U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File No. 000-24452
RMS TITANIC, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Florida 59-2753162
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Corbett Street, Clearwater, Florida 33756
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(Address of principal executive offices)
Issuer's telephone number, including area code: (727) 443-1912
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
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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 1, 2000, was: $22,946,716.
The number of shares outstanding of each of the registrant's classes of
common stock, as of June 1, 2000, were:
NUMBER OF SHARES
TITLE OF EACH CLASS OUTSTANDING
Common Stock, par value $.0001
per share 16,187,128
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DOCUMENTS INCORPORATED BY REFERENCE: The registrant's definitive proxy statement
to be filed pursuant to Regulation 14A or definitive information statement to be
filed pursuant to Regulation 14C.
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 that involve certain risks and uncertainties. The
Company's actual results or outcomes may differ materially from those
anticipated. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements contained in the Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, such information should not be
regarded as a representation by the Company that the objectives and plans of the
Company will be achieved.
ITEM 1. BUSINESS
BACKGROUND
On May 4, 1993, RMS Titanic, Inc. acquired all the assets and assumed all 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 ("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"). The Order was re-affirmed by the
Federal District Court for the Eastern District of Virginia in 1996. In March
1999, the United States Court of Appeals for the Fourth Circuit affirmed the
Company's status as salvor-in-possession, however, it reversed the portion of
the 1996 decision that the Company could exclude other parties from viewing and
photographing the Titanic site. The United States Supreme Court declined to
review the Company's appeal of this decision.
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. This location is
approximately 400 miles off the coast of Newfoundland. The Company has obtained
oceanic material and scientific data available in various forms that include
still and moving photography and artifacts from the wreck site; and is utilizing
this data and artifacts for historical verification, scientific education and
public awareness. All these activities are directed toward producing income for
the company that include touring exhibitions, television programs and the sales
of still photographs.
In August 1987, the Company contracted with the Institute of France for the
Research and Exploitation of the Sea ("IFREMER"), which is owned by the French
Government, to conduct an expedition and dive to the wreck of the Titanic. Using
state-of-the-art technology of IFREMER, the world's largest, oceanographic
institute, approximately sixty days of research and recovery operations were
performed at the Titanic wreck site in 1987 through the use of a manned
submersible NAUTILE. Approximately 1,800 objects were recovered during the
course of the thirty-two dives in that expedition.
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The recovered objects were conserved and preserved by Electricite de France
("EDF"), the French government-owned utility. In addition to the recovery of
historic 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, during which it recovered approximately 800 artifacts and
produced approximately 105 hours of videotape footage during the course of
fifteen 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.
With the Company's cooperation, Discovery Communications, Inc. produced three
hours of television programming based upon the Company's activities and
scientific studies 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 26 feet by 20 feet and
weighing approximately 20 tons, from the debris field surrounding the wreck.
Although the Company raised the "Big l Piece" to within approximately 200 feet
of the surface of the ocean, efforts to recover it were unsuccessful because of
stormy weather conditions and severe ocean turbulence.
In August 1998, the Company recovered 70 objects and produced approximately 350
hours of videotape footage during its fifth expedition to the Titanic wreck
site. This expedition, again undertaken in cooperation with Discovery
Communications, Inc., produced five hours of television programming about the
expedition, including the first-ever live broadcast from the Titanic wreck site
and a one hour Dateline NBC special broadcast. Among the highlights of the 1998
expedition was the successful recovery of the Big Piece" and extensive mapping
of the Titanic and portions of the wreck site through the capture of thousands
of high-resolution color digital photographs.
The Company's 1993, 1994, 1996, and 1998 Titanic expeditions were completed by
charter agreements with IFREMER. The objects recovered in the 1993, 1994, 1996
and 1998 expeditions were transported to a privately-owned conservation
laboratory in France for restoration and preservation processes in preparation
for exhibition, except for the "Big Piece", that is using on-going conservation
processes while on exhibit as part of the Company's exhibition of its Titanic
artifacts in the United States.
PLAN OF OPERATIONS
The Titanic continues to captivate the thoughts and imagination of millions of
people throughout the world since 1912, when it struck an iceberg and sank in
the North Atlantic, causing the loss of more than 1,500 of the 2,228 lives on
board. The depth of this international interest in the Titanic has been
continuous since its sinking more than eighty-five years ago. The December 1997
release of the highest grossing motion picture of all time, "Titanic," 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 attests to the public's continuing fascination in
the Titanic. As the only enterprise that has recovered and conserved items from
the Titanic, the Company is in a unique position to present exhibitions of
Titanic artifacts for viewing by the public. Management intends to continue to
present exhibitions throughout the world as demand for these tours is warranted.
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Management will also continue to conduct these exhibitions in an enlightening
and dignified manner that embodies respect for those who lost their lives in the
disaster.
The principal sources of revenues of the Company have been payment guarantees
for attendance, ticket sales for admission to exhibitions, merchandising
revenues, licensing revenues and sponsorship revenues.
The Company intends to keep the artifacts recovered from the Titanic together as
a "collection" and make them available for exhibition to the public. In its
charter agreements with IFREMER, the Company has agreed that its collection of
artifacts would not be sold by the Company to an individual or private
collector. However, if it becomes 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 providing such a sale
complied with our agreements with IFREMER. Within these agreements, artifacts
are defined 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 gemstones are not considered artifacts within the IFREMER
agreements.
EXHIBITIONS
The Company has presented exhibitions in association with third parties in
cities in the United States, Europe, and Japan. The Company plans to continue to
present exhibition tours of Titanic artifacts in cities throughout the world.
Agreement with Subsidiary of SFX Entertainment, Inc.
In March 1999, we entered into an agreement with Magicworks Entertainment, Inc.,
a direct subsidiary of PACE Entertainment, Inc. and an indirect subsidiary of
SFX Entertainment, Inc. (collectively "SFX"), in which we granted SFX an
exclusive worldwide license to exhibit our Titanic artifacts for the payment of
at least $8.5 million annually. This license agreement has an initial term of
one year, commencing September 14, 1999, with SFX having the option to extend
the term for up to four additional one-year periods. SFX has paid $6.5 million
at the present time with the last payment of $2,000,000 due June 14, 2000. All
obligations of Magicworks Entertainment, Inc. under this license agreement have
been guaranteed by SFX Entertainment, Inc.
Pursuant to the license agreement, we will receive sixty-five percent of ticket,
merchandise and sponsorship revenues, after deduction of mutually agreed upon
project expenses. The $8.5 million annual guaranteed minimum payment is credited
against our share of revenues from all exhibitions in excess of the project
expenses. We have the right to terminate the license agreement effective
September 14, 2001, or annually thereafter, if there is a merger or sale of
majority control of the Company, or substantially all of its assets.
If we terminate this license agreement, SFX will have the right to continue one
major exhibition, containing no more than 200 Titanic artifacts and requires an
investment by SFX of more than $2,000,000, until September 14, 2004. We will
receive a minimum of $2,250,000 annually as consideration for this license. Upon
recoupment of project expenses, we have the right to select and obtain legal
title to 65% of the exhibitry built for all the exhibitions during the term of
this agreement.
In addition, the license agreement provides that the Company shall receive
twenty percent of the profits, if any, from a current Titanic themed exhibition
in Orlando, Florida presented by SFX and third parties. An officer of the
Company who is a member of the Board of Directors is a related party to this
exhibition. This exhibition predated his becoming an officer of the company.
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As of this filing date, the Company was in negotiations with SFX for
modification of its existing licensing agreement for the next option period.
Among the modifications being discussed is a reduction in the minimum annual
payment required to be made by SFX and provide the Company with the opportunity
for a higher percentage of the net revenues from exhibitions. To facilitate the
finalization of a modified agreement, the Company has extended the notification
requirements that SFX must provide on its election of the next one year option
period.
From a period beginning in 1997 through the present time, exhibitions of objects
recovered from the Titanic were presented in association with the Company in the
following cities and countries: Norfolk, Virginia from November 1996 until March
1997; Memphis, Tennessee from April 1997 to September 1997; Hamburg, Germany
from May 1997 to September 1998; at the Queen Mary in Long Beach, California
from May 1997 to March 1999; in St. Petersburg, Florida from November 1997 to
May 1998; in Boston, Massachusetts from July 1998 through November 1998; in
Zurich, Switzerland from November 1998 through May 1999; in St. Paul, Minnesota
from January 1999 through May 1999; a tour of several cities in Japan from July
1998 through July 1999; and in Atlantic City, New Jersey from May 1999 until It
concluded in September 1999.
Current Exhibitions
SFX presently has exhibits in Dallas, Texas; Chicago, Illinois; Orlando, Florida
and Las Vegas, Nevada.
Prior Exhibitions
The Company's prior exhibitions of its Titanic artifacts have included
the following:
Prelude Exhibition at the National Maritime Museum
In October 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, concluded in October 1995. A record-breaking number of people,
approximately 720,000, visited the National Maritime Museum during the Prelude
Exhibition.
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 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.
Memphis Exhibition
Following the Prelude Exhibition, in 1996 the Company reached an agreement with
the City of Memphis, Tennessee for the presentation of a larger exhibition of
Titanic artifacts in Memphis, Tennessee from April 1997 through September 1997.
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
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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.
Hamburg Exhibition
Pursuant to a agreement with Cre-Co Finanz GmbH ("CRE"), a company organized
under the laws of Germany, an exhibition of approximately 300 of the Company's
Titanic artifacts was held in Speicherstadt, the historic maritime center of
Hamburg, Germany, from May 1997 through September 1998. In addition to
displaying objects from Titanic and her passengers and crew, the Hamburg
exhibition included the first opportunity for the public to view the Titanic
bell, compass, telegraph and safe together. The theme of the Hamburg exhibition
was an interactive presentation of the technological advances required to
accomplish the recovery and conservation of Titanic artifacts, and included
replicas of the First Class, Second Class and Third Class cabins, and a model of
the bow of the wreck. Approximately 1.1 million people attended this exhibition.
St. Petersburg Exhibition
The objects exhibited at the Memphis exhibition and associated exhibitry were
transported and installed in the Florida International Museum in St. Petersburg,
Florida for an exhibition presented from November 1997 to May 1998.
Approximately 830,000 people attended this exhibition.
Queen Mary Exhibition
The Company 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 from June
1997 through March 1999 in an exhibition entitled "Titanic: The Expedition."
Approximately thirty un-restored artifacts recovered during the summer of 1996
expedition (including one of Titanic' whistles, a large silver soup tureen,
binoculars in a leather case, and a porthole) and fourteen conserved artifacts
from prior expeditions were 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 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 was the exploration and
recovery of objects from the Titanic wreck.
The "Titanic: The Expedition" was presented in an area of approximately 6,000
square feet, as compared to the Memphis, Hamburg, and St. Petersburg
exhibitions, which occupied between 30,000 square feet to more than 40,000
square feet. The Queen Mary exhibition was substantially the same as the
"Titanic: The Expedition " which was presented at the National Maritime Center
in Norfolk, Virginia from November 27, 1996 through March 31, 1997. The Queen
Mary exhibition closed on March 21, 1999, with approximately 264,000 visitors
having attended.
