Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - PREMIER EXHIBITIONS, INC. | c21870exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - PREMIER EXHIBITIONS, INC. | c21870exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - PREMIER EXHIBITIONS, INC. | c21870exv31w2.htm |
EX-10.3 - EXHIBIT 10.3 - PREMIER EXHIBITIONS, INC. | c21870exv10w3.htm |
EXCEL - IDEA: XBRL DOCUMENT - PREMIER EXHIBITIONS, INC. | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2011
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-24452
PREMIER EXHIBITIONS, INC.
(Exact name of registrant as specified in its charter)
Florida | 20-1424922 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) |
3340 Peachtree Road, NE, Suite 900, Atlanta, GA | 30326 | |
(Address of principal executive offices) | (Zip Code) |
(404) 842-2600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for at least the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting Company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o
|
Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock on October 11, 2011 was
47,423,513.
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
QUARTERLY PERIOD ENDED AUGUST 31, 2011
TABLE OF CONTENTS
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Premier Exhibitions, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
August 31, | February 28, | |||||||
2011 | 2011 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 4,094 | $ | 3,764 | ||||
Certificates of deposit and other investments |
807 | 807 | ||||||
Accounts receivable, net of allowance for doubtful accounts
of $1,032 and $1,044, respectively |
1,463 | 2,419 | ||||||
Merchandise inventory, net of reserve
of $50 and $15, respectively |
713 | 752 | ||||||
Notes receivable, net of allowance for doubtful accounts
of $425 |
| 200 | ||||||
Deferred income taxes |
175 | 175 | ||||||
Income taxes receivable |
309 | 358 | ||||||
Prepaid expenses |
1,525 | 1,107 | ||||||
Other current assets |
46 | 136 | ||||||
Total current assets |
9,132 | 9,718 | ||||||
Artifacts owned, at cost |
3,002 | 3,012 | ||||||
Property and equipment, net of accumulated depreciation
of $17,170 and $15,376, respectively |
11,597 | 12,620 | ||||||
Exhibition licenses, net of accumulated amortization
of $5,593 and $5,861, respectively |
2,404 | 2,987 | ||||||
Film and gaming assets, net of accumulated amortization
of $175 |
2,994 | 2,994 | ||||||
Subrogation rights |
250 | 250 | ||||||
Total Assets |
$ | 29,379 | $ | 31,581 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 5,595 | $ | 5,951 | ||||
Deferred revenue |
1,565 | 2,596 | ||||||
Total current liabilities |
7,160 | 8,547 | ||||||
Long-Term liabilities: |
||||||||
Lease abandonment |
2,705 | 3,014 | ||||||
Deferred income taxes |
175 | 175 | ||||||
Total long-term liabilities |
2,880 | 3,189 | ||||||
Commitment and Contingencies |
||||||||
Shareholders equity: |
||||||||
Common stock; $.0001 par value; authorized 65,000,000 shares;
issued 47,425,522 and 48,205,661 shares, respectively;
outstanding 47,423,513 and 47,203,652 shares, respectively |
5 | 5 | ||||||
Additional paid-in capital |
51,548 | 58,356 | ||||||
Accumulated deficit |
(31,775 | ) | (31,085 | ) | ||||
Accumulated other comprehensive loss |
(438 | ) | (455 | ) | ||||
Less treasury stock, at cost; 2,009 and 1,002,009 shares; respectively |
(1 | ) | (7,190 | ) | ||||
Equity Attributable to Shareholders of Premier Exhibitions, Inc. |
19,339 | 19,631 | ||||||
Equity Attributable to Non-controlling interest |
| 214 | ||||||
Total liabilities and shareholders equity |
$ | 29,379 | $ | 31,581 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
Table of Contents
Premier Exhibitions, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
(unaudited)
Three Months Ended August 31, | Six Months Ended August 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue: |
||||||||||||||||
Exhibition revenue |
$ | 7,338 | $ | 12,641 | $ | 16,010 | $ | 22,874 | ||||||||
Merchandise and other |
877 | 1,069 | 1,930 | 1,897 | ||||||||||||
Total revenue |
8,215 | 13,710 | 17,940 | 24,771 | ||||||||||||
Cost of revenue: |
||||||||||||||||
Exhibition costs |
4,394 | 8,480 | 8,242 | 14,596 | ||||||||||||
Cost of merchandise sold |
295 | 298 | 633 | 500 | ||||||||||||
Total cost of revenue (exclusive of depreciation
and amortization shown separately below) |
4,689 | 8,778 | 8,875 | 15,096 | ||||||||||||
Gross profit |
3,526 | 4,932 | 9,065 | 9,675 | ||||||||||||
Operating expenses: |
||||||||||||||||
General and administrative |
3,406 | 3,935 | 6,818 | 8,894 | ||||||||||||
Depreciation and amortization |
955 | 1,212 | 2,010 | 2,515 | ||||||||||||
Impairment of intangibles and fixed assets |
358 | | 358 | | ||||||||||||
Litigation settlement |
783 | | 783 | | ||||||||||||
Total operating expenses |
5,502 | 5,147 | 9,969 | 11,409 | ||||||||||||
Loss from operations |
(1,976 | ) | (215 | ) | (904 | ) | (1,734 | ) | ||||||||
Other income |
7 | 8 | 14 | 19 | ||||||||||||
Loss before income taxes |
(1,969 | ) | (207 | ) | (890 | ) | (1,715 | ) | ||||||||
Provision for income taxes |
(39 | ) | (29 | ) | (39 | ) | (41 | ) | ||||||||
Net loss |
(2,008 | ) | (236 | ) | (929 | ) | (1,756 | ) | ||||||||
Less: Net loss attributable to non-controlling interest |
214 | 56 | 239 | 89 | ||||||||||||
Net loss attributable to the shareholders of Premier |
$ | (1,794 | ) | $ | (180 | ) | $ | (690 | ) | $ | (1,667 | ) | ||||
Net loss per share: |
||||||||||||||||
Basic loss per common share |
$ | (0.04 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.04 | ) | ||||
Diluted loss per common share |
$ | (0.04 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.04 | ) | ||||
Shares used in basic per share calculations |
47,415,123 | 46,853,678 | 47,328,827 | 46,801,472 | ||||||||||||
Shares used in diluted per share calculations |
47,415,123 | 46,853,678 | 47,328,827 | 46,801,472 | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Table of Contents
Premier Exhibitions, Inc.
Condensed Consolidated Statements of Cash Flow
(in thousands)
(unaudited)
(unaudited)
Six Months Ended August 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (929 | ) | $ | (1,756 | ) | ||
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
2,010 | 2,478 | ||||||
Impairment of intangibles and fixed assets |
358 | | ||||||
Lease abandonment |
(309 | ) | (349 | ) | ||||
Stock-based compensation |
371 | 279 | ||||||
Allowance for doubtful accounts |
(12 | ) | (15 | ) | ||||
Net gain on disposal of assets |
(20 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Decrease (increase) in accounts receivable |
916 | (482 | ) | |||||
Decrease in merchandise inventory, net of reserve |
39 | 7 | ||||||
Decrease in notes receivable |
200 | | ||||||
Decrease in deferred income taxes |
| 24 | ||||||
Increase in prepaid expenses |
(418 | ) | (1,164 | ) | ||||
Decrease in other assets |
90 | 186 | ||||||
Decrease in income taxes receivable |
49 | 53 | ||||||
Decrease in deferred revenue |
(1,031 | ) | (1,039 | ) | ||||
Decrease in accounts payable and accrued liabilities |
(206 | ) | (182 | ) | ||||
Total adjustments |
2,037 | (204 | ) | |||||
Net cash provided by (used in) operating activities |
1,108 | (1,960 | ) | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(910 | ) | (728 | ) | ||||
Proceeds from disposal of assets |
20 | | ||||||
Titanic expedition costs incurred |
| (2,567 | ) | |||||
Purchase and development of exhibition licenses |
| (492 | ) | |||||
Purchases of certificates of deposit |
(3 | ) | | |||||
Net increase in marketable securities |
| (4 | ) | |||||
Decrease in artifacts |
10 | | ||||||
Non-controlling investment in consolidated joint venture |
77 | 274 | ||||||
Net cash used in investing activities |
(806 | ) | (3,517 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from option and warrant exercises |
8 | 24 | ||||||
Net cash provided by financing activities |
8 | 24 | ||||||
Effects of exchange rate changes on cash and cash equivalents |
20 | (77 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
330 | (5,530 | ) | |||||
Cash and cash equivalents at beginning of period |
3,764 | 10,339 | ||||||
Cash and cash equivalents at end of period |
$ | 4,094 | $ | 4,809 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for interest |
$ | | $ | 3 | ||||
Cash paid during the period for taxes |
$ | 37 | $ | 1 | ||||
Supplemental disclosure of non-cash investing and financing activities: |
||||||||
Unrealized loss on marketable securities |
$ | 3 | $ | 11 | ||||
Receivable from non-controlling interest |
$ | | $ | 67 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Table of Contents
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Background and Basis of Presentation
Description of Business
Premier Exhibitions, Inc. is in the business of presenting to the public museum-quality
touring exhibitions around the world. Since our establishment, we have developed, deployed and
operated unique exhibition products that are presented to the public in exhibition centers, museums
and non-traditional venues. Income from exhibitions is generated primarily through ticket sales,
third-party licensing, sponsorships and merchandise sales.
Titanic Ventures Limited Partnership (TVLP), a Connecticut limited partnership, was formed
in 1987 for the purposes of exploring the wreck of the Titanic and its surrounding oceanic areas.
In May of 1993, R.M.S. Titanic, Inc. (RMST) entered into a reverse merger under which RMST
acquired all of the assets and assumed all of the liabilities of TVLP and TVLP became a shareholder
of RMST. In October of 2004, we reorganized and Premier Exhibitions, Inc. became the parent
company of RMST and RMST became a wholly-owned subsidiary. Additional wholly-owned subsidiaries
were established in order to operate the various domestic and international exhibitions of the
Company.
Our exhibitions regularly tour outside the United States of America (U.S.). Approximately
19% of our revenues and 20% of attendance for the three months ended August 31, 2011 compared with
15% and 48%, respectively for the three months ended August 31, 2010 resulted from exhibition
activities outside the U.S. Many of our financial arrangements with our international trade
partners are based upon foreign currencies, which exposes the Company to the risk of currency
fluctuations between the U.S. dollar and the currencies of the countries in which our exhibitions
are touring.
