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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 15, 1998
----------------
RMS TITANIC, INC.
--------------------------------------------------
(Exact Name of Registrant as specified in charter)
Florida 000-24452 29-2753162
- ------------------------- ------------ -------------------
(State or other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
17 Battery Place, Suite 203
New York, New York 10004
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 558-6300
----------------
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Items 5 and 7
The registrant is filing, as an exhibit hereto, the form of Form 10-K for
the fiscal year ended February 28, 1997 that has been approved for filing by
George Tulloch, the Principal Executive Officer and Acting Principal Financial
and Accounting Officer of the registrant. As reflected by Form 8-K dated July
3, 1997, as amended September 2, 1997, directors of the registrant, other than
Mr. Tulloch, were removed as directors of the registrant by written consent of
a majority of shareholders dated May 1, 1997, with such removal to become
effective twenty (20) days after the distribution of an Information Statement
required under the provisions of the Securities Act of 1934, as amended.
Additionally, as reflected by Item 4 of Form 10-Q for the quarter ended August
31, 1998, by written consent of a majority of shareholders dated August 29,
1997, in lieu of an annual meeting, George Tulloch, Allan H. Carlin, Arnie
Geller, G. Michael Harris and Kurt Hothorn were elected as directors of the
Company. In the event that the removal of the directors as described above
becomes effective prior to the election of directors as described above, Mr.
Tulloch, pursuant to authority under the Bylaws of the Company, intends to
appoint Messrs. Carlin, Geller, Harris and Hothorn as directors of the Company.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned therunto duly authorized.
RMS TITANIC, INC.
Dated: June 22, 1998 /s/ George Tulloch
-------------------------------------
George Tulloch
President and Principal Executive Officer
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EXHIBIT INDEX
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Exhibit 99. Form 10-K for the fiscal year ended February 28, 1998
<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
------------------ ------------------
Commission File No. 000-24452
RMS TITANIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Florida 59-2753162
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17 Battery Place, New York, New York 10004
Address of principal executive offices
Issuer's telephone number, including area code: (212) 558-6300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.0001 per share
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ].
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of June 12, 1998, was: $ 8,508,059.00.
The number of shares outstanding of each of the registrant's classes of
common stock, as of June 12, 1998, were:
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF EACH CLASS OUTSTANDING
------------------- ----------------
<S> <C>
Common Stock, par value $.0001
per share 16,187,119
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE> 2
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, this Annual Report
on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Reform Act of 1995 which involve certain risks and
uncertainties. The Company's actual results or outcomes may differ materially
from those anticipated. Important facts that the Company believes might cause
such differences are discussed in the cautionary statements accompanying the
forward-looking statements and under in Item 7 "Management's Discussion and
Analysis of Financial Conditions and Operations." Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements contained in the Report
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
ITEM 1. BUSINESS
BACKGROUND
On May 4, 1993, RMS Titanic, Inc., acquired all of the assets and
assumed all of the liabilities of Titanic Ventures Limited Partnership
("TVLP"), a Connecticut limited partnership (the "Acquisition"). References to
the "Company" in this Report relate to TVLP prior to the acquisition and the
combined entities of TVLP and RMS Titanic, Inc. after the Acquisition.
Pursuant to a judgment entered in the Federal District Court for the
Eastern District of Virginia on June 7, 1994, the Company was declared
salvor-in-possession of the vessel RMS Titanic (the "Titanic"), the sole and
exclusive owner of any items recovered from the Titanic and, so long as the
Company is salvor-in-possession, the sole and exclusive owner of items recovered
from the Titanic in the future (the "Order"). By order dated May 10, 1996, the
Federal District Court for the Eastern District of Virginia denied a motion
instituted by a third-party seeking rescission of the rights granted to the
Company by the Order. On August 13, 1996, the Court amended such May 10, 1996
order so as to include the award of exclusive rights to photograph the Titanic
within the award of salvor-in-possession status. See "Salvage Rights" below.
The Company was formed in 1987 for the purposes of exploring the wreck
and surrounding oceanic areas of the Titanic, which sank in 1912 and lies more
than 12,500 feet below the surface of the Atlantic Ocean approximately 400 miles
off the coast of Newfoundland; obtaining oceanic material and scientific data
available therefrom in various forms, including still and moving photography and
artifacts from the wreck site; and utilizing such data and artifacts for
historical verification, scientific education and public awareness and in
revenue-producing activities such as touring exhibitions, television programs
and the sales of still photography. In August 1987, the Company contracted with
the Institute of France for the Research and Exploration of the Sea
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("IFREMER") to conduct an expedition and dive to the wreck of the Titanic.
Utilizing state-of-the-art technology of IFREMER, which is the French
Government's, and the world's largest, oceanographic institute, approximately
sixty (60) days of research and recovery operations were performed at the
Titanic wreck site through the use of a manned submersible NAUTILE.
Approximately 1800 objects were recovered during the course of thirty-two (32)
dives on such 1987 expedition. The recovered objects were conserved and
preserved by Electricite de France ("EDF"), the French government-owned utility.
In addition to the recovered objects, the Company's 1987 expedition also
produced approximately 140 hours of videotape footage and an estimated 7,000
still photographs from the wreck site.
In June 1993, the Company successfully completed its second expedition
to the Titanic wreck site, recovering approximately 800 artifacts and producing
approximately 105 hours of videotape footage during the course of fifteen (15)
dives. In July 1994, the Company recovered over 1,000 objects and produced
approximately 125 hours of videotape footage during its third expedition to the
Titanic wreck site. In August 1996, the Company recovered 74 objects and
produced approximately 125 hours of videotape footage during its fourth
expedition to the Titanic wreck site. In cooperation with the Company, Discovery
Communications, Inc. produced three (3) hours of television programming based
upon the Company's activities and various scientific studies that were
undertaken during the 1996 expedition. Two hours of this programming, presented
in "Titanic: Anatomy of A Disaster," was the highest rated program in the
history of The Discovery Channel when it aired in April 1997. In addition to
obtaining videotape footage for the television productions, a substantial
portion of the 1996 expedition was devoted to the recovery of a section of the
Titanic hull, measuring approximately 23 feet by 18 feet and weighing
approximately 20 tons, from the debris field surrounding the wreck (the "Hull
Piece"). Although the Company raised the Hull Piece to within approximately 200
feet of the surface of the ocean, efforts to recover this object were
unsuccessful as a result of stormy weather conditions and resulting ocean
turbulence.
The Company's 1993, 1994 and 1996 Titanic expeditions were also
conducted pursuant to a charter agreement with IFREMER. The objects recovered in
the 1993, 1994 and 1996 expeditions were transported to a privately-owned
conservation laboratory in France for restoration and/or preservation processes
in preparation for exhibition.
During 1997 through the date of this report, exhibitions of objects
recovered from the Titanic were presented in association with the Company in
Norfolk, Virginia (which opened in November 1996 and was presented until March
31, 1997); in Memphis, Tennessee (from April 3, 1997 to September 30, 1997),
Hamburg, Germany (from May 8, 1997 to date); at the Queen Mary in Long Beach,
California (from May 31, 1997 to date); and St. Petersburg, Florida (from
November 15, 1997 through May 31, 1998). Additional exhibitions of collections
of the Company's objects recovered from the Titanic are scheduled to be
presented in Boston, Massachusetts from July 1, 1998 through November 1, 1998
and in six (6) venuse in Japan commencing on July 20, 1998 until July 1, 1999.
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PLAN OF OPERATIONS
The Titanic has captivated the thoughts and imagination of millions of
people throughout the world for the decades since 1912, when it struck an
iceberg and sank in the North Atlantic, causing the loss of more than 1500 of
the 2228 lives on board. The depth of the abiding international interest in the
Titanic over the more than eighty-five years since its sinking is reflected by
the December 1997 release of the highest grossing motion picture of all time,
"Titanic," which through June 1998 had grossed more than $581 million in United
States movie theatres, as well as by a prodigious volume of works that have
been published about all facets of its story, the production of other feature
length movies and plays about its tragic voyage, and the broadcast of
television programs about its 1985 discovery and scientific examinations of the
wreck approximately two and one-half miles below the surface of the ocean. As
the only entity that has recovered and conserved items from the Titanic, the
Company is in the unique position to present, in a previously untold manner, a
visible and tangible perception of the Titanic by the exhibition of these
artifacts to the general public. Management of the Company intends to present
such exhibitions throughout the world, and to thereafter establish a permanent
museum for the display of the Titanic artifacts, in an enlightening and
dignified manner that embodies respect for those who lost their lives and
embraces the advances in science that have permitted the memory of the Titanic
to be physically presented to current and future generations. The principal
sources of revenues of the Company have been and are expected to be ticket
sales for admission to exhibitions, merchandising revenues, licensing revenues
and sponsorship revenues.
The long-term intent of the Company's research and recovery program is
to keep the artifacts recovered from the Titanic together as a "collection" and
make them available for exhibition to the public. Pursuant to its charter
agreements with IFREMER, the Company has agreed that the "collection" of
artifacts would not be sold by the Company to any individual or private
collector. However, if it became necessary to protect the interests of the
Company, all of the artifacts as a "collection" could be sold to an entity that
would make them available for exhibition to the public, subject to the
restrictions of the Company's agreement with IFREMER. Such agreement defines
"artifact" as any object that was either a part of the Titanic or a possession
of a person on board. Coins, coal, currency, diamonds (non-jewelry), precious
metals, and gem stones are not considered artifacts for purposes of the IFREMER
agreements.
EXHIBITIONS
The Company plans to present exhibition tours of Titanic artifacts at
cities throughout the world. In pursuit of this plan, the Company has
established exhibitions presented in association with third parties in cities in
the United States and Europe. Subject to the availability of financing on
acceptable terms, no assurance of which can be given, the Company intends to
construct an exhibition on a specially outfitted oceangoing barge which will
travel though waterways from venue-to-venue (the "Waterborne Exhibition").
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Prelude Exhibition
On October 4, 1994, the Company and the National Maritime Museum opened
The Wreck of the Titanic exhibition at the National Maritime Museum. This
exhibition, which was presented as a prelude to the Company's planned worldwide
exhibition tour, was scheduled to conclude on April 2, 1995. In March 1995, this
prelude exhibition was extended to October 1, 1995. A record-breaking number of
people visited the National Maritime Museum during the Prelude Exhibition, with
approximately 720,000 people having been admitted to the Museum during its term
of presentation.
The Wreck of the Titanic exhibition featured the first major
presentation of artifacts recovered from the debris field surrounding the
Titanic wreck site. Approximately 150 artifacts were exhibited in an area
approximating 5,000 square feet. This exhibition, which covered several themes,
including the history of the Titanic, searching for and discovering the wreck,
the 1987, 1993 and 1994 recovery expeditions, artifact conservation and
preservation, and the contemplated world tour, also included a 4-meter model of
the bow section of the wreck, a one-third scale model of the Nautile (the
high-technology manned submersible used to explore the wreck site and recover
artifacts), and previously unseen footage of the wreck site. The principal
obligations of the Company with respect to the Prelude Exhibition were to make
the Titanic artifacts available for the term of such exhibit; provide
photographs, video footage and other information relating to the recovery of the
Titanic artifacts; provide models and plans of the worldwide exhibition for
display in the Prelude Exhibition; and to consult with the National Maritime
Museum with respect to the design and content of the Prelude Exhibition. The
National Maritime Museum was responsible for the design, fabrication and
operation of the Prelude Exhibition.
Pursuant to the Prelude Exhibition agreement, the Company and the
National Maritime Museum equally shared all revenues from ticket sales through
April 2, 1995, net of value added tax, refunds and commissions ("Net Revenue"),
after recoupment by the National Maritime Museum of its costs and adjustments,
up to a maximum of pound sterling 600,000, incurred in connection with the
design and construction of the exhibition. Pursuant to the agreement, extending
the prelude exhibition from April 2, 1995 through October 1, 1995, the Company
received twenty (20%) percent of the Net Revenue. The Company's share of the Net
Revenues derived from the Prelude Exhibition amounted to $650,071 during the
twelve month period of its presentation.
Merchandising activities with the National Maritime Museum and
Winterland Productions (UK) Limited ("Winterland") were undertaken in connection
with The Wreck of the Titanic exhibition, pursuant to which all merchandise was
designed, manufactured and/or acquired by Winterland, and profits from
merchandising activities were shared equally between the Company, the National
Maritime Museum and Winterland. The Company's share of profits from such
merchandising activities amounted to $174,305 during the Prelude Exhibition.
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Memphis Exhibition
Following the Prelude Exhibition, in 1996 the Company entered into an
agreement with the City of Memphis, Tennessee for the presentation of a larger
exhibition of Titanic artifacts in Memphis, Tennessee from April 3, 1997 through
September 30, 1997. Pursuant to the exhibition agreement, as amended, the City
of Memphis was responsible for payment of all costs and expenses related to the
design, construction and operation of the exhibition. Additionally, pursuant to
the agreement, the Company received exhibition revenues of $720,000 in
installments between September 1996 and August 1, 1997, and also received 65% of
the net profits, as defined, derived from ticket, merchandise and sponsorship
revenues in excess of $5,000,000, plus the actual out-of- pocket expenses
incurred by the City in packing, shipping and insuring the transit of the
objects from Semur-en-Auxious, France, where the conservation laboratory is
located, to Memphis, Tennessee. The exhibition agreement also granted the
Company a right of first refusal for the purchase of any or all display cases,
theatrical pieces, didactic panels, models, lighting instruments, and other
display items that may be developed by the City for the exhibition at a price
equal to seventy-five (75%) percent of the cost of the production thereof.
The Memphis exhibition displayed in themed galleries more than 250
artifacts recovered between 1987 and 1994 by the Company in an area of
approximately 25,000 square feet, including a bronze cherub, the ship's
whistles, a steward's jacket, silver dinnerware, fine china, gold coins,
jewelry, delicate paper objects such as a stock certificate and personal
letters, communications and navigational gear, and a piece of one of Titanic's
engines. This exhibition also included an 18-foot scale model of the Titanic,
replications of a First Class stateroom, dining rooms, Third Class and crew
cabins and recreational areas of the Titanic, the Marconi Room, and a model of
the bow of the wreck.
Approximately 635,000 individuals attended the Memphis exhibition
during the six-month term of its presentation. The Company earned approximately
$2,075,000 of revenue from this exhibition, inclusive of the minimum guaranteed
fees of $720,000.
The objects exhibited at the Memphis exhibition and associated
exhibitry transported and installed in the Florida International Museum in St.
Petersburg, Florida for an exhibition presented from November 15, 1997 to May
31, 1998. See "St. Petersburg Exhibition below."
Hamburg Exhibition
The Company entered into an agreement, as amended, with Cre - Co Finanz
GmbH ("CRE"), a company organized under the laws of Germany, for the
presentation of an exhibition of approximately 300 of the Company's Titanic
artifacts in Speicherstadt, the historic maritime center of Hamburg, Germany,
from May 8, 1997 through November 8, 1997 (the "European Exhibition
Agreement"). This agreement has been amended to extend the exhibition on a
month-to-month basis, following previous extensions through January 31, 1998
and May 10, 1998. CRE is responsible for payment of all expenses incurred in
connection with establishing and presenting this exhibition. In addition to
displaying objects from Titanic and her passengers and crew, the Hamburg
exhibition includes the first opportunity for the public to view Titanic's
bell, compass, telegraph and safe together. The theme of the Hamburg exhibition
is an interactive presentation of the technological advances required to
accomplish the recovery and
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conservation of Titanic's artifacts, and includes replicas of
the First Class, Second Class and Third Class cabins, and a model of the bow of
the wreck.
Pursuant to the European Exhibition Agreement, the Company received
two-thirds (2/3) and CRE received, through January 31, 1998, one-third (1/3) of
the profits from this exhibition (the "Profits), which are defined as net
revenues (including ticket, sponsorship, merchandising and ancillary revenues,
if any, derived from the exhibition) less "project expenses" (which includes
all costs and expenses of every kind and description in establishing, operating
and marketing the exhibition up to a maximum of approximately $2,700,000, plus
an additional allowance, as defined, for operating expenses for attendance
thresholds between 300,000 and 700,000. Simultaneously with the execution of
this agreement, the Company was paid the sum of $350,000 as an advance against
its share of Profits (the "Advance"). In addition, CRE advanced the sum of
$110,000 during the 1998 fiscal year which was provided for the conservation of
artifacts utilized in the Hamburg exhibition. The European Exhibition Agreement
was amended so as to provide that in satisfaction of CRE's obligations to the
Company for the period ended February 28, 1998, CRE would pay to the Company
the sum of $433,189 and transfer to the Company exhibitry utilized in the
Hamburg exhibition which cost $559,414, due the Company for its share of
exhibition revenue. It was further agreed that CRE would pay to the Company,
for the period from March 1, 1998 through May 10, 1998, the sum of $2.00 per
visitor to the exhibition, fifteen (15%) percent of gross merchandise sales,
and fifty (50%) of the gross catalogue sales at the exhibition. This exhibition
is continuing through the date of this report on a month-to-month basis.
