competitive position.
As of February 29, 2008, we had 85 full-time
employees. We are not a party to any collective bargaining
agreements and we believe that our relations with our employees
are good.
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and, therefore, we
file periodic reports, proxy statements and other information
with the Securities and Exchange Commission, or SEC. Such
reports may be read and copied at the Public Reference Room of
the SEC at 100 F Street NE, Washington, D.C.
20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at (800) SEC-0330. In
addition, the SEC maintains a website located at www.sec.gov
that contains reports, proxy statements and other information
for registrants that file electronically.
Our corporate website is www.prxi.com. On our website, we make
available, free of charge, documents we have filed with the SEC,
including our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and any amendments to those reports filed with or furnished to
the SEC. This information is available on our website as soon as
reasonably practicable after we electronically file such
materials with, or furnish such information to, the SEC. Our SEC
reports can be accessed through the “Investor
Relations” subsection under “The Company” heading
on our website. The other information found on our website is
not part of this or any other report we file with, or furnish
to, the SEC.
In addition, our corporate governance guidelines and the
charters for our Audit Committee, Compensation Committee and
Corporate Governance and Nominating Committee are available on
our website.
If any of the risks or uncertainties discussed below and
elsewhere in this report occur, including, but not limited to,
the section entitled “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and in the consolidated financial statements and the related
notes included in this report, our business, financial condition
and results of operations could be seriously harmed. Additional
risks and uncertainties not currently known to us or that we
presently deem to be immaterial could also seriously harm our
business, financial condition and results of operations.
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If we are unable to successfully implement our business
strategy, our business, results of operations and financial
condition could be seriously harmed.
We are a general exhibition company. Previously, we relied
exclusively on third-parties to produce our exhibitions, and our
exhibitions were limited to matters related to the Titanic and
to human anatomy. We are now the sole producers of our Titanic
exhibitions, and we no longer rely on third-parties for the
production of all of our human anatomy exhibitions. Moreover, we
have recently expanded our exhibitions beyond those related to
the Titanic and human anatomy and in the near future plan to
open exhibitions of sports memorabilia entitled “Sports
Immortals” as well as exhibitions entitled “Dialog in
the Dark.” Our future operating results will depend on many
factors, some of which we believe are beyond our control,
including:
A general deterioration in economic conditions that affects
consumer spending could harm our results of operations.
If an economic slowdown or other factors cause consumers to
reduce their discretionary spending to a point where attendance
at our exhibitions declines, our revenues and results of
operations could be harmed.
Our new exhibitions may not develop as we currently
anticipate, which could harm our results of operations and
financial condition.
We recently entered into a license agreement with Sports
Immortals, Inc. to present, promote and conduct multiple
“Sports Immortals” exhibitions featuring sports
artifacts and memorabilia. We also recently entered into a
license agreement to present “Dialog in the Dark”
exhibitions. In addition, we recently entered into a long-term
lease agreement with Ramparts, Inc., the owner of the Luxor
Hotel and Casino in Las Vegas, Nevada for approximately
47,164 square feet of space. We plan to use such space to
present our “Bodies...The Exhibition” and Titanic
exhibitions as well as for other opportunities. In connection
with these new arrangements, we anticipate that we will incur
costs to build infrastructure, make advances to venues and
otherwise invest in these new product lines. If these or other
new lines of exhibitions do not develop as we anticipate, either
due to our inability to execute on our strategic plans or as a
result of other factors, our results of operations and financial
condition could be seriously harmed.
Our exhibition business is sensitive to public tastes. If we
are unable to anticipate or respond to changes in consumer
preferences, demand for our exhibitions could decrease.
Our ability to generate revenue from our exhibitions is highly
sensitive to changes in public tastes. Our success depends in
part on our ability to anticipate the preferences of consumers
and to offer appealing exhibitions. We typically book each
exhibition venue several months in advance of an
exhibition’s opening and often agree to pay an advance to
the venue owner prior to our receiving any operating income.
Therefore, if the public is not receptive to a particular
exhibition or location, we could incur a loss depending on the
amount of the advance and incurred costs. Moreover, if we are
not able to anticipate, identify or react to changes in public
tastes, reduced demand for our exhibitions will likely result.
Any of the foregoing could adversely affect our results of
operations and financial condition.
If our advertising, promotional and other marketing campaigns
are not successful, our results of operations could be
harmed.
Like many other companies that make entertainment available to
the public, we utilize significant resources to advertise,
promote and provide marketing support for our exhibitions. We
are also party to agreements pursuant to which we engage
third-parties to assist us in the production, design, promotion
and marketing of our exhibitions. If our advertising,
promotional and other marketing campaigns are not successful, or
if we are not able to continue to
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secure on commercially reasonable terms the assistance of
third-parties in our marketing and promotional activities, our
results of operations will be harmed.
We may be unable to raise additional capital when needed,
which could harm our financial condition and negatively our
ability to conduct our operations and grow our business.
If we are unable to generate sufficient revenue for our planned
operations, or if we encounter unforeseen costs, we may need to
raise additional capital. If additional capital is not available
to us on favorable terms, if and when needed, our financial
condition and our ability to continue to conduct our operations
could be seriously harmed.
We are dependent upon our ability to lease exhibition venues.
If we are unable to lease exhibition venues on acceptable terms,
our results of operations could be adversely affected.
We require access to exhibition venues owned or leased by
third-parties to conduct our exhibitions. Our long-term success
depends, in part, on our ability to utilize such venues on
commercially reasonable terms. Our ability to obtain new venue
locations on favorable terms depends on a number of other
factors, many of which are also beyond our control, including
but not limited to, international, national and local business
conditions as well as competition from other promoters and
exhibitions. If we are not able to continue to secure exhibition
locations on commercially reasonable terms, our results of
operations and financial condition could be harmed.
We may not be granted a salvage award that is commensurate
with the efforts we have expended to recover items from the
Titanic wreck site or may be prohibited from exhibiting certain
of the Titanic artifacts already under our control.
In November 2007, we filed a motion with the U.S. District
Court for the Eastern District of Virginia, Northern Division
seeking a trial to determine a salvage award to compensate us
for our efforts in recovering certain items from the wreck of
the Titanic. Although the trial to determine the salvage award
has not yet been held, the court has already ruled that it would
likely not give us title to certain of the artifacts. As a
result, the outcome of the salvage award trial is uncertain. It
is possible that we may not be granted a salvage award that is
commensurate with our recovery efforts. It is also possible that
the court will take possession of certain of the Titanic
artifacts we have already recovered, which may make it difficult
for us to conduct future Titanic exhibitions in the same manner
as we presently conduct such exhibitions. A negative decision by
the court on our motion could have a material adverse effect on
our ability to conduct Titanic exhibitions, which could harm our
results of operations.
If we are unable to maintain our
Salvor-in-Possession
rights to the Titanic wreck and wreck site, our Titanic
exhibitions could face increased competition and we could lose
the right to exhibit certain Titanic artifacts.
On January 31, 2006, the U.S. Court of Appeals for the
Fourth Circuit recognized that we are the exclusive
Salvor-in-Possession
of the Titanic wreck and wreck site. Our
Salvor-in-Possession
status enables us to prevent third-parties from salvaging the
Titanic wreck and wreck site and from interfering with our
rights to salvage the wreck and wreck site. To maintain our
Salvor-in-Possession
rights, we must maintain a presence over the wreck site as
interpreted by the courts. In addition, we may have to commence
legal proceedings against third-parties who attempt to violate
our rights as
Salvor-in-Possession,
which may be expensive and time-consuming. Moreover, the court
may not continue to recognize us as the sole and exclusive
Salvor-in-Possession
of the Titanic wreck and wreck site. If we were to lose our
Salvor-in-Possession
rights, our Titanic exhibitions could be exposed to competition
and we could lose the right to exhibit certain Titanic
artifacts. Either of these outcomes would harm our operating
results.
Our exhibitions are becoming subject to increasing
competition.
Titanic exhibitions. We believe that our
Titanic exhibition business is changing. For example, an adverse
ruling by the U.S. Court of Appeals for the Fourth Circuit
left us with non-exclusive rights to photograph and film the
Titanic wreck site. As a result of this ruling, other companies
can now photograph and film the Titanic wreck site, which
exposes us to new potential competition that could, for example,
result in our losing future exhibitions or other opportunities,
such as documentary film rights. Moreover, it is possible that
other companies may, albeit in violation of our
Salvor-in-Possession
rights, attempt to explore the Titanic wreck site in the future.
If any of these companies were successful, we would face
increased competition as well as increased costs necessary to
defend and
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preserve our rights. Additionally, the availability of remote
operated vehicles for charter from third-parties to conduct
expeditions may make it easier for others to gain access to the
Titanic site in violation of our
Salvor-in-Possession
rights. New laws and treaties or new interpretations of existing
laws or treaties, could also have a material adverse effect on
our Titanic exhibition business.
Human anatomy exhibitions. Our human anatomy
exhibitions are subject to competition from other existing and
potential human anatomy exhibition companies. If a significant
number of new human anatomy exhibitions were to enter the same
markets in which our exhibitions are offered or are planned to
be offered, attendance at our human anatomy exhibitions could
decline and our results of operations and financial condition
could be harmed.
Other exhibitions. If we are successful in
presenting our Sports Immortals or Dialog in the Dark
exhibitions, competitors may bring similar exhibitions of their
own to the market. To the extent competitors are successful at
marketing and promoting competing exhibitions, our results of
operations and financial condition could be harmed.
We conduct numerous exhibitions outside of the United States,
which subjects us to additional business risks, including
currency exchange rate fluctuations, which could increase our
costs and cause our profitability to decline.
During fiscal 2008, we derived approximately $11,378,000, or
21%, of our net revenue from exhibitions located outside of the
U.S. We intend to continue to pursue international
exhibition opportunities. Our international exhibitions are
subject to a number of risks, including the following:
We are also subject to risks arising from currency exchange rate
fluctuations, which could increase our costs and cause our
profitability to decline. Our financial arrangements with our
foreign vendors have historically been based upon foreign
currencies. As a result, we are exposed to the risk of currency
fluctuations between the U.S. dollar and the currencies of
the countries in which our exhibitions are touring. The
U.S. dollar value of our foreign-generated revenues varies
with currency exchange rate fluctuations. Significant increases
in the value of the U.S. dollar relative to foreign
currencies could harm our results of operations and financial
condition.
Certain aspects of our operations are subject to governmental
regulation, and our failure to comply with any existing or
future regulations could seriously harm our business, results of
operations and financial condition.
Our exhibitions are subject to federal, state and local laws,
both domestically and internationally, governing various
matters, such as:
We cannot predict the extent to which existing or future laws or
regulations could impact our operations. Although we generally
contract with a third-party for various services at our venues,
we cannot provide assurances that we or our third-parties are in
full compliance with all applicable laws and regulations at all
times, that we or our third-parties will be able to comply with
any future laws and regulations or that we will not incur
liabilities for violations by us or third-parties with which we
maintain a relationship. Our failure or the failure of any of
our third-parties with which we maintain a relatioinship to
comply with laws and regulations could also cause us to be
subject to investigations or governmental actions that could
seriously harm our business.
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Our business may be harmed as a result of litigation.
We are a party to several ongoing material legal proceedings.
These proceedings are described below in Item 3 of
Part I of this report under the heading “Legal
Proceedings” and also in Note 7 to our Consolidated
Financial Statements in Item 8 of Part II of this
report. Should an unfavorable outcome occur in some or all of
our current legal proceedings, or if successful claims and other
actions are brought against us in the future, our business,
results of operations and financial condition could be seriously
harmed.
If we are not able to manage our growth effectively, our
results of operations could be seriously harmed.
We have grown significantly in the past several years and
anticipate that we will grow substantially in the future. We
have increased the number of types of exhibitions we present
from one during our fiscal year ended February 29, 2004,
which we refer to as fiscal 2004, (Titanic) to at least four
anticipated during fiscal 2009 (Titanic, human anatomy, Sports
Immortals and Dialog in the Dark). Our existing management
systems, financial and management controls and information
systems may not be adequate to support our planned expansion.
Our ability to manage our growth effectively will require us to
continue to expend funds to improve these systems, and
surrounding procedures and controls, which we expect will
increase our operating expenses and capital requirements. In
addition, we must effectively expand, train and manage our
personnel. If we are not able to respond on a timely basis to
all of the changing demands that our planned expansion will
impose on our management and our existing systems, procedures
and controls, we could lose opportunities or overextend our
resources, which in turn could seriously harm our business,
results of operations and financial condition.
Acquisitions may not provide us with the benefits and sales
growth we expect and could result in us becoming subject to
unforeseen liabilities.
In the past we have acquired, and we may in the future acquire,
other companies in order to expand our existing business or to
obtain additional exhibitions or other business lines. We cannot
be certain that we will achieve the benefits that we expect from
any such acquisitions or that we will not incur unforeseen
additional costs, expenses or liabilities in connection with any
such acquisitions. To effectively manage our expected future
growth, we will need to successfully manage our integration of
these companies and continue to improve our operational systems,
internal procedures, accounts receivable and management,
financial and operational controls. If we fail in any of these
areas, or if an acquisition results in us becoming subject to
significant unforeseen costs, expenses or liabilities, our
business and financial condition could be seriously harmed.
Our success depends on the continued services of our senior
executive officers and key employees and the loss of their
services could seriously harm our ability to fulfill our
business objectives.
We believe that our future success depends to a significant
degree on the skills and efforts of Bruce Eskowitz, our
president and chief executive officer; Harold W. Ingalls, our
chief financial officer; Bob Sirmans, our vice president of
business development and strategy; Tom Zaller, vice president of
exhibitions; and Brian Wainger, our general counsel and
corporate secretary. If we lose the services of any of these
individuals, our business and operating results could be
materially adversely affected.
We may be unable to hire and retain the skilled personnel we
need to expand our operations and, as a result, could lose our
competitive position.
To meet our growth objectives, we must continue to attract and
retain skilled technical, operational, managerial and sales and
marketing personnel. If we fail to attract and retain the
necessary personnel, we may be unable to achieve our business
objectives and may lose our competitive position, which could
harm our business revenue. We face significant competition for
these skilled professionals from other companies, research and
academic institutions, government entities and other
organizations.
The price of our common stock may fluctuate significantly,
and investors in our common stock could see the value of our
common stock decline materially.
Recently, the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many
companies, including companies in our industry. Such changes may
occur without regard to the operating performance of these
companies. The price of our common
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stock could fluctuate based upon factors that have little or
nothing to do with our company, and these fluctuations could
materially reduce our stock price.
Moreover, companies that have had volatile market prices for
their securities have been subject to securities class action
lawsuits. Any such lawsuit filed against us, regardless of the
outcome, could result in substantial legal costs and a diversion
of our management’s attention and resources, which in turn
could seriously harm our business, results of operations and
financial condition.
None.
Our principal executive office is located at 3340 Peachtree Road
N.E., Suite 2250, Atlanta, Georgia. This space, which
consists of approximately 14,642 square feet, is used for
management, administration and marketing purposes. The lease for
our principal executive offices is presently scheduled to expire
on February 28, 2009.
We lease approximately 10,080 square feet of warehouse
space in Atlanta, Georgia for the use of conservation,
restoration and storage of artifacts and other exhibitry. For
security purposes, we do not disclose the location of this
property. The lease for this warehouse is presently scheduled to
expire on December 31, 2010.
On March 12, 2008, we entered into a ten year lease
agreement with Ramparts, Inc., the owner and operator of the
Luxor Hotel and Casino, located in Las Vegas, Nevada. This lease
includes approximately 47,164 square feet of space within
the Luxor Hotel and Casino. We intend to use the space, among
other things, to present our “Bodies...The Exhibition”
and Titanic exhibitions. The lease commences upon June 2008
which we expect will coordinate with the completion of the
design and construction work related to the opening of our
“Bodies...The Exhibition” exhibition.
The U.S. Department of State, or State Department, and the
National Oceanic and Atmospheric Administration of the
U.S. Department of Commerce are working together to
implement an international treaty with the governments of the
United Kingdom, France and Canada concerning the Titanic wreck
site. If implemented in this country, this treaty could affect
the way the U.S. District Court for the Eastern District of
Virginia, Norfolk Division monitors our
Salvor-in-Possession
rights to the Titanic. These rights include the exclusive right
to explore the wreck site, claim possession of and perhaps title
to artifacts recovered from the site, restore and display
recovered artifacts, and make other use of the wreck. We have
raised numerous objections to the State Department regarding the
participation of the U.S. in efforts to reach an agreement
governing salvage activities with respect to the Titanic. The
proposed treaty, as drafted, does not recognize our existing
Salvor-in-Possession
rights to the Titanic. The United Kingdom signed the treaty in
November 2003, and the U.S. signed the treaty in June 2004.