Boston Exhibition
The Company entered into an agreement with Resource Plus and Event Management
International, a division of the World Trade Center Boston, for the presentation
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of more than 175 artifacts in Boston, Massachusetts from July 1998 through
November 1998. This exhibition included the Company's Titanic artifacts
presented in the Memphis and St. Petersburg exhibitions. This exhibition closed
in November 1998, with attendance of approximately 250,000 visitors. The objects
exhibited at the Boston exhibition and associated exhibitry were transported and
installed in a venue in St. Paul, Minnesota.
St. Paul Exhibition
The Company entered into an agreement with Media Rare, Inc. for the presentation
of the objects and exhibitry contained in the Company's Boston exhibition for a
period of four months commencing in January 1999 and ended in May 1999.
Atlantic City Exhibition
The Company presented an exhibition of approximately 200 of its Titanic
artifacts in Atlantic City at the Tropicana Hotel. This exhibition, which
includes the Big Piece recovered during the 1998 Titanic expedition, commenced
in May 1999 and concluded in September 1999.
Japan Exhibition
The Company entered into an agreement with Titanic Exhibition Japan
Inc. ("TEJI") for the exhibition of approximately 200 Titanic artifacts in seven
venues in Japan commencing on July 24, 1998 and ended on August 1, 1999. The
Japanese exhibition was presented in the cities of Tokyo, Yokohama, Joetsu,
Osaka; Hiroshima, Fukuoka, and Sapporo. Approximately 63,200 people attended
this exhibition.
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 presented these exhibitions. The Company did 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,
Events Merchandise Inc. ("EMI"), to operate and manage retail merchandise
operations at the Company's exhibitions in the United States until June 30,
2000. In this agreement, EMI 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 the Company and the co-presenters of
the exhibition, such as Events Management Inc. with respect to the Boston
exhibition, thirty percent of gross revenues from retail sales at the exhibition
site. EMI has also agreed to pay us an amount equal to ten percent of its gross
revenue received from sales to third parties, and an amount equal to five
percent of the suggested retail price bearing the Company's logos or
incorporating our proprietary rights, whether sold at exhibitions or through
retail outlets, other than the exhibitions. Presently, the Company is
negotiating with EMI for a new agreement.
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 royalty
from the sales of the artifact replicas for granting 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.rmstitanic.net) and through third
parties.
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EXPEDITIONS TO THE TITANIC
With the depth of the Titanic wreck approximately two and one-half miles below
the surface of the ocean in the North Atlantic, the Company is dependent upon
chartering vessels outfitted with highly advanced deep sea technology in order
to conduct expeditions to the site. In its 1987, 1993, 1994, 1996, and 1998
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 were undertaken through the manned submersible NAUTILE. Small,
hard-to-reach areas necessary for visual reconnaissance efforts were accessed by
a small robot, known as ROBIN, controlled by crewmen on board the NAUTILE. The
dive team had the capability of retrieving heavy objects, such as a lifeboat
davit weighing approximately 4,000 lbs., 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 a dive team to reach such depths
and explore the wreck site through any means other than a submersible. The
NAUTILE and ROBIN were each equipped with video and still cameras that recorded
all recovery and exploration efforts. In connection with its 1987, 1993, 1994,
1996, and 1998 expeditions to the wreck site, the Company engaged maritime
scientists and other professional experts, to assist in the exploration and
recovery efforts. Management intends to engage experts from such fields for its
future expeditions to the Titanic, one of which is planned for this summer.
During the Company's 1998 expedition to the Titanic, in addition to recovering
the largest artifact to date -- a 26 foot by 20 foot outer section of the hull
of Titanic weighing approximately 20 tons, known as the "Big Piece", other
objects recovered during this expedition included a port-side gangway door from
D-Deck, found on the sea bed with its latch mechanism open; a golden chandelier
from one of the ship's first class public rooms; a stateroom coat hook; a light
switch control panel from the galley area; a skylight from the first class
elevator shaft; a small 60-second hourglass used for navigation; a round dial
with spindle and spring mechanism that may be an electronic wall clock from the
Marconi radio room. During the 1998 expedition, a new area of the debris field
apparently containing large amounts of passenger baggage was discovered, which
the Company intends to explore and to focus attention upon in future recovery
operations.
Additionally, by using ultra-high resolution digital underwater technology, more
than 3,000 individual digital photographs were captured of the Titanic site.
These photographs have been compiled and processed utilizing special
computerized software into the world's first high-resolution photo-mosaic of the
wreck site, including the first-ever composition of the entire mangled stern
section as well as portions of the debris field surrounding the wreck.
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 through charter arrangements with IFREMER and MIRI
and MIRII using charter arrangements with P.P. Shirshov Institute of Oceanology.
To the Company's knowledge, no other submersible with the capability of reaching
the depth of the Titanic is presently commercially available or acceptable to
the Company for such chartering. The Company could also conduct operations
through the use of unmanned, surface-controlled, remote operated vehicles, which
may be available for chartering on suitable terms from other sources.
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RESTORATION AND CONSERVATION
Upon recovery from the wreck site, artifacts are in varying states of
deterioration and fragility. Having been submerged in the depths of the ocean
for more than 85 years, objects have been subjected to the corrosive effects of
chlorides present in sea water. The restoration of many of the metal, leather,
and paper artifacts requires the application of sophisticated electrolysis and
other electrochemical techniques. Artifacts recovered from the 1987 expedition
were restored and conserved by the laboratories of Electricite de France, the
French government-owned utility. Except for un-restored artifacts that are
currently being exhibited, all artifacts recovered from the 1993, 1994, 1996 and
1998 expeditions are either undergoing or have undergone conservation processes
at LP3, a privately-owned conservation laboratory in Semur-en-Auxois, France.
SALVAGE RIGHTS
Pursuant to the 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 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. To maintain salvor-in-possession status,
the Company, among other things must maintain a reasonable presence at the wreck
through periodic expeditions and continue salvage efforts and the 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 salvor-in-possession status to the Company. By an order
dated May 10, 1996, the motion was denied. The court also modified its June 1994
order to require the Company to file more frequent reports about its activities.
In August 1996, the Court amended the May 1996 order to include the award to the
Company 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.
An unrelated entity announced the intention of conducting a photographic
expedition, known as Operation Titanic, to the Titanic wreck site during August
1998, when the Company intended to conduct its 1998 expedition. The Company
commenced legal proceedings and obtained 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.
Notwithstanding such injunction, the Operation Titanic photographic expedition
occurred in September 1998. In March 1999, the District Court's granting of an
injunction prohibiting the photographic expedition was reversed by the Fourth
Circuit of the United States. The Company appealed the reversal of the District
Court's determination to the United States Supreme Court. The Supreme Court
declined to review this matter in October 1999. As a result, the Company no
longer has exclusive photographic rights to the Titanic.
Future photographic expeditions to the Titanic have been announced by
third-parties. In the event that such photographic expeditions are undertaken
while the Company is conducting its expedition, safety hazards regarding the
deployment of submersibles chartered by the Company while other submersibles are
deployed could interfere with the Company conducting its expeditions.
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Entities within the United States, United Kingdom, France and Canada are working
together to implement an international agreement that could diminish or divest
the Company of its salvor-in-possession rights. See Item 3- Legal Proceedings.
Management believes that all requirements to maintain its salvor-in-possession
status have been satisfied by the Company and will continue to 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 that salvage operations by other
entities, if successful, would not have a material adverse affect upon the
Company's exhibition activities.
The loss of exclusive photographic rights could have a materially adverse
affect upon the Company's ability to generate revenues from ancillary
activities, such as television productions, or passenger cruises accompanying
research and recovery expeditions. See Legal Proceeding, Item 3
MARKETING
Several organizations in association with which the Company are
presenting exhibitions are responsible for undertaking and paying for the
marketing and promotion of the exhibitions.
COMPETITION
The entertainment and exhibition industries are intensely competitive. There can
be no assurances given the Company's limited capital resources, that we will be
able to compete effectively. Many enterprises 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 undertaken, or 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 the
Company's Titanic exhibitions. 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. The Company will emphasize the unique and
distinctive perspective of the Titanic into its exhibits as Titanic's
salvor-in-possession and as the only entity that has the right 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 believes that its merchandise will compete primarily on the basis of
its unique character and quality.
EMPLOYEES
As of June 1, 2000, the Company had seven employees. The Company is not a party
to any collective bargaining agreement.
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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ITEM 2. DESCRIPTION OF PROPERTY
The Company had its principal executive offices located in New York, New
York which consisted of approximately 3,500 square feet which were leased
pursuant to a lease commencing in June 1999. The Company has decided to sublease
that space as it decided to relocate its administrative offices to Clearwater,
Florida. The market value of other similar rentals at the New York location are
higher than the Company's present lease rate.
The Company maintains office space at 401 Corbett Street, Clearwater, Florida.
Approximately 2,760 square feet of space houses the Company's administrative and
marketing activities. The lease is for a five-year term ending May 30, 2005 with
annual lease payments of $36,570.
The Company also maintains a satellite office at Tower Place, 3340 Peachtree
Road N.E., Suite 1225, Atlanta, Georgia. Approximately 2,759 square feet of
space is used by the Company's president from which he administers his
management responsibilities on behalf of the Company. The lease commenced on
April 18, 2000 and is for a five year term and requires base lease payments of
$64,836 annually.
ITEM 3. LEGAL PROCEEDINGS
Legal Action by Former Officers and Directors
On November 26, 1999, two of the six members of the Company's Board of
Directors, Messrs. Geller and Harris, and others; acting via an action by
written consent of the holders of a majority of voting rights of the Company's
common stock, in lieu of a meeting; removed Messrs. Tulloch and Carlin as
Officers and Directors of the Company and the remaining Directors other than
themselves.
Subsequently, the removed Officers and Directors brought an action in the United
States District Court for Connecticut against Messrs. Geller and Harris and
others seeking to obtain a judicial reversal of their removal from power.
Because of the uncertainty as to the individuals who could conduct business on
behalf of the Company during the time from November 26, 1999 to the resolution
of the dispute, the Company's bank stopped honoring checks and froze all funds
on deposit. In addition, a creditor notified the company that it would not
tender a $2,000,000 payment otherwise due and payable until the dispute among
current and former directors is resolved or settled.
The legal action was resolved on January 21, 2000 with a Settlement Agreement
whereby the Company agreed, among other things, to: (a) pay to Messrs. Tulloch
and Carlin an aggregate amount of $2,500,000 in three equal installments to be
completed within six months of the date of the settlement; (b) allow Messrs.