The Company earned approximately $1.453,000 from this exhibition
through February 28, 1998, inclusive of the $350,000 Advance paid to the
Company, $110,000 advanced by CRE for the conservation of artifacts, and the
$559,414 of exhibitry transferred to the Company. As of May 31, 1998, more than
800,000 visitors attended this exhibition.
St. Petersburg Exhibition
The Company entered into an agreement with the Florida International
Museum, Inc. ("FIM") and the City of Memphis (the "City") for an exhibition of
the artifacts and associated exhibitry displayed in the Memphis exhibition from
November 15, 1997 to May 15, 1998. Pursuant to the exhibition agreement, FIM is
responsible for payment of all costs and expenses related to the design,
construction and operation of the exhibition. This agreement further provides
that the Company will receive attendance fees (the "Attendance Fees") as
follows for attendees from whom FIM receives more than $6.00 to attend the
exhibition: $.34 per visitor for the first 250,000 visitors; $2.80 per visitor
for 250,001 to 350,000 visitors; $3.10 per visitor for 350,001 and 450,000
visitors; and $2.95 per visitor in excess of 450,000. In addition, the Company
will receive $1.00 for every visitor who pays $6.00 or less for admission to
the exhibition. The exhibition agreement additionally provides that the Company
will receive ten (10%) of the gross revenue, as defined, from the sale of
merchandise at the FIM Gift Shop related to the exhibition (the "Gift Shop
Fee"). The minimum combined Attendance Fee and Gift Shop Fee payable to the
Company is $300,000, $100,000 of which was paid in January 1997, $50,000 of
which was paid on November 15, 1997, and the balance of which is payable within
thirty (30) days of the end of the exhibition to the extent that the Company's
total Attendance Fee and Gift Shop Fee is less than $300,000. Additionally,
pursuant to the agreement, FIM has agreed to
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lease the exhibitry utilized in the Memphis exhibition for $150,000. Such
$150,000 payment will be remitted to the City on the Company's behalf for the
purchase of the exhibitry from the City under the agreement. The Company has
exercised its rights to purchase items of exhibitry at a cost in excess of such
$150,000.
This exhibition agreement was amended so as to provide for an extension
of the term of this exhibition to May 31, 1998, with the Company to receive,
during the period from May 16, 1998 through May 31, 1998, $2.60 per visitor from
whom FIM receives more than $6.00 per ticket and $1.00 per visitor from whom FIM
receives $6.00 of less per ticket. In all other respects, the exhibition
agreement among FIM, the City of Memphis and the Company remains unchanged.
The Company earned approximately $285,000 from this exhibition through
February 28, 1998. Upon closing of the exhibition on May 31, 1998, approximately
830,000 people had attended the exhibition.
Boston Exhibition
The Company has entered into an agreement with Resource Plus and Event
Management International ("EMI"), a division of the World Trade Center Boston,
for the presentation of more than 250 artifacts in Boston, Massachusetts from
July 1, 1998 through on or about November 15, 1998. Pursuant to the exhibition
agreement, EMI is responsible for payment of all costs and expenses related to
the design, construction, operation and marketing of the exhibition. Pursuant to
the exhibition agreement, the Company will receive two-thirds (2/3) and EMI will
receive one-third (1/3) of the profits from this exhibition (the "Profits"),
which are defined as net revenues (including ticket, sponsorship, merchandising
and ancillary revenues, if any, derived from the exhibition) less "cost of
operations" (which includes all costs and expenses of every kind and description
in operating and marketing the exhibition up to a maximum of approximately
$2,525,000, but does not include the costs of the exhibitry utilized in the
exhibition). The exhibition agreement further provides that the Company's share
of Profits shall first be credited to EMI's recoupment of the costs of the
exhibitry, which is estimated will be approximately $800,000, and that all
rights to ownership of the Exhibitry will vest in the Company as of August 31,
1998. Additionally, the exhibition agreement provides that EMI shall prepack,
pack, handle, provide security for, transport and install the exhibition in the
next United State venue for the exhibition, and provide consultation services in
connection with the establishment of the exhibition in the next venue, in
consideration of the payment of $300,000 in six (6) equal monthly installments
of $50,000 each commencing on December 1, 1998.
Japan Exhibition
The Company has entered into an agreement with Titanic Exhibition Japan
Inc. ("TEJI") for the exhibition of approximately 200 Titanic artifacts in six
(6) venues in Japan commencing on or about July 20, 1998 and ending on or about
July 1, 1999. The Japanese exhibition will initially be presented in the city of
Tokyo for 32 days, and is then scheduled to be presented in the cities of
Yokohama (48 days), Kyoto (60 days), Kobe (30 days), Hiroshima (30 days) and
Sapporo (30 days). Pursuant to the exhibition agreement, TEJI has agreed to pay
the conservator of the Company's artifacts $321,000 for the conservation and
restoration of artifacts to be displayed in the exhibition. The exhibition
agreement further provides that TEJI is responsible for payment of
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all costs and expenses related to the design, construction, operation and
marketing of the exhibition, and that the Company will receive the greater of
$3.00 per person who attends the exhibition or fifty (50%) of the profits from
the exhibition. Under the exhibition agreement, "profits" means the excess of
net revenues (including ticket, sponsorship, merchandising and ancillary
revenues, if any, derived from the exhibition) less "project expenses" (which
includes all costs and expenses of every kind and description in establishing,
operating and marketing the exhibition up to a maximum of approximately
$3,470,000. Additionally, the exhibition agreement provides that RMST has the
right to select and obtain legal title to fifty (50%) of the exhibitry utilized
in the exhibition at no additional cost to RMST, with such rights to be
exercised no later than the completion of the exhibition tour.
Queen Mary Exhibition
The Company has entered into an agreement with the RMS Foundation, Inc.
to exhibit artifacts, expedition equipment, photographs and film footage from
the 1996 Titanic expedition aboard the Queen Mary in Long Beach, California (the
"Queen Mary") from June 1, 1997 through January 5, 1998 (the "Initial Term") in
an exhibition titled "Titanic: The Expedition." This agreement has been amended
so as to extend this exhibition until September 7, 1998 (the "Extension Term").
Approximately thirty (30) unrestored artifacts recovered during the Summer of
1996 expedition (including one of Titanic's whistles, a large silver soup
tureen, binoculars in a leather case, and a porthole) and fourteen (14)
conserved artifacts from prior expeditions are displayed at the Queen Mary,
together with a life-size rendition of the 20 ton section of the Titanic hull
that the Company sought to raise from the debris field surrounding the Titanic
wreck site during the Summer of 1996 Expedition, a two-ton flotation bag used in
artifact recovery operations, and a full-size replica of a three-ton light tower
that the Company utilized to illuminate portions of the wreck during the
Company's 1996 expedition to the Titanic. The theme of this exhibition is the
exploration of, and efforts to recover objects from, the Titanic wreck. Pursuant
to the Queen Mary exhibition agreement, RMS Foundation is responsible for
payment of all costs and expenses related to the design, construction and
operation of the exhibition. Pursuant to the agreement, as amended, the Company
received from the sale of up to 150,000 tickets, $2.00 per ticket during the
Initial term and $2.50 per ticket during the Extension Term, and $3.00 per
ticket from the sale of more than 150,000 tickets. In addition, the Company
receives fifty (50%) percent of net profits, as defined, from the sale of
merchandise at the Queen Mary exhibition, and fifty (50%) of any sponsorship
revenue.
The "Titanic: The Expedition" presented at the Queen Mary is designed
to be presented in an area of approximately 6,000 square feet, as compared to
the Memphis, Hamburg and St. Petersburg exhibitions, which have occupied between
30,000 square feet to more than 40,000 square feet. The Queen Mary exhibition is
substantially the same as the "Titanic: The Expedition" exhibition presented at
the National Maritime Center (NAUTICUS) in Norfolk, Virginia from November 27,
1996 through March 31, 1997, from which the Company derived ticket and
merchandising revenues of approximately $125,000 through February 28, 1997.
The Company earned approximately $248,000 from this exhibition through
February 28, 1998. As of May 31, 1998, approximately 163,000 visitors had
attended this exhibition.
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The Waterborne Exhibition
Preliminary designs of the Waterborne Exhibition include the display of
Titanic artifacts and presentation of the story of the Titanic from its
inception through today in a 45,000 square foot, two and one-half tier exhibit
area. Management of the Company believes that implementation of this unique
Waterborne Exhibition concept will be a more cost-efficient and effective means
of presenting a worldwide exhibit to the largest potential audience as compared
to the alternatives of either negotiating for and designing exhibit areas in
each venue, or incurring the charges of breaking-down, transporting and
setting-up a "portable" exhibit from venue-to-venue. In addition to providing
access to major markets throughout the world, the utilization of a Waterborne
Exhibition would enable the Company to present the worldwide tour to secondary
markets which would otherwise be inaccessible because of the costs associated
with presenting an exhibit to these smaller markets through other means. It is
presently anticipated that the tour will be presented for an estimated ten (10)
years in approximately thirty (30) major markets and approximately ten (10) to
twenty (20) secondary markets throughout the world. The routing of the tour to
such markets, and the period of presentation of the exhibit in each market, has
not yet been determined. It is expected that admission ticket prices will vary
from market-to-market and will be structured to be competitive to other
exhibitions or entertainment events within such markets.
Management of the Company intends to contract the design and
fabrication of the Waterborne Exhibition to independent third parties, and
believes that such arrangements will be available on terms that are acceptable
to the Company. Management further believes that an oceangoing barge suitable
for the Waterborne Exhibition can be constructed on satisfactory terms from
numerous sources of supply. Although the Company has had extensive discussions
with a prospective contractor concerning the design and fabrication of the
Waterborne Exhibition, no discussions with any prospective contractor are
ongoing as of the date of this report.
The Company's ability to design, fabricate and present the Waterborne
Exhibition will be dependent upon the Company obtaining additional financing
from outside sources or from revenues. The Company has been seeking and intends
to continue to seek debt financing to fund as much of the Waterborne Exhibition
as may be available on terms satisfactory to the Company. In connection with any
such debt financing that may be obtained, no assurances of which can be given,
the Company expects, among other things, to be required to pledge its assets to
a lender, to be restricted in its ability to incur additional obligations,
and/or to abide by certain financial covenants. No assurances can be given as to
when or the terms upon which such financing will be available. The Company could
experience difficulties or delays in obtaining financing for the Waterborne
Exhibition, and if financing is obtained on terms acceptable to the Company,
could also experience difficulties or delays in the construction of the
Waterborne Exhibition. The construction of the planned Waterborne Exhibition is
subject to all of the delays and uncertainties associated with construction
projects generally. Additionally, the Company has not made arrangements for the
presentation of the Waterborne Exhibition in specific ports and will need to
obtain permits and approvals from local governmental authorities. While
management of the Company believes that such arrangements will be available on
terms and conditions acceptable to the Company, and that the Company will
satisfy requirements for such permits and approvals, difficulties and delays
could be encountered in securing prospective sites and/or the requisite permits
and approvals, which, in turn, could delay or otherwise adversely impact the
Company's revenue producing activities.
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<PAGE> 11
THE PERMANENT MUSEUM
Upon completion of a world tour of the Company's artifacts, the Company
intends to establish a permanent museum for the artifacts at a facility in a
major United States or European market where tourism is well-established. The
selection of the site of such museum will be made by management based primarily
upon the recommendations of the International Advisory Committee (see
"International Advisory Committee" below), the size of the potential market and
the costs of establishing and operating an appropriate facility.
MERCHANDISING
The merchandising efforts in connection with the Memphis, Hamburg,
Queen Mary and St. Petersburg exhibitions were undertaken by the parties with
which the Company is presenting such exhibitions. The Company does not have
responsibility for procurement of any merchandise or the operation of the
merchandise shops at the venues.
The Company has entered into an agreement with an unaffiliated third
party, Titanic Merchandise Inc. ("TMI"), to operate and manage retail
merchandise operations at the Company's exhibitions in the United States until
July 1, 2001. Pursuant to this agreement, TMI is responsible for all costs
associated with the retail operations, including but not limited to build-out,
inventory and operational costs and has agreed to pay to RMST and the
co-presenters of the exhibition, such as EMI with respect to the Boston
exhibition, an amount equal to thirty (30%) of the gross revenue realized
through retail sales at the exhibition site. TMI has also agreed to pay to RMST
an amount equal to ten (10%) percent of its gross revenue received from sales
made by TMI to third parties, and an amount equal to five (5%) of the suggested
retail price bearing the Company's logos or incorporating other proprietary
rights of RMST, whether sold at exhibitions or through retail outlets other than
the exhibitions. It is further contemplated, subject to the parties agreeing
upon a guaranteed minimum monthly amount to be paid to RMST, that TMI will have
an exclusive right to produce an official Company mail order catalogue, sell
merchandise through the Company's web site (http://www.titanic-online.com), and
to provide TMI with the Company's 1-800-TITANIC telephone number for the purpose
of selling exhibition tickets and maximizing merchandise sales in consideration
for TMI's agreement to pay to RMST thirty (30%) percent of the gross revenue
derived from the mail-order catalog and use of this telephone number. If the
parties are able to agree upon a guaranteed minimum amount to be paid to RMST,
no assurances of which can be made, these direct marketing rights will become
effective for a period of two years commencing on a date to be mutually
determined based upon TMI's ability to undertake these operations in addition
to the establishment and operation of retail sales shops at the Company's
United States exhibitions.
The Company intends to manufacture replicas of selected artifacts or to
sell licenses to third parties for replication of artifacts that have been
recovered from the Titanic. It is contemplated that the Company will receive a
negotiated royalty from the sales of the artifact replicas in consideration of
the granting of such licenses. No assurances can be given that such licensing
arrangements will be successfully consummated, or if consummated, will result in
the Company's receipt of significant revenues. The Company also intends to
pursue the direct marketing of merchandise through its web site
(http://www.titanic-online.com) and through third parties.
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<PAGE> 12
The Company has entered into an agreement with Tehabi Books for the
publication of a "coffee table" book titled "Titanic - Legacy of the World's
Greatest Ocean Liner" to be distributed by Time-Life Books, which was published
in October 1997 (the "Book"). The Book was on the New York Times Bestseller List
for thirteen (13) consecutive weeks ending in April 1998. Pursuant to its
agreement with Tehabi, all expenses related to the development and production of
the book, including but not limited to all payments to the printer, the author
and the owners of all photographic rights, were the sole responsibility of
Tehabi. The Company granted to Tehabi the exclusive right to publish in book
form all photographs owned by the Company that were selected for inclusion in
the Book, in consideration for which the Company receives a royalty, for the
first 50,000 copies of the book, of $175 per photograph or image owned by the
Company (the "Photographs") for the first 50,000 copies of the Book, and $87.50
per Photograph for every additional 50,000 copies, prorated according to the
number of additional books produced. In addition, Tehabi and the Company agreed
that Tehabi would receive the first $200,000 of net revenue derived from its
sale of the Book (which was defined as gross revenue less certain actual
manufacturing costs, such as printing costs and photography royalties paid to
the Company for Books produced over the first 50,000 copies), the Company would
receive the next $40,000 of net revenue, and the parties would equally share
all net revenue in excess of $240,000.
SPONSORSHIP
Management of the Company believes that the broad spectrum of public
interest in the story of the Titanic, and its appeal to a diverse demographic
base encompassing all ages, from young school children to the elderly, will be
of substantial interest to potential sponsors for the Company's future
exhibitions. Sponsorship opportunities are currently being pursued in connection
with the Company's exhibition in Boston and in Japan, principally through the
efforts of the third-parties with which the Company has organized such
exhibitions. The success of efforts to obtain sponsors for exhibition activities
may depend upon the Company's ability to establish a long-term schedule of
exhibitions.
EXPEDITIONS TO THE TITANIC
As a consequence of the depth of the Titanic approximately two and
one-half miles below the surface of the ocean in the North Atlantic, the Company
is dependent upon chartering vessels outfitted with highly advanced deep sea
technology in order to conduct expeditions to the Titanic. With respect to its
1987, 1993, 1994 and 1996 expeditions, the Company entered into charter
agreements with IFREMER, pursuant to which IFREMER supplied the crew and
equipment necessary to conduct research and recovery efforts. In addition to
utilization of the research vessel NADIR, recovery efforts are undertaken
through the manned submersible NAUTILE. Small, hard-to-reach areas necessary for
visual reconnaissance efforts are accessed by a small robot, known as ROBIN,
controlled by crewmen on board the NAUTILE. The dive team has the capability of
retrieving heavy objects, such as a lifeboat davit weighing approximately 4,000
lbs., to fragile objects weighing but a few ounces. Because of the immense
pressure of approximately 6,000 pounds per square inch at the wreck site, it is
impossible for the dive team to reach such depths and explore the wreck site
through any means other than a submersible. The NAUTILE and ROBIN are each
equipped with video and still cameras that record all recovery and exploration
efforts. In connection with its 1987, 1993, 1994 and 1996 expeditions to the
wreck site, the
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<PAGE> 13
Company engaged experts from various fields, including maritime scientists and
other professional experts, to assist in the Company's exploration and recovery
efforts. Management of the Company intends to engage experts from such fields
for its future expeditions to the Titanic.