Basis of Presentation
When we use the terms Premier, Company, we, us and our, we mean Premier Exhibitions,
Inc., a Florida corporation and its subsidiaries. We have prepared the accompanying unaudited
condensed consolidated financial statements and unaudited notes to condensed consolidated financial
statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC)
and accounting principles generally accepted in the United States (U.S. GAAP) regarding interim
financial reporting. Accordingly, they do not contain all of the information and notes required by
U.S. GAAP for complete financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in our Annual Report on Form 10-K for our fiscal
year ended February 28, 2011. In our opinion, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of our financial condition as of August 31, 2011, our
results of operations for the three and six months ended August 31, 2011 and 2010 and cash flows
for the six months ended August 31, 2011 and 2010. The data in the consolidated balance sheet as
of February 28, 2011 was derived from our audited consolidated balance sheet as of February 28,
2011, as presented in our Annual Report on Form 10-K for our fiscal year ended February 28, 2011.
The unaudited condensed consolidated financial statements include the accounts of Premier, its
wholly owned subsidiaries after the elimination of all significant intercompany accounts and
transactions, and its consolidated joint venture. Our operating results for the six months ended
August 31, 2011 are not necessarily indicative of the operating results that may be expected for
the full fiscal year ending February 28, 2012 (fiscal 2012).
Significant Accounting Policies
For a description of significant accounting policies, see the Summary of Significant
Accounting Policies footnote to the Financial Statements included in the Companys 2011 Annual
Report on Form 10-K. There have been no material changes to the Companys significant accounting
policies since the filing of the Companys 2011 Annual Report on Form 10-K.
6
Table of Contents
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from reported results using those estimates.
Reclassifications
Certain reclassifications have been made to prior year financial information to conform to the
current year classifications.
Recent Accounting Pronouncements
Recently Adopted
In October 2009, the FASB issued new accounting guidance related to multiple-deliverable
revenue arrangements, which requires an entity to allocate consideration at the inception of an
arrangement to all of its deliverables based on their relative selling prices. This guidance
eliminates the use of the residual method of allocation and requires allocation using the
relative-selling-price method in all circumstances in which an entity recognizes revenue for an
arrangement with multiple deliverables. The guidance is effective for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010. The Company
adopted the guidance effective March 1, 2011 and is applying it prospectively. The adoption of
this guidance did not have a material effect on our financial position or results of operations.
Recently Issued
Presentation of Comprehensive Income
In June 2011, the FASB issued new accounting guidance related to the presentation of other
comprehensive income (OCI). This guidance eliminates the option to present components of OCI as
part of the statement of changes in shareholders equity, which is the option that the Company
currently uses to present OCI. The guidance allows for a one-statement or two-statement approach,
outlined as follows:
| One-statement approach: Present the components of net income and total net
income, the components of OCI and a total for OCI, along with the total of
comprehensive income in a single continuous statement. |
||
| Two-statement approach: Present the components of net income and total net
income in the statement of net income. A statement of OCI would immediately follow
the statement of net income and include the components of OCI and a total for OCI,
along with the total of comprehensive income |
The guidance also requires an entity to present on the face of the financial statements any
reclassification adjustments for items that are reclassified from OCI to net income. The guidance
is effective for interim and annual periods beginning after December 15, 2011. The adoption of
this guidance will not have an effect on the Companys financial position or results of operations,
but will only impact how certain information related to OCI is presented in the financial
statements.
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs
In May 2011, the FASB issued amendments to its accounting guidance related to fair value
measurements in order to more closely align its disclosure requirements with those in International
Financial Reporting Standards (IFRS). This guidance clarifies the application of existing fair
value measurement and disclosure requirements and also changes certain principles or requirements
for measuring fair value or for disclosing information about fair value measurements. The guidance
is effective for interim and annual periods beginning after December 15, 2011. The adoption of
this guidance is not expected to have a material effect on the Companys financial position or
results of operations.
7
Table of Contents
2. Income (Loss) Per Share Data
Basic per share amounts exclude dilution and are computed using the weighted average number of
common shares outstanding for the period. Diluted per share amounts reflect the potential reduction
in earnings per share that could occur if equity based awards were exercised or converted into
common stock, unless the effects are anti-dilutive (i.e., the exercise price is greater than the
average market price of the common shares). Potential common shares are determined using the
treasury stock method and include common shares issuable upon exercise of outstanding stock options
and warrants.
The following table sets forth the computation of basic and diluted net loss per share. Since
the three and six month periods ended August 31, 2011 and 2010 resulted in a net loss, the impact
of dilutive effects of stock options was not added to the weighted average shares.
Three Months Ended August 31, | Six Months Ended August 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator: |
||||||||||||||||
Net loss attributable to shareholders (in
thousands) |
$ | (1,794 | ) | $ | (180 | ) | $ | (690 | ) | $ | (1,667 | ) | ||||
Denominator: |
||||||||||||||||
Basic weighted-average shares outstanding |
47,415,123 | 46,853,678 | 47,328,827 | 46,801,472 | ||||||||||||
Effect of dilutive stock options and warrants |
| | | | ||||||||||||
Diluted weighted-average shares outstanding |
47,415,123 | 46,853,678 | 47,328,827 | 46,801,472 | ||||||||||||
Net loss per share: |
||||||||||||||||
Basic |
$ | (0.04 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.04 | ) | ||||
Diluted |
$ | (0.04 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.04 | ) | ||||
Equity based awards not included in the per share computation because the option exercise price was
greater than the average market price of the common shares are reflected in the following table.
Three Months Ended August 31, | Six Months Ended August 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Warrants |
60,000 | 1,316,417 | 60,000 | 1,316,417 | ||||||||||||
Stock options |
1,480,032 | 1,480,032 | 1,446,698 | 1,480,032 | ||||||||||||
Total |
1,540,032 | 2,796,449 | 1,506,698 | 2,796,449 | ||||||||||||
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3. Total Comprehensive Income (Loss)
The following table provides a summary of total comprehensive loss for the applicable periods
(in thousands):
Three Months Ended August 31, | Six Months Ended August 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss attributable to the shareholders of Premier |
$ | (1,794 | ) | $ | (180 | ) | $ | (690 | ) | $ | (1,667 | ) | ||||
Other comprehensive income (loss): |
||||||||||||||||
Unrealized loss on marketable securities |
| | (3 | ) | (11 | ) | ||||||||||
Net foreign currency translation (loss) gain |
(2 | ) | (58 | ) | 20 | (77 | ) | |||||||||
Total comprehensive loss |
$ | (1,796 | ) | $ | (238 | ) | $ | (673 | ) | $ | (1,755 | ) | ||||
4. Assets Related to 2010 Expedition to Titanic Wreck Site
During August and September 2010, our wholly owned subsidiary RMST, as Salvor-In-Possession of
the RMS Titanic (the Titanic) and its wreck site, conducted an expedition to the Titanic wreck
site.
We have capitalized $4.2 million of costs related to the expedition, discussed in more detail
below, which have been allocated to specific assets as reflected in the following table (in
thousands).
August 31, 2011 | Februrary 28, 2011 | |||||||
3D film |
$ | 1,719 | $ | 1,719 | ||||
3D exhibitry |
759 | 759 | ||||||
2D documentary |
565 | 565 | ||||||
Gaming application |
886 | 886 | ||||||
Expedition web point of presence |
317 | 317 | ||||||
Total expedition costs capitalized |
4,246 | 4,246 | ||||||
Less: Accumulated amortization |
175 | 175 | ||||||
Accumulated depreciation |
106 | 53 | ||||||
Expedition costs capitalized, net |
$ | 3,965 | $ | 4,018 | ||||
Costs associated with the expedition web point of presence are depreciated on a straight-line
basis, using a three year useful life. Depreciation expense related to the web point of presence
totaled $26 thousand and $53 thousand for the three and six months ended August 31, 2011,
respectively, and $53 thousand during fiscal 2011.
The Company recorded an amortization charge of $175 thousand for the 2D documentary in the
fourth quarter of fiscal 2011, as calculated over a five year life, based on the methodology
outlined in Accounting Standards Codification (ASC) 926 Entertainment Films, (ASC 926).
No amortization was recorded for the three or six months ended August 31, 2011, as the Company did
not receive any 2D film revenue during these periods.
The 3D film, 3D exhibitry and gaming application assets have not been placed in service, and
therefore, no associated amortization or depreciation has been recorded for these assets.
The web point of presence and 3D exhibitry assets are included in Property and equipment on
the Condensed Consolidated Balance Sheets. The 3D film, 2D documentary, and gaming assets are
included in Film and gaming assets on the Condensed Consolidated Balance Sheets.
9
Table of Contents
5. Non-controlling Interest
On May 14, 2010, the Company entered into a joint venture arrangement with S2BN Entertainment
Corporation (S2BN), to develop, design and produce future exhibitions. The Company and S2BN each
own 50 percent of the joint venture and share equally in the funding requirements and profits and
losses of the joint venture exhibitions. The Company and S2BN work together to identify, develop
and produce mutually agreed upon new exhibitions or entertainment properties within the realm of
popular culture.
Although the Company does not have a controlling financial interest in the joint venture, we
have determined that consolidation is appropriate due to assessment of the Companys participation
in the financial and operational decisions of the joint venture made in the ordinary course of
business, as outlined in ASC 810-10-25. Therefore, the joint ventures results have been
consolidated into the Companys financial statements and reflected as a non-controlling interest.
The Company had previously entered into a License Agreement (the Agreement) with Playboy
Enterprises International, Inc. (Playboy) in May of 2008 for the right to present and promote new
exhibitions related to the Playboy brand. The Company and S2BN agreed to jointly develop, design,
and produce a Playboy exhibit, and S2BN agreed to reimburse 50 percent of the enumerated costs
incurred related to this initial exhibit concept. We paid a $250 thousand license fee advance to
Playboy under this Agreement in May 2008, and agreed to pay certain additional advances through the
five year term of the Agreement. During fiscal 2011, we amended our May 2008 Agreement to revise
the payment due dates for $300 thousand of license fee advances due for each of calendar years 2010
and 2011 and to establish a $300 thousand license fee advance payable for each of calendar years
2013 and 2014, subject to a unilateral termination right to which the Company is entitled. The
unilateral termination right requires the Company to pay a $300 thousand termination fee unless the
termination right is exercised on or prior to August 31, 2011, in which case the Company would be
entitled to apply the $300 thousand 2011 license fee advance against the termination fee that would
otherwise be payable.