Tulloch and Carlin to submit documented requests for reimbursement of previously
un-reimbursed business expenses; (c) review / revise payment information
submitted to the Internal Revenue Service with respect to the nature of
previously made payments to Mr. Carlin; (d) the authority of Messrs. Tulloch and
Carlin to exercise previously issued options to acquire an aggregate of
1,000,000 shares of the Company's common stock and to cause the company to file
a Registration Statement with respect to the options and underlying shares of
common stock; (e) indemnify the former Officers and Directors who participate in
the Settlement Agreement to the full extent of applicable law and to the extent
of Officers and Directors Liability under the existing Company policy; and (f)
reimburse Messrs. Tulloch and Carlin for the costs of health insurance for a
period of 18 months.
11
<PAGE>
Messrs. Tulloch and Carlin agreed, among other things, to: (a) accept the
$2,500,000 as full monetary payment (with the exception of previously noted
un-reimbursed business expenses) for any claims against the Company, Messrs.
Geller and Harris and others in connection with this action and amounts
otherwise due them in connection with their roles as Officers and Directors of
the Company; (b) send appropriate letters to the Company's bank and
aforementioned creditor to "unfreeze" corporate funds and to allow operational
cash flow to resume; (c) an eighteen month standstill agreement which precludes
them from interfering in Company management without the prior approval of the
Board of Directors and shareholders; (d) discontinue their efforts to have the
Titanic determined to be a monument and to restrict the removal of materials
from the Titanic wreck site; (e) return all the Company's property in their
possession, including records and files, and provide a complete list of Company
Artifacts which are located anywhere in the world; (f) provide, for a three
month period, cooperation in effecting a professional management transfer; (g)
return all monies held in Mr. Carlin's attorney trust account along with an
accounting of such; and (g) discontinue access to the Company's internet site
and to sell back to the company, at cost, another web site utilizing the name
"Titanic".
At February 29, 2000 accounts payable and accrued liabilities includes a balance
of $1,608,000 payable to Messrs. Tulloch and Carlin under the terms of the
Settlement Agreement. During the year ended February 29, 2000, $1,672,000 was
charged to operations in connection with this Settlement Agreement.
The Company has indemnified all defendants in the legal action brought by the
removed Officers and Directors from all legal fees and expenses and other costs
associated with the action.
Other Legal Proceedings
The Company was a party to certain litigations that have been resolved during
the year ended February 29, 2000 resulting in settlements of $391,000 being
charged to operations for such year. The $391,000 consists of cash and 100,000
shares of the Company's common stock.
The United States Department of State and the National Oceanic and Atmospheric
Administration of the United States Department of Commerce (the "NOAA") are
working together to implement an International Agreement (the "Agreement") with
entities in the United Kingdom, France and Canada that would diminish and/or
divest the Company of its salvor-in-possession rights to the Titanic which had
been awarded by the Federal District Court for the Eastern District of Virginia
(the "District Court"). The Company has raised numerous objections to the United
States Department of State regarding the actions of the United States to
participate in efforts to reach an agreement governing salvage activities of the
Titanic. The Agreement, as drafted, does not recognize the existing rights of
the Company in the Titanic, that has been re-affirmed in the District Court and
affirmed by the Court of Appeals of the Fourth Circuit, and provides that the
Agreement becomes effective when any two of the party states sign it. The United
States Department of Justice has represented that the United States believed it
had complied with the RMS Titanic Memorial Act in the development of the
international guidelines to implement the Agreement, but would solicit comments
from the public at large regarding the draft international guidelines and the
NOAA will consider the comments, and then publish the final international
guidelines. On April 3, 2000 the Company filed a motion for declaratory judgment
asking that the District Court declare unconstitutional and inappropriate the
efforts of the United States to reach an international agreement with the other
parties and that it be precluded from seeking to implement such an agreement.
The Company expects, that whatever the outcome of this matter, there will be no
impact on artifacts its already owns. The Company is awaiting the response of
the United States to its complaint for declaratory judgment. The Company is
unable to predict the possible outcome of this matter.
12
<PAGE>
The Company is a named defendant in an action brought by Suarez Corporation
Industries ("SCI") in the United States District Court for the Southern District
of New York. Between October 1995 and March 1997, the Company and SCI entered
into various agreements providing for the exploitation of artifacts and other
merchandise and arranging for a cruise and ancillary events including the
financing and sharing of the division of contractual defined profits all with
respect to the 1996 Research and Recovery Expedition of the Titanic by the
Company. SCI has brought various claims against the Company: (a) The first claim
is for declaratory judgment claiming that SCI has co-salvor status. (b) The
second claim is for breach of contract for which SCI is seeking $8,000,000
because it incurred expenses in preparation of the 1996 expedition and
participated in and performed substantial duties at sea on a salvage vessel in
furtherance of the 1996 expedition. (c) The third claim is for damages because
it was represented that the Company had the financial capacity to fund the 1996
expedition or had contracted with third parties to ensure the salvage operation.
SCI alleges it suffered damages to the extent of $8,000,000. (d) The fourth
claim is for conversion and alleges that the Company took possession of light
towers, having a value of $800,000, owned by SCI. The claim is for sustained
damages of $800,000 and punitive damages in the sum of $1,000,000. (e) The fifth
claim is for quantum meruit and SCI claims it is entitled to $8,000,000 for the
fair value of actions performed by SCI and the Company. (f) The sixth claim is
for breach of contract and as a result of such breach, defendant is obligated to
pay $8,000,000. (g) The seventh claim is for fraud and SCI claims that it is
entitled to $8,000,000. (h) The eighth claim is for an additional conversion
which SCI claims it suffered damages in the sum of $8,000,000. The Company is
vigorously defending SCI's claims and believes it has meritorious defenses to
such claims.
ITEM 4. SUBMISSION OF MATTERS OF VOTE OF SECURITY HOLDERS
During the fourth quarter of this fiscal year ended February 29, 2000,a proxy
was submitted to the vote of the Company's security holders.
PART II
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
COMMON STOCK
HIGH LOW
BID BID
2000
1st Quarter 2.875 1.375
2nd Quarter 2.56 1.72
3rd Quarter 4.375 1.66
4th Quarter 3.8125 2.4375
13
<PAGE>
1999
1st Quarter 2.0625 .875
2nd Quarter 1.9375 .78125
3rd Quarter 1.6563 .78125
4th Quarter 2.75 1.1875
(a) HOLDERS. The approximate number of holders of record of the Company's
Common Stock as of June 1, 2000 was 693.
(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.
Effective April 1, 2000, the Company relocated its principal office and place of
business from New York to Clearwater, Florida. By virtue of such relocation,
legal counsel has advised the Company that it is subject to Section 607.0902
Florida Statutes, the Control Share Statute. Although the application of certain
provisions of the Control Share Statute is subject to varying interpretation,
the Company believes that those shareholders who own, or have voting power with
respect to, shares constituting 20% or more of the Company's outstanding shares
of common stock hold "control shares" that are subject to the voting
restrictions of the Control Share Statute.
In general, "control shares" have no voting rights. Voting rights may be granted
to such shares only pursuant to a resolution adopted by shareholders. Any such
resolution must be adopted by a majority of all shares, excluding "control
shares". The Board of Directors has no current plans to submit any such
resolution to a vote of shareholders.
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 independent certified public accountants. The financial statements as
of February 29, 2000 and February 28, 1999 and for each of the three years in
the period ended February 29, 2000 is included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28(29)
1996 1997 1998 1999 2000
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenue $ 725,000 1,247,000 4,658,000 9,857,000 6,433,000
Net income (loss) $ (150,000) 158,000 3,367,000 4,063,000 (21,000)
Income (loss)
per share (1) $ (.01) .01 .21 .25 -0-
Weighted average number of
common shares
outstanding 15,834,644 16,141,950 16,181,868 16,187,128 16,187,128
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28(29), 1996 1997 1998 1999 2000
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total Assets $ 6,060,000 8,005,000 10,079,000 13,910,000 15,372,000
Long Term Obligations -- -- -- -- --
Total Liabilities $ 2,195,000 3,942,000 2,642,000 2,410,000 3,569,000
Shareholders' Equity $ 3,866,000 4,063,000 7,437,000 11,500,000 11,803,000
</TABLE>
The Company has declared no cash dividends.
Basic income (loss) per common share ("EPS") is computed as net income
(loss) divided by the weighted average number of common shares outstanding for
the period. Diluted EPS is not presented since there was no dilutive effect of
potential common shares or their inclusion would be anti-dilutive.
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 29, 2000 AS COMPARED TO YEAR ENDED FEBRUARY 28, 1999
During its fiscal year ended February 29, 2000 (the "2000 fiscal year"), the
Company's revenues decreased to $6,433,000 as compared to $9,857,000 in the
fiscal year ended February 28, 1999 (the "1999 fiscal year"). This decrease of
$3,424,000, or 35%, primarily reflects lower licensing fee income in the 2000
fiscal year. In the 1999 year, licensing fee income benefited from the
production and exploitation of audio and visual recordings for the Company's
expedition to the Titanic wreck site during the summer of 1998 in the amount of
approximately $3.300,000.
Exhibition and merchandising revenue was $6,136,000 in the 2000 fiscal year as
compared to $5,460,000 in the 1999 fiscal year for an increase of $676,000, or
12%. This increase in revenues was principally attributable to the presentation
of major exhibitions in Atlantic City, St. Paul and Japan, as well as the income
received from Magicworks, a subsidiary of SFX for their licensing agreement
executed during the year.
The Company's merchandise and other revenues, that included the sale of
merchandise, books and royalty payments, decreased to $221,000 from $680,000 in
the prior fiscal year. This decrease of $459,000, or 67% is attributed to
substantially lower sales in each category for the current fiscal year. The sale
of coal recovered from the Titanic was $59,000 in the current fiscal year
compared to $222,000 in the prior year. This decrease is attributed to the
curtailing of marketing efforts during the recent year as compared to the prior
years marketing emphasis.
General and administrative expenses were $6,154,050 for the 2000 fiscal year as
compared to $1,733,000 in the 1999 fiscal year. This increase of $4,421,000, or
255%, is attributed to $2,230,000 incurred for the settlement with previous
management that was charged to operations including the related legal expenses,
additional legal expenses of $272,000 which were primarily the result of the
legal matters surrounding the change in management, the settlement of two
litigations for $694,000 including legal expenses, a bad debt expense of
$250,000, and higher exhibition expenses.
15
<PAGE>
Depreciation and amortization expense during was $303,000 for the 2000 fiscal
year as compared to $246,000 in the 1999 fiscal year. This increase of $57,000,
or 23%, is attributed to the impact of depreciation charges for a full year as
depreciation of certain exhibitry in the prior year was only for a part of the
full year.
Expenses for expedition costs were only $11,000 for the 2000 fiscal year as
compared to $1,845,000 in the 1999 fiscal year. During the 1999 fiscal year the
Company undertook the "Summer of 1998 Expedition". There was not an expedition
conducted during the 2000 fiscal year.
Loss from operations was $134,000 for the 2000 fiscal year as compared to income
from operations of $5,818,000 in 1999 fiscal year. The decrease in income from
operations is attributed to the lower revenue for fiscal year 2000 while the
Company incurred higher expenses as detailed above.