For the treaty to take effect, the U.S. must enact
implementing legislation. As no implementing legislation has
been passed, the treaty currently has no binding legal effect.
Several years ago we initiated legal action to protect our
rights to the Titanic wreck site from this treaty. On
April 3, 2000, we filed a motion for declaratory judgment
in U.S. District Court for the Eastern District of Virginia
asking that the court declare unconstitutional the efforts of
the U.S. to implement the treaty. On September 15,
2000, the court ruled that our motion was not ripe for
consideration and that we may renew our motion when and if the
treaty is agreed to and signed by the parties, final guidelines
are drafted, and Congress passes implementing
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legislation. As discussed above, the treaty has been finalized
but is not yet in effect because Congress has not adopted
implementing legislation; thus it is not yet time for us to
refile our motion. Neither the implementation of the treaty nor
our decision whether to refile the legal action regarding its
constitutionality will likely have an impact on our ownership
interest over the artifacts that we have already recovered.
As discussed in more detail below, in light of the
January 31, 2006 decision by the U.S. Court of Appeals
for the Fourth Circuit, title to approximately 2,000 artifacts
recovered by us during the 1987 expedition now rests firmly with
us. Title to the remaining artifacts in our collection will be
resolved in the future.
On April 12, 2002, the U.S. Court of Appeals for the
Fourth Circuit affirmed two orders of the U.S. District
Court for the Eastern District of Virginia in the Company’s
ongoing
Salvor-in-Possession
case entitled R.M.S. Titanic, Inc. v. The Wrecked and
Abandoned Vessel, et al., in rem. These orders, dated
September 26, 2001 and October 19, 2001, respectively,
restricted the sale of artifacts recovered by our wholly-owned
subsidiary R.M.S. Titanic, Inc., or RMST, from the Titanic wreck
site. In its opinion, the appellate court reviewed and declared
ambiguous the June 1994 order of the district court that had
awarded ownership to RMST of all items then salvaged from the
wreck of the Titanic as well as all items to be salvaged in the
future so long as RMST remained
Salvor-in-Possession.
Having found the June 1994 order ambiguous, the court of appeals
reinterpreted the order to convey only possession, not title,
pending determination of a salvage award. On October 7,
2002, the U.S. Supreme Court denied RMST’s petition of
appeal.
On May 17, 2004, RMST appeared before the
U.S. District Court for the Eastern District of Virginia
for a pre-trial hearing to address issues in preparation for an
interim salvage award trial. At that hearing, RMST confirmed its
intent to retain its
Salvor-in-Possession
rights in order to exclusively recover and preserve artifacts
from the wreck site of the Titanic. In addition, RMST stated its
intent to conduct another expedition to the wreck site. As a
result of that hearing, on July 2, 2004, the court rendered
an opinion and order in which it held that it would not
recognize a 1993 Proces-Verbal, pursuant to which the government
of France granted RMST title to all artifacts recovered from the
wreck site during the 1987 expedition. The court also held that
RMST would not be permitted to present evidence at the interim
salvage award trial for the purpose of arguing that RMST should
be awarded title to the Titanic artifacts through the law of
finds.
RMST appealed the July 2, 2004 court order to the
U.S. Court of Appeals for the Fourth Circuit. On
January 31, 2006, the court of appeals reversed the lower
court’s decision to invalidate the 1993 Proces-Verbal,
pursuant to which the government of France granted RMST title to
all artifacts recovered from the wreck site during the 1987
expedition. As a result, the court tacitly reconfirmed that RMST
owns the approximately 1,800 artifacts recovered during the 1987
expedition. The appellate court affirmed that the lower
court’s ruling held that RMST will not be permitted to
present evidence at the interim salvage award trial for the
purpose of arguing that RMST should be awarded title to the
remainder of the Titanic artifacts through the law of finds.
On November 30, 2007, RMST filed a motion with the
U.S. District Court for the Eastern District of Virginia,
Norfolk Division seeking an interim salvage award. On
March 25, 2008, the court entered an order granting
permission to the U.S. to file an amicus curiae
(friend of the court) response regarding RMST’s motion
for an interim salvage award. The U.S. response states that
an interim in specie (in kind) award with limitations,
made by the court to RMST, could serve as an appropriate
mechanism to satisfy RMST’s motion for a salvage award and
to help ensure that the artifacts recovered by RMST from the
wreck of the Titanic are conserved and curated together in an
intact collection that is available to the public for historical
review, educational purposes, and scientific research in
perpetuity. The court has not yet ruled on our motion for an
interim salvage award.
On April 15, 2008, the District Court entered an order
requesting the Company propose suggested covenants that would be
included in an in specie award. The order also outlines a
process for further discussion pertaining to such covenants
should the court decide to issue an in specie award. The
District Court has not yet determined that an in specie
award is the proper remedy to satisfy the Company’s
motion.
We cannot predict how the court will ultimately rule on
RMST’s motion for an interim salvage award.
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On April 28, 2006, Stefano Arts filed an action against us
entitled Premier Exhibitions, Inc. v. Stephano Arts
in the State Court of Fulton County, State of Georgia.
Stefano Arts alleges that we breached a contract which allegedly
calls for us to pay to Stefano Arts moneys generated from our
human anatomy exhibition in Tampa, Florida and additional moneys
generated from our human anatomy exhibition in New York City.
Although we intend to vigorously defend ourselves in this
matter, its outcome cannot be predicted.
On August 22, 2006, we filed an action entitled R.M.S.
Titanic, Inc. v. Georgette Alithinos, International
Advantage, Inc. and Renaissance Entertainment, EPE in the
Circuit Court of the State of Florida for Hillsborough County,
pursuant to which we allege damages stemming from the
defendants’ failure to compensate us for moneys due under a
contract for the presentation of a Titanic exhibition in Athens,
Greece. We have alleged breach of contract, fraud, conversion,
and breach of fiduciary duty in our complaint. The parties have
reached a settlement of this matter, which will not result in a
material adjustment to our financial statements.
From time to time we are or may become involved in other legal
proceedings which result from the operation of our exhibitions
and business.
We believe that adequate provisions for resolution of all
contingencies, claims and pending litigation have been made for
probate losses and that the ultimate outcome of these actions
will not have a material adverse effect on our financial
condition.
The Attorney General of the State of New York issued a subpoena
which required us to provide documentation regarding the sources
of the specimens used in our human anatomy exhibitions presented
in such state. We are working closely with the Attorney
General’s office to provide the requested documentation and
intend to cooperate with such inquiry. We cannot predict the
outcome of this inquiry.
In addition, legislators in the states of California, New York
and Pennsylvania have proposed legislation that could require us
to follow special requirements in connection with our
presentation of human anatomy exhibitions in such states. Such
requirements could restrict our ability to conduct human anatomy
exhibitions in such states in the future. We cannot predict
whether any such legislation will be adopted or, if adopted, how
such legislation might affect our ability to conduct human
anatomy exhibitions. Additional states may introduce similar
legislation in the future.
From time to time we have or may receive requests and inquiries
from governmental entities which result from the operation of
our exhibitions and business. As a matter of policy, we
cooperate with any such inquiries.
None.
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The following table sets forth information about our directors
and executive officers as of the date of this report.
There are nine members of our board of directors, six of whom
are “independent” under the listing standards of the
NASDAQ Stock Market. Biographical information about each of our
directors is set forth below.
Bruce Eskowitz has served as our president and chief executive
officer and as a member of our board of directors since
September 2007. He was appointed to our board of directors to
fill a vacancy. Prior to joining us and since January 2007,
Mr. Eskowitz was the chief executive officer of the North
American Music division of Live Nation, Inc., the world’s
largest live music company. In such capacity, he directed Live
Nation’s North American local and national live music
strategy, including concert promotion, venue management and
sponsorships and alliances. From October 2005 to December 2006,
Mr. Eskowitz was the president and chief executive officer
of the global venues and alliances division of Live Nation.
Prior to that, and from 2004 to October 2005, he served as the
president and chief executive officer of Live Nation’s
Properties division. Prior to 2004, Mr. Eskowitz was the
president of Live Nation’s national sales and marketing
division.
Douglas Banker, one of our independent directors, has served as
a director since August 2000. Mr. Banker has more than
30 years of experience in the entertainment industry that
includes providing management services to musicians and
recording artists, marketing, merchandising, licensing, and
sales of music media products. He is also experienced in and the
development and management of concerts and similar events.
Mr. Banker also served as president of the board of the
Motor City Music Foundation in Detroit, Michigan from 1996 to
2000. Mr. Banker is currently vice president of McGhee
Entertainment, an artist management company with offices in Los
Angeles and Nashville. McGhee Entertainment over the years has
launched
and/or
managed and marketed the careers of many successful recording
artists including Bon Jovi, Motley Crue, Scorpions, KISS,
Hootie & The Blowfish, Ted Nugent, Slipknot, Asian
Pop-star Tata Young, and country stars Jo Dee Messina and Chris
Cagle. McGhee artists over the years, combined, have sold over
300 Million albums/CDs and sold out tens of thousands of live
concert events.
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N. Nick Cretan, one of our independent directors, has
served as a director since April 2000. Mr. Cretan has more
than 30 years of management experience, including his
experience as chief operating officer of the non-profit Maritime
Association of the Port of New York and New Jersey, which is a
trade association whose mission is to develop and promote the
Port of New York and New Jersey. Mr. Cretan retired from
this position in 2004. He also serves as president of Friends of
the Statue of Liberty, Ellis Island Foundation, president of
Friends of Gateway National Parks Foundation and as a trustee of
the United Seamen’s Service. Previously, he served as
deputy director of the San Francisco Marine Exchange, as
staff assistant at the National Federation of Independent
Business and as executive director of the American Merchant
Marine Memorial Foundation.
Arnie Geller is our chairman of the board. Mr. Geller has
served as a director since May 1999. Mr. Geller served as
our founding president from May 1993 to May 1995, and he was
reappointed as our president in November 1999. He served in that
capacity and as chief executive officer through September 2007
when he also became our executive chair. Mr. Geller served
as our executive chair between September 2007 and March 2008. In
March 2008, he became our non-executive chairman of the board.
Prior to 1993, for approximately 27 years Mr. Geller
had principally been engaged in various executive capacities in
the record industry.
Harold W. Ingalls has served as our chief financial officer
since February 2008. Prior to joining us and since October 2007,
Mr. Ingalls was a partner at the Atlanta, Georgia office of
Genstar Capital Partnership, a private equity firm, where he was
responsible for identifying investment opportunities. Prior to
joining Genstar, and between August 2006 and October 2007,
Mr. Ingalls was the vice president and chief financial
officer of CardioMEMS, Inc., which specializes in proprietary
wireless sensing and communication technology for the human
body. From October 2001 to July 2006, Mr. Ingalls was the
vice president, finance and chief financial officer of
Serologicals Corporation, a developer of consumable biological
products.
Gregg Goodman was appointed to our board of directors in April
2008 to fill an existing vacancy. Mr. Goodman is the
executive vice president, development at The Mills, a subsidiary
of the Simon Property Group. Mr. Goodman has served the
Mills as an executive vice president since 2001 and is
responsible for overseeing all development and anchor leasing
activities across The Mills’ properties portfolio. Such
portfolio consists of “Mills” branded super-regional
destination centers such as Sawgrass Mills and the Block at
Orange, a unique lifestyle/entertainment project. Prior to his
current position, and between 1994 and 2001, Mr. Goodman
served in various executive positions for The Mills.
Jonathan F. Miller, one of our independent directors, was
appointed to the board of directors in September 2007 to fill a
vacancy. Mr. Miller most recently, and from August 2002
until November 2006, served as the chairman of the board and
chief executive officer of America Online, Inc. and AOL LLC.
Previously, and from 1997 to June 2002, Mr. Miller was
employed by USA Information and Services, now
IAC/InterActiveCorp and Expedia, Inc., most recently as its
chief executive officer and president. Prior to his tenure at
USA Information and Services and from 1993 to 1997,
Mr. Miller was managing director of Nickelodeon
International, a unit of Viacom Inc.’s MTV Networks. From
1987 to 1997, he was vice-president, programming and co-general
manager of NBA Entertainment. Mr. Miller is on the board of
directors of the American Film Institute and Idearc Inc. (NYSE:
IAR), and is also a member of the Emerson College board of
trustees and a trustee of WNYC Public Radio in New York City.
Alan Reed, one of our independent directors, has served as a
director since February 2006. Mr. Reed is the founder of
Reed Financial Corporation, a firm created in 2002 to provide
accounting and business advisory services.
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From 1983 to 2002, Mr. Reed was president of Alan B. Reed,
CPA, P.C., an accounting firm specializing in the
entertainment industry. From 1983 to 1993, Mr. Reed was
president of Personal Business Management Services, Inc., a
company that managed federally insured credit unions.
Mr. Reed worked as a senior accountant with the firm of
Zeiderman & Edelstein, P.C. in New York City from
1980 to 1982. From 1979 to 1980, Mr. Reed was a junior
accountant with the entertainment accounting firm of Gelfand
Bresslauer Rennert & Feldman in New York City.
James Yaffe, one of our independent directors, was appointed to
the board of directors in September 2007 to fill a vacancy
resulting. Mr. Yaffe is currently a partner at Windsor
Media, an operational holding company. Prior to Windsor, and
from July 2001 to December 2007, Mr. Yaffe ran the
corporate consulting practice at The Endeavor Agency, LLC, a
talent agency that represents leading actors, writers, directors
and production companies in the entertainment and media
industries. As the managing partner of Endeavor Marketing
Solutions, a division he founded to act as a brand development
lab to create and develop new businesses, including Martha
Stewart/KB Homes, the BP Solar Neighborhood Program and The
PussyCat Dolls. He is on the board of directors of the Yaffe
Center for Persuasive Communications at the University of
Michigan and By Kids For Kids, an innovation lab empowering kids
to invent products and take them to market.
Our executive officers serve at the pleasure of our board of
directors and are generally appointed to their positions by our
board of directors after each annual meeting of shareholders.
Biographical information about each of our executive officers is
set forth below.
Bruce Eskowitz serves as our president and chief executive
officer. Further information about Mr. Eskowitz is set
forth above under “Members of the Board of Directors.”
Harold W. Ingalls has served as our chief financial officer.
Further information about Mr. Ingalls is set forth above
under “Members of the Board of Directors.”
Kelli L. Kellar has served as our chief accounting officer since
September 2007. Prior to joining us and from July 2006,
Ms. Kellar was director of external reporting at Mohawk
Industries, Inc. Prior to her tenure at Mohawk Industries, and
from September 2004, Ms. Kellar was manager of SEC
reporting for Caraustar Industries, Inc. Between September 2003
and 2004 she was senior manager of financial reporting and joint
venture accounting for Cingular Wireless. Ms. Kellar was a
senior manager of finance, sales and marketing for Noven
Pharmaceuticals, Inc. between June 2001 to September 2003 and
also has several years of public accounting experience with
PricewaterhouseCoopers LLP, where she last served as an audit
manager.
Robert Sirmans has served as our vice president of business
development and strategy since January 2008. Prior to joining us
and since September 2007, Mr. Sirmans was a consultant
advising internet companies on business development and
strategy. Prior to that, Mr. Sirmans served as vice
president of business development at AOL LLC, where he was
employed between May 2000 and September 2007. Prior to his
employment at AOL, Mr. Sirmans was an associate in the
Washington, D.C. office of Kirkpatrick & Lockhart
Preston Gates Ellis LLP.
Brian Wainger has served as our general counsel since June 2004.
He became our acting secretary in July 2005 and was appointed as
our corporate secretary in August 2006. Before joining our
company, Mr. Wainger was an
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attorney with the law firm of McGuireWoods, LLP, where he
specialized in complex commercial litigation and represented us
in a number of litigation matters. Before his employment at
McGuireWoods, Mr. Wainger served as an assistant attorney
general for the Commonwealth of Virginia.
Tom Zaller has served as our vice president of exhibitions since
August 2003. Mr. Zaller has more than ten years experience
in the production of exhibitions both internationally and
domestically. Prior to his joining us, Mr. Zaller was vice
president for production at Clear Channel International
Exhibitions for two years, where he collaborated on the
development, design and production of numerous Clear Channel
exhibitions that were shown internationally. While he was with
Clear Channel, Mr. Zaller was production manager for
“Titanic: The Artifact Exhibition.” Prior to holding
such position with Clear Channel, Mr. Zaller served in
similar capacities with predecessor companies of Clear Channel.