In addition to $840 thousand in costs incurred in prior periods for developing, creating and
compiling the business and marketing plans as well as extending the exhibition rights for a
potential Playboy exhibit, during the six months ended August 31, 2011 the Company incurred
expenditures for exhibition rights of $50 thousand. During the six months ended August 31, 2011
the Company received $77 thousand in reimbursements from S2BN for its share of total development
costs incurred to date. No expenses were incurred or reimbursements received during the three
months ended August 31, 2011. Costs incurred and related reimbursements from S2BN by type are
reflected in the following table (in thousands).
Total | 50% S2BN | |||||||
Costs | Portion | |||||||
License fees paid |
$ | 650 | $ | 325 | ||||
Expenses paid |
190 | 95 | ||||||
Total |
840 | 420 | ||||||
License fees reimbursed by S2BN |
(275 | ) | ||||||
Expenses reimbursed by S2BN |
(93 | ) | ||||||
Receivable balance at February 28, 2011 |
52 | |||||||
Fiscal 2012 activity: |
||||||||
License fees paid |
50 | 25 | ||||||
Expenses paid |
| | ||||||
Total |
50 | 25 | ||||||
License fees reimbursed by S2BN |
(75 | ) | ||||||
Expenses reimbursed by S2BN |
(2 | ) | ||||||
Receivable balance at August 31, 2011 |
$ | | ||||||
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Table of Contents
On August 25, 2011, the Company notified Playboy that the joint venture was terminating the
Agreement pursuant to a unilateral termination right the Company had negotiated that included the
waiver of the $300 thousand termination fee otherwise payable, if the termination was effected
prior to the end of August, 2011. While the Agreement provided that the joint venture would still
owe Playboy a final license fee installment of $150 thousand despite any such termination, the
Company and S2BN also contend that Playboy had previously breached the Agreement, and the joint
venture accordingly reserved its rights to pursue all remedies and damages (which would include
withholding any such final license fee installment). Due to the termination of the agreement with
Playboy, the Company recorded an impairment charge of $217 thousand for Playboy licenses net of
accumulated amortization. The Company also recorded an impairment charge of $141 thousand for
construction in progress comprised of expenses incurred in the creation of the Playboy exhibit.
The total impairment charge of $358 thousand is included in Impairment of intangibles and fixed
assets on the Condensed Consolidated Statement of Operations for the three and six months ended
August 31, 2011.
Due to the termination of the Agreement and the related impairments, S2BNs investment in the
joint venture through its payment of 50 percent of the costs of the potential exhibit, has been
fully impaired. An impairment charge of $197 thousand is reflected in Net loss attributable to
non-controlling interest on the Condensed Consolidated Statements of Operations for the three and
six months ended August 31, 2011.
6. Stock Repurchase and Retirement
On July 29, 2010 the Company announced a share repurchase program, pursuant to which up to 1
million shares of the Companys common stock could be purchased through July 28, 2011, and that
repurchases could occur on the open market at times and prices considered appropriate by the Board
of Directors and management. Furthermore, the Company disclosed repurchases could take place
through brokers and dealers or in privately negotiated transactions, and could be made under a Rule
10b5-1 plan. During the quarter ended August 31, 2010, the Company repurchased 115,081 shares of
common stock pursuant to a Rule 10b5-1 trading plan. The average cost of the shares repurchased was
$1.16 and the Company subsequently retired these shares. The share repurchase program expired on
July 28, 2011.
During the year ended February 28, 2008, the Company repurchased 1 million shares of its
stock, which were held in a brokerage account since their purchase and reported as Treasury stock
on the Condensed Consolidated Balance Sheets. On August 29, 2011, the Company formally retired
these Treasury shares, which reduced the Common stock issued and corresponding Treasury shares as
reported in the Condensed Consolidated Balance Sheets.
7. Legal Proceedings and Contingencies
Status of Salvor-in-Possession and Interim Salvage Award Proceedings
The Company has been party to a salvage case titled RMS Titanic, Inc. v. The Wrecked and
Abandoned Vessel, et al., in rem for over 15 years. The Company sought to maintain its status as
sole Salvor-in-Possession of the Titanic wreck site and also sought an interim salvage award in the
form of title to the recovered Titanic artifacts or a monetary award.
In June 1994, the U. S. District Court for the Eastern District of Virginia (the District
Court) awarded ownership, to our wholly-owned subsidiary RMST of all items then salvaged from the
wreck of the Titanic as well as all items to be salvaged in the future so long as RMST remained
Salvor-in-Possession. However, in two orders, dated September 26, 2001 and October 19, 2001,
respectively, the District Court restricted the sale of artifacts recovered by RMST from the
Titanic wreck site. On April 12, 2002, the U.S. Court of Appeals for the Fourth Circuit (the
Appellate Court) affirmed the two orders of the District Court. In its opinion, the Appellate
Court reviewed and declared ambiguous the June 1994 order of the District Court that had awarded
ownership to RMST of the salvaged items. Having found the June 1994 order ambiguous, the Appellate
Court reinterpreted the order to convey only possession of the artifacts with a lien on them, not
title, pending determination of a salvage award. On October 7, 2002, the U.S. Supreme Court denied
RMSTs petition of appeal.
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On May 17, 2004, RMST appeared before the District Court for a pre-trial hearing to address
issues in preparation for an interim salvage award trial. At that hearing, RMST confirmed its
intent to retain its Salvor-in-Possession rights in order to exclusively recover and preserve
artifacts from the wreck site of the Titanic. In addition, RMST stated its intent to conduct
another expedition to the wreck site. As a result of that hearing, on July 2, 2004, the District
Court rendered an opinion and order in which it held that it would not recognize a 1993
Proces-Verbal, pursuant to which the government of France granted RMST title to all artifacts
recovered from the wreck site during the 1987 expedition (the 1987 Artifacts). The court also
held that RMST would not be permitted to present evidence at the interim salvage award trial for
the purpose of arguing that RMST should be awarded title to the Titanic artifacts through the law
of finds.
RMST appealed the July 2, 2004 District Court order to the Appellate Court. On January 31,
2006, the Appellate Court reversed the lower courts decision to invalidate the 1993 Proces-Verbal,
pursuant to which the government of France granted RMST title to all artifacts recovered from the
wreck site during the 1987 expedition. As a result, the Appellate Court tacitly reconfirmed that
RMST owns the approximately 2,000 artifacts recovered during the 1987 expedition. The Appellate
Court affirmed the lower courts ruling that RMST will not be permitted to present evidence at the
interim salvage award trial for the purpose of arguing that RMST should be awarded legal title to
the remainder of the Titanic artifacts through the law of finds.
On November 30, 2007, RMST filed a motion with the District Court seeking an interim salvage
award. On March 25, 2008, the court entered an order granting permission to the U.S. to file an
amicus curiae (friend of the court) response regarding RMSTs motion for an interim salvage award.
The U.S. response states that an interim in-specie award (an award of the artifacts instead of a
monetary salvage award) with limitations, made by the court to RMST, could serve as an appropriate
mechanism to satisfy RMSTs motion for a salvage award and to help ensure that the artifacts
recovered by RMST from the wreck of the Titanic are conserved and curated together in an intact
collection that is available to the public for historical review, educational purposes, and
scientific research in perpetuity. On April 15, 2008, the District Court entered an order
requesting us to propose suggested covenants that would be included in an in specie award. The
order also outlines a process for further discussion pertaining to such covenants should the court
decide to issue an in-specie award.
In September 2008, RMST submitted revised covenants and conditions in connection with our
request for an in-specie award for the remaining Titanic artifacts. This submission was made
pursuant to the order issued by the District Court in April 2008. As part of developing the
revised covenants and restrictions, we engaged in consultative discussions with the U.S.
government. On October 14, 2008, the U.S. filed an amicus response to RMSTs proposed revised
covenants, and by leave of the District Court granted on October 31, 2008, RMST in turn filed a
reply brief on November 12, 2008. On November 18, 2008, we attended a status conference at the
District Court. At the conclusion of that hearing, the District Court asked for certain additional
submissions from RMST and the U.S., which were provided.
The District Court held an evidentiary hearing from October 26, 2009 through November 2, 2009
on our motion for a salvage award. On August 12, 2010, the District Court issued an opinion
granting a salvage award to RMST based upon the Companys work in recovering and conserving over
three thousand artifacts from the wreck of Titanic during its expeditions conducted in 1993, 1994,
1996, 1998, 2000, and 2004 (the Post 1987 Artifacts). The Company was awarded 100 percent of the
fair market value of the artifacts, which the District Court set at approximately $110 million. The
District Court reserved the right to determine whether to pay the Company a cash award from
proceeds derived from a judicial sale, or in the alternative, to issue the Company an in-specie
award of title to the artifacts with certain covenants and conditions which would govern their
maintenance and future disposition. The District Court held a status hearing on June 30, 2011, to
receive an update on the 2010 expedition, specifically with regard to the scientific mapping of the
wreck site and coordination with experts in the underwater community.
On August 15, 2011, the District Court granted an in-specie award of title to the artifacts to
RMST for the Post 1987 Artifacts. Title to the Post 1987 Artifacts comes with certain covenants
and conditions drafted and negotiated by the Company and the United States government. These
covenants and conditions govern the maintenance and future disposition of the artifacts. These
covenants and conditions include the following:
| The approximately 2,000 1987 Artifacts and the approximately 3,500 Post 1987 Artifacts
must be maintained as a single collection; |
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| The combined collections can only be sold together, in their entirety, and any buyer
would be subject to the same conditions applicable to RMST; and |
||
| RMST must comply with provisions that guarantee the long-term protection of all of the
artifacts. These provisions include the creation by RMST of a trust and reserve fund (the
Trust Account). The Trust Account will be irrevocably pledged to and held for the
exclusive purpose of providing a performance guarantee for the maintenance and
preservation of the Titanic collection for the public interest. The Company will pay into
the Trust Account a minimum of twenty five thousand dollars ($25 thousand) for each future
fiscal quarter until the corpus of such Trust Account equals five million dollars ($5
million). Though not required under the covenants and conditions, Company will make
additional payments into the Trust Account as it deems appropriate consistent with its
prior representations to the Court and sound fiscal operations. |
Status of International Treaty Concerning the Titanic Wreck
The U.S. Department of State (the State Department) and the National Oceanic and Atmospheric
Administration of the U.S. Department of Commerce (NOAA) are working together to implement an
international treaty (the Treaty) with the governments of the United Kingdom, France and Canada
concerning the Titanic wreck site. If implemented in this country, this treaty could affect the way
the District Court monitors our Salvor-in-Possession rights to the Titanic. These rights include
the exclusive right to recover artifacts from the wreck site, claim possession of and perhaps title
to artifacts recovered from the site, and display recovered artifacts. Years ago we raised
objections to the State Department regarding the participation of the U.S. in efforts to reach an
agreement governing salvage activities with respect to the Titanic. The proposed Treaty, as
drafted, did not recognize our existing Salvor-in-Possession rights to the Titanic. The United
Kingdom signed the Treaty in November 2003, and the U.S. signed the Treaty in June 2004. For the
Treaty to take effect, the U.S. must enact implementing legislation. As no implementing legislation
has been passed, the Treaty currently has no binding legal effect.