During the 2000 fiscal year, the Company earned interest income of $113,000 as
compared to $52,000 in the prior year. The Company maintained higher cash
balances during the 2000 fiscal year.
Loss before provision for income taxes was $21,000 for the 2000 fiscal year as
compared to $5,875,000 in the 1999 fiscal year. The Company had net loss of
$21,000 for income of the current fiscal year as compared to net income of
$4,063,000 in the prior year. Basic and diluted earnings per common share were
$-0- and $0.25 for the 2000 and 1999 fiscal years, respectively. The weighted
average common shares outstanding were 16,187,128 for both the 2000 and 1999
fiscal years.
YEAR ENDED FEBRUARY 28, 1999 AS COMPARED TO YEAR ENDED FEBRUARY 28, 1998
During its fiscal year ended February 28, 1999, Company's revenues increased
approximately 112% as compared to its fiscal year ended February 28, 1998 (the
"1998 fiscal year"), primarily as a result of an increase of approximately
2,947% in the Company's licensing fees during its 1999 fiscal year as compared
to its 1998 fiscal year, and an increase of approximately 32% in the Company's
exhibition and related merchandise revenues during its 1999 fiscal year as
compared to its 1998 fiscal year. These changes were primarily a result of the
Company having earned licensing fees of $3,345,000 during the 1999 fiscal year
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 1998 (the "Summer of 1998 Expedition"), and the scope of the Company's
exhibition activities during the 1999 fiscal year as compared to the 1998 fiscal
year.
Revenue from merchandise, book and other activities increased approximately 178%
during the 1999 fiscal year as compared to the 1998 fiscal year. This change
resulted primarily from revenue derived during the 1999 fiscal year derived from
a book published in conjunction with unrelated third parties and revenue derived
from the sale of merchandise through the Company's web site. The Company's
revenue from the sale of coal increased approximately 51% during the 1999 fiscal
year as compared to the 998 fiscal year, primarily as a result of increases in
the amount of coal sold through the Company's web site, in the merchandise shops
of the Company's United States exhibitions, and through other direct marketing
activities.
The Company's cost of coal sold increased approximately 36% during the 1999
fiscal year as compared to the 1998 fiscal year as a result of an increase in
the volume of coal sales during these corresponding periods. General and
administrative expenses of the Company increased approximately 47% during the
1999 fiscal as compared to the 1998 fiscal year, primarily as a result of an
16
<PAGE>
increase in professional fees and expenses of $150,000 incurred during the 1999
fiscal year related to the reinstallation and transportation of the Hamburg,
Germany exhibition to Zurich, Switzerland.
The Company's depreciation and amortization expenses increased approximately
961% during the 1999 fiscal year as compared to the 1998. During the 1999 fiscal
year, the Company incurred $1,845,000 of costs related to vessel and equipment
chartering related to the Company's audio-visual licensee's requirements for the
"Summer of 1998 Expedition", as compared to zero costs attributable to license
fees during the 1998 fiscal year. During the 1999 fiscal year, the Company
recorded an impairment loss of $150,000 attributable to exhibitry equipment
related to the Company's exhibition of Titanic artifacts in Hamburg, Germany
based upon the determination that certain items of exhibitry would not be
utilized in the planned re-location and presentation of the Hamburg exhibition
in Zurich, Switzerland commencing in November 1998.
The Company's income before provision for income taxes increased approximately
67% during the 1999 fiscal year as compared to the 1998 fiscal year. The
Company's provision for income taxes increased approximately 1,108% during the
1999 fiscal year as compared to the 1998 fiscal year. After application of the
available portion of its net operating loss carryforward for the 1998 and 1999
fiscal years, the Company's net income increased approximately 21% during the
1999 fiscal year as compared to the 1998 fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash provided by operating activities was $2,381,000 for the year ended
February 29, 2000 as compared to $1,344,000 in the prior 1999 fiscal year. This
increase in cash provided by operating activities for this fiscal year is
primarily attributed to the reduction in accounts receivables of $1,274,000
during the year and an increase of $976,000 in accounts payable and accrued
liabilities, despite the lower net income.
For the year ended February 29, 2000, cash used in investing activities was
$36,000 for the purchase of property and equipment. There was no cash financing
activities during the year ended February 29, 2000.
The Company's net working capital and stockholders' equity were $1,080,000 and
$11,803,000 respectively, at February 29, 2000 as compared to $563,000 and
$11,500,000 respectively at February 28, 1999. The Company's current ratio was
1.3 at February 29, 2000 as compared to 1.2 at February 28, 1999.
Management plans to continue with the exploration of the Titanic and recover
additional artifacts for presentation to the public through exhibitions. An
expedition is planned for this summer to recover artifacts for future tours.
With this business strategy, management believes it is focusing on the key
elements necessary for the Company to be both profitable and successful over the
long-term.
Management is currently negotiating a television agreement as well as exploring
other media opportunities with third parties. These endeavors, if consummated
could provide the Company with additional sources of revenues.
Management expects that it will be able to arrange for the financial resources,
including licensing arrangements, to properly execute its strategic plan,
although no assurances can be given that it will be successful in such
endeavors.
17
<PAGE>
The Company has sufficient working capital to meet its planned needs for the
next twelve months without any additional funding. The exhibition tour agreement
with a subsidiary of SFX Entertainment, Inc., requires a minimum of $8.5 million
annually for the grant of exhibition rights for an initial one-year period
commencing September 14, 1999, subject to options granted to the licensee to
extend the term for up to four additional one year periods in consideration of
additional minimum annual payments to the Company of $8.5 million. As of this
filing date, the Company was in negotiations with SFX for modification of its
existing licensing agreement for the next option period. A modification being
discussed is reducing the minimum annual payment and providing the Company with
the opportunity for a higher percentage of the net revenues from future
exhibitions. To facilitate the finalization of a modified agreement , the
Company has extended the notification requirements that SFX must provide on its
election of the next one option year period. Should SFX and the Company not
reach further agreement and if SFX should decline to exercise its next one year
option then the Company is prepared to conduct exhibitions on its own or with
other third parties.
In order to protect its salvor-in-possession status and to prevent third-parties
from salvaging the Titanic wreck and wreck site, or interfering with the
Company's rights and ability to salvage the wreck and wreck site, the Company
may have to commence judicial proceedings against third-parties. Such
proceedings could be expensive and time-consuming. Additionally, the Company, in
order to maintain its salvor-in-possession status, needs to, among other things,
maintain a reasonable presence at the wreck through periodic expeditions. The
Company will be required to incur the costs for future expeditions so as to
maintain its salvor-in-possession status. The Company plans to conduct a dive
this summer. 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.
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 fiscal year ended February 29, 2000, 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 and its exhibition organizers in Germany,
Zurich, and Japan and other entities have been based upon foreign currencies,
the Company has sought and will continue to seek to base its financial
commitments and understandings upon the United States Dollar in its material
business transactions so as to minimize the adverse potential effect of currency
fluctuations.
YEAR 2000
To the best of management's knowledge and belief, the Company has not
experienced any significant disruption in data processing on financial reporting
and operational systems or malfunction in equipment containing microprocessors
or significant delays in receiving goods or services from key vendors and
service providers or delinquency in the receipt of payments from significant
customers for services provided by the Company as a result of the year 2000
issue. Management cannot be sure that some condition relating to the year 2000
exists, but has not been identified.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
Page
Independent Auditor's Report F-1
Balance Sheet at February 28, 1999 and February 29,2000 F-2
Statement of Operations for the years ended
February 28 (29), 1998, 1999 and 2000 F-3
Statement of Stockholders' Equity for the years ended
February 28(29), 1998, 1999 and 2000 F-4
Statement of Cash Flows for the years ended
February 28(29), 1998, 1999 and 2000 F-5
Notes to Financial Statements F-6 - F-18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. MANAGEMENT
OFFICERS AND DIRECTORS
The directors, executive officers and significant employees of the Company are:
Name Age Position
---- --- --------
Arnie Geller 59 President, Chief Executive Officer, Director
G. Michael Harris 35 Vice President, Chief Operating Officer, Director
Gerald Couture 54 Vice President, Director and
Chief Financial Officer
Nick N. Cretan 65 Director
Arnie Geller serves as President and as a director of the Company from his
reappointment in November 1999 as an officer of the Company. Previously he
served as President from May 1993 to May 1995, and has served as a director of
the Company since May 26,1999. Prior to 1993, Mr. Geller had principally been
engaged in various executive capacities in the record industry for approximately
27 years. Mr. Geller was a self-employed corporate consultant prior to his
recent appointment as President of the Company.
19
<PAGE>
G. Michael Harris serves as Executive Vice President and Chief Operating Officer
of the Company since November 1999. Previously he was a promoter and agent of
entertainment programs and events, and is the principal of Worldwide Licensing
and Merchandising, Inc, a privately-held company involved in the presentation of
an exhibition having a Titanic theme in Orlando, Florida with a subsidiary of
SFX Entertainment and a third-party. Mr. Harris has served as a director of the
Company since May 26, 1999.
Gerald Couture serves as Vice President- Finance, Chief Financial Officer and
director of the Company since April 2000. Mr. Couture is a partner and
principal, in Couture & Company, Inc., a private corporate financial consulting
firm formed in 1973, that specializes in the financial development of high
potential technology-driven public and private companies within several diverse
industries. Over the last twenty-five years, Mr. Couture has, through his
consulting firm, been involved in public offerings, mergers and acquisitions,
venture capital investing, crisis management, reorganizations and the financial
management a number of growth enterprises. Mr. Couture has a MBA from Temple
University, Philadelphia, and a B.S. in Chemical Engineering from the University
of Massachusetts.
Nick Cretan serves as a Director of the Company since April 2000. Mr. Cretan has
more than thirty years of management experience including his present position
as Chief Operating Officer of the non-profit Maritime Association of the Port of
New York and New Jersey. He also serves as President of Friends of the Statue of
Liberty, Ellis Island Foundation, President of Friends of Gateway National Parks
Foundation and as Executive Director of the American Merchant Marine Memorial
Foundation. Previously he served as Deputy Director of the San Francisco Marine
Exchange and staff assistant at the National Federation of Independent Business.
No family relationship exists between or among any of the members of the board
of directors and executive officers of the Company. Except as disclosed above,
none of the nominees are directors of any other company having a class of equity
securities registered under or required to file periodic reports pursuant to the
Securities Exchange Act of 1934, as amended, or any company registered as an
investment company under the Investment Company Act of 1940, as amended.
The Board of Directors held three meetings during the fiscal year ended February
29, 2000, At the present time, the Company has no nominating, executive, audit
or compensation committees.