The following table provides the high and low sales prices for
our common stock for the periods indicated. Since
November 16, 2006, our common stock has been quoted on the
NASDAQ Global Market under the symbol “PRXI.” From
June 19, 2006 to November 15, 2006, our common stock
was quoted on the NASDAQ Capital Market. Previously, our common
stock was quoted on the National Association of Securities
Dealers, Inc.’s OTC Bulletin Board under the symbol
“PXHB.OB.” The over-the-counter market quotations
during such period reflect inter-dealer prices, without retail
mark-up,
mark-down or commission, and may not represent actual
transactions.
During January 2008, we repurchased 1,000,000 shares of our
common stock pursuant to a publicly announced stock repurchase
program.
On February 19, 2008, our Board of Directors authorized the
repurchase of up to an additional 3,000,000 shares of our Common
Stock. We have purchased no shares under this program.
On April 25, 2008, we had approximately 2,349 holders of
record of our common stock. This number does not include
shareholders for whom shares are held in a “nominee”
or “street” name.
Dividends
We have never declared or paid cash dividends on our common
stock. We currently intend to retain any future earnings to
finance our operations and future growth.
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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 in Item 7 of Part I of this
report. The selected financial data have been derived from our
consolidated financial statements that have been audited by
independent registered public accounting firm. The consolidated
financial statements as of February 29, 2008,
February 28, 2007, and February 28, 2006 and for each
of the three years in the period ended February 29, 2008
are included in Item 8 of Part I of this report.
The following discussion provides information to assist in the
understanding of our financial condition and results of
operations, and should be read in conjunction with the
consolidated financial statements and related notes appearing
elsewhere in this report. This discussion and analysis is
organized into the following sections:
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We have been developing and touring first class museum quality
exhibitions since 1993. Effective on October 14, 2004, we
began to operate our business through our parent company,
Premier Exhibitions, Inc. and our wholly-owned subsidiaries.
Previously, we conducted our business through R.M.S. Titanic,
Inc., which is now our wholly-owned subsidiary. Through fiscal
2008, our business consisted of exhibitions based on the Titanic
and on human anatomy. In February and March 2008, we further
expanded the scope of our exhibition offerings to include both
exhibitions of sports memorabilia entitled “Sports
Immortals, The Traveling Exhibition” and exhibitions
exploring a world without sight entitled “Dialog in the
Dark.” We acquired the rights to offer these exhibitions
pursuant to long-term licensing arrangements. In the future, we
intend to present additional exhibitions, both related and
unrelated to the Titanic and human anatomy.
Performance
Summary
The following graph illustrates our revenue for the last five
years:
($ in thousands)
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The following graph illustrates our net income (loss) for the
last five years:
Net
Income (Loss)
($ in thousands)
Prior to fiscal 2007, we derived most of our revenue from our
Titanic exhibitions. Our wholly-owned subsidiary, R.M.S.
Titanic, Inc., operates our Titanic exhibitions, and for fiscal
2008 approximately 19% of our revenue was derived from Titanic
exhibitions. R.M.S. Titanic, Inc. is the only company permitted
by law to recover objects from the wreck of the Titanic. The
ocean liner R.M.S. Titanic sank approximately 400 miles off
the southern coast of Newfoundland on April 15, 1912. The
wreck lies 12,500 feet below the surface of the Atlantic
Ocean. We have obtained oceanic material and scientific data
available in various forms, including still photography,
videotape and artifacts from the wreck site and utilize this
data and the artifacts for historical verification, scientific
education and public awareness. These activities generate
revenue for us via ticket sales, third-party licensing,
sponsorship and merchandise sales.
Our Titanic exhibitions have been exhibited in more than 60
venues throughout the world, including venues in the U.S.,
Canada, Germany, Norway, France, Greece, Japan, Switzerland,
Chile, Argentina, China, Mexico, Hungary, South Korea and
England.
In 2004, we leveraged our experience in the exhibition business
and expanded our operations to conduct human anatomy
exhibitions. For fiscal 2008, approximately 81% of our revenue
was derived from human anatomy exhibitions. We are presently in
possession of multiple human anatomy sets, which are known as
“Bodies Revealed;” “Bodies...The Exhibition”
and “Our Body: The Universe Within.”
These specimens are assembled into anatomy-based educational
exhibitions featuring preserved human bodies, and offer the
public an opportunity to view the intricacies and complexities
of the human body. The exhibitions include displays of dissected
human bodies which are permanently preserved through a process
called polymer preservation, also known as plastination. The
bodies are drained of all fat and fluids, which are replaced
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with polymers, such as silicone rubber, epoxy and polyester.
This preserves the flesh and maintains its natural look. Skin
from the bodies is removed, or partially removed, to reveal
musculoskeletal, nervous, circulatory, reproductive and
digestive systems. The full body specimens are complemented by
presentation cases of related individual organs and body parts,
both healthy and diseased, that provide a detailed look into the
elements that comprise each system.
On September 20, 2006, we entered into an agreement
pursuant with Sam Tour (USA), Inc., JAM Exhibitions, LLC and
Concert Productions International, which we refer to
collectively as “JAM,” to jointly present several of
our human anatomy exhibitions. Pursuant to the agreement, we
agreed to present at least nine human anatomy exhibitions
jointly with JAM in the following locations: Tampa, New York,
Atlanta, Mexico City, Seattle, Las Vegas, Amsterdam,
Washington, D.C. and San Diego. The exhibitions in
Tampa, Atlanta, Mexico City, Seattle, Amsterdam, San Diego
and Washington D.C. have completed their runs and have closed.
With respect to the exhibition in Las Vegas, our agreement with
JAM only lasts through the exhibition being presented at the
Tropicana Hotel and Casino and does not involve our lease at
Luxor Hotel and Casino. Our agreement with JAM does not include
certain of our human anatomy exhibitions which we are presenting
independently or under separate license agreements. The
agreement provides that JAM will not compete directly or
indirectly with us in the presentation of human anatomy
exhibitions for the one-year period following the closing of the
last jointly-presented exhibition.
On November 28, 2007, we entered into an agreement with
Live Nation, Inc. pursuant to which we co-present human anatomy
exhibitions with Live Nation. With respect to each
jointly-presented exhibition, we are responsible for exhibition
design, installation and licensing, including the provision of
expertise, exhibitry and specimens. Live Nation is responsible
for marketing, public relations, exhibition operations, and
security. Under this agreement, we intend to co-present between
six and nine concurrent exhibitions at all times. In general,
Live Nation’s right to jointly present exhibitions with us
is exclusive on a worldwide basis, except for North America,
China and certain other limited geographic locations as well as
certain exhibitions which are subject to agreements that
pre-date our agreement with Live Nation. JAM Exhibitions, LLC
will act as Live Nation’s exclusive co-promoter for
exhibitions jointly presented under this agreement.
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Results
of Operations
A summary of our results of operations as a percentage of total
revenue for fiscal 2008, 2007, and 2006 is set forth below:
During fiscal 2008, our revenue increased approximately 104% to
$61,454,000 as compared to $30,087,000 in fiscal 2007. This
increase was primarily attributable to an increase in exhibition
revenue of approximately 105% to $59,231,000 during fiscal 2008
as compared to $28,916,000 for fiscal 2007. This increase in
exhibition revenue is primarily attributable to an increase in
the number of our human anatomy exhibitions from eleven in the
prior year to 28 in the current year. The increase in the number
of human anatomy exhibitions is due to improved exhibition
scheduling as well as to our acquisition of The Universe Within
Touring Company, LLC. Although the numbers of Titanic
exhibitions in fiscal 2008 are the same as compared to fiscal
2007, our exhibition revenue from our Titanic exhibits increased
in the current year as compared to same time period in the prior
year due to higher attendance at the exhibits. In addition, we
received non-refundable license fees from JAM pursuant to the
agreement we entered into on November 28, 2007. During
fiscal 2008, our Titanic exhibitions contributed approximately
19% of our
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revenue and our “Bodies...The Exhibition,”
“Bodies Revealed” and “Our Body: The Universe
Within” exhibitions contributed approximately 81% of our
revenue.
Merchandise and other revenue increased approximately 102% from
$1,061,000 to $2,142,000, during fiscal 2007 as compared to
fiscal 2008. This increase is attributable to an increase in the
number of self-run human anatomy exhibitions, where all
merchandise revenue is recorded by us compared to partnership
arrangements, where we share revenues with a partner, coupled
with increased merchandise sales at our Titanic venues as a
direct result of significantly higher attendance compared to
fiscal 2007.
We incurred exhibition costs of $20,457,000 and $7,707,000 for
fiscal 2008 and 2007, respectively. Exhibition costs related to
our anatomical exhibitions primarily consist of the rental costs
of the specimens, as well as costs directly associated with
presenting our own exhibitions, costs for advertising,
marketing, promotion, operations and administration,
installation and removal of exhibitry and specimens and venue
rent. Titanic exhibition costs primarily relate to costs
directly associated with presenting our exhibitions, usually at
museum venues for which we incur costs for advertising,
marketing, promotion, and installation and removal of exhibitry
and artifacts. Exhibition costs as a percentage of exhibition
revenues were 33% and 26%, respectively, for fiscal 2008 and
2007. We had an increase in exhibition costs during fiscal 2008
primarily as a result of an increase in the number of our
anatomical exhibits for which we incur rental costs for the
specimens in each exhibition and which we present independently
with JAM. We also had higher exhibition costs in the current
fiscal year for venues that were closed early due to low
attendance.
During fiscal 2008, our gross profit increased approximately 83%
to $40,521,000 as compared to $22,185,000 in fiscal 2007. Gross
profit was 66% and 74% of revenue for fiscal 2008 and 2007,
respectively. This decrease in the gross profit percentage was
principally attributable to an increase in the number of
independent anatomical exhibitions we presented during fiscal
2008. When we present our own anatomical exhibitions without
third-party participation, we incur all related exhibition
costs, which reduces our gross margin percentage. However, under
our agreement with JAM, JAM incurs the majority of the related
exhibition costs and remits our share of the exhibition profit
to us. When we present our own anatomical exhibitions without
third-party participation, profit sharing does not take place
and we retain all of the gross profit.
Our general and administrative expenses increased to $19,626,000
from $9,773,000, or approximately 101%, during fiscal 2008 as
compared to fiscal 2007. This increase is primarily attributable
to an increase in the number of personnel necessary to organize,
administer, and manage an increased number of exhibitions and
revenue sources. We also recorded additional non-cash charges in
the form of stock compensation costs of approximately $4,671,000
during fiscal 2008 compared to $2,241,000 for the same period in
the prior year. The increase in stock compensation is primarily
attributable to the completion of our executive management team.
We fully charge our operations for stock options issued in the
year such options are granted, subject to vesting schedules.
Our depreciation and amortization expenses increased $1,382,000
or 90% to $2,911,000 during fiscal 2008 as compared to
$1,529,000 for fiscal 2007. Depreciation expense was $1,566,000
and $770,000 during fiscal 2008 and 2007, respectively. This
increase primarily reflects additional investments we made in
fixed assets for our exhibitions, primarily consisting of
exhibitry. In addition, amortization expense associated with
amortization of exhibition licenses was $1,345,000 and $759,000
during fiscal 2008 and 2007, respectively. This increase is
primarily attributable to additional specimen licenses and
amortization of contract costs related to our acquisition of The
Universe Within Touring Company, LLC.
We recorded a $350,000 charge for the settlement of a dispute
related to commissions under an alleged agency agreement during
fiscal 2007. This settlement requires us to make five
installment payments of $70,000, which installment payments
commenced June 2006 and continue every six months thereafter
until June 2008.
In May 2001, we acquired ownership of the wreck of the
Carpathia, which was sunk by a German torpedo during World War I
off the coast of Ireland. The Carpathia rescued more than 700 of
the Titanic’s survivors in the early morning hours of
April 15, 1912. On February 28, 2007, our wholly-owned
subsidiary R.M.S. Titanic, Inc. entered into a sale agreement
with Seaventures, Ltd. pursuant to which Seaventures acquired
from R.M.S. Titanic all of its ownership interest in the
Carpathia for $3,000,000. We received $500,000 from Seaventures
on February 28, 2007 and we received the remaining
$2,500,000 from Seaventures on April 15, 2008. Also, on
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February 28, 2007, Seaventures purchased an option from us
to present the first exhibition of objects recovered from the
Carpathia together with certain of our Titanic artifacts. We
received payment of $1,500,000 from Seaventures for the sale of
this option on February 28, 2007. At the time we entered
into the transaction with Seaventures, its principal, Joseph
Marsh, was a holder of more than 5% of our common stock.
We realized income from operations of $17,986,000 during fiscal
2008 as compared to income of $12,159,000 from operations in the
prior year. We attribute this increase in income from operations
to the increase in the number of our ongoing human anatomy
exhibits presented as well as higher attendance at our Titanic
exhibitions. During fiscal 2008, we had 21 concurrent
exhibitions being presented (six Titanic and fifteen human
anatomy exhibitions) compared to thirteen being presented in the
same prior year period (seven Titanic and six human anatomy
exhibitions).
Interest income of $973,000 was primarily associated with
interest earned on our bank cash balances during fiscal 2008 as
compared to $224,000 in the same prior year period. We incurred
interest expense of $51,000 for fiscal 2007. We did not incur
interest expense in fiscal 2008. Interest expense primarily
pertained to interest payments made by us under a shareholder
loan of $500,000 that we incurred in 2004 that supplemented our
capital needs as we transitioned to the direct management of an
increasing number of our exhibitions. This loan was repaid in
April 2006.
We realized net income before provision for income taxes of
$18,969,000 for fiscal 2008 as compared to net income before
provision for income taxes of $12,369,000 in the prior year
period. Our provision for income taxes was $6,660,000 or 35% for
fiscal 2008 as compared to $4,948,000 or 40% for the same prior
year period. We realized net income of $12,309,000 during fiscal
2008 as compared to net income of $7,421,000 in the prior year.
Basic income per common share for each of fiscal 2008 and 2007
was $0.42 and $0.27, respectively. The basic weighted average
shares outstanding for each of fiscal 2008 and 2007 was
29,653,994 and 27,674,221, respectively. Diluted income per
common share for each of fiscal 2008 and 2007 was $0.37 and
$0.24, respectively. The diluted weighted average shares
outstanding for fiscal 2008 and 2007 was 33,379,462 and
31,047,056, respectively.
During fiscal 2007, our revenue increased approximately 131% to
$30,087,000 as compared to $13,041,000 in the year ended
February 28, 2006, which we refer to as fiscal 2006. This
increase was primarily attributable to an increase in exhibition
revenue of approximately 137% to $28,916,000 during fiscal 2007
as compared to $12,217,000 for fiscal 2006. This increase in
exhibition revenue reflects an increase in the number of
locations of our directly managed Titanic exhibitions from five
in the prior year period to seven in the current year. In
addition, our five operating “Bodies...The Exhibition”
and one “Bodies Revealed” exhibitions contributed
significant revenue for fiscal 2007. During fiscal 2006 we had
two operating “Bodies...The Exhibition” and one
“Bodies Revealed” exhibitions. During fiscal 2007, our
Titanic exhibitions contributed approximately 28% of our revenue
and our “Bodies...The Exhibition” and “Bodies
Revealed” exhibitions contributed approximately 72% of our
revenue.
Merchandise and other revenue increased approximately 47% from
$722,000 to $1,061,000, during fiscal 2006 as compared to fiscal
2007. This increase is attributable to an increase in the number
of locations of our Titanic exhibitions with gift shops that
sell our merchandise to seven as compared to five in the prior
year period. Our sale of coal recovered from the Titanic
increased to $110,000 from $102,000, or approximately 8%, during
fiscal 2007 as compared to fiscal 2006.
We incurred exhibition costs of $7,707,000 and $2,672,000 for
fiscal 2007 and 2006, respectively. Titanic exhibition costs
primarily relate to costs directly associated with presenting
our exhibitions, usually at museum venues for which we incur
costs for advertising, marketing, promotion, and installation
and removal of exhibitry and artifacts. Exhibition costs related
to our anatomical exhibitions primarily consist of the rental
costs of the specimens, as well as costs directly associated
with presenting our own exhibitions, costs for advertising,
marketing, promotion, operations and administration,
installation and removal of exhibitry and specimens and venue
rent. Exhibition costs as a percentage of exhibition revenues
were 27% and 22%, respectively, for fiscal 2007 and 2006. We had
an increase in exhibition costs during fiscal 2007 primarily as
a result of an increase in our anatomical
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exhibits for which we incur rental costs for the specimens in
each exhibition. We also had exhibition costs in the current
fiscal year related to presenting our own anatomical exhibitions
independently without JAM, where we incurred all related
exhibition costs.
During fiscal 2007, our gross profit increased approximately
116% to $22,185,000 as compared to $10,257,000 in fiscal 2006.