The Company has worked with the U.S. government regarding several draft revisions to the
governments proposed legislation which would implement the Treaty. For years, the State
Department and NOAA have been working together to implement the Treaty. For nearly as long the
Company has opposed the passage of the implementing legislation out of concerns that it failed to
protect the Companys interests in the wreck site and failed to insure continued scientific and
historic exploration.
In August, 2011, the State Department and NOAA resubmitted the draft legislation to Congress.
RMST has worked with the U.S. government to develop a number of textual modifications to this
proposed implementing legislation to address the Companys concerns. RMST intends to propose its
own legislation incorporating these textual modifications. RMST plans to support the passage of
this revised implementing legislation into law. The Company believes that the passage of this
legislation, as modified by RMST, will recognize the Companys past and future role with regard to
the wreck site.
Other Litigation
The Company is also from time to time party to collection actions to recover amounts owed by
promoters and other parties, particularly international promoters and partners. In RMS Titanic,
Inc. v. Citywest Productions and H.S.S. Trading as the Mansfield Group, we sued in Dublin, Ireland
to collect approximately $1.3 million owed by a promoter who licensed and presented a Titanic
exhibition in Dublin. We were successful in obtaining judgment against the parties for the full
amount of the claim. During the proceedings, the defendants went into receivership, which is an
insolvency process under the laws of Ireland. We have reserved 100% of the receivable on our
balance sheet for the fiscal year ended February 28, 2011, and are currently seeking to enforce the
judgment in Ireland. Recovery in this case is unlikely.
In April 2011, the Company filed suit in the U.S. District Court for the Northern District of
Georgia against Serge Grimaux and his companies, including Serge Grimaux Presents, Inc. and
9104-5773 Quebec, Inc. The suit alleges that Grimeaux failed to pay over $800 thousand due and
owing the Company under a series of license agreements pursuant to which Grimaux and his entities
presented the Companys Titanic and human anatomy exhibitions in venues throughout Canada. This
case is in its very early stages. The Company has estimated a bad debt allowance for this
receivable and has adjusted the receivable accordingly. Recovery in this case is uncertain. The
net receivable balances are not material and are reflected in Accounts receivable, net of allowance
for doubtful accounts in the Condensed Consolidated Balance Sheets.
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On August 5, 2011, the Company filed suit in the U.S. District Court for the Southern District
of New York against Gunther Von Hagens, and his company, Plastination Company, Inc. The suit
alleges that Von Hagens and Plastination breached a settlement agreement with the Company,
tortiously interfered with the Companys business, conspired against the Company and engaged in
unfair competition practices. These claims relate to information Von Hagens and Plastination
provided to ABC News and other third-parties about the origin of the human anatomy specimens
licensed by the Company and used in its human anatomy exhibitions. The Company has sued for
unspecified damages. The case is in its very early stages and recovery is uncertain.
From time to time the Company is or may become involved in other legal proceedings that result
from the operation of its exhibitions and business.
Settled Litigation
On July 30, 2009, Sports Immortals, Inc. and its principals, Joel Platt and Jim Platt
(together, Sports Immortals), filed an action against the Company in the Circuit Court of the
Fifteenth Judicial District in Palm Beach County, Florida for claims arising from their license
agreement with the Company under which the Company obtained rights to present sports memorabilia
exhibitions utilizing the Sports Immortals, Inc. collection. The plaintiffs allege that the
Company breached the contract when the Company purported to terminate it in April of 2009, and they
seek fees and stock warrant agreements required under the agreement. The Company filed its answer
and counterclaims on September 7, 2009. Answering the complaint, the Company denied plaintiffs
allegations and maintained that the Sports Immortals, Inc. license agreement was properly
terminated. The Company counterclaimed against the plaintiffs for breach of contract, fraudulent
inducement and misrepresentation, breach of the covenant of good faith and fair dealing, and
violation of Floridas deceptive and unfair practices act. On August 16, 2011, the Company and
Sports Immortals entered into a Settlement and Release Agreement (the Agreement). In exchange
for full settlement and release of all claims of Sports Immortals, pursuant to the Agreement the
Company agreed to pay $475 thousand currently, $475 thousand on the first anniversary of
settlement, and to exchange certain warrants previously issued to Jim Platt and Joel Platt for
warrants with an exercise price set at the market price on the date of settlement of $1.82. An
expense of $6 thousand for the exchange of these warrants is included in General and administrative
expenses on the Condensed Consolidated Statements of Operations. In fiscal 2010, the Company
accrued $167 thousand as an estimate of the cost to settle this litigation. An additional expense
of $783 thousand is included in Litigation Settlement on the Condensed Consolidated Statements of
Operations for the three and six months ended August 31, 2011. The $950 thousand settlement
payable is reflected in Accounts payable and accrued liabilities on the Condensed Consolidated
Balance Sheets. The first installment of the settlement agreement of $475 thousand was paid on
September 7, 2011.
Proposed Legislation and Government Inquiries
On May 23, 2008, the Company entered into an Assurance of Discontinuance (the Assurance)
with the Attorney General of the State of New York. The Assurance resolves the inquiry initiated
by the Attorney Generals Office regarding our New York City exhibition, Bodies...The Exhibition.
Subject to the provisions of the Assurance, the Company has continued to operate the exhibition in
New York City. Although most of its requirements under the Assurance have now been concluded, the
Company will continue to post certain disclosures regarding the sourcing of the specimens in the
exhibition as long as that exhibition operates in New York City. The Company has voluntarily agreed
to similar disclosures with the states of Washington, Missouri, and Oklahoma.
Legislatures in a few states have considered legislation or passed bills that would restrict
our ability to present human anatomy exhibitions in their states, such as by banning human anatomy
exhibitions, requiring a permit to present such an exhibition, or imposing restrictions on how or
where such exhibitions could be presented. The Company cannot predict whether any such legislation
will be adopted or, if adopted, how such legislation might affect its ability to conduct human
anatomy exhibitions. Additional states could introduce similar legislation in the future. Any such
legislation could prevent or impose restrictions on the Companys ability to present our human
anatomy exhibitions in the applicable states.
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From time to time, the Company has or may receive requests and inquiries from governmental
entities which result from the operation of our exhibitions and business. As a matter of policy,
the Company will cooperate with any such inquiries.
Revenue Examinations
The Internal Revenue Service (IRS) is currently conducting an examination of the Companys
federal tax return for the fiscal year ended February 28, 2010. In addition to the review
currently in process by the IRS, the Company is, at times, under review by various state revenue
authorities.
The Company believes that adequate provisions for resolution of all contingencies, claims and
pending litigation have been made for probable losses and that the ultimate outcome of these
actions will not have a material adverse effect on the Companys financial condition.
8. Purchase and Registration Rights Agreements
On May 20, 2011, the Company and Lincoln Park Capital Fund, LLC (LPC), entered into a
Purchase Agreement (the LPC Purchase Agreement) and a Registration Rights Agreement (the
Registration Rights Agreement), whereby the Company has the right to sell, at its sole
discretion, to LPC up to $10 million of the Companys common stock over a 36-month period (any such
shares sold being referred to as the Purchase Shares). Under the Registration Rights Agreement,
the Company agreed to file a registration statement with the SEC covering the Purchase Shares and
the Commitment Shares (as defined below).
After the registration statement is declared effective, the Company generally will have the
right, but not the obligation, over a 36-month period, to direct LPC to periodically purchase the
Purchase Shares in specific amounts under certain conditions at the Companys sole discretion. The
purchase price for the Purchase Shares will be the lower of (i) the lowest trading price on the
date of sale or (ii) the arithmetic average of the three lowest closing sale prices for the common
stock during the 12 consecutive business days ending on the business day immediately preceding the
purchase date. In no event, however, will the Purchase Shares be sold to LPC at a price of less
than $1.00 per share.
In consideration for entering into the LPC Purchase Agreement, the Company issued to LPC
149,165 shares of common stock as an initial commitment fee (the Initial Commitment Shares) on
May 25, 2011, and is required to issue up to 149,165 shares of common stock as additional
commitment shares on a pro rata basis (the Additional Commitment Shares) as the Company directs
LPC to purchase the Companys shares under the Purchase Agreement over the term of the agreement.
The LPC Purchase Agreement may be terminated by the Company at any time at the Companys discretion
without any cost to the Company. The proceeds that may be received by the Company under the LPC
Purchase Agreement are expected to be used for general corporate purposes, including working
capital.
Under the LPC Purchase Agreement, the Company has agreed that, subject to certain exceptions,
it will not, during the term of the LPC Purchase Agreement, effect or enter into an agreement to
effect any issuance of common stock or securities convertible into, exercisable for or exchangeable
for common stock in a Variable Rate Transaction, which means a transaction in which the Company:
| issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive
additional shares of common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies
with the trading prices of or quotations for the shares of common stock at any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or indirectly related to our business or the market for the common stock;
or |
||
| enters into any agreement, including, but not limited to, an equity line of credit, whereby it may sell securities at a future determined
price. |
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The Company has also agreed to indemnify LPC against certain losses resulting from its breach
of any of its representations, warranties or covenants under the agreements with LPC.
9. Subsequent Events
Restructuring
The Company announced on September 29, 2011 that it intends to separate its operations
into two separate operating divisions which will function as separate subsidiaries of Premier.