The Company's ability to conduct expeditions to the Titanic is subject
to the availability of necessary research and recovery vessels and equipment for
chartering by the Company during the months between June and September, which is
the "weather window" for such activities in the
North Atlantic. Research and recovery efforts with a manned
submersible are presently limited to the availability of the NAUTILE pursuant
to charter arrangements with IFREMER. To the best of the knowledge of
management of the Company, no other submersible with the capability of reaching
the depth of the Titanic is commercially available to or acceptable by the
Company for chartering. While management of the Company believes that the
utilization of a manned submersible is the preferred means for conducting its
research and recovery efforts, the Company could conduct sufficient operations
through the use of unmanned, surface-controlled, remote operated vehicles, an
adequate number of which, in management's opinion, would be available for
chartering by the Company on acceptable terms from numerous sources of supply.
The Company has entered into a preliminary agreement to charter vessels
from IFREMER for an expedition to the Titanic wreck site in August 1998. It is
expected that the principal artifact recovery objective of this expedition will
be the recovery of the Hull Piece, with respect to which recovery efforts were
unsuccessful during its 1996 expedition to the wreck site. See "Background" and
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Additionally, the Company intends to extensively photograph and
videotape the wreck and wreck site for scientific and archaeological purposes.
It is expected that television broadcast and related media rights for such
exhibition will be licensed to an unaffiliated third-party, with the Company
retaining the rights to commercialize the images and data for other purposes,
including print publication and electronic mediums, such as CD-ROMS.
An unrelated entity has announced the intention of conducting a
photographic expedition, known as Operation Titanic, to the Titanic wreck site
during August 1998, when the Company intends to conduct its 1998 expedition. The
Company has commenced legal proceedings to obtain an injunction prohibiting such
photographic expedition during August 1998 or at any other time so long as the
Company is salvor-in-possession of the wreck and wreck site of the Titanic. See
Item 3 - "Legal Proceedings" below. During 1996, the United States District
Court for the Eastern District of Virginia granted similar injunctive relief to
the Company in connection with another third-party's efforts to conduct a
photographic expedition to the Titanic without the consent of the Company. See
"Salvage Rights" below. In the event that Operation Titanic seeks to conduct its
expedition while the Company is conducting its expedition, safety hazards
regarding the deployment of IFREMER's submersibles while other submersibles or
deployed could preclude the Company from conducting its expedition as planned.
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<PAGE> 14
RESTORATION AND CONSERVATION
Upon recovery from the wreck site, artifacts are in varying states of
deterioration and fragility. Having been submerged in the depths of the ocean
for more than eighty-five (85) years, objects have been subject to the corrosive
effects of chlorides present in the sea water. The restoration of many of the
metal, leather and paper artifacts requires the application of sophisticated
electrolysis and other electrochemical techniques. Various artifacts recovered
from the 1987 expedition were restored and conserved by the laboratories of
Electricite de France, the French government-owned utility. Except for those
unrestored artifacts that are exhibited in Memphis, Tennessee, Hamburg, Germany
and at the Queen Mary exhibition, unrestored artifacts recovered
from the 1993, 1994 and 1996 expeditions are presently undergoing conservation
processes at LP3, a privately-owned conservation laboratory in Semur-en-Auxois,
France.
SALVAGE RIGHTS
Pursuant to a judgment entered in the Federal District Court for the
Eastern District of Virginia on June 7, 1994, the Company was declared
salvor-in-possession of the wreck and wreck site of the Titanic, the true, sole
and exclusive owner of any items recovered from the Titanic and, so long as the
Company is salvor-in-possession, the sole and exclusive owner of all items
recovered from the Titanic in the future. The Court's judgment includes, without
limitation, the contents, cargo, hull, machinery, engine, tackle, apparel and
appurtenances of the Titanic, and provides that all potential claimants are
barred and precluded from filing claims so long as the Company is
salvor-in-possession. No other entity has the right to salvage the Titanic while
the Company is salvor-in-possession. In order to maintain salvor-in-possession
status, the Company, among other things, will need to maintain a reasonable
presence at the wreck through periodic expeditions and will need to continue
efforts at salvage and preservation of artifacts during the period between
salvage expeditions.
In February 1996, a third-party instituted a motion in the Federal
District Court for the Eastern District of Virginia seeking rescission of the
June 7, 1994 order awarding to the Company salvor-in-possession status. By order
dated May 10, 1996 entered after trial, such motion was denied. The court also
modified its June 7, 1994 order to the extent of requiring the Company to file
more frequent periodic reports as to the status of its activities. In August
1996, the Court amended such May 10, 1996 order so as to include the award of
exclusive rights to photograph the Titanic within the award of
salvor-in-possession status, and enjoined third-parties from entering the wreck
site for purposes of obtaining photography or for other purposes.
Management of the Company believes that all requirements to maintain
its salvor-in-possession status have been satisfied and will be satisfied in the
foreseeable future. Should the Company not maintain its salvor-in-possession
status, other entities could conduct salvage operations and recover items from
the Titanic wreck site. Management believes, however, that salvage operations by
other entities, if successful, would not have a material adverse affect upon the
Company's plan of exhibition activities. However, the loss of
salvor-in-possession status could have a materially adverse affect upon the
Company's ability to generate revenues from ancillary
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<PAGE> 15
activities, such as television productions related to, or passenger cruises
accompanying, research and recovery expeditions.
INTERNATIONAL ADVISORY COMMITTEE
In March 1994, the Company and the National Maritime Museum initiated
the formation of an International Advisory Committee with the purpose to
"safeguard the future of the Titanic wreck site and objects raised from it and
to ensure that they are conserved to the highest standards to be saved for
future generations in a Titanic Memorial Museum." The members of the
International Advisory Committee, in addition to the Company and the National
Maritime Museum of Greenwich, London, England, are as follows: Musee de la
Marine, Paris, France; IFREMER; The Maritime Association, New York, New York;
Titanic International Society, Freehold, New Jersey; Charles A. Haas (author
and historian); National Maritime Museum, Stockholm, Sweden; National Maritime
Museum of Norway, Oslo, Norway; John P. Eaton (author and historian); and the
British Titanic Historical Society, Lancashire, England. Annual meetings of the
Committee were held in London, England in October 1994, 1995 and 1996. It is
expected that meetings of the Committee will be held on an annual basis.
MARKETING
The organizations in association with which the Company is presenting
its exhibitions are responsible for undertaking and paying for the marketing and
promotion of the exhibitions. With respect to the planned Waterborne Exhibition,
if successfully financed and constructed, the Company intends to market and
promote its business activities through advertising and public relations
programs in each market where its exhibition will be presented, and to engage
the services of advertising and public relations agencies on a
country-by-country basis. Management intends to advertise the Waterborne
Exhibition through all forms of media, including print, radio and television. In
addition, the Company intends to retain a public relations firm to address and
coordinate the publicity needs of the Company on a national basis.
The Company also intends to establish special promotional programs for
school-age children and educational institutions, and plans to develop and
distribute teaching materials to aid in the historical and scientific studies
currently used in school curriculum regarding the Titanic.
COMPETITION
The entertainment and exhibition industries are intensely competitive.
There can be no assurances that the Company will be able to compete effectively.
Many of the entities with which the Company will be competing have substantially
greater resources than the Company. Additionally, following the success of the
motion picture "Titanic" in December 1997, a number of entities have announced
an intention to offer exhibitions or events with the theme of Titanic or
involving memorabilia related to its sinking. Although the Company is the only
entity that exhibits artifacts recovered from the wreck site of the Titanic,
competition may be encountered from these exhibitions or events for the
consumer's interest in Titanic or with respect to the interest of
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<PAGE> 16
prospective venues for presenting the Company's Titanic exhibition. Management
intends to compete with other entities based upon the mass appeal of its
planned exhibits to consumers of entertainment, museum, scientific and
educational offerings and the quality and value of the entertainment
experience, emphasizing the unique and distinctive perspective of the Titanic
that the Company will incorporate into its exhibits as Titanic's
salvor-in-possession and as the only entity that has the rights to objects
recovered from the Titanic.
The success of the Company's merchandising efforts will depend largely
upon the consumer appeal of its merchandise and the success of its exhibitions.
Management of the Company believes that its merchandise will compete primarily
on the basis of its unique character and quality.
EMPLOYEES
As of June 5, 1998, the Company had four (4) employees, one of whom is
its President. The Company is not a party to any collective bargaining
agreement.
The Company's future business and operating results depend in
significant part upon the continued contributions of George Tulloch, the
Company's President. The Company does not maintain a key person life insurance
policy on Mr. Tulloch. The Company's future business and operating results also
depend in significant part upon its ability to attract and retain qualified
additional management, marketing and support personnel for its operations.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. The
loss of Mr. Tulloch or the Company's inability to attract and retain skilled
employees, as needed, could materially and adversely affect the Company's
business, financial condition and results of operations.
The Company's strategy for presenting exhibitions of Titanic artifacts
is dependent upon either hiring personnel who are experienced and possess
expertise in operating and marketing exhibitions or engaging third-parties with
such qualifications. To date, arrangements for the hiring of such additional
staff or engaging such third-parties have not been established. Management of
the Company believes that acceptable arrangements with such personnel or
third-parties can be made within time frames required to implement the Company's
exhibition strategies. However, no assurances can be made that such personnel or
third-parties will be available on satisfactory terms or when needed by the
Company. Delays or difficulties in engaging personnel or third parties for the
operation and marketing of exhibitions, including without limitation the
Waterborne Exhibition, could have a materially adverse affect upon the Company's
operations.
ENVIRONMENTAL MATTERS
The Company will be subject to environmental laws and regulation by
federal, state and local authorities in connection with its planned exhibition
activities. The Company does not anticipate that the costs to comply with such
laws and regulations will have any material effect on the Company's capital
expenditures, earnings or competitive position.
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<PAGE> 17
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices are located in New York, New
York and consist of premises of approximately 3,500 square feet which are leased
pursuant to a lease expiring in September 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is a named defendant in a lawsuit commenced in the United
States District Court for the Southern District of New York on or about December
16, 1997 (Lindsay v. The Wrecked and Abandoned Vessel RMS Titanic, et al., in
rem, and RMS Titanic, Inc. et al., No. 97Civ9248). The plaintiff therein
alleges, inter alia, that he rendered certain services to the Company in
connection with its 1996 expedition to the Titanic wreck site and in particular
connection with the alleged production of film, video and still images of the
Titanic illuminated by certain light towers. The relief sought includes an
accounting and a judgment declaring the plaintiff a co-salvor of the 1996
expedition and awarding him, in specie, the underwater, film, video and still
photographs allegedly obtained by plaintiff from the use of the light towers.
The plaintiff also seeks an award of compensatory damages of up to
approximately $500,000 and punitive damages in excess of $2,000,000 based upon
claims of breach of contract, fraudulent misrepresentation, money lent, quantum
meruit and conversion. Management of the Company believes it has meritorious
defenses to these claims, intends to defend its position vigorously, and to
assert counterclaims seeking compensatory and punitive damages against the
plaintiff based upon, among other things, claims that the plaintiff has
wrongfully removed and retained property owned by the Company, has wrongfully
interfered with the Company's contractual relations with third parties, and has
violated the Company's copyright to the images obtained with the light towers.
In connection with this action, the parties agreed that, without further order
of the court, coins and currency recovered from the Titanic located within the
Southern District of New York (the "District") as of December 18, 1997 will not
be removed from the District, and will not be sold, liened or otherwise
encumbered. On the basis that the Company has no intention to remove, sell,
lien or otherwise encumber these items, management of the Company believes that
this agreement will have no material adverse affect upon the Company. The
Company has filed motions to dismiss the complaint and/or transfer it to the
Eastern District of Virginia. In April 1998, oral argument was held on these
motions, and no decision has been rendered as of the date of this report.
The Company is a named defendant in a lawsuit commenced in the United
States District Court for the Eastern District of Virginia) on or about May 4,
1998 (Haver v. RMS Titanic, Inc., Civil Action No.: 2:98cv507). The plaintiff
therein seeks a declaratory judgment permitting him to participate in a
photographic expedition to the wreck of the Titanic known as Operation Titanic.
This action does not challenge the Company's salvor-in-possession status. On or
about May 4, 1998, the Company instituted a motion for a preliminary injunction
in the United States District Court for the Eastern District of Virginia against
Deep Ocean Expeditions, Mike McDowell, Bakers World Travel, Quark Expedition,
Ralph White, Don Walsh, Alfred S. McLaren, WildWings, and Mr. Haver, all of whom
are involved in Operation Titanic, seeking an order enjoining such parties from
conducting their proposed photographic expedition. (R.M.S. Titanic, Inc. v. The
Wrecked
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and Abandoned Vessel, etc. believed to be the RMS Titanic, in rem, Civil
Action No. 2:93cv902). The United States District Court for the Eastern District
of Virginia has previously held, in August 1996, that RMS Titanic, Inc. had the
right to exclude others from taking photographs of the wreck and to control
entry in to the wreck site. The Court's ruling to that effect also states that
the Company has the right to exclude others from the wreck site regardless of
whether the Company is at the wreck site while other groups attempt to visit the
site. Pursuant to stipulation, the action commenced by Mr. Haver and the
Company's motion for a preliminary injunction have been consolidated. On May 27,
1998, a hearing was held on the Company's motion for a preliminary injunction,
and no decision has been rendered as of the date of this report.
ITEM 4. SUBMISSION OF MATTERS OF VOTE OF SECURITY HOLDERS
By written consent of a majority of shareholders dated May 1, 1997,
Messrs. Gasparrini, Vitti, Duffy and Slavitt were removed as directors of the
Company. Such removal will become effective twenty (20) days after distribution
of an Information Statement in accordance with the provisions of the Securities
Act of 1934, as amended.
By written consent of a majority of shareholders dated August 29,
1997, in lieu of an annual meeting, George Tulloch, Allan H. Carlin, Arnie
Geller, G. Michael Harris and Kurt Hothorn were elected as directors of the
Company. This action will become effective twenty (20) days after the mailing
to shareholders of an Information Statement required under the Securities
Exchange Act of 1934, as amended.
ITEM 5. PRICE RANGE OF SECURITIES
(a) MARKET INFORMATION. The Company's Common Stock is traded on the
over-the-counter market on a limited and sporadic basis. The following table
sets forth the range of high and low bid quotations of the Company's Common
Stock for the periods set forth below, as reported by OTC Bulletin Board of
Nasdaq Trading & Market Services. Such quotations represent inter-dealer
quotations, without adjustment for retail markets, markdowns or commissions, and
do not necessarily represent actual transactions.
FISCAL PERIOD
<TABLE>
<CAPTION>
COMMON STOCK
------------
HIGH LOW
BID BID
--- ---
1998
- ----
<S> <C> <C>
1st Quarter .58 .38
2nd Quarter .47 .375
3rd Quarter .71875 .38
4th Quarter 2.00 .5625
</TABLE>
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<TABLE>
<CAPTION>
HIGH LOW
BID BID
--- ---
1997
- ----
<S> <C> <C>
1st Quarter 1.50 .375
2nd Quarter 1.125 .5625
3rd Quarter .75 .5625
4th Quarter .75 .40
</TABLE>
- ----------
(a) HOLDERS. The approximate number of holders of record of the
Company's Common Stock as of June 12, 1998 was 1996.
(c) DIVIDENDS. The Company has not paid or declared any dividends upon
its Common Stock since its inception, and intends to re-invest earnings, if any,
in the Company to accelerate its growth. Accordingly, the Company does not
contemplate or anticipate paying any dividends upon its Common Stock in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL INFORMATION
The selected financial data set forth below is qualified by reference
to, and should be read in conjunction with, the Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Form 10-K. The selected
financial data have been derived from the Company's Financial Statements which
have been audited by Goldstein Golub Kessler & Company, P.C., independent
certified public accountants, as indicated in their reports. Their report on the
financial statements as of February 28, 1998 and February 28, 1997 and for each
of the three years in the period ended February 28, 1998 is included elsewhere
in this Form 10-K. Their reports on the statement of financial position as of
February 28, 1996 and the financial statements for the years ended February 28,
1995 and February 28, 1994, and for the two years in the period ended February
28, 1995, are not included herein.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28(29), 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue -- $ 204,366 $ 724,541 $ 1,246,564 $ 4,658,270
Net income (loss) $ (5,484,856) $ (1,531,036) $ (149,632) $ 157,534 $ 3,367,437
Income (loss)
per share (1) $ (.47) $ (.11) $ (.01) $ .01 $ .21
Weighted average number of
common shares outstanding 11,727,275 13,620,390 15,834,644 16,141,950 16,181,868
</TABLE>
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<TABLE>
<CAPTION>
FEBRUARY 28(29), 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $ 5,133,186 $ 6,164,641 $ 6,060,456 $ 8,005,384 $ 10,078,696
Long Term Obligations $ 293,100 $ 300,000 -- -- --
Total Liabilities $ 1,973,468 $ 3,433,666 $ 2,194,624 $ 3,941,978 $ 2,642,103
Owners' Equity $ 3,159,718 $ 2,730,975 $ 3,865,832 $ 4,063,406 $ 7,436,593
</TABLE>
The Company has declared no cash dividends.