Gross profit was 74% and 79% of revenue for fiscal 2007 and
2006, respectively. This decrease in the gross profit percentage
was principally attributable to an increase in the number of our
independent anatomical exhibitions during fiscal 2007. When we
present our own anatomical exhibitions without third-party
participation, we incur all related exhibition costs, which
further reduces our gross margin percentage. However, under our
arrangement with JAM, JAM incurred the majority of the related
exhibition costs and remitted our share of the exhibition profit
to us, which ranged from 50/50 to 80/20 in our favor. When we
present our anatomical exhibitions without third-party
participation, there is no profit sharing and we retain up to
100% of the gross profit.
Our general and administrative expenses increased to $9,773,000
from $6,620,000, or approximately 48%, during fiscal 2007 as
compared to fiscal 2006. This increase is primarily attributable
to increased personnel necessary to organize, administer and
manage our exhibitions. We also recorded additional non-cash
charges in the form of stock compensation costs of approximately
$2,241,000 during fiscal 2007. We fully charge our operations
for stock options issued in the year such options are granted,
subject to vesting schedules.
Our depreciation and amortization expenses increased $549,000 or
56% to $1,529,000 during fiscal 2007 as compared to $980,000 for
fiscal 2006. This increase primarily reflects additional
investments made in fixed assets for our exhibitions, primarily
consisting of exhibitry. Depreciation expense was $770,000 and
$395,000 during fiscal 2007 and 2006, respectively. In addition,
amortization expense associated with amortization of exhibition
licenses was $759,000 and $585,000 during fiscal 2007 and 2006,
respectively.
We recorded a $350,000 charge for the settlement of a dispute
related to commissions under an alleged agency agreement during
fiscal 2007. This settlement requires us to make five
installment payments of $70,000, which installment payments
commenced June 2006 and continue every six months thereafter
until June 2008.
In May 2001, we acquired ownership of the wreck of the
Carpathia, which was sunk by a German torpedo during World War I
off the coast of Ireland. On February 28, 2007, our
wholly-owned subsidiary R.M.S. Titanic, Inc. entered into a sale
agreement with Seaventures, Ltd. pursuant to which Seaventures
acquired from the R.M.S. Titanic all of its ownership interest
in the Carpathia for $3,000,000. We received $500,000 from
Seaventures on February 28, 2007 and we received the
remaining $2,500,000 from Seaventures on April 15, 2008.
Also, on February 28, 2007, Seaventures purchased an option
from us to present the first exhibition of objects recovered
from the R.M.S. Carpathia together with certain of our Titanic
artifacts. We received payment of $1,500,000 from Seaventures
for the sale of this option on February 28, 2007.
We realized income from operations of $12,159,000 during fiscal
2007 as compared to income of $2,573,000 from operations in the
prior year. This increase in income from operations was
attributable to the increase in the number of our ongoing
Titanic exhibitions and a greater contribution from an increase
in the number of our ongoing “Bodies...The Exhibition”
and “Bodies Revealed” exhibitions. As of
February 28, 2007, we had thirteen individual exhibitions
being presented (seven Titanic and six Bodies exhibitions), as
compared to eight individual exhibitions as of February 28,
2006 (five Titanic and three Bodies exhibitions).
Interest income of $224,000 was primarily associated with
interest earned on our bank cash balances during fiscal 2007. We
incurred interest expense of $51,000 and $47,000 for fiscal 2007
and 2006, respectively. Interest expense primarily pertained to
interest payments made by us under a shareholder loan of
$500,000 that we incurred in 2004 that supplemented our capital
needs as we transitioned to the direct management of an
increasing number of our exhibitions. This loan was repaid in
April 2006.
We realized net income before provision for income taxes of
$12,369,000 for fiscal 2007 as compared to net income before
provision for income taxes of $2,779,000 in the prior year
period. Our provision for income taxes was $4,948,000 or 40% for
fiscal 2007. We recorded a benefit for income taxes of
$2,504,000 during fiscal 2006 relating to the realizability of
our net operating loss carryforwards during fiscal 2007. We
realized net income of $7,421,000 during fiscal 2007 as compared
to net income of $5,283,000 in fiscal 2006.
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Basic income per common share for each of the years ended
February 28, 2007 and 2006 was $0.27 and $0.22,
respectively. The basic weighted average shares outstanding for
each of the years ended February 28, 2007 and 2006 was
27,674,221 and 24,081,186, respectively. Diluted income per
common share for each of the years ended February 28, 2007
and 2006 was $0.24 and $0.19, respectively. The diluted weighted
average shares outstanding for the years ended February 28,
2007 and 2006 was 31,047,056 and 28,230,491, respectively.
Net cash provided by operating activities was $17,142,000 for
fiscal 2008, as compared to net cash provided by operating
activities of $11,476,000 in fiscal 2007. This increase in net
cash provided by operating activities is primarily the result of
our expansion of our exhibition business. We attribute this
increase to the increase in the number of our ongoing human
anatomy exhibitions as well as higher attendance at our Titanic
exhibitions. During the twelve months ended February 29,
2008, we had 21 concurrent exhibitions being presented (six
Titanic and fifteen human anatomy exhibitions) compared to
thirteen being presented in the same prior year period (seven
Titanic and six human anatomy exhibitions).
The following table sets forth our working capital (current
assets less current liabilities) balances and our current ratio
(current assets/current liabilities) for fiscal 2007 and 2008:
Our net working capital increased by $1,295,000 as of
February 29, 2008, as compared to February 28, 2007.
This increase is primarily the result of an increase in cash and
cash equivalents of $385,000 associated with new anatomical
exhibitions, which opened during fiscal 2008. Our accounts
receivable increased $540,000 as of February 29, 2008 as
compared to February 28, 2007, primarily as a result of
opening an increased number of exhibitions. Our prepaid expenses
and other current assets increased by approximately $1,664,000,
primarily as a result of prepaid leases and services for our
self-run exhibitions. This was partially offset by an increase
in payables associated with our self-run exhibits. Due to the
changes discussed above, our current ratio decreased from 12.42
to 7.73 from February 28, 2007 to February 29, 2008,
respectively.
For fiscal 2008, the total cash we used in investing activities
was $14,461,000, which was primarily the result of purchases of
property and equipment for $5,250,000. Purchases of property and
equipment primarily consisted of the purchase of additional
exhibitry for our human anatomy exhibitions. We used $2,900,000
for the acquisition of licenses which related to the licensing
of our human anatomy specimens. We also utilized $5,000,000 to
acquire a company which owned the rights to certain human
anatomy exhibitions. We purchased a certificate of deposit for
$1,000,000 during fiscal 2008. Capital expenditures, primarily
consisting of the leasehold improvements and additional
exhibitry for our exhibitions, are expected to aggregate
approximately $12,000,000 to $16,000,000 during fiscal 2009.
For fiscal 2008, cash used in financing activities was
$2,925,000 and included stock repurchases aggregating
$6,777,000. which were made pursuant to our publicly announced
stock repurchase program. In addition, we received approximately
$2,412,000 in cash from the exercise of options and warrants
during fiscal 2008. During fiscal 2008, we realized an excess
tax benefit of approximately $1,440,000 from the exercise of
stock options, which we recorded as income taxes receivable in
our financial statements to reflect the value of the income tax
benefit we anticipate receiving.
Our shareholders’ equity was $47,096,000 at
February 29, 2008, as compared with $32,900,000 at
February 28, 2007.
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On October 4, 2007, we entered into a one year $15,000,000
revolving Loan Agreement with Bank of America, N.A. (the
“Credit Facility”). The Credit Facility has a
$5,000,000 sub-limit for the issuance of standby letters of
credit. During the term of the Credit Facility, at our request
and with the consent of Bank of America, the credit limit may be
increased to $25,000,000
At our option, amounts outstanding under the Credit Facility
shall bear interest at (i) the greater of Bank of
America’s prime rate or the Federal funds rate, plus a
Margin (as defined below); or (ii) the LIBOR rate, plus a
Margin. The amount of the Margin is based upon our Leverage
Ratio (which is the ratio of Total Funded Debt to EBITDA, as
each term is defined in the Credit Facility). If our Leverage
Ratio is less than or equal to 1 to 1, the Margin will be 1.25%.
If our Leverage Ratio is greater than 1 to 1, the Margin will be
1.50%. The Credit Facility requires us to maintain a Leverage
Ratio not to exceed 1.5 to 1 and a Basic Fixed Charge Coverage
Ratio (which is the ratio of (i) the sum of EBITDA minus
the sum of taxes and dividends, to (ii) the sum of interest
expense, the current portion of long term debt and the current
portion of capitalized lease obligations) of at least 2 to 1. We
were in compliance with such ratios as of February 29,
2008. In addition, we must pay a facility fee equal to 0.25% of
the unused portion of the Credit Facility, which amount is
payable quarterly in arrears. Interest payments under the Credit
Facility must be made not less frequently than quarterly.
Upon termination of the Credit Facility, we may request that
Bank of America convert all amounts then outstanding into a
three year term loan. If Bank of America consents to such
conversion, we will be required to amortize the outstanding
borrowings under the Credit Facility and make quarterly payments
of principal and interest. Such term loan will also require us
to make annual pre-payments equal to 50% of our Excess Cash Flow
(defined as EBITDA minus the sum of interest expense, taxes,
dividends, capital expenditures, principal payments of long term
debt and payments of capitalized lease obligations) in the event
our Leverage Ratio is greater than 1 to 1 during any year in
which amounts under such term loan remain outstanding.
The Credit Facility is secured by all of our assets, including
our equity interests in our subsidiaries, and is also guaranteed
by our subsidiaries. As of February 29, 2008, no borrowings
were outstanding under the Credit Facility.
We have a non-cancelable operating lease for the rental of each
set of the specimens used in our anatomical exhibitions. The
leases are payable quarterly for a term of five years with five
annual options to extend.
We have non-cancelable operating leases for office space. The
leases are subject to escalation for our pro rata share of
increases in real estate taxes and operating costs. During the
fiscal year ended February 28, 2005, which we refer to as
fiscal 2005, we entered into another non-cancelable operating
lease for warehouse space through December 31, 2010.
The lease for our principal executive offices was amended a
first time on August 8, 2003 to provide additional space,
bringing the total leased space to approximately
4,700 square feet. The lease was amended a second time on
November 14, 2005 when the leased space was increased by
approximately 1,400 square feet. A third amendment to the
lease was executed on April 26, 2006. This amendment added
approximately 3,600 square feet to our total office space.
The lease was amended a fourth time on June 12, 2007,
increasing our office space by approximately 4,900 square
feet. The total leased space after the fourth lease amendment
was approximately 14,600 square feet. The current annual
payments under the office space lease are approximately $390,000.
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The following table illustrates our contractual obligations and
commitments as of February 29, 2008:
On October 1, 2005, we entered into two three-year
consulting agreements for investor relations services with a
firm and an individual that required aggregate monthly cash
consulting fees of $52,250 in October 2005, November 2005 and
December 2005. Thereafter, consulting fees are $22,550 per month
during the first year and reduce to $13,000 per month for the
remaining term. These agreements also required us to issue
350,000 shares of common stock and 250,000 five-year
warrants to purchase our common stock at an exercise price of
$2.00 per share. The fair value of the warrants was estimated on
the date of grant using the Black-Scholes option-pricing model
and is being amortized over the three-year agreement term. We
recorded $156,000 and $428,000 in consulting expense related to
these two agreements during the years ended February 28,
2007 and 2006, respectively.
In May 2001, we acquired ownership of the wreck of the
Carpathia. On February 28, 2007, our wholly-owned
subsidiary R.M.S. Titanic, Inc. entered into a sale agreement
with Seaventures pursuant to which Seaventures acquired from the
Company all of its ownership interest in the Carpathia for
$3,000,000. We received $500,000 from Seaventures on
February 28, 2007 and we received the remaining $2,500,000
from Seaventures on April 15, 2008. Also, on
February 28, 2007, Seaventures. purchased an option from us
to present the first exhibition of objects recovered from the
Carpathia together with certain of our Titanic artifacts. We
received payment of $1,500,000 from Seaventures for the sale of
this option on February 28, 2007.
On March 12, 2008, we entered into a lease agreement with
the Luxor Hotel and Casino. The lease term is for ten years with
an option to extend for up to an additional ten years. The
minimum annual rent for the first three years is $3,300,000,
payable in equal installments, and $3,600,000 a year thereafter.
Off-Balance
Sheet Arrangements
We have no off-balance sheet financial arrangements.
We have identified the policies below as critical to our
business operations and the understanding of our results of
operations. In the ordinary course of business, we have made a
number of estimates and assumptions relating to the reporting of
results of operations and financial condition in the preparation
of our consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. Actual
results could differ significantly from those estimates under
different assumptions and conditions. We believe that the
following discussion addresses our most critical accounting
policies, which are those that are most important to the
portrayal of our financial condition and results of operations
and require our most difficult, subjective, and complex
judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain.
Our critical accounting policies are as follows:
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Exhibition Revenue. We recognize exhibition
revenue for our exhibits when earned and reasonably estimable.
Our exhibition agreements may have a fixed fee, may be based on
a percentage of revenue, or a combination of the two. A variable
fee arrangement may include a nonrefundable or recoupable
guarantee paid in advance or over the exhibition period. The
following are the conditions that must be met in order to
recognize revenue:
Our revenue may be predicated on a percentage or share of our
customers’ revenue from the exhibition. Our percentage of
the ticket sales for these exhibits, as well as merchandise
sales are recognized at point of sale. Advance ticket sales are
recorded as deferred revenue pending the “event date”
on the ticket.
In exhibition arrangements that have a variable fee structure, a
customer or joint venture partner may guarantee to pay us a
nonrefundable minimum amount that is to be applied against
variable fees. We record this non-refundable guarantee as
deferred revenue until all the conditions of revenue recognition
have been met.
Our customers and joint venture partners provide us with gross
receipt information, marketing costs, promotional costs and
information regarding any other fees and expenses. We utilize
this information to determine our portion of the revenue by
applying the contractual provisions included in our arrangements
with our customers and joint venture partners. The amount of
revenue recognized in any given quarter or quarters from all of
our exhibitions depends on the timing, accuracy and sufficiency
of information we receive from our customers and joint venture
partners to determine revenues and associated gross profits.
Audio Tour Revenue. Revenue derived from
equipping and operating an audio tour is recognized upon
customer purchase of the audio tour.
Merchandise Revenue. Revenues collected by
third-party vendors with respect to the sale of exhibit-related
merchandise is recorded when the merchandise is shipped to the
third-party vendor. Revenue from sales of coal recovered from
the wreck of the Titanic is recognized at the date of shipment
to customers. Recovery costs attributable to the coal are
charged to operations as revenue from coal sales are recognized.
Sponsorship Revenue. Revenues from corporate
sponsors of an exhibition are generally recognized over the
period of the applicable agreements commencing with the opening
of the related attraction. Revenue from the granting of
sponsorship rights related to our dives to the wreck of the
Titanic is recognized at the completion of the expedition.
Licensing Revenue. Revenue from the licensing
of the production and exploitation of audio and visual
recordings by third-parties, related to our expeditions to the
wreck of the Titanic, is recognized at the time that the
expedition and dive takes place. Revenue from the licensing of
still photographs and video is recognized at the time the rights
are granted to the licensee.
Accounts receivable are customer obligations due under normal
trade terms. We regularly evaluate the need for an allowance for
uncollectible accounts by taking into consideration factors such
as the type of client (governmental
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agencies or private sector) trends in actual and forecasted
credit quality of the client (including delinquency and late
payment history), and current economic conditions that may
affect a client’s ability to pay. In certain circumstances,
depending on customer creditworthiness, we may require a bank
letter of credit to guarantee the collection of our receivables.
Our allowance for bad debt is determined based on a percentage
of aged receivables, plus specific reserves for receivables we
do not believe collectible.
We account for income taxes using the asset and liability method
which recognizes deferred tax assets and liabilities for the
future tax impact attributable to differences in the basis of
assets and liabilities reported for financial statement and
income tax purposes. Valuation allowances are established when
necessary to reduce deferred tax assets to amounts expected to
be realized.
We are currently involved in certain legal proceedings, as
discussed in Item 3 of Part I of this report. To the
extent that a loss related to a contingency is reasonably
estimable and probable, we accrue an estimate of that loss.
Because of the uncertainties related to both the amount and
range of loss on certain pending litigation, we may be unable to
make a reasonable estimate of the liability that could result
from an unfavorable outcome of such litigation. As information
becomes available, we assess any potential liability related to
our pending litigation and make or, if necessary, revise our
estimates. Such revisions in estimates of potential liability
could materially impact our results of operations and financial
position.
Property and equipment are stated at cost. Expenditures for
major renewals and improvements are capitalized while
expenditures for maintenance and repairs not expected to extend
the life of an asset beyond its normal useful life are charged
to expense when incurred. Equipment is depreciated over the
estimated useful lives of the assets under the straight-line
method of depreciation for financial reporting purposes and both
straight-line and other methods for tax purposes.