Premier is undertaking this restructuring to better position the Company to pursue strategic
alternatives and manage both businesses independently.
Premiers business will be divided into both an exhibition management subsidiary and a
content subsidiary. The content division will be the Companys existing subsidiary, RMST,
which holds all of the Companys rights with respect to the Titanic assets and is the
Salvor-in-Possession of the Titanic wreck site. These assets include title to all of the
recovered artifacts in the Companys possession, in addition to all of the intellectual
property (video, photos, maps, etc.) related to the recovery of the artifacts and research of
the ship. In addition, all of Premiers collection and curatorial staff will be employed by
the RMST subsidiary.
The Company will also form a new entity, Premier Exhibition Management (PEM), to manage
all of the Companys exhibition operations. This will include the operation and management of
Premiers Bodies, Titanic and Dialog in the Dark exhibitions. PEM will also pursue fee for
service arrangements to manage content owned or licensed by third parties. All personnel not
directly involved in the management of the Titanic artifacts will function as employees of the
PEM subsidiary.
Appointment of Director
On September 21, 2011, Premier announced the appointment of Mr. Mark P. McGowan to the
Board of the Directors of the Company. Mr. McGowan is the managing member of SAF Capital
Management LLC and also currently serves as Chairman of the Board of CombiMatrix Corporation.
Lease Agreement for Warehouse Space for Artifacts and Other Exhibitry
The Companys current lease for warehouse and lab
space in Atlanta, Georgia for the conservation, conditioning and storage of artifacts and other
exhibitry expires December 31, 2011. Other storage space has been rented on a month-to-month
basis, in various locations, as needed. In order to consolidate storage and reduce related
costs, on October 12, 2011 the Company entered into a lease agreement for approximately 48,536
square feet of warehouse and lab space in Atlanta, Georgia. For security purposes, we do not
disclose the location of this property. The agreement is for a five year term with two
additional options to extend for up to an additional ten years. Minimum annual rent for the
first three years is $158 thousand, payable in equal monthly installments, and $167 thousand a
year thereafter.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This report contains information that may constitute forward-looking statements. Generally,
the words believe, expect, intend, estimate, anticipate, project, will and similar
expressions identify forward-looking statements, which generally are not historical in nature.
However, the absence of these words or similar expressions does not mean that a statement is not
forward-looking. All statements that address operating performance, events or developments that we
expect or anticipate will occur in the future including statements relating to revenue growth,
improvements to margin and earnings per share growth, and statements expressing general views about
future operating results are forward-looking statements. Management believes that these
forward-looking statements are reasonable as and when made. However, such statements are dependent
upon, and can be influenced by, a number of external variables over which management has little or
no control, including but not limited to, general economic conditions, public tastes and demand,
competition, the availability of venues, the results of certain legal matters described herein,
governmental regulation and the efforts of co-sponsors and joint venture participants. As a
result, caution should be taken not to place undue reliance on any such forward-looking statements.
Our Company undertakes no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by law.
Forward-looking statements should not be relied upon as a guarantee of future performance or
results, nor will they necessarily prove to be accurate indications of the performance that is
ultimately achieved. As a result, actual outcomes and results may differ materially from those
expressed in forward-looking statements.
In this report, the terms Premier Exhibitions, Inc., the Company, Premier, we, us,
and our mean Premier Exhibitions, Inc., a Florida corporation and its subsidiaries. The
condensed consolidated financial statements include the accounts of Premier, its wholly owned
subsidiaries after the elimination of all significant intercompany accounts and transactions, and
its consolidated joint venture.
Titanic Ventures Limited Partnership (TVLP), a Connecticut limited partnership, was formed
in 1987 for the purposes of exploring the wreck of the Titanic and its surrounding oceanic areas.
In May of 1993, R.M.S. Titanic, Inc. (RMST) entered into a reverse merger under which RMST
acquired all of the assets and assumed all of the liabilities of TVLP and TVLP became a shareholder
of RMST. In October of 2004, we reorganized and Premier Exhibitions, Inc. became the parent
company of RMST and RMST became a wholly-owned subsidiary. Additional wholly-owned subsidiaries
were established in order to operate the various domestic and international exhibitions of the
Company.
You are urged to read the risk factors described in our Annual Report on Form 10-K for our
fiscal year ended February 28, 2011 (fiscal 2011), as filed with the Securities and Exchange
Commission. Except as required by law, we undertake no obligation to update publicly any
forward-looking statement for any reason, even if new information becomes available. The following
discussion should be read in conjunction with the unaudited condensed financial statements and
notes appearing elsewhere herein and our Annual Report on Form 10-K for our fiscal year ended
February 28, 2011.
Premiers principal executive offices are located at 3340 Peachtree Road, NE, Suite 900,
Atlanta, Georgia 30326 and the Companys telephone number is (404) 842-2600. The Company is a
Florida corporation and maintains websites located at www.prxi.com,
www.rmstitanic.net, www.expeditiontitanic.com, www.bodiestheexhibition.com,
www.bodiestickets.com, www.titanictix.com, www.bodiesrevealed.com,
www.dialogtickets.com, and www.dialognyc.com. Information on Premiers websites is not part
of this report.
Overview
Premier Exhibitions, Inc. is in the business of presenting to the public museum-quality
touring exhibitions around the world. Since the Companys establishment, we have developed,
deployed, and operated unique exhibition products that are presented to the public in exhibition
centers, museums, and non-traditional venues. Income from exhibitions revenue is generated
primarily through admission ticket sales, third-party licensing, sponsorships and merchandise
sales.
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As of August 31, 2011, we were configured to present three different types of exhibitions.
The following table reflects the number of available exhibitions by type as of August 31, 2011:
Stationary | Touring | Total | ||||||||||
Bodies...The Exhibition and Bodies Revealed |
3 | 6 | 9 | |||||||||
Titanic: The Artifact Exhibiton |
1 | 6 | 7 | |||||||||
Dialog in the Dark |
2 | | 2 | |||||||||
Total Exhibitions |
6 | 12 | 18 | |||||||||
Our touring exhibitions usually span four to six months. The stationary exhibitions are
longer-term engagements which are located in New York, New York, Las Vegas, Nevada, and Atlanta,
Georgia. We opened a new stationary Dialog in the Dark exhibit in New York City on August 20,
2011.
In addition to developing new content for future exhibitions, the Company continually
evaluates its touring capacity and may expand or contract to suit the addressable market for its
content.
We first became known for our Titanic exhibitions, which we conduct through our wholly-owned
subsidiary RMST and which present the story of the ill-fated ocean liner, the RMS Titanic (the
Titanic). The Titanic has captivated the imaginations of millions of people throughout the world
since 1912 when she struck an iceberg and sank in the North Atlantic on her maiden voyage
approximately 400 miles off the coast of Newfoundland. More than 1,500 of the 2,228 lives on board
the Titanic were lost.
We own approximately 5,500 Titanic artifacts which we have the right to present at our
exhibitions. In 1994, a federal district court declared us Salvor-in-Possession of the Titanic
wreck and wreck site, and, as such, we have the exclusive right to recover objects from the Titanic
wreck site. Through our explorations, we have obtained and are in possession of the largest
collection of data, information, images and cultural materials associated with the Titanic
shipwreck. We believe that our Salvor-in-Possession status puts us in the best position to provide
for the archaeological, scientific and educational interpretation, public awareness, historical
conservation and stewardship of the Titanic shipwreck. As of August 31, 2011 we were configured to
operate 7 concurrent Titanic exhibitions, of which 6 were presented at venues and one touring show
was idle during the second quarter of fiscal 2012.
In 2004, we diversified our exhibitions beyond the Titanic and into human anatomy by acquiring
licenses that give us rights to present exhibitions of human anatomy sets, each of which contains a
collection of whole human body specimens plus single human organs and body parts. As of August 31,
2011 we were configured to present 9 concurrent human anatomy exhibitions, of which 7 were
presented at venues and two touring shows were idle during the second quarter of fiscal 2012. We
plan to return one Bodies set used in two touring exhibits as the lease term expires during the
third quarter of fiscal 2012. One of these touring exhibits has been in storage since April 2011,
pending its return.
In 2008, we further expanded our exhibition portfolio when we entered into a long-term license
agreement to present an exhibition series entitled Dialog in the Dark. Our Dialog in the Dark
exhibitions are intended to provide visitors with an opportunity to experience the paradox of
learning to see without the use of sight. Visitors are escorted through a series of galleries
immersed in total darkness and challenged to perform tasks without the use of vision. As of August
31, 2011, we were configured to present two Dialog in the Dark exhibits in Atlanta, Georgia and
New York, New York. Our Dialog in the Dark exhibit in New York City recently opened on August
20, 2011. Additional expansion is also under review.
In the year ended February 28, 2009 (fiscal 2009), the Company began to see a decline in
attendance at both the Bodies and Titanic exhibitions, which adversely impacted earnings. Also,
the Company spent significant capital pursuing new exhibition concepts that never materialized. By
the end of fiscal 2009, with senior members of management leaving the Company and the Company under
significant financial distress, shareholders voted to change the composition of the Board of
Directors. In January of 2009, the new Board terminated the Chief Executive Officer, and installed
new senior management.
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During the year ended February 28, 2010 (fiscal 2010), the new Board and senior management
began comprehensive efforts to turn around the profitability of the Company by restructuring the
business and raising capital. Management reduced the size of the headquarters operations and began
to rationalize the number of Bodies shows touring, reducing touring capacity in June of 2009 from
16 to 13 concurrent shows, and also negotiated the early termination of the Star Trek exhibition,
eliminating three touring shows. Dialog in the Dark was scaled back to only one show installed
long-term in Atlanta. These touring capacity adjustments were made to eliminate unprofitable
shows, and bring capacity in line with the Companys ability to keep shows touring profitably. The
Company also issued convertible bonds worth $12.0 million in order to properly capitalize the
business. Management also worked to mend or end relationships with trade partners that had become
strained under the prior management, which in certain cases required significant working capital.
Management also created a process to evaluate and develop new content that can be used to
create new touring exhibitions. Other more generic processes were implemented to support
traditional business decisions ranging from human resources management to financial planning and
analysis. Additionally, management began to strategize on ways to expand the Titanic model beyond
the exhibition business to broaden the Companys reach and to capitalize on the 100 year
anniversary of the sinking of the Titanic in 2012.