20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid or
accrued to the executive officers of the Company for the fiscal years ended
February 28, 1998, February 28, 1999 and February 29, 2000.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Name Common
and Other Shares
Subject to Year Annual Subject to
Principal Ended February Compen- Options
Position 28th(29th) Salary sation Granted
---------------------- --------------- ------ ------------- ----------
Former Officers:
<S> <C> <C> <C> <C>
George Tulloch(1)
Former President and Chief
Financial Officer 2000 $210,000 -0- 500,000
1999 $120,000 -0- -0-
1998 $120,000 -0- -0-
Allan Carlin(1)
Former Secretary and General
Counsel
2000 $220,000 -0- -0-
1999 $215,000 -0- 500,000
1998 -0- -0- -0-
Current Officers:
Arnie Geller(2) (3)
President and Chief
Executive Officer
2000 $79,200 -0- -0-
1999 -0- -0- -0-
1998 -0- -0- -0-
G. Michael Harris (2)
Vice President and Chief
Operating Officer
2000 $79,200 -0- -0-
1999 -0- -0- -0-
1998 -0- -0- -0-
Gerald Couture(4) 2000 -0- -0- -0-
Vice President Finance 1999 -0- -0- -0-
Chief Financial Officer 1998 -0- -0- -0-
</TABLE>
(1) Messrs Tulloch and Carlin served as directors and officers of the Company
until November 26, 1999. See "LEGAL PROCEEDINGS."
21
<PAGE>
(2) Messrs Geller and Harris were elected directors and appointed officers of
the Company on November 26, 1999.
(3) In Fiscal Year 2000, the Company paid accrued salary to Mr. Geller of
$500,000 for the period May 1993 to May 1995, during which time Mr. Geller
served as President.
(4) On April 25, 2000, the Company engaged Mr. Couture as its Chief Financial
Officer. The Employment Agreement between the Company and Mr. Couture
provides for an annual base salary of $120,000. At Mr. Couture's option, he
may elect to receive his compensation in shares of the Company's common
stock. For this purpose, the common stock will be valued at 50% of its
closing bid price as of the date of the election. Mr. Couture has also been
granted a stock option to purchase 300,000 shares of the Company's common
stock at a price of $1.625 per share, which was the closing price of the
stock on April 24, 2000. The options expire in ten years.
Stock options granted to Mr. Tulloch during the fiscal year ended February 29,
2000 consist of options to purchase 500,000 shares of the Company's common stock
at an exercise price of $2.00 with an expiration of May 26, 2004.
The above table excludes settlement payments made to Messrs. Tulloch and Carlin.
See Legal Proceedings- Legal Action by Former Officers and Directors.
Option Exercises and Holdings
No executive officer of the Company exercised any stock options during
the fiscal year ended February 29, 2000.
Compensation of Directors
The Company does not have any arrangements for compensating directors
for services rendered as a director. No compensation has been paid to any
individual for services rendered as a director.
ITEM. 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table enumerates, as of June 1, 2000, the name, address,
and ownership, both by numerical holding and percentage of interest, of, each
beneficial owner or more than five percent (5%) of the Company's outstanding
Common Stock, the directors of the Company, individually, and its directors and
executive officers as a group. This table excludes security ownership of Messrs
Tulloch, Carlin, Hothorn, and Nargeolet because these individuals are no longer
directors of the Company.
22
<PAGE>
<TABLE>
<CAPTION>
Amount
Name and Address of Beneficially Common Stock
Beneficial Owner Class Owned Percentage
---------------- ----- ----- ----------
<S> <C> <C> <C>
Titanic Ventures Limited Partnership (1)(2) Common 2,210,184 13.7
204 Old Post Road
Southport, CT 06490
G. Michael Harris (3)(6) Common 125,000 0.8
16 Winston Drive
Belleair, FL 34616
Arnie Geller Common 1,450,000 9.0
3340 Peachtree Road, N.E, Suite 1225.
Atlanta, GA 30326
Nick Cretan Common -- --
Suite 913
17 Battery Place
New York, NY 10004
Joe Marsh (4)(6) Common 1,740,979 10.8
c/o RMS Titanic, Inc.
401 Corbett St
Clearwater, FL 33756
TAG Acquisition, LLC (5)(6) Common 1,634,384 10.1
c/o G. Michael Harris
16 Winston Drive
Belleair, FL 34616
Stephen Sybesma (5)(6) Common 900,000 5.6
401 Corbett St
Clearwater, FL 33756
Gerald Couture (7) Common 432,415 2.7
901 Chestnut Street, Suite A
Clearwater, FL 33767
All Officers and Directors as a Group Common 3,641,799 22.5
(4 persons)
</TABLE>
(1) George Tulloch, a former director of the Company, 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").
(2) Represents shares over which TVLP and Mr. Tulloch, as President of ORE,
exercise voting control, and excludes 1,052,112 shares that TVLP previously
distributed to certain limited partners and 2,602,490 shares that TVLP
distributed to its limited partners in May 2000,
(3) Mr. Harris owns 125,000 of his shares in a tenants by the entireties account
with his wife.
(4) Mr. Marsh acquired approximately 883,950 shares in open market purchases as
reported in his Schedule 13D filed on or about October 21, 1999. Since that
date, Mr. Marsh has acquired approximately 827,029 shares in private
transactions. In addition, Mr. Marsh has the beneficial ownership rights to
1,534,384 shares of Common Stock acquired by TAG Acquisition, LLC ("TAG") from
23
<PAGE>
William S. Gasparrini, et al when such shares are distributed by TAG. Mr. Marsh
is also the holder of a voting proxy for 30,000 shares from J. P. Utsick.
(5) TAG Acquisition, LLC ("TAG") acquired 1,634,384 shares of Common Stock from
William S. Gasparrini, et al on November 16, 1999. TAG is managed and owned by
Mr. Harris.
(6) On November 16, 1999, TAG acquired a total of 1,634,384 shares of Common
Stock from William S. Gasparrini, individually and on behalf of certain
affiliated entities, for $3.00 a share. These shares were subject to a voting
proxy granted to Jon Thompson, which expired December 25, 1999. Joe Marsh and
Steven Sybesma provided the funds for the purchase of these shares by TAG. There
is an oral understanding that Mr. Harris will cause TAG to distribute 1,534,384
shares to Mr. Marsh and 100,000 shares to Mr. Sybesma such that all of the
Gasparrini shares acquired by TAG will ultimately be owned by Mr. Marsh and Mr.
Sybesma.
(7) Mr. Couture has an option to purchase 300,000 shares at a price of $1.625
per share. Additionally, under his Employment Agreement with the Company Mr.
Couture has the option to be paid with shares of common stock in lieu of cash
compensation. Based upon the closing price of $1.8125 on June 1, 2000, Mr.
Couture would have been entitled to receive a maximum of 132,414 shares in lieu
of cash compensation had he elected to take his entire basic annual pay in stock
on that date.
Other than as set forth above, the Company is not aware of any other
stockholders who beneficially own, individually or as a group, 5% or more of the
outstanding shares of Common Stock.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's outstanding shares of Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports that they
file. To the Company's knowledge based solely upon a review of Forms 3, 4 and 5,
and any amendments furnished to the Company during the fiscal year ended
February 29, 2000, the Company is unaware of any officer, director or beneficial
owner of more than 10% of the Company's Common Stock who failed to file reports
required by Section 16 of the Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended February 29, 2000, the Company entered
into an agreement with a subsidiary of SFX Entertainment, Inc., pursuant to
which, among other things, the Company licensed to SFX the worldwide rights to
exhibit the Company's Titanic artifacts for a minimum of one year, commencing
September 14, 1999 (the "License Agreement"). The agreement with SFX provides
that the Company shall have the right to receive twenty of the net profits from
a Titanic themed exhibition in Orlando, Florida, which SFX is presenting with
third parties. G. Michael Harris, a director of the Company, is a principal of
one of the third parties involved in such Orlando exhibition. Pursuant to the
Company's agreement with SFX, a limited number of the Company's Titanic
artifacts were incorporated into this Orlando exhibition..
The Company loaned George Tulloch, its former President, the sum of
$72,367, as evidenced by a promissory note dated January 5, 1999, bearing
interest at the rate of 8% per annum and payable in full no later than February
29, 2000. This loan was secured by accruals for past salary owed by the Company
24
<PAGE>
to Mr. Tulloch amounting to approximately $700,000 as of February 28, 1999. This
loan was discharged within the settlement with Mr. Tulloch as described in Item
3, Legal Proceedings.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
The following documents are filed as part of this Report on Form 10-K:
(a) Financial Statements. The following financial statements of the Company are
included in this Annual Report:
Independent Auditor's Report F-1
Balance Sheet at February 28, 1999
and February 29,2000 F-2
Statement of Operations for the years ended
February 28(29), 1998, 1999 and 2000 F-3
Statement of Stockholders' Equity for the years ended
February 28(29), 1998, 1999 and 2000 F-4
Statement of Cash Flows for the years ended
February 28(29), 1998, 1999 and 2000 F-5
Notes to Financial Statements F-6 - F-18
(b)Reports on Form 8-K
i. Form 8-K filed February 17, 2000 containing settlement agreement with former
officers and directors.
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 13, 2000 By: /s/ Arnie Geller
-----------------------------------
Arnie Geller, President and Chief
Executive Officer
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the date indicated:
/s/ Arnie Geller June 13, 2000
-----------------------------
Arnie Geller, President.
Chief Executive Officer, Director
/s/ G. Michael Harris June 13, 2000
-----------------------------
G. Michael Harris, Executive
Vice President, Chief Operating Officer
Director
/s/ Gerald Couture June 13, 2000
-----------------------------
Gerald Couture, Vice President, Chief
Financial Officer, Director
/s/ Nick. Cretan June 13, 2000
-----------------------------
Nick. Cretan, Director
25
<PAGE>
EXHIBITS
RMS TITANIC, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
3.1 Articles of Incorporation, as amended.
4.1 First Amendment to By-Laws of the Registrant.
4.2 Amendment to By-Laws adopted January 18, 2000.
9.1 Voting Trust Agreement among Titanic Ventures Limited Partnership,
George Tulloch, Allan H. Carlin, Arnie Geller, G. Michael Harris, Kurt
Hothorn, Cheryl Hothorn, Westgate Entertainment Corp., Anne A. Hill,
Diane Carlin, Shirley A. Hill, James A. Hill, and D. Michael Harris.
10.1 Lease Agreement between the Company and 17 Battery Place North
Associates.
10.2 Agreement dated April 15, 1996 between the Company and CRE-CO Finanz
GmbH.
10.3 Pledge Agreement dated April 15, 1996 between the Company and CRE-CO
Finanz GmbH
10.4 Bailment Agreement dated April 15, 1996 between the Company and CRE-CO
Finanz GmbH.(
10.5 1996 Charter Agreement with IFREMER.
10.6 Agreement dated August 8, 1996 between the Company and the City of
Memphis.
10.7 Agreement dated July 22, 1996 between Discovery Communications, Inc.,
Ellipse Programme and the Company (omitted and filed separately as
confidential information).
10.8 Agreement dated May 23, 1997 between the Company and RMS Foundation,
Inc.