(1) Earnings per share is based upon the weighted average number of common
shares outstanding for the periods presented after giving retroactive
effect to the shares issued in connection with the Acquisition described in
Note 2 of Notes to Financial Statements. The Company adopted Statement
of Financial Accounting Standards (SFAS") No. 128, Earnings Per Share,
during fiscal year 1998. SFAS No. 128 required retroactive restatement
for all periods presented in the financial statements. The adoption of
SFAS No. 128 had no effect on the restatement of the net income (loss)
per common share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of operations,
and should be read in conjunction with the financial statements and related
notes appearing elsewhere herein.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1998 AS COMPARED
TO YEAR ENDED FEBRUARY 28, 1997
During its fiscal year ended February 28, 1998 (the ("1998 fiscal
year"), the Company's revenues increased approximately 274% as compared to its
fiscal year ended February 28, 1997 (the "1997 fiscal year"), primarily as a
result of an increase of approximately 3,479% in the Company's exhibition
revenues during its 1998 fiscal year as compared to its 1997 fiscal year. This
increase in exhibition revenues was principally attributable to the presentation
of major exhibition of two separate collections of the Company's Titanic
artifacts in Memphis, Tennessee for approximately six (6) months during the 1998
fiscal year, in Hamburg, Germany for approximately ten (10) months during the
1998 fiscal year, and in St. Petersburg, Florida for approximately three and
one-half months during the 1998 fiscal year. In addition, during the 1998 fiscal
year, the Company's smaller exhibition of Titanic artifacts, "Titanic: The
Expedition," was presented in Norfolk, Virginia for one (1) month and in Long
Beach, California for approximately seven (7) months during the 1998 fiscal
year. In comparison, the only exhibition activity of the
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<PAGE> 21
Company during the 1997 fiscal year was the presentation of its smaller
exhibition in Norfolk, Virginia for approximately three (3) months.
During the 1998 fiscal year, licensing fees decreased approximately
87%, primarily as a result of the Company having earned licensing fees related
to the production and exploitation of audio and visual recordings with respect
to the Company's expedition to the Titanic wreck site during the 1997 fiscal
year. The Company did not conduct an expedition to the Titanic wreck site
during the 1998 fiscal year, and license fees during this period were derived
from the grant of rights to use portions of the Company's stock video footage
and still photographs. During its 1998 fiscal year, the Company earned zero
revenue from sponsorship rights, as compared to having earned $150,000 from the
granting of sponsorship rights with respect to the Company's expedition to the
Titanic wreck site during the 1997 fiscal year.
The Company's revenue from the sale of merchandise and books increased
approximately 827% during the 1998 fiscal year as compared to the 1997 fiscal
year, primarily as a result of the Company, during the 1998 fiscal year, having
published a book in conjunction with unrelated third parties and having
established a web site (http://www.titanic-online.com) which promoted the sale
of merchandise through mail-order and the Company's 1-800-TITANIC telephone
number. The Company's revenue from the sale of coal increased approximately 56%
during its 1998 fiscal year as compared to its 1997 fiscal year, primarily as a
result of sales of coal made through the Company's web site and in the
merchandise shops of the Company's United States exhibitions.
The Company's cost of coal sold increased approximately 75% during the
1998 fiscal year as compared to the 1997 fiscal year, primarily as a result of
an increase in coal sales during these corresponding periods. General and
administrative expenses of the Company increased approximately 10% during the
1998 fiscal as compared to the 1997 fiscal year, primarily as a result of an
increase in conservation expenses in connection with the preparation of objects
for exhibition in Memphis, Tennessee and Hamburg, Germany.
YEAR ENDED FEBRUARY 28, 1997 AS COMPARED
TO YEAR ENDED FEBRUARY 29, 1996
During its fiscal year ended February 28, 1997 (the "1997 fiscal
year"), the Company earned licensing fees of $860,000 related to the production
and exploitation of audio and visual recordings with respect to the Company's
expedition to the Titanic wreck site during the Summer of 1996 (the "Summer of
1996 Expedition"), as compared to zero licensing fees during its fiscal year
ended February 29, 1996 (the "1996 fiscal year"). The Company's exhibition
revenues decreased approximately 83% during its 1997 fiscal year as compared to
its revenues from such sources during its 1996 fiscal year. Such decrease was
principally attributable to the presentation of the Prelude Exhibition (see
"Item 1 - Business - Prelude Exhibition") for seven (7) months during the 1996
fiscal year as compared to the presentation of "Titanic - The Expedition" at
the National Maritime Center in Norfolk, Virginia for approximately three (3)
months during its 1997 fiscal year, and the seasonal effects of higher
attendance at exhibitions during the summer months versus the winter months.
During its 1997 fiscal year the Company earned $150,000 from the
21
<PAGE> 22
granting of sponsorship rights with respect to the Summer of 1996 expedition,
as compared to zero sponsorship fees during its 1996 fiscal year. The Company's
revenues from the sale of coal increased approximately 207% during its 1997
fiscal year as compared to its 1996 fiscal year, primarily as a result of the
commencement of marketing efforts for this product initially undertaken during
the fourth quarter of its 1996 fiscal year.
The Company's general and administrative expenses increased
approximately 34% during its 1997 fiscal year as compared to its 1996 fiscal
year, primarily as a result of expenses of $100,000 related to the production of
audio and visual recordings of the Summer of 1996 Expedition, travel
expenditures related to the Summer of 1996 Expedition, and an increase in legal
fees attributable to a 1997 fiscal year legal challenge to the Company's
salvor-in-possession status. Interest expense and financing fees decreased
approximately 96% during the 1997 fiscal year as compared to the 1996 fiscal
year, primarily as a result of the reduction of notes payable in the 1996
fiscal year. During the 1996 fiscal year, the Company incurred an expense of
$35,000 related to the settlement of litigation.
The Company successfully completed its fourth expedition and dive to
the wreck of the Titanic in August 1996, recovering 74 artifacts and producing
approximately 125 hours of videotape footage. A substantial portion of the
Summer of 1996 Expedition was devoted to the production of videotape footage for
incorporation into three (3) hours of television productions and to the recovery
of a section of the Titanic hull, measuring approximately 23 feet by 12 feet and
weighing approximately 20 tons, from the debris field surrounding the wreck.
Although the Company raised the hull section to within approximately 200 feet of
the surface of the ocean, efforts to recover this object were unsuccessful as a
result of stormy weather conditions and resulting ocean turbulence. The costs of
the Summer of 1996 Expedition of the artifacts, consisting of the direct costs
of chartering of vessels and related crews and equipment required to conduct the
expedition and complete the dive operations, was approximately $1.8 million.
LIQUIDITY AND CAPITAL RESOURCES
In connection with its 1994 expedition to the wreck site of the
Titanic, the Company entered into an agreement with IFREMER to charter equipment
and crew necessary to conduct research and recovery efforts. Pursuant to the
terms of such charter agreement, the Company has paid IFREMER the sum of
$300,000 and was obligated to pay an additional $700,000 in two installments of
$350,000 each payable on September 30 and December 1, 1994. The installment due
to IFREMER on September 30, 1994 was paid during the first quarter of the
Company's 1996 fiscal year, payment of the final $350,000 installment was
extended to October 1, 1995. During the 1996 fiscal year, the Company paid
$70,000 on account of such obligation, with the $280,000 balance thereof having
been paid subsequent to February 29, 1996. The source of such $280,000 payment
was from an unaffiliated entity with which the Company entered into an agreement
for the marketing of coal and the sale of cabins of cruise ships which
accompanied the Company on its 1996 research and recovery expedition, and this
payment was made as an advance against the Company's share of profits from
Titanic coal sales and sales of such cruise ship cabins. The $280,000 advance
was reduced by approximately $127,000 from the sale of coal during the 1998,
22
<PAGE> 23
1997 and 1996 fiscal years, resulting in an unpaid balance of $153,168 as of
February 28, 1997. Such unpaid balance does not bear interest. There were no
profits from sale of cruise ship cabins for the 1996 expedition.
The Company entered into an agreement with IFREMER to charter equipment
and crew necessary to conduct a research and recovery expedition to the wreck
site of the Titanic in the Summer, 1996. Pursuant to the terms of such charter
agreement, the Company agreed to pay IFREMER 2,000,000 French francs
(approximately $400,000 U.S. Dollars) on or before June 20, 1996; 2,100,000
French francs (approximately $420,000 U.S. Dollars) on or before July 15, 1996;
and the sum of $980,000, payable as follows: (a) remittance of fifty (50%) of
the wholesale price of any products sold by the Company involving the 1996
expedition, up to a maximum of $480,000; and (b) up to a maximum of $500,000
payable from the following sources: (i) $.50 per visitor to any exhibition
organized by the Company; (ii) a lump sum of $250,000 for the Memphis
exhibition, payable prior to March 1, 1997; and (iii) one-third of the
Company's revenues received from any exhibition of artifacts organized by a
third party, as described. The agreement further provides that in the event the
payments from these sources do not amount to $980,000 within three (3) years
after September 1, 1996, any remaining balance shall be paid from the Company's
exhibition revenues, as defined above. The Company has satisfied its
obligations to pay $500,000 of its exhibition revenue to IFREMER, as described
above, and has not received any income from the sale of products involving the
1996 expedition. Accordingly, as of February 28, 1998, the unpaid balance owed
to IFREMER under the 1996 charter agreement is $480,000. The Company and
IFREMER have been pursuing negotiations for the re-structuring of the Company's
obligations under the 1996 charter agreement so as to provide for the payment
of a percentage of revenues in installments that correspond to the Company's
future receipt of revenues from exhibitions. All objects recovered during the
1996 expedition are be the subject of a lien granted to IFREMER until the
Company pays all sums due and owing to IFREMER for the 1996 expedition.
The Company's capital commitments during its 1999 fiscal year also
include lease payments for principal offices in the base amount of $61,000 per
annum, and compensation to its executive officer. Additionally, the Company is
planning its 1998 expedition to the Titanic wreck site, and has entered into a
preliminary agreement for the charter of vessels from IFREMER for an expedition
of approximately one (1) month for $1,460,000, of which $200,000 has been paid
to date as a downpayment. The Company is in the final stages of negotiations of
an agreement for the license of audio-visual rights relative to the 1998
expedition to an unrelated third party, and expects that substantially all of
the costs for chartering the IFREMER vessels and any other vessels or equipment
required for the 1998 expedition will be paid by such third-party. In the event
that these negotiations are not successfully consummated or if the Company is
unable to license such rights to another third-party on terms satisfactory to
the Company, the Company intends to pay the costs of chartering vessels and
equipment for the 1998 expedition from available cash resources or payments made
from future exhibition revenues, or a combination of both. The Company may also
reduce the length of the expedition and correspondingly the cost of chartering
vessels and equipment if audio-visual rights relative to the 1998 are not
successfully licensed on adequate terms.
23
<PAGE> 24
The Company's near term operating needs will be financed principally
from the distribution of revenues to the Company under its agreements for
exhibitions in St. Petersburg, Florida; Hamburg, Germany; Boston, Massachusetts;
its touring exhibition in Japan; and at the Queen Mary in Long Beach,
California. The Company is actively negotiating for the presentation of an
exhibition of its Titanic artifacts in venues after its exhibitions in Hamburg,
Germany and Boston, Massachusetts. While management expects these negotiations
to be successfully consummated, no assurances can be given that the Company
will be successful in effectuating such arrangements on terms that are
acceptable or satisfactory to the Company. In the event that cash flows are not
adequate to satisfy the Company's future operating needs, inclusive of payment
of outstanding liabilities, additional debt and/or equity financing will be
required.
In view of the Company's recent purchase of new computers and the
limited impact that Year 2000 issues has upon the Company's business activities
or competitive conditions, management of the Company does not believe that year
2000 issues will have a material adverse affect upon the Company.
Substantially all of the Company's cash flow derives from the Company's
operating activities. None of the Company's cash flow during the 1998 fiscal
year derived from financing activities and only a nominal amount of cash flow
derived from investing activities.
Except for historical information contained herein, this Annual report
on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Reform Act of 1995 which involve certain risks and
uncertainties including, without limitation, the Company's needs, as discussed
above, to obtain additional financing in order to achieve its objectives and
plans. The Company's actual results or outcomes may differ materially from those
anticipated. Important facts that the Company believes might cause such
differences are discussed in the cautionary statements accompanying the
forward-looking statements as well as in the risk factors discussed below.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements contained in this Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation of the Company or any other such
person that the objectives and plans of the Company will be achieved. In
addition to uncertainties of ordinary business operations and the factors
discussed else where in this report, the forward-looking statements of the
Company contained in this report are also subject to the following risks and
uncertainties:
In order for the Company to design, construct and embark on the
Waterborne Exhibition, additional debt and/or equity financing will be required.
While management believes that such financing will be available, no assurances
can be given that the Company will be successful in its efforts to obtain
additional financing, or that such financing will be available on a satisfactory
timetable. If the Company is unable to arrange income producing exhibitions
similar to its land-based exhibitions in Memphis, St. Petersburg, Boston, and
Hamburg, or funding for the planned
24
<PAGE> 25
worldwide touring exhibition is not obtained, there could be a curtailment of
the Company's long-term business activities and material delays in the
implementation of its business plans.
Until such time as the Company, if ever, presents the exhibition of its
artifacts on the Waterborne Exhibition, the Company could experience
difficulties or delays in making arrangements with third parties for the
presentation of exhibitions at land-based venues on terms that are acceptable
and satisfactory to the Company. The Company's ability to present such
exhibitions in association with third parties will be dependent upon the
agreement of such third parties to construct, market and operate the
exhibitions, or the Company having adequate financial resources to construct
and/or operate the exhibitions. Delays or difficulties in making arrangements
for the presentation of exhibitions at land-based venues could have a materially
adverse affect upon the Company's operations.
The Company could experience difficulties or delays in obtaining financing for
the Waterborne Exhibition, and if financing is obtained on terms acceptable to
the Company, could also experience difficulties or delays in the construction
of the Waterborne Exhibition. The Waterborne Exhibition is subject to all the
delays and uncertainties associated with construction projects generally.
Additionally, the Company has not made arrangements for the presentation of the
Waterborne Exhibition in specific ports and will need to obtain permits and
approvals from local governmental authorities. While management of the Company
believes that such arrangements will be available on terms and conditions
acceptable to the Company, and that the Company will satisfy requirements for
such permits and approvals, difficulties and delays could be encountered in
securing prospective sites and/or the requisite permits and approvals, which,
in turn, could delay or otherwise adversely impact the Company's revenue
producing activities.
The Company has been seeking and intends to continue to seek debt
financing to fund as much of the Waterborne Exhibition as may be available on
terms satisfactory to the Company. In connection with any such debt financing
that may be obtained, no assurances of which can be given, the Company expects,
among other things, to be required to pledge its assets to a lender, to be
restricted in its ability to incur additional obligations, and/or to abide by
certain financial covenants.
The Company's strategy for presenting exhibitions of Titanic artifacts
is dependent upon making acceptable arrangements with third parties or hiring
personnel who are experienced and possess expertise in operation and marketing
exhibitions. Management of the Company believes that acceptable arrangements
with such personnel or third-parties can be made within time frames required to
implement the Company's exhibition strategies. However, no assurance can be made
that such personnel or third-parties will be available on satisfactory terms or
when needed by the Company. Delays or difficulties in engaging personnel or
third parties for the operations and marketing of exhibitions, including without
limitation the Waterborne Exhibition, could have a materially adverse affect
upon the Company's operations.
The Company's future business and operating results depend in
significant part upon the continued contributions of George Tulloch, the
Company's President. The Company does not
25
<PAGE> 26
maintain a key person life insurance policy on Mr. Tulloch. The Company's
future business and operating results also depends in significant part upon its
ability to attract and retain qualified additional management, marketing and
support personnel for its operations.
In order to protect its salvor-in-possession status and to prevent
third-parties from salvaging the Titanic wreck and wreck site, or interfering
with the Company's rights and ability to salvage the wreck and wreck site, the
Company may have to commence judicial proceedings against third-parties. Such
proceedings could be expensive and time-consuming. Additionally, the Company, in
order to maintain its salvor-in-possession status, needs to, among other things,
maintain a reasonable presence at the wreck through periodic expeditions. In
addition to the payment of the balance due to IFREMER for the Summer of 1996
Expedition, the Company will be required to incur the costs for future
expeditions so as to maintain its salvor-in-possession status. The Company's
ability to undertake future expeditions may be dependent upon the availability
of financing from the grant of licenses to produce television programming and/or
the grant of expedition sponsorship rights. No assurances can be given that such
financing will be available on satisfactory terms.