In an effort to further stabilize the Company and grow, during fiscal 2010, management
implemented a process designed to identify, quantify and manage the risk and returns associated
with taking existing exhibitions into a given market and operating these exhibitions without museums
or third party promoters. Management initially believed that self-operating exhibitions would be
optimal as it would allow us to maintain more control of the exhibitions and would also allow us to
retain 100 percent of the profit from the exhibitions as opposed to sharing that profit with a
museum or promoter. Based on this strategy, the Company began to increase its self-operated
exhibitions in fiscal 2010 and continued expansion into fiscal 2011. However, the Company
experienced lower than anticipated attendance at its self-operating touring Bodies exhibitions in
fiscal 2011. As the sole operator of the exhibitions, the Company had to bear the full cost of the
exhibits, lowering gross margins and profits in fiscal 2011.
At the end of the third quarter of fiscal 2011, 11 of our 14 Bodies shows toured in largely
self-operated, temporary exhibits at non-branded venues. Specimens used in these exhibits were
leased or licensed and were made available to the Company for display at significant cost. With
several of the licenses for these specimens expiring, and considering the recent attendance
patterns, management determined the best option was to return the specimens to their owner, as the
license agreements ended, and cease operating these exhibits. Based on this analysis and the
impact that touring self-operating Bodies exhibitions had on the Companys results of operations
through the third quarter of fiscal 2011, in January 2011 the Company announced its intentions to
discontinue its touring self-operated Bodies exhibitions. Going forward, the Company will focus on
touring Bodies, as well as the Titanic exhibitions, Dialog in the Dark, and new content, primarily
with promoters and museums. As a result of returning specimens the Company has significantly
reduced its fixed operating lease costs. The majority of the Companys remaining specimens
available to tour have significantly lower costs. In connection with the reduction in Bodies
touring capacity, the Company also embarked upon an aggressive reduction in general and
administrative expenses.
The Company invested approximately $5.5 million of capital during fiscal 2011, due to the lack
of historical investment in the core business and due to the scope and breadth of the Companys
initiatives at the time. This capital investment was primarily related to the 2010 expedition to
the Titanic wreck site and the revitalization of certain exhibitions.
Exhibitions
Titanic: The Artifact Exhibition
By featuring the artifacts recovered from the wreck site, our exhibitions tell the Titanics
story from construction through her sinking and discovery as well as the Companys efforts to
preserve the wreck site and conserve recovered artifacts. The artifacts are placed in historically
correct re-creations of the significant rooms onboard the ship and are illuminated by moving
stories of her passengers and crew. Approximately 23 million visitors have attended our Titanic
exhibitions at venues throughout the world, including in the United States (U.S.), Canada, Czech
Republic, Germany, Norway, France, Greece, Japan, Switzerland, Chile, Argentina, China, Mexico,
Hungary, South Korea, Spain, Brazil, the United Kingdom, and Australia. During the second quarter
of 2012, we presented 6 separate Titanic exhibitions at 8 venues. One touring Titanic show was idle
during the second quarter of fiscal 2012.
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Titanic Expeditions
In August 1987, TVLP contracted with the Institute of France for the Research and Exploration
of the Sea (IFREMER) to conduct an expedition and dive to the wreck of the Titanic. Approximately
2,000 objects were recovered and 140 hours of video tape footage and an estimated seven thousand
still photographs were taken during the course of the 32 dives in that original expedition. A
French maritime tribunal subsequently conveyed to us title to these artifacts. In 1993, RMST
acquired all of the assets and assumed all of the liabilities of TVLP. In July 2004, the U.S.
District Court for the Eastern District of Virginia (the District Court) concluded that such
conveyance by the French tribunal was not valid and sought to deprive us of title to these
artifacts. We appealed that decision to the U.S. Court of Appeals for the Fourth Circuit (the
Appellate Court). On January 31, 2006, the Court of Appeals reversed and vacated the ruling of
the lower court. This decision reaffirmed the validity of our title to the approximately 2,000
artifacts recovered during the 1987 expedition.
We completed additional expeditions to the wreck of the Titanic in 1994, 1996, 1998, 2000 and
2004 recovering approximately 3,500 additional artifacts and additional video tape footage and
still photographs. With the depth of the Titanic wreck approximately two and one-half miles below
the surface of the North Atlantic Ocean, our ability to conduct expeditions to the Titanic has been
subject to the availability of necessary research and recovery vessels and equipment for chartering
by us from June to September, which is the open weather window for such activities.
2010 Expedition to Titanic Wreck Site
During August and September 2010, our wholly owned subsidiary RMST, as Salvor-In-Possession of
the RMS Titanic (the Titanic) and its wreck site, conducted an expedition to the Titanic wreck
site. RMST brought together an alliance of the worlds leading archaeologists, oceanographers and
scientists together with U.S. governmental agencies to join RMST in the 2010 expedition to the
wreck site and the post-expedition scientific study. This alliance included the Woods Hole
Oceanographic Institution (WHOI), the Institute of Nautical Archaeology (INA), the National
Oceanic Atmospheric Administrations Office of the National Marine Sanctuaries (NOAA/ONMS), The
National Park Services Submerged Resources Center (NPS) and the Waitt Institute. Never before
had all of these entities partnered to work together on one project. While all of these parties
worked together to participate in the expedition, RMST has sole legal ownership of the film
footage, data, and other assets generated from the expedition.
While the general purpose of the expedition was to collect and interpret archeological and
scientific data utilizing state-of-the-art high definition 2D and 3D cameras and sonar scanning
equipment, the Company also planned and executed the expedition in order to create digital assets
for commercial purposes, including a 2D documentary being produced and to be aired by a major cable
network, a separate HD3D film featuring a tour of the bow and stern sections of the ship, and
assets to be utilized in enhancing the Titanic exhibitions, as well as other applications. The
collected data will also provide the basis for an archaeological site plan, and ultimately a
long-term management plan for the Titanic wreck site.
We have capitalized $4.2 million of costs related to the expedition, discussed in more detail
below, which have been allocated to specific assets as reflected in the following table (in
thousands).
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August 31, 2011 | Februrary 28, 2011 | |||||||
3D film |
$ | 1,719 | $ | 1,719 | ||||
3D exhibitry |
759 | 759 | ||||||
2D documentary |
565 | 565 | ||||||
Gaming application |
886 | 886 | ||||||
Expedition web point of presence |
317 | 317 | ||||||
Total expedition costs capitalized |
4,246 | 4,246 | ||||||
Less: Accumulated amortization |
175 | 175 | ||||||
Accumulated depreciation |
106 | 53 | ||||||
Expedition costs capitalized, net |
$ | 3,965 | $ | 4,018 | ||||
In order to increase interest in the expedition, the Company established a central web point
of presence for the expedition (ExpeditionTitanic.com), which will also continue to serve as the
central site to convey the ongoing efforts to preserve the legacy of the Titanic. During the 2010
expedition, the website featured updates from the crew and other expedition participants, images of
the wreck site, and photo/live feed updates that allowed visitors to the site to follow the
expedition as it was in process. These features account for most of the capitalized website costs
of $317 thousand, which were capitalized in accordance with ASC 350, Intangibles Goodwill and
Other (ASC 350), as they served as a significant draw to the website and also have future value
as assets to be used in our exhibits and/or movies. The remaining capitalized website costs were
for additional graphics, which were also capitalized in accordance with ASC 350. Website costs are
depreciated on a straight-line basis, using a three year useful life. Depreciation expense related
to the web point of presence totaled $26 thousand and $53 thousand for the three and six months
ended August 31, 2011, respectively, and $53 thousand during fiscal 2011.
In addition, the Company capitalized an additional $3.9 million in costs related to the
expedition, comprised of $562 thousand in general management costs and $3.3 million in ship charter
costs, underwater gear, and filming costs. Costs directly related to the 2D film, 3D film, 3D
exhibitry or gaming applications were separately ascribed to the respective assets; additional
costs related to all four types of assets were allocated ratably based on the anticipated future
revenue associated with the asset, based on the reasonable expectations of management.
Costs associated with the production of the 2D and 3D films and the development of 3D
exhibitry were capitalized in accordance with ASC 926 Entertainment Films (ASC-926), as they
meet the definition of film costs. ASC 926-20 defines films costs as all direct negative costs
incurred in the physical production of a film, as well as allocations of production overhead and
capitalized interest in accordance with Topic 835 of ASC 926.
Costs incurred to charter the ship, ready it for the excursion, lease the requisite equipment,
and hire the necessary expertise in the form of consultants and temporary labor were all required
in order to prepare for and carry out the expedition and to create the film assets. Included in
these costs is $1.7 million related to agreements with WHOI for optical services and the use of two
autonomous underwater vehicles.
In addition, a significant project such as this requires management by a team of
professionals, from the Expedition Leader to other individuals specializing in project management,
legal and other specialties which were necessary to ensure that the expedition was conducted
efficiently and effectively. A portion of the general management expenses that we capitalized is
an allocation of production overhead, which, in accordance with ASC 926-20-25-2, includes an
allocation of costs of the individuals with either exclusive or significant responsibility for the
production of a film. For those individuals with a significant, but not an exclusive
responsibility, we allocated their costs based on hours worked related to the expedition and tasks
related to the development of the film versus hours worked on other matters. In addition, included
in capitalized general management expenses are legal and public relations costs incurred associated
with the creation of the digital assets.
The amortization period for the 3D film will be determined in accordance with the
Individual-Film-Forecast-Computation Method as described in ASC 926. We will amortize film costs
in the same ratio that current period actual revenue (numerator) bears to estimated remaining
unrecognized ultimate revenue as of the beginning of the current fiscal year (denominator). The
Company has estimated ultimate revenue for the 3D film, as defined by ASC 926, and the amortization
period will be less than 10 years following the date of the films initial release or delivery of
the first episode, if applicable. We have not yet determined this date.
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The Company entered into an agreement with Lone Wolf Documentary Group to license its 2D video
imagery for production as a documentary film. In exchange for these license rights, the Company
received a payment of $250 thousand in the fourth quarter of fiscal 2011, and also has the right to
certain back-end revenue sharing rights related to ultimate DVD sales, any merchandising and
publishing sales, and international television licensing. As the Company has entered into an
agreement to produce this film and has received its first payments under this agreement, the
Company recorded an amortization charge of $175 thousand in the fourth quarter of fiscal 2011, as
calculated over a five year life, based on the methodology outlined in ASC 926 described above. No
amortization was recorded for the three or six months ended August 31, 2011, as the Company did not
receive any 2D film revenue during these periods.