10.9 Amendment to Agreement dated April 15, 1996 between the Company and
CRE-CO Finanz GmbH.
10.10 Agreement between the registrant and Resource Plus and Event Management
International None dated April 24, 1998.
10.11 Agreement between the registrant and Titanic Exhibition Japan Inc.
dated May 17, 1998.
26
<PAGE>
10.12 Agreement between the registrant and CRE-CO Finanz dated April 15,
1998.
10.13 1998 Charter Agreement with IFREMER.
10.14 1998 Charter Agreement with Oceaneering International, Inc.
10.15 Agreement dated July 15, 1998 between Discovery Communications and the
Company.
10.16 1998 Charter Agreement with Aqua Plus.
10.17 1998 Charter Agreement with Les Abeilles International, Travocean
and the Company.
10.18 Amendment to Agreement dated August 4, 1998 between the Company and
CRE-CO Finanz GmbH.
10.19 Agreement dated September 25, 1998 between the Company and Media Rare,
Inc..
10.20 Promissory Note dated January 5, 1999 executed by George Tulloch in
favor of the registrant.
10.21 Pledge Agreement dated January 5, 1999 between George Tulloch and the
registrant.
10.22 Exhibition Tour Agreement dated March 31, 1999 between the Company
and Magicworks Entertainment Inc. is incorporated by reference to the
Company's report on Form 10-Q for the fiscal quarter ended May 31,
1999.
10.23 Agreement dated April 18, 2000 by and among Whitestar Marine Recover,
Ltd. Argosy International, ltd. Graham Jessop and the Company.
10.24 Agreement dated April 18, 2000 by and among the Company, Argosy
International, Inc. and Graham Jessop.
10.25 Lease dated March 27, 2000 for offices in Atlanta, Georgia.
10.26 Investor - Public Relations Agreement dated March 27, 2000 between the
Company and Roelandt Dominic.
10.27 Employment Agreement dated April 25, 2000 between the Company and
Gerald Couture.
10.28 Stock Option Agreement dated April 25, 2000 between the Company and
Gerald Couture.
10.29 The Company's 2000 Stock Option Plan.
10.30 Exhibition Agreement dated April 5, 1999 between the Company and
Adamar New Jersey, Inc. is incorporated by reference to the Company's
report on Form 10-Q for the fiscal quarter ended May 31, 1999.
27
<PAGE>
RMS TITANIC, INC.
FINANCIAL STATEMENTS
FEBRUARY 29, 2000
<PAGE>
RMS TITANIC, INC.
INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Independent Auditor's Report F-1
Financial Statements:
Balance Sheet at February 28, 1999 and February 29, 2000 F-2
Statement of Operations for the Years Ended February 28, 1998,
1999 and February 29, 2000 F-3
Statement of Stockholders' Equity for the Years Ended February 28, 1998,
1999 and February 29, 2000 F-4
Statement of Cash Flows for the Years Ended February 28, 1998,
1999 and February 29, 2000 F-5
Notes to Financial Statements F-6 - F-18
<PAGE>
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, 1999 and February 29, 2000, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended February 29, 2000. 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, 1999 and February 29, 2000, and the results of its operations and
its cash flows for each of the three years in the period ended February 29,
2000, in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
May 26, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
RMS TITANIC, INC.
BALANCE SHEET
----------------------------------------------------------------------------------------------------------------------
February 28, February 29,
1999 2000
----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 720,000 $ 3,065,000
Accounts receivable 1,645,000 371,000
Prepaid and refundable taxes 429,000 1,163,000
Prepaid expenses and other current assets 179,000 50,000
----------------------------------------------------------------------------------------------------------------------
Total current assets 2,973,000 4,649,000
Artifacts Recovered, at cost 9,181,000 9,175,000
Deferred Income Tax Asset 509,000 634,000
Property and Equipment, net of accumulated depreciation
of $319,000 and $622,000, respectively 1,208,000 866,000
Other Assets 39,000 48,000
----------------------------------------------------------------------------------------------------------------------
Total Assets $13,910,000 $15,372,000
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,910,000 $ 2,886,000
Deferred income tax liability - 79,000
Deferred revenue 500,000 604,000
----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,410,000 3,569,000
----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value; authorized 30,000,000 shares,
issued and outstanding 16,187,128 shares 2,000 2,000
Additional paid-in capital 13,916,000 14,240,000
Accumulated deficit (2,418,000) (2,439,000)
----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 11,500,000 11,803,000
----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $13,910,000 $15,372,000
======================================================================================================================
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
----------------------------------------------------------------------------------------------------------------------------------
February 28, February 29,
Year ended 1998 1999 2000
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Exhibitions and related merchandise sales $ 4,152,000 $ 5,460,000 $ 6,136,000
Licensing fees 115,000 3,495,000 17,000
Merchandise and other 244,000 680,000 221,000
Sale of coal 147,000 222,000 59,000
----------------------------------------------------------------------------------------------------------------------------------
Total revenue 4,658,000 9,857,000 6,433,000
----------------------------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative 1,176,000 1,733,000 6,154,000
Depreciation and amortization 23,000 246,000 303,000
Expedition costs attributable to licensing fees - 1,845,000 11,000
Cost of merchandise sold - 46,000 18,000
Cost of coal sold 14,000 19,000 6,000
Impairment loss on exhibitry equipment - 150,000 75,000
----------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,213,000 4,039,000 6,567,000
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 3,445,000 5,818,000 (134,000)
Other income (expense):
Interest income 11,000 52,000 113,000
Interest expense and financing costs (6,000) - -
Other income 67,000 5,000 -
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes 3,517,000 5,875,000 (21,000)
Provision for income taxes 150,000 1,812,000 -0-
----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,367,000 $ 4,063,000 $ (21,000)
==================================================================================================================================
Earnings per common share, basic and diluted $ .21 $ .25 $ -
==================================================================================================================================
Weighted-average number of common shares outstanding 16,181,868 16,187,128 16,187,128
==================================================================================================================================
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
RMS TITANIC, INC.
-----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended February 28, 1998, 1999 and February 29, 2000
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional
Number of Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of March 1, 1997 16,177,128 $2,000 $13,910,000 $(9,848,000) $ 4,064,000
Issuance of common stock 10,000 - 6,000 - 6,000
Net income - - - 3,367,000 3,367,000
------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 1998 16,187,128 2,000 13,916,000 (6,481,000) 7,437,000
Net income - - - 4,063,000 4,063,000
------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 1999 16,187,128 2,000 13,916,000 (2,418,000) 11,500,000
Issuance of compensatory stock options - - 133,000 - 133,000
Common stock to be issued in settlement of
litigation - - 191,000 - 191,000
Net loss - - - (21,000) (21,000)
------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 29, 2000 16,187,128 $2,000 $14,240,000 $(2,439,000) $11,803,000
====================================================================================================================================
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
RMS TITANIC, INC.
STATEMENT OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
February 28, February 29,
Year ended 1998 1999 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,367,000 $ 4,063,000 $ (21,000)
------------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 23,000 246,000 303,000
Impairment loss on exhibitry equipment - 150,000 75,000
Rights granted in satisfaction of accrued liability (60,000) - -
Amortization of deferred revenue (1,465,000) (15,000) 104,000
Noncash settlements (559,000) - 191,000
Noncash exhibition revenue - (750,000) -
Issuance of compensatory stock options - - 133,000
Net deferred income tax benefit - (509,000) (46,000)
Other (69,000) (57,000) (3,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (606,000) (1,005,000) 1,274,000
(Increase) decrease in prepaid and refundable taxes 42,000 (383,000) (734,000)
Decrease (increase) in prepaid expenses and other current assets 5,000 (179,000) 129,000
Increase (decrease) in income taxes payable 144,000 (144,000) -
Increase in deferred revenue 805,000 500,000 -
Increase (decrease) in accounts payable and accrued liabilities (595,000) (573,000) 976,000
------------------------------------------------------------------------------------------------------------------------------------
Total adjustments (2,335,000) (2,719,000) 2,402,000
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,032,000 1,344,000 2,381,000
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Artifact recovery costs - (1,500,000) -
Purchases of property and equipment (9,000) (124,000) (36,000)
------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (9,000) (1,624,000) (36,000)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activity - repayment of notes payable (129,000) - -
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 894,000 (280,000) 2,345,000
Cash and cash equivalents at beginning of year 106,000 1,000,000 720,000
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,000,000 $ 720,000 $3,065,000
====================================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 6,000 $ 2,355,000 $1,207,000
====================================================================================================================================
Supplemental schedule of noncash financing and
investing activities:
Property and equipment acquired in settlement of certain
exhibition obligations $ 559,000 $ 750,000 $ - 0 -
====================================================================================================================================
Noncash purchases of property and equipment $ 88,000 $ 77,000 $ - 0 -
====================================================================================================================================
Issuance of compensatory stock options $ - 0 - $ - 0 - $ 133,000
====================================================================================================================================
Common stock to be issued in settlement litigation $ - 0 - $ - 0 - $ 191,000
====================================================================================================================================
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RMS Titanic, Inc. initially conducted business as Titanic Ventures Limited
Partnership ("TVLP"). In 1993, RMS Titanic, Inc. acquired all of TVLP's
assets and assumed all of TVLP's liabilities. The transaction was accounted
for as a "reverse acquisition" with TVLP deemed to be the acquiring entity.
RMS Titanic, Inc. and TVLP are referred to as the "Company" as the context
dictates.
The Company was formed in 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
("Artifacts") from the wreck site; and utilizing such data and Artifacts in
revenue-producing activities such as touring exhibitions, television
programs and the sale of still photography. The Company also earns revenue
from the sale of coal and Titanic-related products.
The Company was declared salvor-in-possession of the Titanic, 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, pursuant to a judgment entered in
the Federal District Court for the Eastern District of Virginia.
Since August 1987, the Company has completed five expeditions and dives to
the wreck of the Titanic and has recovered over 3,700 artifacts, a section
of the Titanic's hull and coal used on the Titanic.
Prior to May 31, 1997, the Company was in the development stage.
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. A majority of the Artifacts are located outside the United
States.
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.
Under an agreement with the Institute of France for the Research and
Exploitation of the Sea ("IFREMER"), which served as the general contractor
for certain of 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.
F-6
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Revenue from the licensing of the production and exploitation of audio and
visual recordings by third parties, related to the Company's expeditions is
recognized at the time that the expedition and dive take place.
Revenue from the licensing of still photographs is recognized at the time
the rights are 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 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 sharing from the sale of Titanic-related products by third parties
is recognized when the item is sold.
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 are charged to
operations as revenue from coal sales are recognized.
Income tax expense includes income taxes currently payable and deferred
taxes arising from temporary differences between financial reporting and
income tax bases of assets and liabilities. They are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Depreciation of property and equipment is provided for by the straight-line
method over the estimated lives of the related assets.