The amount spent by consumers on discretionary items, such as
entertainment activities and the purchase of merchandise, is dependent upon
consumers' levels of discretionary income, which may be adversely affected by
general or local economic conditions. A decrease in consumer spending on such
activities could have a material adverse effect on the Company's revenues from
exhibition activities and merchandising efforts.
The Company's sales of coal recovered from the Titanic wreck site and
other merchandise through its web site increased significantly during the
period of the initial theatre release of the motion picture "Titanic" in
December 1997 without the Company incurring any significant marketing expenses.
This coal is the only object recovered from the Titanic that the Company is
offering or will offer for sale to the general public. Through the date of this
report, approximately 100,000 units of the Company's Titanic coal have been
sold since the commencement of such sales in the fall 1996, which represents
approximately one-half of the total units of coal available for sale. The
Company intends to recover additional coal during its 1998 expedition. A
substantial portion of the remaining Titanic coal supply is different in size
than that which the Company has marketed to date, and the Company's pricing and
commercial presentation of the coal is likely to change. No assurances can be
given that different price points or different presentations of the coal will
be attractive to consumers. Additionally, in the event that the Company does
not recover any additional Titanic coal, and the existing supply of coal is
exhausted in the future, the volume of the Company's merchandise sales may be
materially adversely affected in the absence of the introduction and marketing
of additional products, such as replicas of artifacts.
To the extent that the Company has transactions outside of the United
States, the Company could be affected by nationalizations or unstable
governments or legal systems or intergovernmental disputes. These economic and
political uncertainties may affect the Company's results of operations,
especially to the extent that these matters affect the Company's exhibition
plans in Europe and Japan.
26
<PAGE> 27
In connection with its activities outside of the United States, the
Company is exposed to the risk of currency fluctuations between the United
States dollar and certain foreign currency. If the value of the United States
dollar increases in relation to the foreign currency, the Company's potential
revenues from exhibition and merchandising activities outside of the United
States will be adversely affected. During the 1998 fiscal year, there were no
significant fluctuations in the exchange rates with respect to foreign
currencies in which the Company transacts business. Although the Company's
financial arrangements with IFREMER, the National Maritime Museum of Greenwich,
England, its exhibition organizer in Germany and other entities have been based
in whole or in part upon foreign currencies, the Company has sought and will
continue to seek to base its financial commitments and understandings upon the
United States dollar in its material business transactions so as to minimize
the adverse potential effect of currency fluctuations.
ITEM 8. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-1
Balance Sheet at February 28, 1997 and 1998 F-2
Statement of Operations for the years ended
February 28(29), 1996, 1997 and 1998 F-3
Statement of Stockholders' Equity for the years ended
February 28(29), 1996, 1997 and 1998 F-4
Statement of Cash Flows for the years ended
February 28(29), 1996, 1997 and 1998 F-5
Notes to Financial Statements F-6 - F-18
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
<PAGE> 28
ITEM 10. MANAGEMENT
OFFICERS AND DIRECTORS
The directors, executive officers, nominees as directors and
significant employees of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George H. Tulloch 53 President, Director
and Acting Chief Financial
Officer
William S. Gasparrini 70 Chairman of the Board
of Directors
Nicholas Vitti 45 Chief Financial Officer and
Director
John G. Duffy 49 Director
Robert A. Slavitt 70 Director
Allan H. Carlin 47 Nominee as Director
Arnie Geller 57 Nominee as Director
G. Michael Harris 34 Nominee as Director
Kurt Hothorn 54 Nominee as Director
</TABLE>
Directors hold office until the next annual shareholders' meeting or
until their successors have been duly elected and qualified. Executive officers
are appointed by and serve at the pleasure of the Board of Directors. By written
consent of a majority of shareholders dated May 1, 1997, Messrs. Gasparrini,
Vitti, Duffy and Slavitt have been removed as directors of the Company. Such
removal will become effective twenty (20) days after distribution of an
Information Statement in accordance with the provisions of the Securities Act of
1934, as amended. By written consent of a majority of shareholders dated August
29, 1997, in lieu of an annual meeting, George Tulloch, Allan H. Carlin, Arnie
Geller, G. Michael Harris and Kurt Hothorn were elected as directors of the
Company. This action will become effective twenty (20) days after the mailing to
shareholders of an Information Statement required under the Securities Exchange
Act of 1934, as amended. In the event that the removal of the directors as
described above becomes effective prior to the election of directors as
described above, Mr. Tulloch, pursuant to authority under the Bylaws of the
Company, intends to appoint Messrs. Carlin, Geller, Harris and Hothorn as
directors of the Company.
28
<PAGE> 29
George H. Tulloch has been President of the Company since May 1995 and
was its Executive Director of Corporate Public Relations and Chairman of the
Board of Directors of the Company since May 4, 1993. Mr. Tulloch also served as
the Company's Chief Financial Officer in May and June, 1995. After the RMS
Titanic's discovery in 1985, he successfully negotiated a recovery contract with
the ship's co-discoverer, IFREMER, France's National Oceanographic Institute. In
1987, he organized Titanic Ventures Limited Partnership, a Connecticut limited
partnership, as the financial structure for this effort and is the President of
its general partner, Oceanic Research and Exploration Ltd., a Delaware
corporation. Mr. Tulloch's background includes having founded Competition &
Sports Cars, Ltd. in Greenwich, Connecticut in 1969, building its sales volume
into the largest BMW agency in the United States.
William S. Gasparrini has been a Director of the Company since June
1994, and has served as its Chairman of the Board and a member of the
Compensation Committee of the Board of Directors since May 1995. He has been a
limited partner of Titanic Ventures Limited Partnership since its inception.
From 1966 to the present, Mr. Gasparrini has served as the President of Post
Road Iron Works, Inc., a family owned business in Greenwich, Connecticut which
was founded in 1927. He has been an executive officer of the National Ornamental
& Miscellaneous Metal Association, has been a member of its Board of Directors
since 1973 and of its Board of Trustees since 1976, having been elected Trustee
Emeritus in 1987. In addition to having served as an officer and director of
the Greenwich, Connecticut YMCA and of the Greenwich, Connecticut Chamber of
Commerce, Mr. Gasparrini has received, among other honors, a Proclamation
Certificate from Westchester County, New York Board of Legislators for
"Providing Visionary Leadership" in 1987 and was voted "Volunteer of the Year"
by The Historical Society of Greenwich, Connecticut. Mr. Gasparrini is also the
owner of substantial real estate investments in Greenwich, Connecticut.
John G. Duffy has been a Director and has been a member of the
Compensation Committee of its Board of Directors since May 1995. Mr. Duffy has
been employed by the New York investment banking firm of Keefe, Bruyette & Woods
since 1978, and has served as its Director of Corporate Finance and as a member
of its Board of Directors since 1990.
Nicholas Vitti has been a Director of the Company and a member of the
Compensation Committee of its Board of Directors since May 1995, and has served
as its Chief Financial Officer since June 1995. Since 1986, Mr. Vitti has served
as the Chief Financial Officer of D'Addario Industries, Inc., a privately owned
company located in Bridgeport, Connecticut principally engaged in real estate
development and construction activities. He served as the Chief Financial
Officer of Thorn EMI, which owns Capitol Records, from 1981 to 1986, and was
employed from 1974 to 1986 in various capacities by Peat Marwick Mitchell &
Company, presently known as KMPG Peat Marwick, including as a Senior Manager.
Mr. Vitti is a certified public accountant licensed by the State of Connecticut.
29
<PAGE> 30
Robert A. Slavitt has been a director of the Company since July 1995,
and is a senior partner in the law firm of Slavitt Connery & Vardamis of
Norwalk, Connecticut. He is a former President of the Norwalk-Wilton
Connecticut Bar Association; a director and former Vice President of the Alumni
Association of New York University School of Law; a member of the DEan's Task
Force of New York University School of Law, and a member of the Connecticut Bar
Association Eminent Domain Law Revision Committee.
Allan H. Carlin, has served as general counsel to the Company since
May 1993 to the present and assists Mr. Tulloch in all phases of the Company's
operations, including serving as the principal negotiator of the Company's
business transactions. Mr. Carlin is an attorney admitted to practice in the
State of New York, and maintains an office for the practice of law in New York,
NY.
Arnie Geller served as President and as a director of the Company from
May 1993 to May 1995. Prior to joining the Company, Mr. Geller has principally
be engaged in various executive capacities in the record industry for
approximately 27 years. Mr. Geller is presently a self-employed corporate
consultant.
G. Michael Harris is a promoter and agent of entertainment programs
and events.
Kurt Hothorn is a limited partner of TVLP, trades securities for his
own account, and is a principal in a closely-held travel business that
specializes in arrangements for incentive programs, conferences and meetings.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid or
accrued to the executive officers of the Company for the fiscal years ended
February 29, 1996, February 28, 1997 and February 28, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Common
Name Other Shares
and Year Annual Subject to
Principal Ended February Compen- Options
Position 28th(29th) Salary sation Granted
- --------- -------------- ------ ------- ------------
<S> <C> <C> <C> <C>
George Tulloch(1)
President and Former Chief
Financial Officer; Former
Executive Director of
Corporate Public 1998 $ 120,000 -0- -0-
Relations
1997 $ 120,000 -0- -0-
1996 $ 120,000 -0- -0-
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C> <C> <C> <C>
Arnie Geller(1) 1998 -0- -0- -0-
Former President
and Former Chief 1997 $ -0- -0- -0-
Financial Officer
1996 $ 41,667 -0- -0-
Nicholas Vitti(2) 1998 -0- -0- -0-
1997 -0- -0- -0-
1996 -0- -0- -0-
</TABLE>
- ---------------
(1) The foregoing compensation accrued for Mr. Tulloch is based upon an annual
salary of $120,000. On May 8, 1995, Mr. Tulloch was named President of the
Company. Mr. Tulloch's employment agreement, including stock options granted
thereunder, was terminated effective January 31, 1995. The foregoing amounts
reflected for Mr. Geller are adjusted to give retroactive effect to the
termination of his employment agreement, effective January 31, 1995, as a result
of which an aggregate of $387,691 of accrued compensation was waived by Mr.
Geller for 1995 and 1994 and stock options granted thereunder were cancelled.
The foregoing compensation accrued for Mr. Geller is based upon an annual
salary of $250,000 commencing May 4, 1993 and ceasing on April 21, 1995, the
date of his resignation as President of the Company, no portion of which has
been paid to date. Mr. Geller has agreed that his accrued compensation would be
paid at the discretion of the Boardof Directors when the Company has
sufficient income to pay its creditors.
STOCK OPTIONS
No stock options were granted to the executive officers of the Company
during the fiscal year ended February 28, 1998.
OPTION EXERCISES AND HOLDINGS
None of the executive officers of the Company exercised any stock
options during the fiscal year ended February 28, 1998. Upon termination of the
employment agreements of Messrs. Geller and Tulloch effective January 31, 1995,
options that were granted to each of them to purchase 500,000 shares of Common
Stock were cancelled.
COMPENSATION OF DIRECTORS
The Company does not have any arrangements for compensating directors
for services rendered as a director. No compensation has been paid to any
individual for services rendered as a director.
31
<PAGE> 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 1, 1998
with respect to (i) those persons known by the Company to be the owners of more
than 5% of the Company's Common Stock and (ii) the ownership of the Company's
Common Stock by each director and nominees as directors;and (iii) the ownership
of the Company's Common Stock by all executive officers and directors of the
Company as a Group:
<TABLE>
<CAPTION>
NATURE OF AMOUNT OF
NAME AND ADDRESS OWNERSHIP BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS
- ---------------- --------- -------------------- -------------------
<S> <C> <C> <C>
Titanic Ventures Limited Partnership
204 Old Post Road Principal
Southport, Connecticut 06490 Shareholder 5,871,667(1)(2)(3) 36.3%
William S. Gasparrini Principal
23 Oak Street Shareholder,
Greenwich, Connecticut 06830 Chairman of the
Board 2,044,630(2)(3)(4) 12.6%
Arnie Geller Principal
720 Spring Street NW Shareholder
Atlanta, GA 30308 1,950,000(5) 9.9%
George Tulloch Principal
c/o RMS Titanic, Inc. Shareholder,
17 Battery Place Officer,
New York, New York 10004 Director 81,309(1)(2)(3)(6) 0.5%
John G. Duffy
415 Crestwood Avenue
Crestwood, New York 10707 Director 37,716 0.2%
Robert A. Slavitt
618 Putnam Avenue
Norwalk, Connecticut 06850 Director -0-(7) 0.1%
Nicholas Vitti
4 Kristy Drive
Bethel, Connecticut 06831 Director 12,500 0.0%
Allan H. Carlin
239 East 79th Street Director
New York, NY 10021 Nominee 500,000(8) 3.0%
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C> <C>
G. Michael Harris
16 Winston Drive Director
Belleair, FL 34616 Nominee 165,000 1.0%
Kurt Hothorn
160 Mead Avenue Director
Greenwich, CT 06830 Nominee 21,544(9) 0.1%
All Officers and Directors
as a group of five (5)
persons 8,067,869(10) 49.9%
</TABLE>
- ----------
(1) George Tulloch is the President and sole shareholder of Oceanic
Research and Exploration Limited ("ORE"), a Delaware corporation which serves as
the General Partner of Titanic Ventures Limited Partnership ("TVLP"); William
Gasparrini is a limited partner of TVLP. The General Partner of TVLP has the
right to vote the shares of the Company without the consent of the Limited
Partners of TVLP, and may dispose of the shares of the Company upon the consent
of the Limited Partners of TVLP.
(2) Represents shares over which TVLP and Mr. Tulloch, as President of
ORE, exercise voting control. ORE has agreed to deliver 1,289,500 of such shares
to certain limited partners of TVLP, representing their respective interest in
shares of the Company owned by TVLP (the "Distribution Shares"), less a total of
87,388 shares which have been retained from their interests for the payment of
their pro-rata share of TVLP's expenses. The Distribution Shares are subject to
a written proxy granting Mr. Tulloch the right to vote such shares until June
17, 1999, with such proxies to terminate upon the public market sale of such
shares. As adjusted for delivery of the Distribution Shares, TVLP has the power
to dispose of 4,582,167 shares of the Company, representing 28.3% of the
outstanding Common Stock of the Company. By letter agreement dated June 12, 1996
Mr. Tulloch had previously agreed, subject to the fulfillment of certain
conditions, to distribute eighty (80%) percent of each limited partner's
interest in the shares of the Company owned by TVLP, subject to the execution of
proxies by the limited partners granting to the General Partner voting power
over such shares until May 31, 1997, with such proxies to terminate upon the
public market sale of such shares. Mr. Tulloch and the General Partner believe
that such letter agreement is not enforceable on the basis of a number of
grounds, including but not limited to fraudulent inducement, repudiation and
the absence of consideration, and accordingly will not distribute shares of the
Company owned by TVLP to the limited partners of TVLP in accordance with the
terms thereof. Mr. Gasparrini claims that such June 12, 1996 letter agreement
is valid and enforceable, and has also claimed that a certain document dated
April 21, 1995, pursuant to which Mr. Tulloch allegedly agreed to distribute
each limited partner's interest in the shares of the Company owned by TVLP and
immediately granted each limited partner the right to vote the shares of the
Company's Common Stock owned by TVLP in proportion to their partnership
interests, is enforceable. Mr. Gasparrini has commenced legal proceedings
against Mr. Tulloch, ORE and TVLP in the Superior Court of Connecticut,
Judicial District of Stamford/Norwalk in order to enforce his rights under the
June
33
<PAGE> 34
12, 1996 letter agreement and the purported April 21, 1995 agreement. Mr.
Tulloch Mr. Tulloch, on behalf of ORE and TVLP, believes that there are
meritorious defenses to these claims and intends to defend their position
vigorously.
(3) In the event that Mr. Gasparrini successfully enforces the alleged
obligation of ORE to distribute the shares pursuant to the June 12, 1996 letter
agreement or the purported April 21, 1995 agreement, as referenced in footnote
(2), Mr. Gasparrini will receive distribution of a maximum of 1,912,288 shares
of the Company owned by TVLP (as may be decreased for payment of TVLP's
liabilities), and Mr. Tulloch, through his ownership of ORE, will receive
distribution of a maximum of 511,152 shares of the Company owned by TVLP (as
may be decreased for payment of TVLP's liabilities). In the event of the
distribution of such TVLP shares, Mr. Gasparrini would have the power to vote
and dispose of a maximum of 24.4% of the outstanding Common Stock of the
Company, Mr. Tulloch, through his ownership of ORE and exclusive of the Shares
he individually owns (see footnote (5) below), would have the right to vote a
maximum of 11.1% of the outstanding Common Stock of the Company (including the
Distribution Shares), and Mr. Tulloch would have the right to dispose of a
maximum of 3.2% of the Company.