The costs associated with enhancing the exhibitions with 3D footage will be depreciated over a
five year useful life using the straight-line method beginning with the date the asset is placed in
service, in accordance with the Companys policy for depreciation of assets used in its exhibits.
The Company engaged personnel to operate sonar and optical equipment during the expedition to
image the bow and stern sections of the Titanic wreck site. This imagery is valuable for
developing a full 2D and 3D rendering of the Titanic for various academic, media, and other
entertainment uses, including incorporation of the imagery into a gaming application. Costs
associated with the gaming application were capitalized in accordance with ASC 350, as the
collection of the data and imagery represents an intangible asset. Upon sale or licensing of the
data, the gaming application will be amortized over its useful life, as determined by the sale or
licensing agreement, in accordance with ASC 350.
The web point of presence and 3D exhibitry assets are included in Property and equipment on
the Condensed Consolidated Balance Sheets. The 3D film, 2D documentary, and gaming assets are
included in Film and gaming assets on the Condensed Consolidated Balance Sheets.
Certain costs related to the expedition were expensed as incurred, and not included in the
capitalized assets discussed above. Examples of these expenditures include costs to advertise the
expedition, ongoing maintenance of the expedition web point of presence, certain legal and public
relations fees, mapping and profiling of Titanic artifacts, and any management costs subsequent to
the ships return in September 2010.
Science, Archaeology and Conservation Related to the Titanic and Titanic Artifacts
In addition to being important to our exhibition business, the Titanic is an important
archaeological, historical and cultural site. In addition to the alliance brought together for the
2010 expedition described above, we have long standing relationships with several other
archaeologists and conservators for services to aid in stewardship of the Titanic wreck site. Upon
recovery from the Titanic wreck site, artifacts are in varying states of deterioration. Having
been submerged in the ocean for almost 100 years, artifacts have been subjected to the corrosive
effects of seawater. The conservation of all artifacts recovered from the wreck site of the
Titanic is an extensive process that employs many techniques in order to stabilize them for display
in our exhibitions. We also own and maintain an extensive database, together with digital and
photographic archives, that establish, with certainty, the origin of the artifacts.
Bodies...The Exhibition and Bodies Revealed
We presently have the right to display multiple human anatomy sets, each of which contains a
collection of whole human body specimens plus single human organs and body parts, which are known
as Bodies Revealed and Bodies...The Exhibition. We secured the rights to produce these two
types of human anatomy exhibitions through separate exhibition agreements. During the second
quarter of 2012, we presented 7 separate Bodies exhibitions at 7 venues.
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These specimens are assembled into anatomy-based exhibitions featuring preserved human bodies,
organs and body parts to offer the public an opportunity to view the intricacies and complexities
of the human body. The exhibitions include displays of dissected human bodies which are
permanently preserved through a process called polymer preservation, also known as plastination. In
essence, the bodies are drained of all fat and fluids, which are replaced with polymers such as
silicone rubber, epoxy and polyester. This preserves the flesh and maintains its natural look.
Skin from the bodies is removed, or partially removed, to reveal musculoskeletal, nervous,
circulatory, and reproductive or digestive systems. The full body specimens are complimented by
presentation cases of related individual organs and body parts, both healthy and diseased, that
provide a detailed look into the elements that comprise each system of the body. Using more than
200 specimens, each exhibition follows a systems-based approach to human anatomy which examines the
skeletal, muscular, nervous, digestive, respiratory, circulatory, urinary, integumentary (skin,
sweat glands, hair, and nails), and reproductive systems.
Our full-body specimens and individual organs were obtained through plastination facilities
mostly in China. The full body specimens are persons who lived in China and died from natural
causes. Most of the bodies were unclaimed at death, and were ultimately delivered to medical
schools for education and research. Where known, information about the identities, medical history
and causes of death is kept strictly confidential. China has a large and highly competent group of
anatomists and dissectors, who are essential to properly preparing these specimens for exhibition
and educational purposes. In a number of cases, our medical director has been able to identify
medical problems that were present in certain organs and, where appropriate, those organs were
clearly labeled in the exhibitions. For example, an emphysema-diseased lung is displayed and
identified, giving the visitors a visual understanding of the effects of the disease.
Dialog in the Dark
In 2008, we expanded our exhibition portfolio when we entered into a long-term license
agreement to present an exhibition series entitled Dialog in the Dark. Our Dialog in the Dark
exhibitions are intended to provide insight and experience to the paradox of learning to see
without the use of sight. Small groups of visitors navigate this exhibition, with the help of
blind or visually impaired guides, through a series of galleries immersed in total darkness and are
challenged to perform tasks without the use of vision. We currently operate two Dialog in the
Dark exhibits located in Atlanta, Georgia and New York, New York. Our New York City Dialog
exhibition recently opened on August 20, 2011. Additional future expansion is also under review.
Other Exhibitions
On May 20, 2008 the Company entered into a License Agreement (the Agreement) with Playboy
Enterprises International, Inc. (Playboy) for the right to present and promote new exhibitions
related to the Playboy brand. We paid a $250 thousand license fee advance to Playboy under this
agreement in May 2008, and agreed to pay certain additional advances through the five year term of
the agreement. During fiscal 2011, we amended our May 2008 agreement to revise the payment due
dates for $300 thousand of license fee advances due for each of calendar years 2010 and 2011 and to
establish a $300 thousand license fee advance payable for each of calendar years 2013 and 2014,
subject to a unilateral termination right to which the Company is entitled. The unilateral
termination right requires the Company to pay a $300 thousand termination fee unless the
termination right is exercised on or prior to August 31, 2011, in which case the Company would be
entitled to apply the $300 thousand 2011 license fee advance against the termination fee that would
otherwise be payable. The Company and S2BN Entertainment Corporation (S2BN) later agreed to
jointly develop, design, and produce a Playboy exhibit, and S2BN agreed to reimburse 50 percent of
the enumerated costs incurred related to the initial exhibit concept.
On August 25, 2011, the Company notified Playboy that the joint venture was terminating the
Agreement pursuant to the unilateral termination right the Company had negotiated that included the
waiver of the $300,000 termination fee otherwise payable, if the termination was effected prior to
the end of August, 2011. While the Agreement provided that the joint venture would still owe
Playboy a final license fee installment of $150,000 despite any such termination, the Company and
S2BN also contended that Playboy had previously breached the License Agreement, and the joint
venture accordingly reserved its rights to pursue all remedies and damages (which would include
withholding any such final license fee installment). Due to the termination of the agreement with
Playboy, the Company recorded an impairment charge of $217 thousand for Playboy licenses net of
accumulated amortization. The Company also recorded an impairment charge of $141 thousand for
construction in progress comprised of expenses incurred in the creation of the Playboy exhibit.
The total impairment charge of $358 thousand is included in Impairment of intangibles and fixed
assets on the Condensed Consolidated Statement of Operations for the three and six months ended
August 31, 2011.
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Due to the termination of the Agreement and the related impairments, S2BNs investment in the
joint venture through its payment of 50 percent of the costs of the potential exhibit, has been
fully impaired. An impairment charge of $197 thousand is reflected in Net loss attributable to
non-controlling interest on the Condensed Consolidated Statements of Operations for the three and
six months ended August 31, 2011.
Disbursements for license fees and expenses related to the development of this exhibition are
reflected in the table below, along with the corresponding reimbursements and balances due from
S2BN (in thousands).
Total | 50% S2BN | |||||||
Costs | Portion | |||||||
License fees paid |
$ | 650 | $ | 325 | ||||
Expenses paid |
190 | 95 | ||||||
Total |
840 | 420 | ||||||
License fees reimbursed by S2BN |
(275 | ) | ||||||
Expenses reimbursed by S2BN |
(93 | ) | ||||||
Receivable balance at February 28, 2011 |
52 | |||||||
Fiscal 2012 activity: |
||||||||
License fees paid |
50 | 25 | ||||||
Expenses paid |
| | ||||||
Total |
50 | 25 | ||||||
License fees reimbursed by S2BN |
(75 | ) | ||||||
Expenses reimbursed by S2BN |
(2 | ) | ||||||
Receivable balance at August 31, 2011 |
$ | | ||||||
We intend to acquire, develop and present additional new exhibitions for presentation in the
future, including exhibitions both related and unrelated to our currently ongoing exhibitions.
Merchandising
We earn revenue from the sale of merchandise, such as apparel, posters and Titanic-related
jewelry (some of which utilizes coal we have recovered from the shipwreck). In addition, we also
publish exhibition catalogs and provide ancillary services such as audio tours and photographs,
which are sold at our exhibition gift shops. We intend to continue to focus on merchandising
activities at all our exhibition locations to increase revenue per attendee and our margins on
these sales. During the second quarter of fiscal 2011 we launched an e-commerce website that allows
us to sell merchandise related to our shows over the internet.
Information Regarding Exhibitions Outside the United States
Our exhibitions tour regularly outside the U.S. Approximately 19% of our revenues and 20% of
attendance for the quarter ended August 31, 2011 compared with 15% and 48%, respectively for the
quarter ended August 31, 2010 resulted from exhibition activities outside the U.S. Many of our
financial arrangements with our international trade partners are based upon foreign currencies,
which exposes the Company to the risk of currency fluctuations between the U.S. dollar and the
currencies of the countries in which our exhibitions are touring.