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has elected to account for its stock-based
compensation plans using the intrinsic value method prescribed by
Accounting Procedures Bulletin ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and to present pro forma earnings (loss) and per share
information as though it had adopted SFAS No. 123. Under the provisions of
APB Opinion No. 25, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's common stock at
the date of the grant over the amount an employee must pay to acquire the
stock.
Basic earnings per common share ("EPS") is computed as net earnings divided
by the weighted-average number of common shares outstanding for the period.
Diluted EPS, representing the potential dilution that would occur from
common shares issuable through stock-based compensation, including stock
options, restricted stock awards, warrants and other, is not presented for
the years ended February 28, 1998, 1999 and February 29, 2000 since there
was no dilutive effect of potential common shares or their inclusion would
be anti-dilutive.
The Company does not believe that any recently issued, but not yet
effective, accounting standards will have a material effect on the
Company's financial position, results of operations or cash flows.
F-7
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements.
Actual results could differ from those estimates.
2. CORPORATE GOVERNANCE, DIRECTORS, OFFICERS AND OTHER MATTERS:
On November 26, 1999, two of the six members of the Company's board of
directors, Messrs. Geller and Harris, and others, acting via an action by
written consent of the holders of a majority of voting rights of the
Company's common stock, in lieu of a meeting, removed Messrs. Tulloch and
Carlin as officers and directors of the Company and the remaining directors
other than themselves.
Subsequently, the removed officers and directors brought an action in the
United States District Court for Connecticut against Messrs. Geller and
Harris and others seeking to obtain a judicial reversal of their removal
from office. Because of the uncertainty as to the individuals who could
conduct business on behalf of the Company during the time from November 26,
1999 to the resolution of the dispute, the Company's bank stopped honoring
checks and froze all funds on deposit. In addition, a creditor notified the
Company that it would not tender a $2,000,000 payment otherwise due and
payable until the dispute among current and former directors is resolved or
settled.
The legal action was resolved on or about January 21, 2000 with a
Settlement Agreement whereby the Company agreed, among other things, to:
(a) pay to Messrs. Tulloch and Carlin an aggregate amount of $2,500,000 in
three equal installments to be completed within six months of the date of
the settlement; (b) allow Messrs. Tulloch and Carlin to submit documented
requests for reimbursement of previously unreimbursed business expenses;
(c) review/revise payment information submitted to the Internal Revenue
Service with respect to the nature of payments previously made to Mr.
Carlin; (d) the authority of Messrs. Tulloch and Carlin to exercise
previously issued options to acquire an aggregate of 1,000,000 shares of
the Company's common stock and to cause the Company to file a Registration
Statement with respect to the options and underlying shares of common
stock; (e) indemnify the former officers and directors who participate in
the Settlement Agreement to the full extent of applicable law and to the
extent of officers' and directors' liability under the existing Company
policy; and (f) reimburse Messrs. Tulloch and Carlin for the costs of
health insurance for a period of 18 months.
F-8
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Messrs. Tulloch and Carlin agreed, among other things, to: (a) accept the
$2,500,000 as full monetary payment (with the exception of previously noted
unreimbursed business expenses) for any claims against the Company, Messrs.
Geller and Harris and others in connection with this action and amounts
otherwise due them in connection with their roles as officers and directors
of the Company; (b) send appropriate letters to the Company's bank and
aforementioned creditor to "unfreeze" corporate funds and to allow
operational cash flow to resume; (c) an 18 month standstill agreement which
precludes them from interfering in Company management without the prior
approval of the board of directors and shareholders; (d) discontinue their
efforts to have the Titanic determined to be a monument and to restrict the
removal of materials from the Titanic wreck site; (e) return all the
Company's property in their possession, including records and files, and
provide a complete list of Company Artifacts which are located anywhere in
the world; (f) provide, for a three-month period, cooperation in effecting
a professional management transfer; (g) return all monies held in Mr.
Carlin's attorney trust account along with an accounting of such; and (g)
discontinue access to the Company's internet site and to sell back to the
Company, at cost, another web site utilizing the name "Titanic".
At February 29, 2000, accounts payable and accrued liabilities include a
balance of $1,608,000 payable to Messrs. Tulloch and Carlin under the terms
of the Settlement Agreement. During the year ended February 29, 2000,
$1,672,000 was charged to operations in connection with this Settlement
Agreement.
The Company has indemnified all defendants in the legal action brought by
the removed officers and directors from all legal fees and expenses and
other costs associated with the action.
The Company has not properly filed fully executed Form 10-Ks for each of
the years ended February 28, 1997 and 1998. As a result of the Company's
principal accounting officer and a majority of the board of directors
declining to execute the Company's Form 10-K for the year ended February
28, 1997, the Company filed, as an exhibit to its Form 8-K, the form of
Form 10-K that had been approved for filing by Mr. Tulloch, the Company's
principal executive officer and a director. It is believed that the
Company's principal accounting officer and certain of its directors refused
to execute the Form 10-K because they were uncertain as to whether the Form
10-K reflected all necessary disclosures or contained disclosures that were
materially inaccurate or misleading or otherwise inappropriate. Similarly,
for the year ended February 28, 1998, the Company filed, as an exhibit to
its Form 8-K, the form of Form 10-K that had been approved for filing by
Mr. Tulloch. It is the intention of the current board of directors and
management to ascertain the effect of these actions and to take appropriate
steps.
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the
following:
<TABLE>
<CAPTION>
February 28, February 29, Estimated
1999 2000 Useful Life
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exhibitry equipment $1,436,000 $1,385,000 5 years
Office equipment 46,000 58,000 5 years
Furniture and fixtures 45,000 45,000 5 years
-------------------------------------------------------------------------------------------------
1,527,000 1,488,000
Less accumulated depreciation 319,000 622,000
-------------------------------------------------------------------------------------------------
$1,208,000 $ 866,000
=================================================================================================
</TABLE>
F-9
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
February 28, February 29,
1999 2000
------------------------------------------------------
Accrued compensation $1,196,000 $ -
Accrued amounts under Settlement Agreement - 1,608,000
Amounts payable for professional and
consulting fees 366,000 694,000
Other miscellaneous liabilities 348,000 584,000
--------------------------------------------------------------------------------
$1,910,000 $2,886,000
================================================================================
5. INCOME TAXES:
The provision for income taxes consists of the following components:
February 28, February 28, February 29,
Year ended 1998 1999 2000
-------------------------------------------------------------------------------
Current:
Federal $ 76,000 $1,761,000 $ -
State and local 74,000 560,000 46,000
--------------------------------------------------------------------------------
150,000 2,321,000 46,000
--------------------------------------------------------------------------------
Deferred:
Federal - (386,000) (86,000)
State and local - (123,000) 40,000
--------------------------------------------------------------------------------
- (509,000) (46,000)
--------------------------------------------------------------------------------
$150,000 $1,812,000 $ -0-
================================================================================
The total provision for income taxes differs from that amount which would
be computed by applying the U.S. federal income tax rate to income before
provision for income taxes. The reasons for these differences are as
follows:
<TABLE>
<CAPTION>
February 28, February 28, February 29,
Year ended 1998 1999 2000
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0 % 34.0 % (34.0) %
Effect of federal graduated tax rates
and federal tax over accrual - - (293.6)
State income taxes, net of federal
benefit 2.1 9.5 327.6
Use of net operating loss
carryforwards (31.6) - -
Valuation allowance of temporary
differences - (8.7) -
Foreign tax credits - (2.0) -
Other, net (.2) (2.0) -
----------------------------------------------------------------------------------------------------
Effective income tax rate 4.3 % 30.8 % -0- %
====================================================================================================
</TABLE>
F-10
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The deferred income tax asset consists of the
following:
February 28, February 29,
1999 2000
--------------------------------------------------------------------------------
Deferred tax asset - expenses not currently
deductible $509,000 $634,000
Deferred tax liability - depreciation - (79,000)
--------------------------------------------------------------------------------
Net deferred tax asset $509,000 $555,000
================================================================================
A valuation allowance of 100% of the deferred income tax asset had been
provided at February 28, 1998 due to the uncertainty of future realization
of net operating loss carryforwards. During the year ended February 28,
1999, the entire valuation allowance was reversed due to the increased
earnings of the Company. Based on management's assessment, it is more
likely than not that all the net deferred tax assets will be realized
through future taxable earnings.
6. STOCKHOLDERS' EQUITY:
Prior to the acquisition of TVLP's assets, the Company initiated an
exchange agreement with the holders of certain Class B warrants in which
the holders would receive shares of the Company's common stock in exchange
for certain Class B warrants. As of February 29, 2000, the Company had
received 20,700 Class B warrants to be exchanged for 20,700 shares of
common stock of the Company, of which 16,500 shares still remain to be
issued. There are 5,556 warrants outstanding as of February 29, 2000.
During the year ended February 28, 1998, the Company issued 10,000 shares
of common stock to a third party as settlement of certain litigation.
At February 29, 2000, 100,000 shares of common stock have been recorded as
issuable in connection with the settlement of a claim by a third party.
F-11
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7. STOCK OPTIONS: Transactions relating to stock options are as follows:
Weighted-
Number of Average
Shares and Exercise
Options Price
Exercisable per Share
--------------------------------------------------------------------------------
Balance at March 1, 1997 580,000 $1.47
Granted 250,000 $1.00
--------------------------------------------------------------------------------
Balance at February 28, 1998 830,000 $1.33
Canceled (500,000) $1.25
Granted 500,000 $1.25
--------------------------------------------------------------------------------
Balance at February 28, 1999 830,000 $1.33
Expired (330,000) $1.46
Granted 500,000 $2.00
--------------------------------------------------------------------------------
Balance at February 29, 2000 1,000,000 $1.63
================================================================================
In January 1999, the Company extended the expiration date from April 6,
1999 to April 6, 2004 of an immediately exercisable option to purchase
500,000 shares of the Company's common stock at a price of $1.25 per share.
For financial reporting purposes, this has been treated as a new option
grant and the cancellation of an existing option.
In July 1999, the Company granted to its president options to purchase
500,000 shares of common stock. The options are exercisable at $2.00 per
share through May 26, 2004. Compensation expense of $133,000 was charged to
operations in connection with these options.
The following table summarizes the information about stock options
outstanding at February 29, 2000:
Options Outstanding and Exercisable
-----------------------------------
Weighted-
Average Weighted-
Remaining Average
Range of Number Contractual Exercise
Exercise Price Outstanding Life (Years) Price
--------------------------------------------------------------------------------
$1.25 500,000 4.10 $1.25
$2.00 500,000 4.24 $2.00
--------------------------------------------------------------------------------
$1.25 - $2.00 1,000,000 $1.63
================================================================================
F-12
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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 (loss) and income (loss) per common share for
the years ended February 28, 1999 and 2000 would approximate the pro forma
amounts shown in the table below.