(4) Does not include any shares that may be issued to Mr. Gasparrini
upon distribution of the shares of Common Stock registered in the name of TVLP,
of which Mr. Gasparrini is a limited partner.
(5) Includes 300,000 shares as to which Mr. Geller has been granted a
written proxy to vote such shares until the public sale thereof.
(6) Does not include any shares that may be issued upon distribution of
the shares of Common Stock registered in the name of TVLP, of which Mr. Tulloch
is the President and sole shareholder of the General Partner.
(7) Does not include approximately 144,000 shares that may be issued
upon distribution of the shares of Common Stock registered in the name of TVLP
to which Mr. Slavitt claims to have a beneficial interest through a limited
partner of TVLP.
(8) Represents option which are currently exercisable; does not
include 197,500 shares registered in the name of Mr. Carlin's spouse, as to
which Mr. Carlin disclaims beneficial ownership.
(9) Represents shares jointly owned with Mr. Hothorn's spouse. Voting
power with respect to such shares has been granted to George Tulloch until June
17, 1999 pursuant to a written proxy, which proxy is subject to termination
upon the public market sale of such shares. See footnote (2) above. Except as
set forth above, Mr. Hothorn and his spouse jointly share voting and
dispositive power over such shares.
34
<PAGE> 35
(10) Includes shares beneficially owned by TVLP (see footnote 1
above) and shares over which Mr. Geller has been granted a proxy to vote (see
footnote 5 above); does not include shares helf by nominees for directors. In
the event that Mr. Gasparrini successfully enforces the alleged obligation of
Mr. Tulloch to distribute the shares pursuant to the June 12, 1996 letter
agreement or the purported April 21, 1995 agreement, all officers and directors
would have the right to dispose of 4,619,642 shares, representing 28.5% of the
Company's Common Stock, and would have the right to vote 5,909,142 shares,
representing 36.5% of the Company's Common Stock. See footnotes (2), (3) and
(6).
The foregoing table does not include options and warrants granted to
entities and individuals who are not executive officers, directors or nominees
for directors of the Company to purchase 330,000 shares of Common Stock.
Pursuant to a Voting Agreement dated August 22, 1997 (the "Voting
Agreement") among Messrs. Carlin, Geller, Harris, Hothorn, Geller and certain
third parties, including Mr. Carlin's spouse and Mr. Hothorn's spouse, all of
such individuals have agreed, until August 31, 1999, to vote their shares of
Common Stock of the company in favor of the election of George Tulloch, Allan
H. Carlin, Arnie Geller, G. Michael Harris and Kurt Hothorn as directors of the
Company. The Voting Agreement places certain restrictions on such persons'
right to transfer shares of Common Stock subject to the Voting Agreement, and
requires that such shares be offered for sale to Messrs. Tulloch, Carlin,
Geller, Harrris and Hothorn prior to the sale thereof in the open market.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A limited partner of TVLP, Taurus International ("Taurus") has provided
services to TVLP as an agent of TVLP in France. These services have included
securing legal representation, insurance coverage, storage facilities and other
relationships required to maintain the Company's Titanic artifacts while
preservation work was performed in France by EDF. TVLP was charged fees for
providing these services amounting to approximately $127,000 from inception of
the Company through February 28, 1997. Accounts payable to Taurus amounted to
$37,600 as of February 28, 1997. The amount was forgiven by Taurus during the
year ended february 28, 1998.
With respect to the fiscal year ended February 28, 1998, to the best
of the knowledge of the Company, Mr. Slavitt was delinquent in filing a report
on Form 4.
35
<PAGE> 36
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
The following documents are filed as part of this Report on Form 10-K:
(a) Financial Statements. The following financial statements of the
Company are included in this Annual Report:
<TABLE>
<S> <C>
Independent Auditor's Report F-1
Balance Sheet at February 28, 1997 and 1998 F-2
Statement of Operations for the years ended
February 28(29), 1996, 1997 and 1998 F-3
Statement of Stockholders' Equity for the years ended
February 28(29), 1996, 1997 and 1998 F-4
Statement of Cash Flows for the years ended
February 28(29), 1996, 1997 and 1998 F-5
Notes to Financial Statements F-6 - F-18
</TABLE>
(b) Financial Statement Schedules. None.
(c) Exhibits.
3.1 Articles of Incorporation, as amended.(1)
4.1 First Amendment to By-Laws of the Registrant.(2)
9.1 Voting Trust Agreement among Titanic Ventures Limited Partnership,
George
Tulloch, Allan H. Carlin, Arnie Geller, G. Michael Harris, Kurt
Hothorn, Cheryl Hothorn, Wesgate Entertainment Corp., Anne A.
Hill, Diane Carlin, Shirley A. Hill, James A. Hill, and D.
Michael Harris(3)
10.1 Lease Agreement between the Company and 17 Battery Place North
Associates.(4)
10.2 Agreement dated April 15, 1996 between the Company and CRE-CO
Finanz GmbH.(5)
10.3 Pledge Agreement dated April 15, 1996 between the Company and
CRE-CO Finanz GmbH.(5)
36
<PAGE> 37
10.4 Bailment Agreement dated April 15, 1996 between the Company and
CRE-CO Finanz GmbH.(5)
10.5 1996 Charter Agreement with IFREMER.(6)
10.6 Agreement dated August 8, 1996 between the Company and the City of
Memphis.(6)
10.7 Agreement dated July 22, 1996 between Discovery Communications,
Inc., Ellipse Programme and the Company (omitted and filed
separately as confidential information).(6)
10.8 Agreement dated October 9, 1996 between the Company and the
National Maritime Center Authority.(7)
10.9 Exhibition Loan Agreement dated December 10, 1996 between the
Company, the City of Memphis, Tennessee and the Florida
International Museum, Inc.(8)
10.10 Agreement dated May 23, 1997 between the Company and RMS
Foundation, Inc.(9)
10.11 Amendment to Agreement dated April 15, 1996 between the Company and
CRE-CO Finanz GmbH.(9)
10.12 Amendment to Agreement dated August 6, 1996 between the Company and
the City of Memphis.(9)
- ----------
(1) Filed as an exhibit to Registrant's Registration Statement on Form 8-A.
(2) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1995.
(3) Filed as an exhibit 7.2 to Form 13D on September 2, 1997.
(4) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
year ended February 28, 1994.
(5) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1996.
(6) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1996.
(7) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended November 30, 1996.
(8) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
July 3, 1997.
(9) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1998.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RMS TITANIC, INC.
June __, 1998 By:
-----------------------------------------
George H. Tulloch, President and
Principal Executive Officer
June __, 1998 By:
-----------------------------------------
Nicholas Vitti, Principal Accounting Officer
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date
indicated:
June __, 1997
- ----------------------------------
William S. Gasparrini, Director
June __, 1997
- ----------------------------------
George H. Tulloch, Director
June __, 1997
- ----------------------------------
John G. Duffy, Director
June __, 1997
- ----------------------------------
Nicholas Vitti, Director
June __, 1997
- ----------------------------------
Robert A. Slavitt, Director
39
<PAGE> 40
(Draft June 12, 1998)
RMS TITANIC, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS:
Balance Sheet at February 28, 1997 and 1998 F-2
Statement of Operations for the Years Ended February 28(29), 1996,
1997 and 1998 F-3
Statement of Stockholders' Equity for the Years Ended February 28(29), 1996,
1997 and 1998 F-4
Statement of Cash Flows for the Years Ended February 28(29), 1996,
1997 and 1998 F-5
Notes to Financial Statements F-6 - F-19
</TABLE>
<PAGE> 41
(Draft June 12, 1998)
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
RMS Titanic, Inc.
We have audited the accompanying balance sheets of RMS Titanic, Inc. as of
February 28, 1997 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended February 28, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RMS Titanic, Inc. as of
February 28, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended February 28, 1998, in conformity
with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
June 3, 1998
F-1
<PAGE> 42
<TABLE>
<CAPTION>
(Draft June 12, 1998)
RMS TITANIC, INC.
BALANCE SHEET
======================================================================================================================
FEBRUARY 28, 1997 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 105,854 $ 1,000,269
Accounts receivable (Note 12) 34,715 640,760
Refundable withholding tax (Note 12) 87,500 45,848
Other current assets 4,800 -
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 232,869 1,686,877
Artifacts Recovered, at cost (Note 5) 7,714,340 7,700,340
Deferred Income Tax Asset, net of valuation allowance of
$1,910,000 and $503,000, respectively (Note 6) - -
Property and Equipment, net of accumulated depreciation
of $50,036 and $73,207, respectively (Notes 3 and 12) 19,564 652,599
Other Assets 38,611 38,880
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 8,005,384 $10,078,696
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable (Notes 4 and 9) $ 128,530 -
Accounts payable and accrued liabilities (Notes 2, 5, 9, 11 and 13) 3,138,448 $ 2,483,200
Income taxes payable - 143,960
Deferred revenue (Note 12) 675,000 14,943
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,941,978 2,642,103
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 2, 9 and 10)
Stockholders' Equity (Notes 2, 7 and 8):
Common stock - $.0001 par value; authorized 30,000,000 shares,
issued and outstanding 16,177,128 and 16,187,128 shares, respectively 1,618 1,619
Additional paid-in capital 13,909,999 13,915,748
Accumulated deficit (9,848,211) (6,480,774)
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 4,063,406 7,436,593
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,005,384 $10,078,696
======================================================================================================================
See Notes to Financial Statements
F-2
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
(Draft June 12, 1998)
RMS TITANIC, INC.
STATEMENT OF OPERATIONS
====================================================================================================================================
YEAR ENDED FEBRUARY 28(29), 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue (Notes 12 and 13):
Exhibitions and related merchandise sales $ 693,836 $ 116,019 $ 4,151,912
Licensing fees - 860,000 114,708
Sponsorship fees - 150,000 -
Merchandise, books and other - 26,391 244,676
Sale of coal 30,705 94,154 146,974
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue 724,541 1,246,564 4,658,270
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Cost of coal sold 3,000 8,010 14,000
General and administrative (Note 10) 803,324 1,071,460 1,176,373
Depreciation and amortization (Note 3) 12,356 8,703 23,171
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 818,680 1,088,173 1,213,544
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (94,139) 158,391 3,444,726
- ------------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income - - 11,131
Interest expense and financing costs (Note 9) (20,493) (857) (5,750)
Settlement expense (Note 9) (35,000) - -
Other (Note 11) - - 67,330
- ------------------------------------------------------------------------------------------------------------------------------------
Other income (expense) - net (55,493) (857) 72,711
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes (149,632) 157,534 3,517,437
Provision for income taxes (Note 6) - - 150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (149,632) $ 157,534 $ 3,367,437
====================================================================================================================================
Basic income (loss) per common share $ (.01) $ .01 $ .21
====================================================================================================================================
Weighted average number of common shares outstanding 15,834,644 16,141,950 16,181,868
====================================================================================================================================
See Notes to Financial Statements
F-3
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
(Draft June 12, 1998)
RMS TITANIC, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
==========================================================================================================================
YEARS ENDED FEBRUARY 28(29), 1996, 1997 AND 1998
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of February 28, 1995 13,908,709 $ 1,392 $ 12,585,696 $ (9,856,113) $ 2,730,975
Issuance of common stock:
Cash (Note 7) 1,589,576 159 921,797 -- 921,956
Other than cash (Notes 7 and 9) 638,343 63 362,470 -- 362,533
Conversion of Class B warrants 500 -- -- -- --
Net loss for the year ended February 29, 1996 -- -- -- (149,632) (149,632)
- --------------------------------------------------------------------------------------------------------------------------
Balance as of February 29, 1996 16,137,128 1,614 13,869,963 (10,005,745) 3,865,832
Issuance of common stock:
Other than cash (Notes 7 and 9) 40,000 4 40,036 -- 40,040
Net income for the year ended February 28, 1997 -- -- -- 157,534 157,534
- --------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 1997 16,177,128 1,618 13,909,999 (9,848,211) 4,063,406
Issuance of common stock:
Other than cash (Notes 7 and 9) 10,000 1 5,749 -- 5,750
Net income for the year ended February 28, 1998 -- -- -- 3,367,437 3,367,437
- --------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 1998 16,187,128 $ 1,619 $ 13,915,748 $ (6,480,774) $ 7,436,593
==========================================================================================================================
See Notes to Financial Statements
F-4
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
(Draft June 12, 1998)
RMS TITANIC, INC.
STATEMENT OF CASH FLOWS
====================================================================================================================================
YEAR ENDED FEBRUARY 28(29), 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (149,632) $ 157,534 $ 3,367,437
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 12,356 8,703 23,171
Rights granted in satisfaction of accrued liability -- -- (60,000)
Noncash financing fees 6,667 -- 5,750
Amortization of deferred revenue -- -- (1,465,057)
Noncash interest expense 4,500 -- --
Other -- -- (87,500)
Noncash settlement with exhibitor -- -- (559,414)
Reduction in artifacts recovered 3,000 8,010 14,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 111,902 (15,205) (606,045)
Decrease (increase) in refundable withholding tax -- (87,500) 41,652
Decrease (increase) in other current assets 13,532 5,200 4,800
Increase in other assets -- -- (269)
Increase in income taxes payable -- -- 143,960
Increase in deferred revenue -- 675,000 805,000
(Decrease) increase in accounts payable and accrued liabilities (388,844) 158,136 (595,248)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (236,887) 752,344 (2,335,200)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (386,519) 909,878 1,032,237
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Artifact recovery costs, net of $980,000 of related accounts payable
in 1997 -- (820,000) --
Purchases of property and equipment -- (2,085) (9,292)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES -- (822,085) (9,292)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 921,956 -- --
Repayment of notes payable (492,165) (25,742) (128,530)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 429,791 (25,742) (128,530)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 43,272 62,051 894,415
Cash at beginning of year 531 43,803 105,854
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 43,803 $ 105,854 $ 1,000,269
====================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,326 $ 857 --
====================================================================================================================================
Income taxes -- -- $ 6,094
====================================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITY:
Property and equipment acquired in settlement of certain exhibition
obligations -- -- $ 559,414
====================================================================================================================================
Noncash purchases of property and equipment -- -- $ 87,500
====================================================================================================================================
See Notes 2, 7 and 9 for information regarding noncash investing and financing activities.
See Notes to Financial Statements
F-5
</TABLE>
<PAGE> 46
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. DESCRIPTION OF RMS Titanic, Inc. initially conducted
BUSINESS AND SUMMARY business as Titanic Ventures Limited
OF SIGNIFICANT Partnership ("TVLP"). RMS Titanic, Inc. and
ACCOUNTING POLICIES: TVLP are referred to as the "Company" as the
context dictates.
TVLP was formed on August 5, 1987 for the
purposes of exploring the wreck and
surrounding oceanic area of the vessel the
RMS Titanic (the "Titanic"); obtaining
oceanic material and scientific data
available therefrom in various forms,
including still and moving photography and
artifacts from the wreck site; and utilizing
such data and artifacts in revenue-producing
activities such as touring exhibitions,
television programs and the sale of still
photography. In addition, the Company earns
revenue from the sale of coal and
Titanic-related products (see Notes 12 and
13).
The Company commenced operations in August
1987 with an expedition and dive to the
wreck of the Titanic from which the Company
recovered over 1,800 objects, including
coins, currency and other items. The Company
completed a second expedition and dive to
the Titanic in June 1993, during which
approximately 800 artifacts were recovered
and videotape of such expedition was
produced. In July 1994, a third expedition
and dive to the Titanic was completed by the
Company, during which over 1,000 artifacts
and other items (coal used on the Titanic)
were recovered and videotape of such
expedition was produced. In July 1996, a
fourth expedition and dive to the Titanic
was completed by the Company, during which
over 70 artifacts were recovered and
videotape of such expedition was produced.
All the items recovered as described above
are collectively referred to as the
"Artifacts."
The Company was in the development stage
through May 31, 1997 and for the year ended
February 28, 1998 is considered an operating
company.
Pursuant to a judgment entered in the
Federal District Court for the Eastern
District of Virginia (the "Court") on June
7, 1994, as amended, the Company was
declared salvor-in-possession of the
Titanic, the sole and exclusive owner of any
items recovered from the Titanic and, so
long as the Company is salvor-in-possession,
the sole and exclusive owner of items
recovered from the Titanic in the future
(see Note 9).
Artifacts recovered from the Titanic are
carried at the lower of cost of recovery or
net realizable value ("NRV"). The costs of
recovery are the direct costs of chartering
of vessels and related crews and equipment
required to complete the dive operations.
Costs associated with the care, management
and preservation of recovered artifacts are
expensed as incurred.
To ascertain that the aggregate NRV of the
Artifacts exceeds the direct costs of
recovery of such Artifacts, the Company
evaluates various evidential matter. Such
evidential matter includes documented sales
and offerings of Titanic-related memorabilia
by auction houses and private dealers, an
appraisal of certain artifacts, insurance
coverage obtained in connection with the
potential theft, damage or destruction of
all or part of the Artifacts and other
evidential matter regarding the public
interest in the Titanic.