In the event that facts and circumstances indicate that the
carrying value of long lived assets, including associated
intangibles may be impaired, an evaluation of recoverability is
performed by comparing the estimated future undiscounted cash
flows associated with the asset to the assets carrying amount to
determine if a write down to market value or discounted cash
flows is required.
Artifacts recovered in our 1987 Titanic expedition are carried
at the lower of cost of recovery or net realizable value,
referred to as NRV. The government of France granted us
ownership of these artifacts. The costs of recovery are the
direct costs of chartering of vessels and related crews and
equipment required to complete the dive operations for that
expedition.
To ascertain that the NRV of the artifacts exceeds the direct
costs of recovery of such artifacts, we evaluate various
evidential matters. Such evidential matters include documented
sales and offerings of Titanic-related memorabilia, insurance
coverage obtained in connection with the potential theft, damage
or destruction of all or part of the artifacts and other
evidential matter regarding the public interest in the Titanic.
At each balance sheet date, we evaluate the period of
amortization of intangible assets. The factors used in
evaluating the period of amortization include: (i) current
operating results, (ii) projected future operating results,
and (iii) other material factors that affect the continuity
of the business.
We amortize our exhibition licenses on a straight line basis
over the term of the exhibition license or right.
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In the first quarter of 2006, we adopted Statement of Financial
Accounting Standards No. 154 (“SFAS 154”),
“Accounting Changes and Error Corrections — a
replacement of APB Opinion No. 20 and FASB Statement
No. 3.” SFAS 154 changed the requirements for the
accounting for and reporting of a voluntary change in accounting
principle. The adoption of SFAS 154 did not affect our
consolidated financial statements in the period of adoption. Its
effects on future periods will depend on the nature and
significance of any future accounting changes subject to this
statement.
In June 2006, the Financial Accounting Standards Board
(“FASB”) issued FASB Interpretation No. 48
(“FIN 48”), “Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement
No. 109.” FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” It prescribes that a
company should use a more-likely-than-not recognition threshold
based on the technical merits of the income tax position taken.
Income tax positions that meet the more-likely-than-not
recognition threshold should be measured in order to determine
the tax benefit to be recognized in the financial statements.
FIN 48 is effective in fiscal years beginning after
December 15, 2006. The adoption of FIN 48 did not have
a material impact on our consolidated financial statements.
In September 2006, the SEC issued Staff Accounting
Bulletin 108 (“SAB 108”), “Considering
the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements.”
SAB 108 provides interpretive guidance on how the effects
of the carryover or reversal of prior year misstatements should
be considered in quantifying a current year misstatement. The
SEC staff believes that registrants should quantify errors using
both a balance sheet and an income statement approach and
evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and
qualitative factors are considered, is material. The provisions
of SAB No. 108 are effective for us for fiscal 2007.
The adoption of SAB No. 108 did not have an impact on
our consolidated financial position, results of operations or
cash flows.
In September 2006, the FASB issued SFAS No. 157
(“SFAS 157”), “Fair Value
Measurements.” SFAS 157 provides guidance for
measuring the fair value of assets and liabilities. It requires
additional disclosures related to the extent to which companies
measure assets and liabilities at fair value, the information
used to measure fair value, and the effect of fair value
measurements on earnings. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. We are in the
process of determining what effect, if any, the adoption of
SFAS 157 will have on our consolidated results of
operations and financial condition.
In February 2007, the FASB issued SFAS No. 159
(“SFAS 159”), “The Fair Value Option for
Financial Assets and Financial Liabilities — including
an Amendment of SFAS No. 115,” which permits an
entity to measure many financial assets and financial
liabilities at fair value that are not currently required to be
measured at fair value. Entities that elect the fair value
option will report unrealized gains and losses in earnings at
each subsequent reporting date. The fair value option may be
elected on an
instrument-by-instrument
basis, with few exceptions. SFAS No. 159 amends
previous guidance to extend the use of the fair value option to
available-for-sale and held-to-maturity securities.
SFAS No. 159 also establishes presentation and
disclosure requirements to help financial statement users
understand the effect of the election. SFAS No. 159 is
effective as of the beginning of the first fiscal year beginning
after November 15, 2007. We are in the process of
determining what effect, if any, the adoption of
SFAS No. 159 will have on our consolidated results of
operations and financial condition.
In December 2007, FASB issued SFAS No. 141 (revised
2007), “Business Combinations”
(“SFAS 141R”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest
in the acquiree and the goodwill acquired. SFAS 141R also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
SFAS 141R is effective for fiscal years beginning after
December 15, 2008. Once adopted, we will assess the impact
of SFAS 141R upon the occurrence of a business combination.
In December 2007, FASB issued SFAS No. 160
(“SFAS 160”), “Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of Accounting
Research Bulletin No. 51.” SFAS 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of
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consolidated net income attributable to the parent and to the
noncontrolling interest, changes in parent’s ownership
interest, and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. SFAS 160
also established disclosure requirements that clearly identify
and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS 160 is
effective for fiscal years beginning after December 15,
2008. We are currently evaluating the potential impact, if any,
of the adoption of SFAS 160 on our consolidated financial
statements.
Market risk represents the risk of loss that may impact our
financial position due to adverse changes in financial market
prices and rates. Market risk exposure is primarily a result of
fluctuations in interest rates and foreign currency exchange
rates. We do not hold or issue financial instruments for trading
purposes.
We have exposure to market rate risk for changes in interest
rates related to our variable interest credit facility discussed
in Item 7 of Part I of this report under the heading
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” Interest income on
our cash, cash equivalents, and short-term investments is
subject to interest rate fluctuations, but we believe that the
impact of these fluctuations does not have a material effect on
our financial position due to the short-term nature of any such
investments. We do not have any long-term debt. Our interest
income and interest expense are most sensitive to the general
level of interest rates in the U.S. Sensitivity analysis is
used to measure our interest rate risk. For fiscal 2008, a 100
basis-point adverse change in interest rates would not have had
a material effect on our consolidated financial position,
earnings or cash flow.
We conduct a significant portion of our business activities
outside of the U.S., and are thereby exposed to the risk of
currency fluctuations between the U.S. dollar and foreign
currencies of the countries in which we are conducting business.
If the value of the U.S. dollar increases in relation to
such foreign currencies, our potential revenue from exhibition
and merchandising activities outside of the U.S. will be
adversely affected. During fiscal 2008, we did not incur any
material losses because of changes in the exchange rates with
respect to foreign currencies. Although our financial
arrangements with foreign parties may be based upon foreign
currencies, we have sought, and will continue to seek where
practicable, to make our financial commitments and
understandings based upon the U.S. dollar in order to
minimize the adverse potential effect of currency fluctuations.
During fiscal 2008, we derived approximately $11,378,000, or
21%, of our net revenue from exhibitions located outside of the
U.S.
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To the Board of Directors
Premier Exhibitions, Inc.
We have audited the accompanying consolidated balance sheets of
Premier Exhibitions, Inc. and its subsidiaries (the
“Company”) as of February 29, 2008 and
February 28, 2007, and the related consolidated statements
of operations, shareholders’ equity, and cash flows for
each of the three years in the period ended February 29,
2008. We also have audited the Company’s internal control
over financial reporting as of February 29, 2008, based on
the criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s
management is responsible for these financial statements, for
maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
Management’s Report on Internal Control. Our responsibility
is to express an opinion on these financial statements and an
opinion on the Company’s internal control over financial
reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and the principal financial
officers, or persons performing similar functions, and effected
by the company’s board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted principals. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflects the
transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
of future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
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In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of February 29, 2008 and
February 28, 2007, and the results of the Company’s
operations and their cash flows for each of the three years in
the period ended February 29, 2008, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of February 29, 2008, based on the criteria
established in Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission.
/s/ Kempisty &
Company CPA’s PC
Kempisty & Company
Certified Public Accountants, P. C.
New York, New York
May 6, 2008
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Premier
Exhibitions, Inc. and Subsidiaries
Consolidated
Balance Sheets
The accompanying notes are an integral part of the consolidated
financial statements.
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Premier
Exhibitions, Inc. and Subsidiaries
Consolidated
Statements of Operations
The accompanying notes are an integral part of the consolidated
financial statements.
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Premier
Exhibitions, Inc. and Subsidiaries
Consolidated
Statements of Cash Flow
The accompanying notes are an integral part of the consolidated
financial statements.
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Premier
Exhibitions, Inc. and Subsidiaries
Consolidated
Statements of Shareholders’ Equity and Comprehensive
Loss
Years
Ended February 28, 2006, February 28, 2007 and
February 29, 2008
The accompanying notes are an integral part of the consolidated
financial statements.
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PREMIER
EXHIBITIONS, INC.
The consolidated financial statements include the accounts of
Premier Exhibitions, Inc. and its subsidiaries (the
“Company” or “Premier”). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The preparation of the financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
The Company is in the business of developing and touring museum
quality exhibitions. Income from exhibitions is generated
primarily through ticket sales, third-party licensing,
sponsorships and merchandise sales.
The Company presently operates or has plans to operate four
different exhibitions: (i) Titanic;
(ii) “Bodies...The Exhibition,” “Bodies
Revealed” and “Our Body: The Universe Within”;
(iii) “Sports Immortals, The Traveling
Exhibition”; and (iv) “Dialog in the Dark.”
The Company first became known for its Titanic exhibitions,
which are conducted through its wholly-owned subsidiary R.M.S.
Titanic, Inc., and which honor the ill-fated ocean liner R.M.S.
Titanic. Since 1994, the Company has maintained its
Salvor-in-Possession
status of the Titanic wreck and wreck site as awarded by a
federal district court. As such, the Company has the exclusive
right to recover objects from the Titanic wreck site.
The Company currently has the ability to operate seven
concurrent Titanic exhibitions, six of which are known as
“Titanic: The Artifact Exhibition” and one of which is
known as “Titanic Science.” During its fiscal year
ended February 29, 2008, the Company presented six separate
Titanic exhibitions at fourteen venues.
The Company presently is in possession of a number of human
anatomy specimens, each of which contains a collection of whole
human body specimens plus single human organs and body parts,
which are known as “Bodies Revealed,”
“Bodies...The Exhibition” and “Our Body: The
Universe Within.” These specimens are assembled into
anatomy-based exhibitions featuring preserved human bodies,
organs and body parts to offer the public an opportunity to view
the intricacies and complexities of the human body. The
exhibitions include displays of dissected human bodies which are
permanently preserved through a process called polymer
preservation, also known as plastination. During its fiscal year
ended February 29, 2008, the Company presented fifteen
separate human anatomy exhibitions at twenty-eight venues.
On February 27, 2008, the Company entered into a long-term
license agreement to present an exhibition series entitled
Dialog in the Dark. The Company’s Dialog in the Dark
exhibitions are intended to provide insight and experience to
the paradox of learning to “see” again without the use
of sight. The Company plans to open its first North American
engagement during the later part of its fiscal year ending
February 28, 2009.
On March 13, 2008, the Company entered into a long-term
license agreement with Sports Immortals, Inc. to present,
promote and conduct multiple “Sports Immortals, The
Traveling Exhibition” exhibitions, each of which will
feature sports artifacts and memorabilia. The Company’s
agreement with Sports Immortals, Inc. also grants it the
exclusive right to manufacture and sell “Sports
Immortals” brand merchandise in conjunction with Company
exhibitions. The Company is planning to open its first Sports
Immortals exhibition during the calendar year ending
December 31, 2008.
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Summary
of Significant Accounting Policies
The Company maintains cash in bank accounts that, at times, may
exceed federally insured limits. The Company has not experienced
any losses on these accounts. The Company considers highly
liquid investments with original maturities of 90 days or
less to be cash equivalents. Cash equivalents are stated at
cost, which approximates market value. The Company’s cash
equivalents are primarily invested in commercial paper, money
market funds and U.S. government-backed securities. The
Company performs periodic evaluations of the relative credit
standing of the financial institutions and issuers of its cash
equivalents.
Marketable securities which are available for sale are carried
at fair value and the net unrealized gains and losses, net of
the related tax effect, computed in marking these securities to
market have been reported within shareholders’ equity.
Accounts receivable are customer obligations due under normal
trade terms. The Company uses the allowance method to account
for uncollectible accounts receivable. The Company regularly
evaluates the need for an allowance for uncollectible accounts
by taking into consideration factors such as the type of client
(governmental agencies or private sector), trends in actual and
forecasted credit quality of the client (including delinquency
and late payment history) and current economic conditions that
may affect a client’s ability to pay. The Company’s
bad debt expense for its fiscal years ended February 28,
2007 and February 29, 2008 was $257,000 and $196,000,
respectively. The Company’s policy is to write-off as
uncollectible amounts not collected within 120 days, unless
legal proceedings have been implemented to attempt to collect
such amounts. In certain circumstances, depending on customer
creditworthiness, the Company may require a bank letter of
credit to guarantee the collection of its receivables.
Revenue from the licensing of the production and exploitation of
audio and visual recordings by third-parties, related to the
Company’s expeditions, is recognized at the time that the
expedition and dive takes place.
Revenue from the licensing of still photographs and video is
recognized at the time the rights are granted to the licensee.
Revenue from the granting of sponsorship rights related to the
Company’s expeditions and dives to the wreck of the Titanic
is recognized at the completion of the expedition.
Revenue sharing from the sale of Titanic-related products by
third-parties is recognized when the item is sold.
Revenue from licensing arrangements is recognized pro-rata over
the life of the agreements. Amounts received in excess of
amounts earned are shown as deferred revenue.
Revenue from exhibitions is recognized when earned and
reasonably estimable. The Company’s exhibition agreements
may have a fixed fee, may be based on a percentage of revenue or
a combination of the two. A variable fee arrangement may include
a nonrefundable or recoupable guarantee paid in advance or over
the exhibition period. The following are the conditions that
must be met in order to recognize revenue:
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company sells coal recovered from the Titanic wreck site.
Revenue from sales of such coal is recognized at the date of
shipment to customers. Recovery costs attributable to the coal
are charged to operations as revenue from coal sales are
recognized.
Revenue is reported net of any applicable taxes.
Prepaid expenses primarily consist of prepaid lease payments and
prepaid services that are expensed when earned, and reimbursable
expenses that are capitalized and recovered from museums,
promoters or the Company’s co-presentation partner.
Exhibition licenses represent exclusive rights to exhibit
certain anatomical specimens and organs paid for the use of the
licensor’s technology, documentation, and know-how with
respect to the plastination of human body specimens and organs.
Depending upon the agreement with the rights holder, the Company
may obtain the rights to use anatomical specimens and organs in
multiple exhibitions over multiple years.
The Company evaluates the future recoverability of capitalized
exhibition licenses on a quarterly basis or when events or
circumstances indicate the capitalized license may not be
recoverable. The recoverability of capitalized exhibition
license costs is evaluated based on the expected performance of
the exhibitions in which the anatomical specimens and organs are
to be used. As the Company’s exhibition licenses extend for
multiple exhibitions over multiple years, the Company also
assesses the recoverability of capitalized exhibition license
costs based on certain qualitative factors such as the success
of other exhibitions utilizing anatomical specimens and whether
there are any anatomical specimen-related exhibitions planned
for the future. The Company expenses exhibition license costs
when it believes such amounts are not recoverable. Capitalized
exhibition license costs for those exhibitions that are
cancelled are charged to expense in the period of cancellation.
Commencing upon the related exhibition’s debut, capitalized
exhibition license costs are amortized under the contract terms.
As exhibition license contracts may extend for multiple years,
the amortization of capitalized exhibition license costs
relating to such contracts may extend beyond one year. For
exhibitions that have been opened, the Company evaluates the
future recoverability of capitalized amounts on a quarterly
basis. The primary evaluation criterion is actual exhibition
performance.
Significant judgments and estimates are used by the
Company’s management in the assessment of the
recoverability of capitalized costs. In evaluating the
recoverability of capitalized costs, the assessment of expected
exhibition performance utilizes forecasted sales amounts and
estimates of additional costs to be incurred. If actual
exhibition revenues, combined with currently forecast future
exhibition revenues, are less than the revenue required to
amortize the remaining licensing costs an impairment charge
could result. Additionally, as noted above, since many of the
exhibition licenses extend for multiple products over multiple
years, the Company also assesses the recoverability of
exhibition license costs based on certain qualitative factors
such as the success of other exhibitions utilizing anatomical
specimens and whether there are any anatomical specimen-related
exhibitions planned for the future. Material differences may
result in the amount and timing of charges for any period if
Company management makes different judgments or utilizes
different estimates in evaluating these qualitative factors.