February 28, February 28, February 29,
Year ended 1998 1999 2000
--------------------------------------------------------------------------------
Reported net income (loss) $3,367,000 $4,063,000 $ (21,000)
================================================================================
Pro forma net income (loss) $3,367,000 $4,018,000 $(1,261,000)
================================================================================
Reported net income (loss)
per common share $ .21 $ .25 $ - 0 -
================================================================================
Pro forma net income (loss)
per common share $ .21 $ .25 $ (.08)
================================================================================
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:
February 28, February 28, February 29,
Year ended 1998 1999 2000
--------------------------------------------------------------------------------
Expected life of options 2 years 5 years 5 years
================================================================================
Risk-free interest rate 6.45% 4.60% 5.75%
================================================================================
Expected volatility of RMS
Titanic, Inc. 117.5% 113.3% 113.0%
================================================================================
Expected dividend yield on
RMS Titanic, Inc. $ - 0 - $ - 0 - $ - 0 -
================================================================================
The weighted-average fair value of options granted during the years is as
follows:
February 28, February 28, February 29,
Year ended 1998 1999 2000
--------------------------------------------------------------------------------
Fair value of each
option granted $ .245 $ .90 $ 1.87
Total number of
options granted 250,000 500,000 500,000
--------------------------------------------------------------------------------
Total fair value of all
options granted $ 61,250 $ 450,000 $ 937,500
================================================================================
F-13
<PAGE>
In accordance with SFAS No. 123, the weighted-average fair value of stock
options granted is based on a theoretical statistical model using the
preceding Black-Scholes assumptions. In actuality, because the Company's
stock options do not trade on a secondary exchange, employees can receive
no value or derive any benefit from holding stock options under these
arrangements without an increase in the market price of the Company. Such
an increase in stock price would benefit all stockholders commensurately.
8. LITIGATION:
The Company was a party to certain litigations that have been resolved
during the year ended February 29, 2000 resulting in settlements of
$391,000 being charged to operations for such year. The $391,000 consists
of cash and 100,000 shares of the Company's common stock that are issuable
as of February 29, 2000.
The United States Department of State and the National Oceanic and
Atmospheric Administration of the United States Department of Commerce (the
"NOAA") are working together to implement an International Agreement (the
"Agreement") with entities in the United Kingdom, France and Canada that
would diminish and/or divest the Company of its salvor-in-possession rights
to the Titanic which had been awarded by the Federal District Court for the
Eastern District of Virginia (the "District Court"). The Company has raised
numerous objections to the United States Department of State regarding the
actions of the United States to participate in efforts to reach an
agreement governing salvage activities of the Titanic. The Agreement, as
drafted, does not recognize the existing rights of the Company in the
Titanic that have been reaffirmed in the District Court and affirmed by the
Court of Appeals of the Fourth Circuit and provides that the Agreement
enters into force when any two of the party states sign it. The United
States Department of Justice has represented that, the United States
believed it had complied with the RMS Titanic Memorial Act in the
development of the international guidelines to implement the Agreement, but
would solicit comments from the public at large regarding the draft
international guidelines and the NOAA will consider the comments, and then
publish the final international guidelines. On April 3, 2000 the Company
filed a motion for declaratory judgment asking that the District Court
declare unconstitutional and inappropriate the efforts of the United States
to reach an international agreement with the other parties and that it be
precluded from seeking to implement such an agreement. The Company is
awaiting the response of the United States to its complaint for declaratory
judgment. The Company is unable to predict the outcome of this matter.
The Company is a named defendant in an action brought by Suarez Corporation
Industries ("SCI") in the United States District Court for the Southern
District of New York. Between October 1995 and March 1997, the Company and
SCI entered into various agreements providing for the exploitation of
artifacts and other merchandise and arranging for a cruise and ancillary
events, including the financing and sharing of the division of contractual
defined profits, all with respect to the 1996 research and recovery
expedition of the Titanic by the Company. SCI has brought various claims
against the Company: (a) The first claim is for declaratory judgment
claiming that SCI is a co-salvor status. (b) The second claim is for breach
of contract for which SCI is seeking $8,000,000 because it incurred
expenses in preparation of the 1996 expedition and participated in and
performed substantial duties at sea on a salvage vessel in furtherance of
the 1996 expedition. (c) The third claim is for damages because it was
F-14
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
represented that the Company had the financial capacity to fund the 1996
expedition or had contracted with third parties to ensure the salvage
operation. SCI alleges it suffered damages to the extent of $8,000,000. (d)
The fourth claim is for conversion and alleges that the Company took
possession of light towers, having a value of $800,000, owned by SCI. The
claim is for sustained damages of $800,000 and punitive damages in the sum
of $1,000,000. (e) The fifth claim is for quantum meruit and SCI claims it
is entitled to $8,000,000 for the fair value of actions performed by SCI
and the Company. (f) The sixth claim is for breach of contract and as a
result of such breach, defendant is obligated to pay $8,000,000. (g) The
seventh claim is for fraud and SCI claims that it is entitled to
$8,000,000. (h) The eighth claim is for an additional conversion which SCI
claims it suffered damages in the sum of $8,000,000. The Company is
vigorously defending SCI's claims and believes it has meritorious defenses
to such claims.
The Company is involved in various claims and other legal actions arising
in the ordinary course of business. Management is of the opinion that the
ultimate outcome of these matters would not have a material adverse impact
on the financial position of the Company or the results of its operations.
9. COMMITMENTS AND CONTINGENCIES:
Compensation amounting to $120,000 was charged to operations during
each of the years ended February 28, 1998 and 1999, pursuant to
certain employment-related arrangements with the former chairman of
the board of directors and $430,000 for the year ended February 29,
2000 for that former chairman of the board of directors and a former
director. Additionally, accounts payable and accrued liabilities
include amounts payable to these individuals in the aggregate amount
of $1,196,000 at February 28, 1999 in connection with these
arrangements.
The Company has noncancelable operating leases for office space. The
leases are subject to escalation for the Company's pro rata share of
increases in real estate taxes and operating costs.
Subsequent to February 29, 2000, the Company entered into another
noncancelable operating lease for office space and vacated one of its
previously used offices.
Future minimum lease payments for leases in effect as of February 29,
2000 and entered into subsequent to that date are as follows:
Year ending February 28(29),
2001 $170,000
2002 187,000
2003 187,000
2004 187,000
2005 137,000
Thereafter 18,000
------------------------------------------------------------------------
$886,000
========================================================================
F-15
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Rent expense charged to operations amounted to $75,000, $88,000 and $84,000
for the years ended February 28, 1998, 1999 and February 29, 2000,
respectively.
10. OTHER RELATED PARTY 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 Artifacts while
preservation work has been performed in France by Electricite de France.
During the year ended February 28, 1998, $38,000 of accounts payable to
Taurus was forgiven and is included in other income in the Company's
statement of income for that year.
Included in prepaid expenses and other current assets at February 28, 1999
were loans to the Company's president in the aggregate amount of $73,000.
Such amount was discharged as a result of the Settlement Agreement
discussed in Note 2.
Included in accounts payable and accrued liabilities at February 28, 1999
and February 29, 2000 is $45,000 and $25,000, respectively, due to certain
partners of TVLP.
11. EXHIBITIONS:
During the three-year period ended February 29, 2000, the Company has
presented through licensing arrangements, the following exhibitions of
Titanic's Artifacts and other Titanic memorabilia.
Location Dates
-------- -----
Norfolk, Virginia November 1996 - March 1997
United States
Memphis, Tennessee April 1997 - September 1997
United States
Hamburg, Germany May 1997 - September 1998
St. Petersburg, Florida November 1997 - May 1998
United States
Long Beach, California May 1997 - March 1999
United States
Boston, Massachusetts July 1998 - November 1998
United States
Japan (various cities) July 1998 - July 1999
Zurich, Switzerland November 1998 - May 1999
St. Paul, Minnesota January 1999 - May 1999
United States
Atlantic City, New Jersey May 1999 - September 1999
United States
F-16
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Included in exhibition revenue for the year ended February 28, 1998 is an
amount attributable to the transfer of ownership to the Company of certain
exhibitry equipment aggregating $559,000 in satisfaction of amounts due the
Company for its share of exhibition revenue earned.
During the year ended February 28, 1999, the Company received ownership
interest in certain exhibitry and equipment aggregating $750,000 in
satisfaction of exhibition fees due to the Company.
In March 1999, the Company entered into an agreement pursuant to which the
Company granted the licensee an exclusive worldwide license to exhibit the
Company's Titanic Artifacts in consideration of the payment to the Company
of a minimum of $8,500,000 annually. The license agreement has an initial
term of one year, commencing September 14, 1999, with the licensee having
the option to extend the term for up to four additional one-year periods.
The Company has the right to terminate the license agreement effective as
of September 14, 2001, or annually thereafter, upon the occurrence of
certain conditions, including the merger or sale of majority control of the
Company or substantially all of its assets. If the Company terminates the
license agreement, the licensee will have the right to continue one major
exhibition, containing no more than 200 of the Company's Titanic Artifacts
and involving an investment by the licensee in excess of $2,000,000, until
no later than September 14, 2004 in consideration of the payment to the
Company of a minimum of $2,250,000 annually. Upon recoupment of the project
expenses, the Company has the right to select and obtain legal title to,
without the payment of additional consideration, certain of the exhibitry
built for the exhibitions presented during the term of the agreement. In
addition, the license agreement provides that the Company shall receive a
portion of the profits, if any, from a current Titanic-themed exhibition in
Orlando, Florida, presented by the licensee and third parties. An officer
and member of the board of directors is a related party to this exhibition.
12. SUBSEQUENT EVENTS:
Subsequent to February 29, 2000, the Company entered into a charter
agreement to conduct an expedition to the wreck of the Titanic during the
"open weather window" of the year 2000.
Subsequent to February 29, 2000, the Company, through a newly formed wholly
owned foreign subsidiary, entered into an agreement for the services of an
individual to January 3, 2003 for an annual compensation of $125,000. The
Company granted to the individual options, expiring March 31, 2003, to
acquire: (a) 83,333 shares of the Company's common stock at an exercise
price of $3.00 per share; (b) 83,333 shares of the Company's common stock
at an exercise price of $4.00 per share; and (c) 83,334 shares of the
Company's common stock at an exercise price of $5.00 per share.
In April 2000, the Company acquired certain intangible assets in exchange
for 600,000 newly issued shares of its common stock valued at $1,069,000.
F-17
<PAGE>
RMS TITANIC, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In April 2000 the Company adopted an incentive stock option plan (the
"Plan") under which options to purchase 3,000,000 shares of common stock
may be granted to certain key employees, directors or consultants. The
exercise price will be based on the fair market value of such shares as
determined by the Board of Directors at the date of the grant of such
options.
In April 2000, the Company entered into an employment agreement with an
officer/director which provides for an annual base salary of $120,000. At
the individual's option, he may elect to receive his compensation in shares
of the Company's common stock. For this purpose, the common stock will be
valued at 50% of its closing bid price as of the date of the election. A
stock option to purchase 300,000 shares of the Company's common stock at a
price of $1.625 per share, which was the market value of the stock at the
time of grant, was also issued to the officer/director under the Plan. The
options expire in 10 years.
F-18