F-6
<PAGE> 47
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
Under an agreement with IFREMER, the Institute of
France for the Research and Exploration of the
Sea, which was the general contractor for the
salvage operations, the Company is restricted from
selling certain artifacts except to an entity that
will make them available for exhibition to the
public, as defined.
For purposes of the statement of cash flows, the
Company considers all highly liquid investments
with a maturity of three months or less to be cash
equivalents.
The Company maintains cash in bank accounts which,
at times, may exceed federally insured limits. The
Company has not experienced any losses on these
accounts.
Revenue from the licensing of the production and
exploitation of audio and visual recordings, which
are performed by third parties, related to the
Company's expeditions are recognized at the time
that the expedition and dive takes place.
Revenue from the licensing of still photographs is
recognized at the time the rights were granted to
the licensee.
Revenue from exhibitions is recorded in the period
that the exhibition takes place. The amount
recorded represents the Company's share of the net
revenue, as defined, from the exhibition.
Revenue from the granting of sponsorship rights
related to the Company's expeditions and dives is
recognized at the completion of the expedition.
Revenue from the sale of Titanic-related products
is recognized when the item is sold (see Note 12).
Coal recovered from the Titanic is being offered
for sale by the Company. Revenue from sales of
such coal is recognized at the date of shipment to
customers. Recovery costs attributable to the coal
have been charged to operations as revenue from
coal sales have been recognized.
The Company provides for income taxes in
accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income
Taxes. Under this statement, deferred income tax
assets and liabilities are determined based on
differences between financial reporting and tax
bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be
in effect when the differences are expected to
reverse.
Depreciation of property and equipment is provided
for by the straight-line method over the estimated
lives of the related assets (see Note 3).
In October 1995, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No.
123 encourages, but does not require, companies to
record compensation cost for stock-based employee
compensation plans at fair value. The Company has
elected to continue to account for its stock-based
compensation plans using the intrinsic value
method prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees, and for
options granted after December 31, 1995 to present
pro forma earnings (loss) and per share
information as though it had adopted SFAS No. 123.
Under the provisions of APB Opinion No. 25,
compensation cost for stock options
F-7
<PAGE> 48
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
is measured as the excess, if any, of the quoted
market price of the Company's common stock at the
date of the grant over the amount an employee must
pay to acquire the stock.
In February 1997, the FASB issued SFAS No. 128,
Earnings per Share. SFAS No. 128 requires dual
presentation of basic earnings (loss) per share
("EPS") and diluted EPS on the face of all
statements of earnings issued after December 15,
1997 for all entities with complex capital
structures. Basic EPS is computed as net earnings
divided by the weighted-average number of common
shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur
from common shares issuable through stock-based
compensation including stock options, restricted
stock awards, warrants and other convertible
securities. The adoption of SFAS No. 128 had no
effect on the restatement of the net income (loss)
per common share for the years ended February
28(29), 1996 and 1997. Diluted EPS is not
presented for the year ended February 29, 1996
since the effect would be antidilutive and for the
years ended February 28, 1997 and 1998 the
dilutive effect of potential common shares is not
material.
In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and
Related Information. The Company is required to
adopt these statements in fiscal 1999. Adoption of
these statements is expected to have no impact on
the Company's financial position, results of
operations or cash flows.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect reported amounts in
the financial statements. Actual results could
differ from those estimates.
Certain fiscal 1997 amounts have been reclassified
to conform to the presentation used in fiscal
1998.
2. REVERSE On May 4, 1993, TVLP sold all rights, title and
ACQUISITION: interest in its assets to First Response Medical,
Inc. ("FRM"), a public company, subject to FRM
assuming all of its liabilities. TVLP was issued
7,066,667 unregistered shares of common stock of
FRM as consideration for the sale. FRM also issued
400,000 shares of unregistered common stock to
unrelated parties as a finders' fee in connection
with the transaction. These shares, when added to
the 2,266,666 shares of FRM unregistered common
stock issued to the former president of the
Company, represented approximately 90% of the
total issued and outstanding common shares of FRM
after the acquisition. Since TVLP owned a
controlling interest in FRM, the transaction was
accounted for as a "reverse acquisition" with TVLP
deemed to be the acquiring entity. FRM changed its
name to RMS Titanic, Inc. The historical financial
statements of TVLP prior to May 4, 1993 have been
substituted for the historical financial
statements of FRM. There were 973,373 shares of
FRM outstanding on the date of the acquisition.
The stockholder of the general partner of TVLP
(who is also the chairman of the board of
directors of the Company) has voting control over
the shares of common stock of RMS Titanic, Inc.
held by TVLP. The control of such shares has been
challenged in a legal action which commenced
during September 1997, the result
F-8
<PAGE> 49
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
of which may require the distribution of certain
shares to certain partners of TVLP. A change in
control of RMS Titanic, Inc. may occur in such
instance.
Included in accounts payable and accrued
liabilities is $45,000 due to certain partners of
TVLP.
3. PROPERTY AND EQUIPMENT: Property and equipment, at cost, consists of the
following:
<TABLE>
<CAPTION>
Estimated
February 28, 1997 1998 Useful Life
-------------------------------------------------------------------------
<S> <C> <C> <C>
Exhibitry equipment -- $559,414 5 years
Office equipment $ 25,888 34,083 5 years
Furniture and fixtures 43,712 44,809 5 years
Exhibitry equipment deposit -- 87,500
-------------------------------------------------------------------------
69,600 725,806
Less accumulated depreciation 50,036 73,207
-------------------------------------------------------------------------
$ 19,564 $652,599
=========================================================================
</TABLE>
4. NOTE PAYABLE: Note payable consists of the following:
<TABLE>
<CAPTION>
February 28, 1997 1998
-------------------------------------------------------------------------
<S> <C> <C>
Note payable - LS Capital Corporation $128,530 --
=========================================================================
</TABLE>
Pursuant to the terms of a settlement agreement
entered into effective January 15, 1997 by and
between the Company, LS Capital Corporation ("LS
Capital") and affiliates of LS Capital, the
Company agreed to pay LS Capital $154,272,
representing the outstanding note payable
principal balance of $126,050 and accrued interest
of $28,222, in 12 equal installments commencing on
January 15, 1997, subject to acceleration in the
event that the Company achieves certain levels of
revenue during such 12-month period, as defined
(see Note 9). As of February 28, 1997, the Company
made two installment payments aggregating $25,742,
resulting in an outstanding balance of $128,530.
As of February 28, 1998, the Company had made all
payments to LS Capital in accordance with the
agreement.
5. ACCOUNTS PAYABLE AND Accounts payable and accrued liabilities consist
ACCRUED LIABILITIES: of the following:
<TABLE>
<CAPTION>
February 28, 1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation (see Note 10) $1,099,583 $1,219,583
Amounts payable for professional fees and consulting 553,155 323,030
Amounts payable to foreign vendors 1,062,830 585,500
Other miscellaneous liabilities 422,880 355,087
----------------------------------------------------------------------------------------
$3,138,448 $2,483,200
========================================================================================
</TABLE>
F-9
<PAGE> 50
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
The Company entered into an agreement with IFREMER
for the charter of equipment to conduct the
Company's fourth expedition to the Titanic wreck
site in August 1996 ("Summer of 1996 Expedition").
Pursuant to the agreement, the Company paid
IFREMER the sum of $820,000 (proceeds from the
granting of licensing rights to a third party, see
Note 13) and is obligated to pay an additional
$980,000 to IFREMER, as defined, due no later than
September 1, 2000. The artifacts recovered during
the Summer of 1996 Expedition will serve as
collateral for this obligation. At February 28,
1997 and 1998, the unpaid balance of $980,000 and
$480,000, respectively, has been included in
amounts payable to foreign vendors. The charter
agreement is the subject of a renegotiation.
6. INCOME TAXES: The provision for income taxes for the year ended
February 28, 1998 consists of the following
components:
<TABLE>
<S> <C>
Current:
Federal $ 76,000
State and local 74,000
-----------------------------------------------
$150,000
===============================================
</TABLE>
The total provision for income taxes for the year
ended February 28, 1998 differs from that amount
which would be computed by applying the U.S.
federal income tax rate to income before provision
for income taxes. The reasons for these
differences are as follows:
<TABLE>
<S> <C>
Statutory federal income tax rate 34.0%
State income taxes, net of federal benefit 2.1
Use of net operating loss carryforwards (31.6)
Other, net (.2)
--------------------------------------------------------
EFFECTIVE INCOME TAX RATE 4.3%
========================================================
</TABLE>
The deferred income tax asset consists of the
following:
<TABLE>
<CAPTION>
February 28, 1997 1998
-------------------------------------------------------------------
<S> <C>
Loss carryforwards $1,270,000 --
Expenses not currently deductible 640,000 $ 503,000
-------------------------------------------------------------------
Gross deferred tax asset 1,910,000 503,000
Valuation allowance 1,910,000 503,000
-------------------------------------------------------------------
NET DEFERRED TAX ASSET $ - 0 - $ - 0 -
===================================================================
</TABLE>
At February 28, 1998, the Company has a net
operating loss carryforward for financial
reporting tax purposes of approximately
$1,250,000. A valuation allowance of 100% of the
deferred income tax asset has been provided at
February 28, 1998 due to the uncertainty of future
realization of net operating loss carryforwards.
F-10
<PAGE> 51
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
7. STOCKHOLDERS' EQUITY: Prior to the acquisition, FRM initiated an
exchange agreement with the holders of certain
Class B warrants in which the holders would
receive shares of common stock of FRM in exchange
for certain Class B warrants. As of February 28,
1998, the Company had received 20,700 Class B
warrants to be exchanged for 20,700 shares of
common stock of the Company, of which 17,500
shares still remain to be issued. There are 5,566
warrants outstanding as of February 28, 1998.
The following unregistered shares of common stock
were issued for cash consideration:
<TABLE>
<CAPTION>
Additional Price
Year Ended Common Stock Paid-in per
February 29, 1996 Date Shares Amount Capital Total Share
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Private placements 3/23/95 296,473 $ 30 $171,926 $171,956 $.58
Private placements 4/21/95 1,293,103 129 749,871 750,000 $.58
-------------------------------------------------------------------------------------------
1,589,576 $159 $921,797 $921,956
===========================================================================================
</TABLE>
The table for the year ended February 29, 1996
includes 1,356,681 shares of the Company's common
stock issued to certain individuals who served on
the board of directors during the year ended
February 29, 1996.
In addition to the common shares issued as part of
the acquisition, the following unregistered shares
of common stock were issued for consideration
other than cash:
<TABLE>
<CAPTION>
Additional Price
Year Ended Common Stock Paid-in per
February 29, 1996 Date Shares Amount Capital Total Share
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Conversion of note
payable - director of
the Company (a) 4/21/95 604,310 $60 $328,440 $328,500 $ .5436
Settlement of
lawsuit (b) 6/23/95 34,033 3 34,030 34,033 $1.0000
--------------------------------------------------------------------------------------------
638,343 $63 $362,470 $362,533
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Additional Price
Year Ended Common Stock Paid-in per
February 28, 1997 Date Shares Amount Capital Total Share
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Settlement of
lawsuit (c) 1/15/97 40,000 $ 4 $ 40,036 $ 40,040 $1.0010
=======================================================================================
</TABLE>
F-11
<PAGE> 52
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
Additional Price
Year Ended Common Stock Paid-in per
February 28, 1998 Date Shares Amount Capital Total Share
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Settlement of
lawsuit (c) 7/18/97 5,000 -- $ 2,250 $ 2,250 $.45
Settlement of
lawsuit (c) 10/30/97 5,000 $ 1 3,499 3,500 .70
----------------------------------------------------------------------------------------
10,000 $ 1 $ 5,749 $ 5,750
========================================================================================
</TABLE>
(a) These shares were issued to a director of
the Company in connection with the
conversion of a note payable plus accrued
interest and related fees. These shares were
valued at less than the market value of the
Company's publicly traded shares on the date
of conversion since such shares are
restricted securities for at least two
years.
(b) These shares were issued to the Financial
Group of Kuwait, K.S.C.C. ("FGK") (see Note
9) and were valued based upon a negotiated
settlement of certain litigation.
(c) These shares were issued to LS Capital to
satisfy certain obligations based upon a
negotiated settlement of certain litigation
(see Note 9).
8. STOCK OPTIONS:
Transactions relating to stock options are as
follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Exercise Options Exercise
Number Price Exer- Price
of Shares per Share cisable per Share
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at February 28(29), 1996
and 1997 580,000 $1.47 580,000 $1.47
Granted - April 1997 250,000 $1.00 250,000 $1.00
-----------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1998 830,000 $1.33 830,000 $1.33
=========================================================================================
</TABLE>
F-12
<PAGE> 53
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
The following table summarizes the information
about stock options outstanding at February 28,
1998:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-----------------------------------
Weighted-
Average Weighted-
Remaining Average
Range of Number Contractual Exercise
Exercise Price Outstanding Life (Years) Price
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
$ .50 50,000 1 year $ .50
$ .75 50,000 1 year $ .75
$ 1.00 50,000 1 year $1.00
$ 1.25 550,000 1 year $1.25
$ 1.50 50,000 1 year $1.50
$ 2.88 80,000 1 year $2.88
-----------------------------------------------------------------------------------
$.50 - $2.88 830,000 1 year $1.33
===================================================================================
</TABLE>
The Company has elected, in accordance with the
provisions of SFAS No. 123, to apply the current
accounting rules under APB Opinion No. 25 and
related interpretations in accounting for stock
options and, accordingly, has presented the
disclosure-only information as required by SFAS
No. 123. If the Company had elected to recognize
compensation cost based on the fair value of the
options granted at the grant date as prescribed by
SFAS No. 123, the Company's net income and income
per common share for the year ended February 28,
1998 would approximate the pro forma amounts shown
in the table below.
<TABLE>
<CAPTION>
Year ended February 28, 1998
--------------------------------------------------------------
<S> <C>
Reported net income $3,367,437
==============================================================
Pro forma net income $3,336,837
==============================================================
Reported net income per common share $ .21
==============================================================
Pro forma net income per common share $ .21
==============================================================
</TABLE>
The fair value of options granted (which is
amortized to expense over the option vesting
period in determining the pro forma impact) is
estimated on the date of grant using the
Black-Scholes option-pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
Year ended February 28, 1998
-------------------------------------------------------------
<S> <C>
Expected life of options 2 yrs.
=============================================================
Risk-free interest rate 6.45%
=============================================================
Expected volatility of RMS Titanic, Inc. 117.5%
=============================================================
Expected dividend yield on RMS Titanic, Inc. --
=============================================================
</TABLE>
F-13
<PAGE> 54
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
The weighted-average fair value of options granted
during the year ended February 28, 1998 is as
follows:
<TABLE>
<S> <C>
Fair value of each option granted $ .245
Total number of options granted 250,000
-------------------------------------------------------------
TOTAL FAIR VALUE OF ALL OPTIONS GRANTED $ 61,250
=============================================================
</TABLE>
In accordance with SFAS No. 123, the
weighted-average fair value of stock options
granted is required to be based on a theoretical
statistical model using the preceding
Black-Scholes assumptions. In actuality, because
the Company's stock options do not trade on a
secondary exchange, employees can receive no value
or derive any benefit from holding stock options
under these arrangements without an increase in
the market price of the Company. Such an increase
in stock price would benefit all stockholders
commensurately.
9. LITIGATION:
The Company is a named defendant in a lawsuit
commenced in the United States District Court for
the Southern District of New York on or about
December 16, 1997 (Lindsay v. The Wrecked and
Abandoned Vessel RMS Titanic, et al., in rem, and
RMS Titanic, Inc. et al., No. 97 Civ. 9248). The
plaintiff therein alleges, inter alia, that he
rendered certain services to the Company in
connection with its 1996 expedition to the Titanic
wreck site and in particular connection with the
alleged production of film, video and still images
of the Titanic illuminated by certain light
towers. The relief sought includes an accounting
and a judgment declaring the plaintiff a co-salvor
of the 1996 expedition and awarding him, in
specie, the underwater, film, video and still
photographs allegedly obtained by plaintiff from
the use of the light towers. The plaintiff also
seeks an award of compensatory damages of up to
approximately $500,000 and punitive damages in
excess of $2,000,000 based upon claims of breach
of contract, fraudulent misrepresentation, money
lent, quantum meruit and conversion. Management of
the Company believes it has meritorious defenses
to these claims, intends to defend its position
vigorously, and to assert counterclaims seeking
compensatory and punitive damages against the
plaintiff based upon, among other things, claims
that the plaintiff has wrongfully removed and
retained property owned by the Company, has
wrongfully interfered with the Company's
contractual relations with third parties, and has
violated the Company's copyright to the images
obtained with the light towers.