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Property and equipment are stated at cost. Depreciation of
property and equipment is provided for by the straight-line
method over the following estimated lives of the related assets
Costs associated with the care, management and preservation of
artifacts recovered from the wreck of the Titanic are expensed
as incurred. A majority of the Company’s Titanic artifacts
not in exhibition are located within the United States.
To ascertain that the aggregate net realizable value
(“NRV”) of Titanic artifacts exceeds the direct costs
of recovery of such artifacts, the Company evaluates various
evidential matters. Such evidential matters include documented
sales and offerings of Titanic-related memorabilia, insurance
coverage obtained in connection with the potential theft, damage
or destruction of all or part of the artifacts and other
evidential matter regarding the public interest in the Titanic.
The Company accounts for income taxes using the asset and
liability method which recognizes deferred tax assets and
liabilities for the future tax impact attributable to
differences in the basis of assets and liabilities reported for
financial statement and income tax purposes. Valuation
allowances are established when necessary to reduce deferred tax
assets to amounts expected to be realized.
Basic earnings per share is computed based on the
weighted-average number of common shares outstanding. Diluted
earnings per share is computed based on the weighted-average
number of common shares outstanding adjusted by the number of
additional shares that would have been outstanding had the
potentially dilutive common shares been issued. Potentially
dilutive shares of common stock include non-qualified stock
options and nonvested share awards. The computation of dilutive
shares outstanding excludes the out-of-the-money non-qualified
stock options because such outstanding options’ exercise
prices were greater than the average market price of our common
shares and, therefore, the effect would be antidilutive (i.e.,
including such options would result in higher earnings per
share).
In the first quarter of 2006, the Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 154,
“Accounting Changes and Error Corrections — a
replacement of APB Opinion No. 20 and FASB Statement
No. 3.” SFAS No. 154 changed the
requirements for the accounting for and reporting of a voluntary
change in accounting principle. The adoption of
SFAS No. 154 did not affect the Company’s
consolidated financial statements in the period of adoption. Its
effects on future periods will depend on the nature and
significance of any future accounting changes subject to this
statement.
In June 2006, the Financial Accounting Standards Board
(“FASB”) issued FASB Interpretation No. 48
(“FIN 48”), “Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement
No. 109.” FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s
financial statements in
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
accordance with SFAS No. 109, “Accounting for
Income Taxes.” It prescribes that a company should use a
more-likely-than-not recognition threshold based on the
technical merits of the income tax position taken. Income tax
positions that meet the more-likely-than-not recognition
threshold should be measured in order to determine the tax
benefit to be recognized in the financial statements.
FIN 48 is effective in fiscal years beginning after
December 15, 2006. The adoption of FIN 48 did not have
an impact on the Company’s consolidated financial
statements.
In September 2006, the SEC issued Staff Accounting Bulletin
(“SAB”) No. 108, “Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements.” SAB No. 108
provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. The SEC
staff believes that registrants should quantify errors using
both a balance sheet and an income statement approach and
evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and
qualitative factors are considered, is material. The provisions
of SAB No. 108 are effective for the Company for the
fiscal year ended February 28, 2007. The adoption of
SAB No. 108 did not have an impact on the
Company’s consolidated financial position, results of
operations or cash flows.
In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements.” SFAS No. 157
provides guidance for measuring the fair value of assets and
liabilities. It requires additional disclosures related to the
extent to which companies measure assets and liabilities at fair
value, the information used to measure fair value, and the
effect of fair value measurements on earnings.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. The Company is in the process of
determining what effect, if any, the adoption of
SFAS No. 157 will have on its consolidated results of
operations and financial condition.
In February 2007, the FASB issued SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — including an Amendment of
SFAS No. 115,” which permits an entity to measure
many financial assets and financial liabilities at fair value
that are not currently required to be measured at fair value.
Entities that elect the fair value option will report unrealized
gains and losses in earnings at each subsequent reporting date.
The fair value option may be elected on an
instrument-by-instrument
basis, with few exceptions. SFAS No. 159 amends
previous guidance to extend the use of the fair value option to
available-for-sale and held-to-maturity securities.
SFAS No. 159 also establishes presentation and
disclosure requirements to help financial statement users
understand the effect of the election. SFAS No. 159 is
effective as of the beginning of the first fiscal year beginning
after November 15, 2007. The Company is in the process of
determining what effect, if any, the adoption of
SFAS No. 159 will have on its consolidated results of
operations and financial condition.
In December 2007, FASB issued SFAS No. 141 (revised
2007), “Business Combinations”
(“SFAS 141R”). SFAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest
in the acquiree and the goodwill acquired. SFAS 141R also
established disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
SFAS 141R is effective for fiscal years beginning after
December 15, 2008. Once adopted, the Company will assess
the impact of SFAS 141R on a business combination
occurrence.
In December 2007, FASB issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial
Statements-an amendment of Accounting Research
Bulletin No. 51.” SFAS No. 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in parent’s
ownership interest, and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated.
SFAS No. 160 also established disclosure requirements
that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners.
SFAS No. 160 is effective for fiscal years beginning
after December 15, 2008. The Company is currently
evaluating the potential impact, if any, of the adoption of
SFAS No. 160 on its consolidated financial statements.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Artifacts recovered in the 1987 Titanic expedition are carried
at the lower of cost of recovery or NRV. The government of
France granted the Company ownership of these artifacts in 1993.
The costs of recovery are the direct costs of chartering of
vessels and related crews and equipment required to complete the
dive operations for that expedition. Coal recovered in two
expeditions is the only item available for sale. Periodically,
as sales of coal occur, ten percent of the sale value is
deducted from the carrying costs of artifacts recovered. During
2008, 2007 and 2006, $7,000, $11,000, and $1,400, respectively,
were deducted from artifacts.
Artifacts, at cost, consists of the following:
In May 2001, the Company acquired ownership of the wreck of the
R.M.S. Carpathia. The Company evaluated and reviewed the
wreck’s impairment in compliance with the requirements of
SFAS No. 142, “Impairment of Long-Lived
Assets” and SFAS No. 121 — “The
Valuation of Non-Goodwill Intangibles.” The Company
evaluates and records impairment losses, as circumstances
indicate that the assets may be impaired and the undiscounted
cash flows estimated to be generated by the asset are less than
the carrying amount of the asset. No such events had occurred
with regard to the Carpathia.
On November 30, 2005, the Company’s wholly-owned
subsidiary R.M.S. Titanic sold a 3% ownership interest in the
R.M.S. Carpathia to Legal Access Technologies, Inc. for
$500,000. In addition, R.M.S. Titanic sold Legal Access
Technologies, Inc. a twenty-five year license to conduct joint
expeditions with R.M.S. Titanic to the Carpathia for the purpose
of exploring and salvaging the Carpathia for $200,000. Under the
terms of this agreement, Legal Access Technologies, Inc. was
obligated to make payments under a payment schedule of $100,000
on December 12, 2005 and the balance of $400,000 on
February 15, 2006. In the event of default, R.M.S. Titanic
had the option to terminate this agreement. The Company
reflected this transaction as a gain on the sale of the
Carpathia interest of $459,000 during the quarter ended
November 30, 2005. Pursuant to the terms of the agreement,
Legal Access Technologies, Inc. was obligated to make the
following scheduled payments to the Company: (i) $100,000
on December 12, 2005; and (ii) $400,000 on
February 15, 2006. The $100,000 payment was collateralized
with 1,400,000 shares of Legal Access Technologies,
Inc.’s common stock, which satisfied its obligation to make
the first payment. Legal Access Technologies, Inc. failed to
make the second scheduled payment and, on April 3, 2006,
R.M.S. Titanic terminated its agreement with Legal Access
Technologies, Inc. In accordance with the agreement, the Company
retained the collateral in the form of Legal Access
Technologies, Inc.’s common stock. As a result of this
default and the Company’s subsequent termination of the
agreement, the Company reversed the gain of $459,000 net of
the gain from the retention of the marketable securities of
$168,000 that was recognized during the quarter ended
November 30, 2005.
On February 28, 2007, R.M.S. Titanic, Inc. entered into a
sale agreement with Seaventures, Ltd. pursuant to which
Seaventures acquired from R.M.S. Titanic all of its ownership
interest in the Carpathia for $3,000,000. The Company received
$500,000 from Seaventures on February 28, 2007 and received
the remaining $2,500,000 from Seaventures on April 15,
2008. Also, on February 28, 2007, Seaventures, Ltd.
purchased an option from the Company to present the first
exhibition of objects recovered from the Carpathia together with
certain of the Company’s Titanic artifacts. The Company
received payment of $1,500,000 from Seaventures for the sale of
this option on February 28, 2007.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The composition of cash, cash equivalents, and
available-for-sale marketable securities is as follows:
The composition of prepaid expenses and other current assets is
as follows:
The composition of property and equipment, which is stated at
cost, is as follows:
Depreciation expense was $395,000, $769,000 and $1,566,000 for
the fiscal years ended 2006, 2007 and 2008, respectively.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On January 21, 2005, the Company sold the SV Explorer, a
178 foot — 1050 ton ship that was to be utilized in
the expedition to the Titanic for $167,000 to Formaes ApS.
Skelgaardsvej 10, DK-9340 Asss, a Danish company. Such sale
resulted in a loss of $440,000 during the years ended
February 28, 2006 and 2007.
The composition of the Company’s human anatomy exhibition
licenses is as follows:
Amortization expense was $584,000, $760,000 and $1,345,000 for
the fiscal years ended 2006, 2007 and 2008, respectively.
In April 2004, the Company entered into an exhibition tour
agreement to license the rights to exhibit certain anatomical
specimens owned by Exhibit Human: The Wonders Within, Inc.
The licensed specimens are currently in the Company’s
possession and are being exhibited in one of its exhibitions.
The Company advanced $685,000 in cash to the licensor under the
license and exhibition tour agreement. The Company recorded this
amount as an intangible asset, and the Company is amortizing the
license over its useful life, which is ten years (the original
term of this license is five years with automatic extensions for
an additional five years at the Company’s option, which
extensions do not require payment of any additional
consideration by the Company). The useful life of the April 2004
agreement coincides with the term of the agreement. As of
February 29, 2008, accumulated amortization was $220,000.
In May 2005, the Company acquired a company that held certain
exclusive licensing rights to certain anatomical specimens and
exhibitry that significantly broadened the Company’s
offerings in its human anatomy educational exhibition business.
The purchase price paid for the license was $3,438,000 (see
Note 12 — Acquisitions) in the form of cash,
common stock, warrants, and the assumption of debt which
represents its fair value. This amount was recorded as an
intangible asset and is being amortized over its estimated
benefit period of five years. As of February 29, 2008,
accumulated amortization was $1,891,000.
In February 2007, the Company entered into a Specimen License
Agreement to license specimens for use in the Company’s
human anatomy exhibitions owned by Dalian Hoffen Bio Technique
Company Limited. The licensed specimens are currently in the
Company’s possession and are being exhibited in its
exhibitions. The Company advanced $550,000 to the licensor under
the Specimen License Agreement. The Company recorded this amount
as an intangible asset, and the Company is amortizing the
license over its useful life, which is ten years. The useful
life of the February 2007 agreement coincides with the term of
the agreement. As of February 29, 2008 accumulated
amortization was $60,000.
In December 2007, the Company acquired the license rights to
promote three additional full sets of human anatomy specimens
pursuant to an agreement with the sole owner of The Universe
Within Touring Company, LLC, pursuant to a transaction in which
the Company acquired all of the outstanding membership interests
of such entity.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Amounts assigned to the licenses and contracts of such
acquisition are approximately $3,623,000. These licenses are
being amortized over approximately five years, which coincides
with the terms of the agreement and the useful lives of the
assets licensed and the contract duration. Amortization related
to these license agreements was approximately $513,000 for the
twelve months ended February 29, 2008.
During the twelve months ended February 29, 2008, the
Company entered into three additional agreements for the
licensing of human anatomy specimens. The aggregate cash
consideration for these additional license agreements was
$2,114,000. These license agreements are being amortized over
35 years and 10 years, which coincides with the terms
of each agreement and the useful life of the assets licensed.
Amortization related to these license agreements was
approximately $69,000 for the twelve months ended
February 29, 2008.
Based on the current amounts of exhibition licenses subject to
amortization, the estimated amortization expense for each of the
succeeding 5 years is as follows: 2009 —
$1,871,000; 2010 — $1,474,000;
2011 — $920,000; 2012 — $749,000; 2013 — $609,000; and 2014 — $193,000.
The composition of accounts payable and accrued liabilities is
as follows:
A summary of the components of the provision (benefit) for
income taxes for the years ended February 28, 2007 and
February 29, 2008 consists of the following:
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The total provision for income taxes differs from the amount
computed by applying the U.S. statutory federal income tax
rate to income before income taxes as follows:
Deferred income taxes recorded on the Company’s balance
sheet result from temporary differences between the basis of
assets and liabilities reported for financial statement purposes
and such amounts reported under the tax laws and regulations.
The net deferred income tax asset consists of the following:
Management believes it is more-likely than not that the Company
will realize the benefits of these deductible differences based
upon the expected reversal of deferred tax liabilities and the
level of historical and projected taxable income over periods in
which the deferred tax assets are deductible.
The Company adopted the provisions of FIN 48 on
March 1, 2007. Upon adoption, the Company recognized no
change to opening retained earnings. Management believes that
all tax positions underlying the computation of current and
deferred taxes meet the more-likely-than-not criteria of
FIN 48 and therefore no liability for unrecognized tax
benefits has been recorded.
The Company files income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. The
Company is not currently under examination by any such taxing
authority.
Basic net income per share is computed by dividing net income by
the weighted-average number of shares outstanding during the
period.
Diluted net income per share is computed by using the
weighted-average number of shares of common stock outstanding
and, when dilutive, potential shares from stock options and
warrants to purchase common stock, using the treasury stock
method.
Common stock options were not included in the diluted EPS
computation because the options exercise price was greater than
the average market price of the common shares for the period
presented. The number of shares not included was 0, 0 and
131,236 for fiscal years ending 2006, 2007 and 2008,
respectively.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table illustrates the computation of basic and
dilutive net income per share and provides a reconciliation of
the number of weighted-average basic and diluted shares
outstanding:
The composition of accumulated other comprehensive loss, net of
related taxes are as follows:
Common
Stock Issuances
During the year ended February 29, 2008, the Company
received approximately $298,000 from the exercise of 300,055
options to purchase shares of common stock at exercise prices
ranging from $0.28 to $3.95 per share. During the year ended
February 28, 2007, the Company received approximately
$311,000 from the exercise of 1,454,793 options to purchase
shares of common stock at exercise prices ranging from $0.85 to
$1.70 per share.
During the year ended February 29, 2008, the Company
received approximately $2,114,000 from the exercise of 862,241
warrants to purchase shares of common stock at exercise prices
ranging from $1.25 to $2.50 per share. During the year ended
February 28, 2007, the Company received approximately
$1,930,000 from the exercise of 1,087,436 of warrants to
purchase shares of common stock at exercise prices ranging from
$1.25 to $2.50 per share.
During the year ended February 29, 2008, the Company issued
an aggregate of 730,000 shares of common stock to three of
its senior executive officers as inducement awards outside of
Company’s stock plans in connection with the commencement
of their employment.
During the year ended February 29, 2008, the Company issued
an aggregate of 50,000 shares of common stock to two of its
Directors as inducement awards in connection with their
appointment to the Company’s Board of Directors.
During the year ended February 29, 2008, the Company issued
an aggregate of 1,195,000 options to purchase shares of common
stock at exercise prices ranging from $4.93 to $15.82. This
issue of options to its three senior executive officers and two
of its directors was an inducement award outside of the
Company’s stock plans in connection with the commencement
of their employment.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In April 2000, the Company adopted an incentive stock option
plan (the “2000 Plan”) under which options to purchase
3,000,000 shares of common stock may be granted to certain
key employees, directors and consultants. The exercise price of
the options granted is based on the fair market value of such
shares, as determined by the Board of Directors at the date of
the grant of such options. In December 2003, the Company adopted
a second incentive stock option plan (the “2004 Plan”)
under which options to purchase 3,000,000 shares of common
stock may be granted to certain key employees, Directors and
consultants. The exercise price was based on the fair market
value of such shares as determined by the Board of Directors at
the date of the grant of such options.
On October 16, 2005, the Company’s Board of Directors
adopted resolutions to: (i) amend the 2000 Stock Option
Plan to reduce the number of authorized but unissued options
available for issuance under the 2000 Plan by 1,370,000; and
(ii) amend the 2004 Plan to reduce the number of authorized
but unissued options available for issuance under the 2004 Plan
by 1,030,000. The net effect of these resolutions was to reduce
the aggregate available authorized but unissued options
available under the Company’s shareholder-approved stock
option plans by 2,400,000.
On August 18, 2006, the Company’s shareholders
approved an Amendment to the Company’s 2004 Stock Option
Plan to increase the authorized number of shares available for
issuance by 1,000,000.
On October 30, 2007, the Company’s Board of Directors
authorized the repurchase of up to 1,000,000 of the
Company’s outstanding common shares. During January 2008,
the Company purchased 1,000,000 shares for approximately
$6,700,000 pursuant to the board-authorized plan.
On February 19, 2008, the Company’s Board of Directors
authorized the repurchase of up to an additional 3,000,000 of
the Company’s outstanding common shares. As of February 29,
2008 the Company has not repurchased any additional shares of
the Company’s outstanding stock.
The following table summarizes activity under the Company’s
equity incentive plans for the years ended February 28,
2006, February 28, 2007, and February 29, 2008:
The weighted-average grant-date fair value of options granted
during 2006, 2007 and 2008 was $2.04, $4.05 and $9.93,
respectively. The total intrinsic value of options exercised
during fiscal years ended 2006, 2007 and 2008 was $2,993,000,
$5,280,000 and $0, respectively.
The weighted-average grant-date fair value of options exercised
during 2006, 2007 and 2008 was $0.73, $0.56 and $1.25,
respectively. The total intrinsic value of exercised options
during fiscal years ended 2006, 2007 and 2008 was $740,000,
$12,804,000 and $1,094,000, respectively.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes the information about all stock
options issued under shareholder-approved plans and that are
outstanding at February 29, 2008:
The total intrinsic value of options outstanding as of
February 29, 2008 was $7,162,000.
On June 23, 2007, the Company adopted the 2007 Restricted
Stock Plan (the “2007 Plan”). The maximum number of
shares of common stock with respect to which restricted stock
awards may be awarded under the Plan may not exceed
250,000 shares. Restricted stock is generally granted with
a price equal to the market price for the Company’s common
stock on the date of the grant and generally vests between three
and five years.
As of February 29, 2008, there were 25,000 shares
granted and not vested under the 2007 Plan. The weighted average
price of these grants is $11.05. The Company recognized stock
based compensation of $29,000 for the period ended
February 29, 2008, which has been allocated to general and
administrative expenses. Pre-tax unrecognized compensation
expense for unvested restricted stock granted to employees, was
$247,000 as of February 29, 2008, and will be recognized as
expense over a weighted average period of 2.7 years.
The following tables summarize the information about restricted
stock and stock options issued outside of shareholder-approved
plans and that are outstanding at February 29, 2008:
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The total intrinsic value of stock options issued outside
shareholder-approved plans as of February 29, 2008 is $0.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment”
(“FAS 123R”), which replaces
SFAS No. 123, “Accounting for Stock-Based
Compensation” (“FAS 123”) and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to
Employees.” FAS 123R requires all share-based payments
to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values, beginning with the first annual period after
June 15, 2005, with early adoption encouraged. The pro
forma disclosures previously permitted under FAS 123, no
longer are an alternative to financial statement recognition.
The Company was required to adopt FAS 123R by March 1,
2006. Under FAS 123R, the Company must determine the
appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The Company
early adopted the fair value recognition provisions of
FAS 123R using the modified prospective transition method
requiring it to recognize expense related to the fair value of
our stock-based compensation awards during the fiscal year ended
February 28, 2006. In the year of adoption, FAS 123R
did not have a material impact on the Company’s financial
position or results of operations.
The Company has historically used, and continues to use, the
Black-Scholes option-pricing model to estimate the fair value of
stock options granted. This model assumes that option exercises
occur at the end of an option’s contractual term, and that
expected volatility, expected dividends and risk-free interest
rates are constant over the option’s term.
The Company used the following weighted-average assumptions
under the Black-Scholes model for its fiscal years ended
February 28 (29), 2006, 2007 and 2008:
The Company based its risk-free interest rate assumption on the
U.S. Treasury yield curve in effect at the time of the
grant. The Company has historically not declared dividends and
does not intend to do so in the future. As such, the Company
assumed the dividend yield would be zero in its model.
The Company accounts for all other issuances of common stock,
stock options, warrants or other equity instruments to employees
and non-employees as the consideration for goods or services
received by the Company based on the fair value of the equity
instruments issued unless the fair value of the consideration
received can be more reliably measured. The Company uses the
Black-Scholes option-pricing model to determine the fair value
of any options, warrants or similar equity instruments issued by
the Company.
53
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Total compensation expense for the Company’s employee stock
options, included in “general and administrative
expense” on the Company’s Consolidated Statement of
Operations was approximately $1,367,000 and $3,653,000 during
fiscal years ended 2007 and 2008, respectively. Unamortized
employee stock option expense totaled approximately $12,893,000
at February 29, 2008 and the Company will amortize this
amount through the fourth quarter of fiscal 2011, when the last
presently issued option has fully vested.
Total compensation expense recognized by the Company for
restricted shares granted approximated $1,018,000 for the twelve
months ended February 29, 2008. Unamortized compensation
expense totaled approximately $9,145,000 as of February 29,
2008 and the Company will amortize this amount through the third
quarter of fiscal 2012, when the last presently issued share has
fully vested. The Company had no compensation expense related to
restricted stock in the prior year.
The U.S. Department of State and the National Oceanic and
Atmospheric Administration of the U.S. Department of
Commerce are working together to implement an international
treaty with the governments of the United Kingdom, France and
Canada concerning the Titanic wreck site. If implemented by the
U.S., this treaty could affect the way the U.S. District
Court for the Eastern District of Virginia monitors the
Company’s
Salvor-in-Possession
rights to the Titanic. These rights include the exclusive right
to explore the wreck site, claim possession of and perhaps title
to artifacts recovered from the site, restore and display
recovered artifacts and make other use of the wreck. The Company
has raised numerous objections to the U.S. Department of
State regarding the participation of the U.S. in efforts to
reach an agreement governing salvage activities with respect to
the Titanic. The treaty, as drafted, does not recognize the
Company’s existing
Salvor-in-Possession
rights to the Titanic. The United Kingdom signed the treaty in
November 2003, and the U.S. signed the treaty in June 2004.
For the treaty to take effect, the U.S. must enact
implementing legislation. As no implementing legislation has
been passed, the treaty currently has no binding legal effect.
Several years ago, the Company initiated legal action to protect
its rights to the Titanic wreck site from this treaty. On
April 3, 2000, the Company filed a motion for declaratory
judgment in U.S. District Court for the Eastern District of
Virginia asking that the court declare unconstitutional the
efforts of the U.S. to implement the treaty. On
September 15, 2000, the court ruled that the Company’s
motion was not ripe for consideration and that the Company may
renew its motion when and if the treaty is agreed to and signed
by the parties, final guidelines are drafted, and Congress
passes implementing legislation. As discussed above, the treaty
has been finalized and is not yet in effect because Congress has
not adopted implementing legislation, thus it is not yet time
for the Company to refile its motion. Neither the implementation
of the treaty nor the Company’s decision whether to refile
the legal action regarding its constitutionality will likely
have an impact on the Company’s ownership interest over the
artifacts that it has already recovered.
As discussed in more detail below, in light of a
January 31, 2006 decision by the U.S. Court of Appeals
for the Fourth Circuit, title to the approximately 2,000
artifacts recovered by the Company during the 1987 expedition
now rests firmly with the Company. Title to the remaining
artifacts in the Company’s collection will be resolved by
the
Salvor-in-Possession
legal proceedings pending in the U.S. District Court for
the Eastern District of Virginia.
On April 12, 2002, the U.S. Court of Appeals for the
Fourth Circuit affirmed two orders of the U.S. District
Court for the Eastern District of Virginia in the Company’s
ongoing
Salvor-in-Possession
case. These orders, dated September 26, 2001 and
October 19, 2001, respectively, restricted the sale of
artifacts recovered by the Company from the Titanic wreck site.
In its opinion, the appellate court reviewed and declared
ambiguous the June 1994 order of the district court that had
awarded ownership to the Company of all items then salvaged from
the wreck of the
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Titanic as well as all items to be salvaged in the future so
long as the Company remained
Salvor-in-Possession.
Having found the June 1994 order ambiguous, the court of appeals
reinterpreted the order to convey only possession, not title,
pending determination of a salvage award. On October 7,
2002, the U.S. Supreme Court denied the Company’s
petition of appeal.
On May 17, 2004, the Company appeared before the
U.S. District Court for the Eastern District of Virginia
for a pre-trial hearing to address issues in preparation for an
interim salvage award trial. At that hearing, the Company
confirmed its intent to retain its
Salvor-in-Possession
rights in order to exclusively recover and preserve artifacts
from the wreck site of the Titanic. In addition, the Company
stated its intent to conduct another expedition to the wreck
site. As a result of that hearing, on July 2, 2004, the
court rendered an opinion and order in which it held that it
would not recognize the 1993 Proces-Verbal, pursuant to which
the government of France granted the Company title to all
artifacts recovered from the wreck site during the 1987
expedition. The court also held that the Company would not be
permitted to present evidence at the interim salvage award trial
for the purpose of arguing that it should be awarded title to
the Titanic artifacts through the law of finds.
The Company appealed the July 2, 2004 Court Order to the
U.S. Court of Appeals for the Fourth Circuit. On
January 31, 2006, the Court of Appeals reversed the lower
court’s decision to invalidate the 1993 Proces-Verbal,
pursuant to which the government of France granted the Company
title to all artifacts recovered from the wreck site during the
1987 expedition. As a result, the Court of Appeals tacitly
reconfirmed that the Company owns the 1,800 artifacts recovered
during the 1987 expedition. The appellate court affirmed that
the lower court’s ruling held that the Company will not be
permitted to present evidence at the interim salvage award trial
for the purpose of arguing that it should be awarded title to
the remainder of the Titanic artifacts through the law of finds.
On November 30, 2007, RMST filed a motion with the
U.S. District Court for the Eastern District of Virginia,
Norfolk Division seeking an interim salvage award. On
March 25, 2008, the court entered an order granting
permission to the U.S. to file an amicus curiae
(friend of the court) response regarding RMST’s motion
for an interim salvage award. The U.S. response states that
an interim in specie (in kind) award with limitations,
made by the court to RMST, could serve as an appropriate
mechanism to satisfy RMST’s motion for a salvage award and
to help ensure that the artifacts recovered by RMST from the
wreck of the Titanic are conserved and curated together in an
intact collection that is available to the public for historical
review, educational purposes, and scientific research in
perpetuity. The court has not yet ruled on our motion for an
interim salvage award.
On April 15, 2008, the District Court entered an order
requesting the Company propose suggested covenants that would be
included in an in specie award. The order also outlines a
process for further discussion pertaining to such covenants
should the court decide to issue an in specie award. The
District Court has not yet determined that an in specie
award is the proper remedy to satisfy the Company’s motion.
We cannot predict how the court will ultimately rule on
RMST’s motion for an interim salvage award.
On April 28, 2006, Stefano Arts filed an action entitled
Premier Exhibitions, Inc. v. Stefano Arts against
the Company in the State Court of Fulton County, State of
Georgia. Stefano Arts alleges that the Company breached a
contract which allegedly calls for it to pay to Stefano Arts
moneys generated from its human anatomy exhibition in Tampa,
Florida and additional moneys generated from its exhibition in
New York City. Although the Company intends to vigorously defend
itself, the outcome of this matter cannot be predicted.
On August 22, 2006, the Company filed an action entitled
R.M.S Titanic, Inc. v. Georgette Alithinos,
International Advantage, Inc. and Renaissance Entertainment, EPE
in the Circuit Court of the State of Florida for
Hillsborough County, pursuant to which the Company alleges
damages stemming from the defendants’ failure to compensate
the Company for monies due under a contract for the presentation
of a Titanic exhibition in Athens, Greece. The Company has
alleged breach of contract, fraud, conversion and breach of
fiduciary duty in its
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
complaint. The parties have reached a settlement of this matter,
which will not result in a material adjustment to the
Company’s financial statements.
In October 2005, Exhibit Human: The Wonders Within, Inc.
filed for binding arbitration against the Company in an action
entitled Exhibit Human: The Wonders Within, Inc. and
R.M.S. Titanic, Inc. In its claim, Exhibit Human
alleged that the Company breached its contract with
Exhibit Human pursuant to which the Company acquired a
license to exhibit certain anatomical specimens that it presents
in the Company’s “Bodies Revealed” exhibition.
Later that month, the Company filed a counterclaim against
Exhibit Human in which it alleged that Exhibit Human
breached its obligations to the Company under the same contract.
On April 6, 2006, the Company also filed an action entitled
Premier Exhibitions, Inc. v. Exhibit Human: The
Wonders Within, Inc. in the U.S. District Court for the
Northern District of Georgia pursuant to which the Company was
seeking a declaratory judgment finding that the parties reached
an enforceable agreement for the acquisition of certain
licensing rights to the anatomical specimens that it presents in
its “Bodies Revealed” exhibition. On December 19,
2006, the court granted summary judgment to Exhibit Human.
It held that proper jurisdiction over this matter lies with the
arbitrator, not the court.
On March 6, 2007, the Company entered into a Settlement
Agreement and Release of Claims with Exhibit Human: The
Wonders Within, Inc. settling the outstanding arbitration and
litigation between the parties. The terms of the settlement
agreement are confidential and the Company does not believe that
such terms are material.
The Company believes that adequate provisions for resolution of
all contingencies, claims and pending litigation have been made
for probable losses and that the ultimate outcome of these
actions will not have a material adverse effect on the
Company’s financial condition.
Two of the Company’s shareholders lent the Company an
aggregate of $500,000 on May 5, 2004. The loan was
unsecured, and it had a term of five years. The interest rate
for the loan was the prime rate plus six percent. The loan
required quarterly payments of principal in the amount of
$25,000 and accrued interest. In consideration of the loan, the
Company also issued an aggregate of 30,000 shares of its
common stock to these shareholders. This stock was valued at
$35,000, was recorded as a deferred financing cost and was
amortized to interest expense over the term of the loan. The
Company repaid this loan during the fiscal year ended
February 28, 2007.
On June 30, 2006, the Company entered into a $2,500,000
revolving line of credit facility with Bank of America, N.A. The
credit facility replaced in its entirety the Company’s
prior $750,000 revolving line of credit facility with Bank of
America. The credit facility, which was evidenced by a note and
agreement made by the Company in favor of Bank of America,
allowed the Company to make revolving borrowings of up to
$2,500,000 during its term. Interest under the credit facility
was calculated from the date of each advance to the Company and
is equal to Bank of America’s prime rate. Under the credit
facility, the Company was required to make interest only
payments monthly and the outstanding principal amount plus all
accrued but unpaid interest was payable in full at the
expiration of the credit facility on June 27, 2007.
On October 4, 2007, the Company entered into a one year
$15,000,000 revolving Loan Agreement with Bank of America, N.A.
(the “Credit Facility”). The Credit Facility replaced
in its entirety the $2,500,000 revolving line of credit
facility. The Credit Facility has a $5,000,000 sub-limit for the
issuance of standby letters of credit. During the term of the
Credit Facility, at the Company’s request and with Bank of
America’s consent, the credit limit may be increased to
$25,000,000.
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At the Company’s option, amounts outstanding under the
Credit Facility shall bear interest at (i) the greater of
Bank of America’s prime rate or the Federal funds rate,
plus a Margin (as defined below); or (ii) the LIBOR rate,
plus a Margin. The amount of the Margin is based upon the
Company’s Leverage Ratio (which is the ratio of Total
Funded Debt to EBITDA, as each term is defined in the Credit
Facility). If the Company’s Leverage Ratio is less than or
equal to 1 to 1, the Margin will be 1.25%. If the Company’s
Leverage Ratio is greater than 1 to 1, the Margin will be 1.50%.
The Credit Facility requires the Company to maintain a Leverage
Ratio not to exceed 1.5 to 1 and a Basic Fixed Charge Coverage
Ratio (which is the ratio of (i) the sum of EBITDA minus
the sum of taxes and dividends, to (ii) the sum of interest
expense, the current portion of long term debt and the current
portion of capitalized lease obligations) of at least 2 to 1.
The Company was in compliance with such ratios as of
February 29, 2008. In addition, the Company must pay a
facility fee equal to 0.25% of the unused portion of the Credit
Facility, which amount is payable quarterly in arrears. Interest
payments under the Credit Facility must be made not less
frequently than quarterly.
Upon termination of the Credit Facility, the Company may request
that Bank of America convert all amounts then outstanding into a
three year term loan. In the event that Bank of America consents
to such conversion, the Company will be required to amortize the
outstanding borrowings under the Credit Facility and make
quarterly payments of principal and interest. Such term loan
will also require the Company to make annual pre-payments equal
to 50% of its Excess Cash Flow (defined as EBITDA minus the sum
of interest expense, taxes, dividends, capital expenditures,
principal payments of long term debt and payments of capitalized
lease obligations) in the event the Company’s Leverage
Ratio is greater than 1 to 1 during any year in which amounts
under such term loan remain outstanding.