The Company is a named defendant in a lawsuit
commenced in the United States District Court for
the Eastern District of Virginia on or about May
4, 1998 (Haver v. RMS Titanic, Inc., Civil Action
No. 2:98cv507). The plaintiff therein seeks a
declaratory judgment permitting him to
participate in a photographic expedition to the
wreck of the Titanic known as Operation Titanic.
This action does not challenge the Company's
salvor-in-possession status. On or about May 4,
1998, the Company instituted a motion for a
preliminary injunction in the United States
District Court for the
F-14
<PAGE> 55
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
Eastern District of Virginia against various
unrelated parties involved in Operation Titanic,
seeking an order enjoining such parties from
conducting their proposed photographic expedition
(R.M.S. Titanic, Inc. v. The Wrecked and
Abandoned Vessel, etc. believed to be the RMS
Titanic, in rem, Civil Action No. 2:93cv902). The
United States District Court for the Eastern
District of Virginia has previously held, in
August 1996, that RMS Titanic, Inc. had the right
to exclude others from taking photographs of the
wreck and to control entry into the wreck site.
The Court's ruling to that effect also states
that the Company has the right to exclude others
from the wreck site regardless of whether the
Company is at the wreck site while other groups
attempt to visit the site. Pursuant to
stipulation, the action commenced by Mr. Haver
and the Company's motion for a preliminary
injunction have been consolidated. On May 27,
1998, a hearing was held on the Company's motion
for a preliminary injunction, and no decision has
been rendered as of the date of this report.
During the year ended February 29, 1996, a lawsuit
in which the Company was a named defendant that
was commenced in the United States District Court
for the Southern District of New York on or about
August 5, 1994 (Financial Group of Kuwait,
K.S.C.C. v. RMS Titanic, Inc. et al., 94 Civ.
5719) was settled. Pursuant to the terms of the
settlement, the Company agreed to issue to FGK
34,033 shares of its common stock, other
defendants agreed to transfer to FGK an aggregate
of 87,774 shares of the Company's common stock,
and the Company agreed to remove stop transfer
instructions on 52,300 shares of its common stock
registered in the name of FGK. Pursuant to an
agreement among the settling defendants, the
Company agreed to bear the responsibility for
payment of up to $.25 per share with respect to
64,427 shares. The parties to such lawsuit
reciprocally released each other from all claims
relating to such lawsuit. The Company recorded a
charge to operations of $35,000 during the year
ended February 29, 1996 which represents the fair
value of the shares issued to FGK.
During the year ended February 28, 1997, a lawsuit
in which the Company was a named defendant that
commenced in the Supreme Court of the State of New
York, County of New York, on or about September
22, 1994 (Glenville Properties Incorporated
("Glenville") v. RMS Titanic, Inc. et al.,
94/127087) was settled. Pursuant to the terms of a
settlement agreement, the Company agreed to pay LS
Capital, an affiliate of Glenville, $154,272,
representing the outstanding note payable
principal balance of $126,050 and accrued interest
of $28,222, in 12 equal installments commencing on
January 15, 1997, subject to acceleration if the
Company achieves certain revenue levels
("Threshold Amounts"), during such 12-month
period, as defined (see Note 4). The Company also
agreed to place 15,000 shares of its common stock
in escrow, with such shares to be either issued in
5,000 share increments to LS Capital in the event
such Threshold Amounts are not achieved at the end
of the Company's quarterly periods, or to be
canceled in the event such Threshold Amounts are
achieved. Additionally, affiliates of LS Capital
have agreed to release the Company from
liabilities aggregating approximately $40,000 and
the Company has agreed to issue 40,000
unregistered shares of its common stock to LS
Capital during the year ended February 28, 1997.
The Company did not meet the Threshold Amounts
during the six- and nine-month periods ended
August 31, and November 30, 1997, respectively,
and as such issued 10,000 shares to LS Capital
relating to this settlement during the year ended
February 28, 1998.
On February 20, 1996, a third party filed a motion
pursuant to Rule 60(b) of the Federal Rules of
Civil Procedure requesting the Court to rescind
its June 7, 1994 judgment that named the Company
the salvor-in-possession of the Titanic (the
"Motion"). On May 10, 1996, the Court denied the
Motion and amended its June 7, 1994 order so as to
require the Company to make more frequent periodic
F-15
<PAGE> 56
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
reports to the Court as to the status of its
activities. On August 13, 1996, the Court amended
the May 10, 1996 order so as to include the award
to the Company of the exclusive rights to
photograph the Titanic within the award of
salvor-in-possession status. The third party filed
a notice of appeal on such May 10, 1996 and August
13, 1996 orders, and the Company filed a
cross-appeal with respect to the Court having
granted standing to such third party. Pursuant to
a stipulated judgment dated December 10, 1996,
which consolidated the action from March 27, 1996
challenging the ownership of the general partner
of TVLP, among other matters, all claims against
the Company were dismissed.
10. COMMITMENTS AND Compensation amounting to approximately $162,000,
CONTINGENCIES: $120,000 and $120,000 was charged to operations
during the years ended February 28(29), 1996, 1997
and 1998, respectively, pursuant to certain
employment-related arrangements with the chairman
of the board of directors and a former president
of the Company. Additionally, accounts payable and
accrued liabilities include amounts payable to
these individuals in the aggregate amount of
$1,099,583 and $1,219,583 at February 28, 1997 and
1998, respectively, in connection with these
arrangements.
The Company has entered into a noncancelable
operating lease for its office expiring in
September 1998. The lease is subject to escalation
for (i) the Company's pro rata share of increases
in real estate taxes and (ii) increases in a
certain index. The approximate future minimum
rental commitments over the remaining term of the
lease are $39,000.
Rent expense charged to operations amounted to
approximately $64,000, $70,000 and $75,000 for the
years ended February 28(29), 1996, 1997 and 1998,
respectively.
The Company's Form 10-K for the year ended
February 28, 1997 has not been filed as of June
1998. The Form 10-K that was approved by
management to be filed was filed (unsigned by the
Board of Directors) in a Form 8-K on July 3, 1997.
11. OTHER RELATED PARTY A limited partner of TVLP, Taurus International
TRANSACTIONS: ("Taurus"), has provided services to TVLP as an
agent of TVLP in France. These services have
included securing legal representation, insurance
coverage, storage facilities and other
relationships required to maintain the Artifacts
while preservation work has been performed in
France by Electricite de France. Accounts payable
to Taurus amounted to $37,600 as of February 28,
1997. The amount was forgiven by Taurus during the
year ended February 28, 1998 and is included in
other income in the Company's statement of
operations for the year ended February 28, 1998.
12. EXHIBITIONS: In October 1996, the Company entered into an
agreement with the National Maritime Center
("Nauticus"), a political subdivision of the City
of Norfolk, Virginia, for an exhibition of Titanic
artifacts at Nauticus from November 27, 1996
through March 31, 1997. Pursuant to the agreement,
the Company received one-third of revenue, as
defined, from the sale of 150,000 tickets. In
addition, the Company received 50% of net profits,
as defined, from the sale of merchandise at the
exhibition, and 50% of sponsorship revenue, net of
the difference, if any, between the $500,000
expended by Nauticus for the design, construction
and
F-16
<PAGE> 57
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
marketing of the exhibition and Nauticus'
share of ticket revenue and net profits, as
defined, from the sale of merchandise at the
exhibition. At February 28, 1997, amounts due to
the Company from the exhibition and merchandising
activities at Nauticus aggregated $30,778.
In August 1996, the Company entered into an
agreement with the City of Memphis, Tennessee, for
an exhibition of Titanic artifacts in Memphis,
Tennessee, from April 3, 1997 to September 30,
1997. Pursuant to the agreement, the Company
received exhibition revenue of $720,000 in
installments between September 1996 and August 1,
1997, and received 65% of the net profits, as
defined, derived from ticket, merchandise and
sponsorship revenue in excess of $5,000,000.
During the year ended February 28, 1997, the
Company received $225,000 pursuant to the
agreement. At February 28, 1997, such amount had
been included in deferred revenue in the
accompanying balance sheet.
In April 1996, the Company entered into an
agreement with CRE-CO Finanz GmbH ("CRE-CO"), a
German company, for an exhibition of Titanic
artifacts in Europe from May 8, 1997 to November
8, 1997. The agreement, as amended, extended the
exhibition through May 10, 1998 and further
extended the exhibition through September 30,
1998. Pursuant to the agreement, as amended, the
Company received two-thirds of the net profits,
after recoupment of certain project expenses
through February 28, 1998 and $2.00 per visitor
thereafter, as defined. Additionally, the Company
received guaranteed exhibition fees attributable
to the initial term of the exhibition of $460,000
as a nonrefundable advance against the Company's
share of net profits, as defined, less $87,500
which represents a 25% refundable foreign
withholding tax. At February 28, 1997, $350,000
of such advance had been included in deferred
revenue in the accompanying balance sheet. At
February 28, 1998, amounts due to the Company
from the exhibition and merchandising activities
aggregated approximately $296,000 which includes
a refundable foreign withholding tax of $45,848.
Included in exhibition revenue for the year
ended February 28, 1998 is an amount attributable
to the transfer of ownership to the Company from
CRE-CO of certain exhibitry equipment aggregating
$559,414 in satisfaction of amounts due the
Company for its share of exhibition revenue
earned.
In December 1996, the Company entered into an
agreement, as amended, with Florida International
Museum, Inc. for an exhibition of Titanic
artifacts in St. Petersburg, Florida, from
November 15, 1997 to May 15, 1998 and further
extended the exhibition to May 31, 1998. Pursuant
to the agreement, the Company receives exhibition
revenue from attendance fees ranging from $.34 to
$3.10 per attendee, based upon the total number of
attendees during the exhibition term ("Attendance
Fee"), as defined. In addition, the Company
receives 10% of gross revenue, as defined, from
the sale of merchandise at the exhibition ("Gift
Shop Fee"). The minimum combined Attendance Fee
and Gift Shop Fee payable to the Company under the
terms of the agreement was $300,000. At February
28, 1998, minimum fees of $150,000 due to the
Company pursuant to the agreement have been
included in accounts receivable. Included in
deferred revenue in the accompanying balance sheet
at February 28, 1998 is $14,943 which represents
the unearned portion of the minimum fees.
In May 1997, the Company entered into an
agreement with the RMS Foundation, Inc. for
artifacts, expedition equipment, photographs and
film footage from the 1996 Titanic expedition to
be exhibited aboard the Queen Mary in Long Beach,
F-17
<PAGE> 58
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
California (the "Queen Mary") from June 1, 1997
through January 5, 1998 (the "Initial Term"). In
January 1998, the agreement was amended and the
exhibition was extended through February 5, 1998
and further extended to September 7, 1998 in
April 1998 (the "Extension Term"). Pursuant to
the Queen Mary exhibition agreement, the Company
received from the sale of up to 150,000 tickets,
$2.00 per ticket during the Initial Term and
$2.50 per ticket during the Extension Term, and
$3.00 per ticket from the sale of more than
150,000 tickets. In addition, the Company will
receive 50% of net profits, as defined, from the
sale of merchandise at the Queen Mary exhibition,
and 50% of any sponsorship revenue.
In April, 1998, the Company entered into an
agreement with Resource Plus and Event
Management International ("EMI"), a division of
the World Trade Center Boston, for an exhibition
of Titanic artifacts in Boston, Massachusetts
from July 1, 1998 through on or about November
15, 1998. Pursuant to the agreement, the Company
will receive two-thirds of the net profits, after
recoupment of certain project expenses, as
defined. The agreement further provides that the
ownership interest of certain exhibitry will be
transferred to the Company as of August 31, 1998.
In May 1998, the Company entered into an
agreement with Titanic Exhibition Japan Inc.
("TEJI") for an exhibition of Titanic artifacts
in various cities in Japan commencing on or about
July 20, 1998 to approximately July 1, 1999.
Pursuant to the agreement, TEJI agrees to pay
$321,000 for the conservation and restoration of
such artifacts. In addition, TEJI will pay to the
Company the greater of $3.00 per attendee or 50%
of the profits, as defined.
13. LICENSING AND The Company and two unrelated television
SPONSORSHIP FEES: production companies entered into an agreement
whereby the Company granted certain rights to the
production companies for the production and
exploitation of audio and visual recordings with
respect to the Summer of 1996 Expedition (the
"Productions"). Pursuant to the
terms of the agreement, the Company's obligations
to pay IFREMER approximately $820,000 prior to the
commencement of the Summer of 1996 Expedition were
satisfied as a result of entering into this
arrangement. The Company agreed to contribute
$100,000 to the Productions, $40,000 of which was
satisfied through the grant to one of such
unrelated third parties certain rights to present
information and images concerning the Summer of
1996 Expedition on the Internet. The remaining
balance of $60,000 was included in accounts
payable and accrued liabilities at February 28,
1997. During October 1997, the Company reached an
agreement for the satisfaction of such $60,000
obligation in exchange for granting rights to
exploit additional audio and visual recordings
relating to the Summer of 1996 Expedition. The
Company has retained the rights for commercial
exploitation of recordings made at the Titanic
wreck site in a print format and certain royalty
and other rights with respect to the marketing and
sale of home videos based upon the Summer of 1996
Expedition.
In connection with the Summer of 1996 Expedition,
the Company entered into a sponsorship agreement
with Guinness Import Company ("GIC") in March
1996, whereby GIC was designated an official
sponsor of the Summer of 1996 Expedition. Pursuant
to the agreement, the Company received a
sponsorship fee of $150,000.
F-18
<PAGE> 59
(Draft June 12, 1998)
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
In April 1997, the Company entered into an
agreement with a publisher which provides for the
use of photographs and images owned by the Company
for inclusion in the book, Titanic: Legacy of the
World's Greatest Ocean Liner. In consideration for
these rights the publisher will pay the Company
licensing fees for the use of the photographs and
images used in the book and a profit
participation, as defined.
F-19
<PAGE> 60
EXHIBIT INDEX
ITEM NO.
3.1 Articles of Incorporation, as amended.(1)
4.1 First Amendment to By-Laws of the Registrant.(2)
9.1 Voting Trust Agreement among Titanic Ventures Limited Parthersip,
George Tulloch, Allan H. Carlin, Arnie Geller, G. Michael Harris,
Kurt Hothorn, Cheryl Hothorn, Westgate Entertainment Corp., Anne
A. Hill, Diane Carlin, Shirley A. Hill, James A. Hill, and
D. Michael Harris(3)
10.1 Lease Agreement between the Company and 17 Battery Place North
Associates.(4)
10.2 Agreement dated April 15, 1996 between the Company and CRE-CO
Finanz GmbH.(5)
10.3 Pledge Agreement dated April 15, 1996 between the Company and
CRE-CO Finanz GmbH.(5)
10.4 Bailment Agreement dated April 15, 1996 between the Company and
CRE-CO Finanz GmbH.(5)
10.5 1996 Charter Agreement with IFREMER.(6)
10.6 Agreement dated August 8, 1996 between the Company and the City of
Memphis.(6)
10.7 Agreement dated July 22, 1996 between Discovery Communications,
Inc., Ellipse Programme and the Company (omitted and filed
separately as confidential information).(6)
10.8 Agreement dated October 9, 1996 between the Company and the
National Maritime Center Authority.(7)
10.9 Exhibition Loan Agreement dated December 10, 1996 between the
Company, the City of Memphis, Tennessee and the Florida
International Museum, Inc.(8)
10.10 Agreement dated May 23, 1997 between the Company and RMS
Foundation, Inc.(9)
10.11 Amendment to Agreement dated April 15, 1996 between the Company and
CRE-CO Finanz GmbH.(9)
10.12 Amendment to Agreement dated August 6, 1996 between the Company and
the City of Memphis.(9)
- ----------
(1) Filed as an exhibit to Registrant's Registration Statement on Form 8-A.
(2) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1995.
<PAGE> 61
(3) Files as exhibit 7.2 to Form 13D filed on September 2, 1997.
(4) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
year ended February 28, 1994.
(5) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1996.
(6) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1996.
(7) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended November 30, 1996.
(8) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
July 3, 1997.
(9) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1997.
<PAGE> 62
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] FEB-28-1998
[PERIOD-START] MAR-01-1997
[PERIOD-END] FEB-28-1998
[CASH] 1,000,269
[SECURITIES] 0
[RECEIVABLES] 640,760
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 1,686,877
[PP&E] 725,806
[DEPRECIATION] 73,207
[TOTAL-ASSETS] 10,078,696
[CURRENT-LIABILITIES] 2,642,103
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 1,619
[OTHER-SE] 7,434,974
[TOTAL-LIABILITY-AND-EQUITY] 10,078,696
[SALES] 391,650
[TOTAL-REVENUES] 4,658,270
[CGS] 14,000
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 5,750
[INCOME-PRETAX] 3,517,437
[INCOME-TAX] 150,000
[INCOME-CONTINUING] 3,444,726
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,367,437
[EPS-PRIMARY] .21
[EPS-DILUTED] .21
</TABLE>