The Credit Facility is secured by all of the Company’s
assets, including the Company’s equity interests in its
subsidiaries, and is also guaranteed by the Company’s
subsidiaries. As of February 29, 2008, no borrowings were
outstanding under the Credit Facility.
On September 20, 2006, the Company entered into an
agreement with Sam Tour (USA), Inc., JAM Exhibitions, LLC and
Concert Productions International (collectively,
“JAM”), to jointly present several of human anatomy
exhibitions. Pursuant to the agreement, the Company agreed to
present at least nine human anatomy exhibitions jointly with JAM
in the following locations: Tampa, New York, Atlanta, Mexico
City, Seattle, Las Vegas, Amsterdam, Washington, D.C. and
San Diego. The exhibitions in Tampa, Atlanta, Mexico City,
Seattle, Amsterdam and Washington D.C., have completed their
runs and have closed. The Company’s agreement with JAM does
not include certain human anatomy exhibitions which the Company
is presenting independently or under separate license
agreements. The agreement provides that JAM will not compete
directly or indirectly with the Company in the presentation of a
human anatomy exhibition for the one-year period following the
closing of the last jointly presented exhibition.
On March 14, 2006, the Company executed an employment
agreement with its General Counsel. The employment agreement was
for a three-year term and provided for an annual base salary of
$173,250 per year. On April 17, 2008, the Company and its
General Counsel executed a new employment agreement. See
Note 15 — Subsequent Events.
On March 14, 2006, the Company entered into an amendment to
its August 4, 2003 employment agreement with its Vice
President — Exhibitions. The original employment
agreement was for a three-year term and provided for an annual
base salary of $150,000 per year, with annual 5% increases. The
amendment extended the term of the employment agreement for an
additional three years from January 27, 2006, the effective
date of the Amendment.
On April 11, 2006, the Compensation Committee of the Board
of Directors of the Company approved an extension of the
employment agreement of the Company’s former President and
Chief Executive Officer and current non-executive Chairman of
the Board for an additional two-year period expiring
February 4, 2011. The
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company’s employment agreement with its former President
and Chief Executive Officer was most recently amended on
March 19, 2008. See Note 15 — Subsequent
Events.
On August 27, 2007, the Company executed an employment
agreement with its Vice President of Marketing. The employment
agreement is for a three year term and provides for an annual
salary of $225,000 per year, with annual 5% increases.
On September 1, 2007, the Company executed an employment
agreement with its President and Chief Executive Officer. The
employment agreement is for a five year term and provides for an
annual salary of $625,000 per year, with annual increases of not
less than 5%.
On November 27, 2007, the Company executed an employment
agreement with its Chief Accounting Officer. The employment
agreement is for a three year term and provides for an annual
salary of $150,000 per year, with annual 4% increases.
On November 28, 2007, the Company entered into an agreement
with Live Nation, Inc. under which the Company co-presents human
anatomy exhibitions with Live Nation. With respect to each
jointly presented exhibition, the Company is responsible for
exhibition design, installation and licensing, including the
provision of expertise, exhibitry and specimens. Live Nation is
responsible for marketing, public relations and exhibition
operations and security. Under this agreement, the Company
intends to co-present between six and nine concurrent
exhibitions at all times. In general, Live Nation’s right
to jointly present exhibitions with the Company is exclusive on
a worldwide basis, except for North America, China and certain
other limited geographic locations as well as certain
exhibitions which are subject to agreements that pre-date the
Company’s agreement with Live Nation. JAM Exhibitions, LLC
will act as Live Nation’s exclusive co-promoter for
exhibitions jointly presented under the agreement.
On January 14, 2008, the Company executed an employment
agreement with its Vice President of Business Development and
Strategy. The employment agreement is for a three year term and
provides an annual salary of $275,000 per year, with annual 4%
increases.
On February 11, 2008, the Company executed an employment
agreement with its Vice President of Sales and Strategic
Partnerships. The employment agreement is for a three year term
and provides for an annual salary of $200,000.
On February, 15, 2008 the Company executed a severance agreement
with its former Vice President and Chief Financial Officer. The
agreement calls for monthly payments of $10,417 through
December 31, 2008.
On February 20, 2008, the Company executed an employment
agreement with its new Chief Financial Officer. The employment
agreement is for a three year term and provides for an annual
salary of $285,000 per year, with annual 4% increases.
The Company has a non-cancelable operating lease for the rental
of some of its specimens used in its exhibitions. The leases are
payable quarterly, have a term of five years and five annual
options to extend.
The Company has non-cancelable operating leases for office
space. The leases are subject to escalation for the
Company’s pro rata share of increases in real estate taxes
and operating costs. During its fiscal year ended
February 28, 2005, the Company entered into another
non-cancelable operating lease for warehouse space through
December 31, 2010.
The lease for the Company’s principal executive offices was
amended a first time on August 8, 2003 to provide
additional space, bringing the total leased space to
approximately 4,700 square feet. The lease was amended a
second time on November 14, 2005 when the leased space was
increased by approximately 1,400 square feet. A third
amendment to the lease was executed on April 26, 2006. This
amendment added approximately 3,600 square
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PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
feet to the Company’s total office space. The lease was
amended a fourth time on June 12, 2007, increasing the
Company’s office space by approximately 4,900 square
feet. The total leased space after the fourth lease amendment
was approximately 14,600 square feet. The current annual
payments under the office space lease are approximately $390,000.
Rent expense charged to operations under these leases was as
follows:
Aggregate minimum rental commitments at February 29, 2008,
are as follows:
Two of the Company’s shareholders lent the Company an
aggregate of $500,000 on May 5, 2004. The loan was
unsecured and has a term of five years. The interest rate for
the loan was the prime rate plus six percent. The loan required
quarterly payments of principal in the amount of $25,000 and
accrued interest. In consideration of the loan, the Company also
issued an aggregate of 30,000 shares of its common stock to
these shareholders. This stock was valued at $35,000 and was
recorded as a deferred financing cost and was amortized to
interest expense over the term of the loan. This loan was repaid
during the fiscal year ended February 28, 2007.
On February 28, 2007, our wholly-owned subsidiary R.M.S.
Titanic, Inc. entered into a sale agreement with Seaventures,
Ltd. pursuant to which Seaventures acquired from the Company all
of its ownership interest in the Carpathia for $3,000,000. The
Company received $500,000 from Seaventures on February 28,
2007 and received the remaining $2,500,000 from Seaventures on
April 15, 2008. Also, on February 28, 2007,
Seaventures purchased an option from the Company to present the
first exhibition of objects recovered from the Carpathia
together with certain of our Titanic artifacts. The Company
received payment of $1,500,000 from Seaventures for the sale of
this option on February 28, 2007. At the time the Company
entered into the transaction with Seaventures, its principal,
Joseph Marsh, was a holder of more than 5% of our common stock.
Judy Geller, the wife of the Company’s former executive
President and Chief Executive Officer and executive Chairman and
current non-executive Chairman of the Board, was a consultant to
the Company and received payments for services of approximately
$100,000 during the fiscal year ended February 29, 2008.
Ms. Geller provided consulting on the Company’s
exhibition design, development and installation and catalog
design and development. In addition, royalty payments on the
sale of the Company’s exhibition catalogs of approximately
$197,000 were paid to her during the fiscal year ended
February 29, 2008 by the Company and the Company’s
co-presentation
partner pursuant to a royalty agreement between Ms. Geller
and the Company.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In March 2005, the Company, through its wholly-owned subsidiary,
Premier Acquisitions, Inc. (“PAI”), a Nevada
corporation, acquired all the membership interests in
Exhibitions International, LLC (“EI”), a Nevada LLC.
EI held certain exclusive licensing rights to certain anatomical
specimens and exhibitry that would significantly broaden the
Company’s offerings in its human anatomy educational
exhibition business. The acquisition of EI was completed as
follows: (1) payment of $1,500,000 by PAI for 100% of the
membership interests of EI; (2) payment by PAI of a debt of
EI in the amount of $582,000; (3) the assumption of
$750,000 of debt; (4) the issuance of 200,000 shares
of the Company’s common stock, valued at $1.54 per share;
and (5) the issuance to EI of two-year warrants to acquire
300,000 shares of the Company’s common stock, which
warrants have respective strike prices of $1.25 (with respect to
100,000 shares of common stock), $1.50 (with respect to
100,000 shares of common stock), and $1.75 (with respect to
100,000 shares of common stock).
The fair value of the two-year warrants for EI to acquire
300,000 shares of the Company’s common stock was
estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
The estimated value of these warrants is approximately $299,000,
which was recorded in exhibition licenses in the Company’s
financial statements. These warrants were exercised during the
year ended February 28, 2007, yielding the Company proceeds
of $450,000.
On December 3, 2007, the Company acquired the license
rights to promote three additional full sets of human anatomy
specimens pursuant to an agreement with the sole owner of The
Universe Within Touring Company, LLC, whereby all of the
outstanding membership interests of such entity were acquired
for $5,000,000. The Company recorded definite-life intangible
assets of approximately $3,600,000, which consisted of licenses
and contracts, and goodwill of approximately $1,400,000.
Effective March 2004, the Company adopted the R.M.S. Titanic,
Inc. 401(k) and Profit Sharing Plan (the “Plan”) under
section 401(k) of the Internal Revenue Code of 1986, as
amended. Under the Plan, all employees eligible to participate
may elect to contribute up to the lesser of 60% of their salary
or the maximum allowed under the Code. All employees who are at
least age 21 are eligible to participate. The Company may
elect to make contributions to the Plan at the discretion of the
Board of Directors. During fiscal year ended February 29,
2008, the Company made no qualified matching contributions to
the Plan. The Plan name was changed to the Premier Exhibitions
401(k) and Profit Sharing Plan in May, 2005.
Table of Contents
PREMIER
EXHIBITIONS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On March 12, 2008, the Company entered into a Lease with
Ramparts, Inc., the owner and operator of the Luxor Hotel and
Casino (the “Luxor”) in Las Vegas, Nevada. Pursuant to
the Lease, the Company leased approximately 47,164 square
feet of space within the Luxor. The Lease has an initial term of
ten years commencing upon the completion of the design and
construction work related to the opening of the Company’s
“Bodies...The Exhibition” exhibition. The term of the
Lease is renewable for up to two additional five year periods
and provides that the Company shall pay $3,266,667 in minimum
annual rent for the first three years of the Lease. Thereafter,
the minimum annual rent shall be $3,600,000. The Company shall
also pay the Luxor a percentage of its gross sales from its
operations in the leased space. The Company’s design and
construction budget for the leased space will approximate
$12,000,000.
On March 13, 2008, the Company entered into a License
Agreement with Sports Immortals, Inc. pursuant to which the
Company acquired an exclusive worldwide license to design,
produce, present, promote and conduct multiple “Sports
Immortals” exhibitions. The initial term of the License
Agreement expires five years from the opening by the Company of
its first “Sports Immortals” exhibition and may be
extended for up to five additional one year periods. The Company
will pay Sports Immortals a royalty equal to a percentage of the
gross revenue actually received by the Company from its Sports
Immortals exhibitions, less royalty advances made by the Company
to Sports Immortals. Over the Agreement’s initial term, the
Company will provide Sports Immortals with $6,000,000 in royalty
advances. If the Company elects to extend the term of the
Agreement, it shall provide Sports Immortals with royalty
advances of $1,500,000 for each of the first two additional one
year extensions and $2,000,000 for each one year term extension
thereafter. In addition, the License Agreement provides for the
grant by the Company to Sports Immortals of 300,000 warrants to
purchase shares of the Company’s Common Stock or settled in
cash as determined by the Company. The warrants are exercisable
until 90 days following the expiration of the License
Agreement’s term or any extension thereof, vest pro rata on
each anniversary date of the Agreement and have an exercise
price of $4.57 per share. During any annual extension of the
term of the Agreement, the Company shall issue 60,000 additional
warrants to purchase Common Stock or settle in cash as
determined by the Company.
Effective March 19, 2008, the Company and Arnie Geller
entered into a Fifth Amendment to Mr. Geller’s
Employment Agreement. Pursuant to such amendment,
Mr. Geller serves as the Company’s Chairman of the
Board and is no longer an executive officer of the Company.
On April 17, 2008, the Company entered into a new
Employment Agreement with Brian Wainger, its General Counsel and
Corporate Secretary. The term of such Employment Agreement
extends through April 16, 2011. Mr. Wainger shall
receive an annual base salary of $250,000 per year under such
agreement.
61
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Not applicable.
Our President and Chief Executive Officer (principal executive
officer) and our Chief Financial Officer (principal financial
officer) evaluated our disclosure controls and procedures (as
defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
as of the end of the period covered by this report. Based on
such evaluation, our President and Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of such date.
There has been no change in our internal control over financial
reporting that occurred during the fourth quarter of the fiscal
year covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Our internal control system was designed under the supervision
of our President and Chief Executive Officer and our Chief
Financial Officer and with the participation of management in
order to provide reasonable assurance regarding the reliability
of our financial reporting and our preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles in the U.S.
All internal control systems, no matter how well designed and
tested, have inherent limitations, including, among other
things, the possibility of human error, circumvention or
disregard. Therefore, even those systems of internal control
that have been determined to be effective can provide only
reasonable assurance that the objectives of the control system
are met and may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Under the supervision of our President and Chief Executive
Officer and our Chief Financial Officer and with the
participation of management, we conducted an assessment of the
effectiveness of our internal control over financial reporting
based on the criteria set forth in “Internal
Control — Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on an assessment of such criteria, management
concluded that, as of February 29, 2008, we maintained
effective internal control over financial reporting.
Management’s assessment of the effectiveness of our
internal control over financial reporting as of
February 29, 2008 has been audited by Kempisty &
Company, Certified Public Accountants, P.C., an independent
registered public accounting firm. Kempisty &
Company’s attestation report is included in Part II,
Item 8 of this report under the heading “Report of
Independent Registered Public Accounting Firm.”
ITEM 9B. OTHER
INFORMATION
Not applicable.
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Except as set forth below, the information required by this
Item 10 is: (1) incorporated into this report by
reference from our proxy statement to be issued in connection
with our Annual Meeting of Shareholders to be held on
August 6, 2008 under the headings “Election of
Directors,” “Corporate Governance” and
“Section 16(a) Beneficial Ownership Reporting
Compliance,” which proxy statement will be filed within
120 days after the fiscal year ended February 29, 2008
and (2) as set forth under “Directors and Executive
Officers” in Item 4 of Part I of this report.
We have adopted a Code of Ethics that applies to our principal
executive officer, principal financial officer, and principal
accounting officer. Our Code of Ethics also applies to all of
our other employees and, as set forth therein, to our directors.
Our Code of Ethics is posted on our website at www.prxi.com
under the heading “The Company.” We intend to
satisfy any disclosure requirements pursuant to Item 5.05
of
Form 8-K
regarding any amendment to, or a waiver from, certain provisions
of our Code of Ethics by posting such information on our website
under the heading “The Company.”
The information required by this Item 11 is incorporated
into this report by reference from our proxy statement to be
issued in connection with our Annual Meeting of Shareholders to
be held on August 6, 2008 under the headings
“Executive Compensation” and “Corporate
Governance,” which proxy statement will be filed within
120 days after the fiscal year ended February 29, 2008.
Except as set forth below, the information required by this
Item 12 is incorporated into this report by reference from
our proxy statement to be issued in connection with our Annual
Meeting of Shareholders to be held on August 6, 2008 under
the heading “Security Ownership of Certain Beneficial
Owners and Management,” which proxy statement will be filed
within 120 days after the fiscal year ended
February 29, 2008.
Securities
Authorized for Issuance under Equity Compensation Plans as of
February 29, 2008
The information required by this Item 13 is incorporated
into this report by reference from our proxy statement to be
issued in connection with our Annual Meeting of Shareholders to
be held on August 6, 2008 under the
headings “Certain Relationships and Related
Transactions” and “Corporate Governance,” which
proxy statement will be filed within 120 days after the
fiscal year ended February 29, 2008.
The information required by this Item 14 is incorporated
into this report by reference from our proxy statement to be
issued in connection with our Annual Meeting of Shareholders to
be held on August 6, 2008 under the heading
“Ratification of Our Independent Registered Public
Accounting Firm,” which proxy statement will be filed
within 120 days after the year ended February 29, 2008.
The following documents are filed as part of this report:
The following financial statements of the Company are included
in Item 8 of this Annual Report:
(b) Exhibits.
See Index to Exhibits.
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Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Premier Exhibitions, Inc.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
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