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Results of Operations
The Quarter Ended August 31, 2011 Compared to the Quarter Ended August 31, 2010
An analysis of our condensed consolidated statements of operations for the three months ended
August 31, 2011 and 2010, with percent changes, follows:
Analysis of Condensed Consolidated Statements of Operations | ||||||||||||
Percent Change | ||||||||||||
2011 | ||||||||||||
August 31, | August 31, | vs. | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(In thousands except percentages and per share data) | ||||||||||||
Revenue |
$ | 8,215 | $ | 13,710 | (40.1) | % | ||||||
Cost of revenue (exclusive of depreciation and amortization) |
4,689 | 8,778 | (46.6) | % | ||||||||
Gross profit |
3,526 | 4,932 | (28.5) | % | ||||||||
Gross profit as a percent of revenue |
42.9 | % | 36.0 | % | ||||||||
Operating expenses |
5,502 | 5,147 | 6.9 | % | ||||||||
Loss from operations |
(1,976 | ) | (215 | ) | 819.1 | % | ||||||
Other income |
7 | 8 | (12.5) | % | ||||||||
Loss before income tax |
(1,969 | ) | (207 | ) | 851.2 | % | ||||||
Provision for income taxes |
(39 | ) | (29 | ) | 34.5 | % | ||||||
Effective tax rate |
2.0 | % | 14.0 | % | ||||||||
Net loss |
(2,008 | ) | (236 | ) | 750.8 | % | ||||||
Less: Net loss attributable to non-controlling interest |
214 | 56 | 282.1 | % | ||||||||
Net loss attributable to the shareholders of Premier |
$ | (1,794 | ) | $ | (180 | ) | 896.7 | % | ||||
Net loss per share: |
||||||||||||
Basic loss per share |
$ | (0.04 | ) | $ | (0.00 | ) | ||||||
Diluted net loss per share |
$ | (0.04 | ) | $ | (0.00 | ) | ||||||
Revenue. During the quarter ended August 31, 2011, total revenue decreased by $5.5 million or
40.1% to $8.2 million compared to the same quarter of last year, as reflected in the following
table.
Revenue (in thousands) | ||||||||
Three Months Ended | ||||||||
August 31, | ||||||||
2011 | 2010 | |||||||
Exhibition Revenue |
||||||||
Admissions revenue |
$ | 6,600 | $ | 11,022 | ||||
Non-refundable license fees for current exhibitions |
738 | 1,619 | ||||||
Total Exibition revenue |
7,338 | 12,641 | ||||||
Merchandise and Other |
877 | 1,069 | ||||||
Total Revenue |
$ | 8,215 | $ | 13,710 | ||||
Key Non-financial Measurements |
||||||||
Number of venues presented |
17 | 21 | ||||||
Operating days |
1,099 | 1,757 | ||||||
Attendance (in thousands) |
498 | 1,176 | ||||||
Average attendance per operating day |
453 | 669 |
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Exhibition revenue decreased by $5.3 million to $7.3 million mainly driven by the decline in
the number of exhibitions from 21 in the second quarter of fiscal 2011 as compared to 17 in the
second quarter of fiscal 2012. With fewer exhibitions presented the Company experienced a
corresponding decline in attendance from 1,176,184 in the second quarter of fiscal 2011 to 497,547
in the second quarter of fiscal 2012. This decrease in exhibitions and attendance was largely
related to the decision to close many of the Companys touring self-run Bodies exhibitions in late
fiscal 2011 and the first quarter of fiscal 2012. Revenue from self-run exhibitions was 80% of
revenue in the second quarter of fiscal 2012, compared to 81% of revenue for the second quarter of
fiscal 2011. The Companys revenue from self-run exhibitions was comprised of 89% stationary
exhibits and 11% of touring exhibits for the second quarter of fiscal 2012, as compared to 62%
stationary exhibits and 38% touring exhibits for the second quarter of fiscal 2011.
Merchandise and other revenue decreased $0.2 million or 18% to $0.9 million for the quarter
ended August 31, 2011. This decrease is also driven by the decline in attendance due to fewer
exhibitions presented during the second quarter of fiscal 2012 as compared to the same period of
prior year. However, the decline in merchandise revenue of 18% was substantially lower than the
decline in admissions revenue of 40%, reflecting efforts made to improve the merchandise product
mix and higher sales to exhibition customers.
Cost of revenue. During the quarter ended August 31, 2011, total cost of revenue decreased by
$4.1 million or 47% to $4.7 million compared to the same quarter of last year, as reflected in the
following table.
Cost of Revenue | ||||||||||||
(in thousands, except percentages) | ||||||||||||
Three Months Ended | Percent Change | |||||||||||
2011 | ||||||||||||
August 31, | August 31, | vs. | ||||||||||
2011 | 2010 | 2010 | ||||||||||
Exhibition costs |
||||||||||||
Production |
$ | 91 | $ | 968 | (90.6 | )% | ||||||
Operating Expenses |
2,697 | 4,617 | (41.6 | )% | ||||||||
Marketing |
1,606 | 2,895 | (44.5 | )% | ||||||||
4,394 | 8,480 | (48.2 | )% | |||||||||
Exhibition expense as percent of exhibition revenue |
59.9 | % | 67.1 | % | ||||||||
Cost of merchandise |
295 | 298 | (1.0 | )% | ||||||||
Cost of merchandise as percent of merchandise revenue |
33.6 | % | 27.9 | % | ||||||||
Total |
$ | 4,689 | $ | 8,778 | (46.6 | )% | ||||||
Cost of revenue as a percent of total revenue |
57.1 | % | 64.0 | % | ||||||||
Our exhibition costs of $4.4 million decreased 48%, or $4.1 million, compared to the same
quarter of last year, due to the closure of certain of the Companys touring Bodies self-run
exhibitions. As the Company reduced these exhibitions, the costs that it bore for production,
operations and marketing declined accordingly.
Cost of merchandise as a percent of merchandise revenue increased from 28% in the second
quarter of fiscal 2011 to 34% in the second quarter of fiscal 2012 primarily due to slightly higher
cost of the improved mix of merchandise offered.
Gross profit. During the quarter ended August 31, 2011, our total gross profit decreased by
$1.4 million, comprised of a decline in exhibition gross profit of $1.2 million and a decline in
merchandise gross profit of $0.2 million. Both declines were primarily due to a decrease in the
number of exhibitions from 21 in the second quarter of fiscal 2011 as compared to 17 in the second
quarter of fiscal 2012.
Operating expenses. Overall
operating expense increased by $0.4 million driven by the
termination of our License Agreement with Playboy.
As such, we recorded an impairment charge of $217 thousand for Playboy licenses net of accumulated
depreciation and an impairment charge of $141 thousand for construction in progress comprised of
expenses incurred in the creation of the Playboy exhibit. Of the total impairment of $358
thousand, $197 thousand was allocated to the non-controlling interest, as discussed below, and
therefore the net impact of the impairment to Premier is $161 thousand.
Additionally,
on August 16, 2011, we entered in to an agreement to fully settle all claims of Sports
Immortals against the Company. The agreement calls for a cash payment of $950 thousand. As we
had previously accrued $167 thousand for this legal action in fiscal 2010, we recorded an
additional $783 thousand of expense in the second quarter of fiscal 2012.
Offsetting the impairment and litigation expense, our general and administrative expenses decreased by $0.5 million to $3.4
million in the second quarter of fiscal 2012, compared to the same period of fiscal 2011. This
decrease was primarily due to a reduction in rent and other office expenses of $0.1 million as part
of an overall effort to reduce expenses. In addition, accounting and other professional fees
declined by $0.4 million, as the Companys status as a smaller reporting company has reduced
certain accounting requirements and we have reduced our need for external consultants and other
professionals.
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Our depreciation and amortization expense in the second quarter of fiscal 2012 decreased $0.3
million to $1.0 million. The decrease is primarily attributable to assets that have been fully
depreciated or amortized.
Income (loss) from operations. Our loss from operations increased by $1.8 million to ($2.0)
million in the second quarter of fiscal 2012 as compared to ($215) thousand for the second quarter
of fiscal 2011. The increased loss was mainly due to a $1.4 million reduction in gross profit
related to fewer exhibitions, as well as one-time charges of $0.8 million for litigation settlement
expense and $0.4 million for intangible and fixed asset impairments. These losses were partially
offset by a $0.5 million decline in general and administrative expenses and a $0.3 million decline
in amortization and depreciation expense.
Provision for income taxes. Our provision for income taxes for the three months ended August
31, 2011 was $39 thousand versus $29 thousand for the same period in the prior year. The provision
for income taxes for the second quarter of fiscal 2012 mainly related to foreign tax expense for
our London Titanic exhibition, whereas the provision for income taxes for the second quarter of
fiscal 2012 was primarily due to state taxes in states where we do not have the benefit of net
operating loss caryforwards. The Company currently has operating losses that are being carried
forward and offset most of its current taxable income for U.S. federal income tax purposes.
Net income (loss). We realized a net loss of $(2.0) million for the second quarter of fiscal
2012 as compared to a net loss of ($236) thousand for the same period last year, primarily due to
the increase in our loss from operations of $1.8 million as outlined above.
Net income (loss) attributable to non-controlling interest. The consolidated joint venture
generated a loss of $214 thousand for the second quarter of fiscal 2012 as compared to a loss of
$56 thousand for the same period last year. The increase in the loss of $158 thousand is mainly
due to the $197 thousand impact of the impairment of the Playboy license fee advances and expenses
incurred in the development of the Playboy exhibit, due to the termination of the License Agreement
with Playboy in the second quarter of fiscal 2012. The impairment was partially offset by $39
thousand of lower amortization expense of the Playboy license fee advances, as certain of them were
fully amortized during fiscal 2011.
Income (loss) per share. Basic and diluted loss per common share for the quarters ended August
31, 2011 and August 31, 2010 was $(0.04) and $(0.00), respectively. The basic and fully diluted
weighted average shares outstanding for the three months ended August 31, 2011 and 2010 were as
follows:
Three Months Ended August 31, | ||||||||
2011 | 2010 | |||||||
Basic weighted-average shares outstanding |
47,415,123 | 46,853,678 | ||||||
Effect of dilutive stock options and warrants |
| | ||||||
Diluted weighted-average shares outstanding |
47,415,123 | 46,853,678 | ||||||
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The Six Months Ended August 31, 2011 Compared to the Six Months Ended August 31, 2010
An analysis of our condensed consolidated statements of operations for the six months ended
August 31, 2011 and 2010, with percent changes, follows:
Analysis of Condensed Consolidated Statements of Operations | ||||||||||||
Percent Change | ||||||||||||
2011 | ||||||||||||
August 31, | August 31, | vs. | ||||||||||
2011 | 2010 | 2010 | ||||||||||
(In thousands except percentages and per share data) | ||||||||||||
Revenue |
$ | 17,940 | $ | 24,771 | (27.6 | )% | ||||||
Cost of revenue (exclusive of depreciation and amortization) |
8,875 | 15,096 | (41.2 | )% | ||||||||
Gross profit |
9,065 | 9,675 | (6.3 | )% | ||||||||
Gross profit as a percent of revenue |
50.5 | % | 39.1 | % | ||||||||
Operating expenses |
9,969 | 11,409 | (12.6 | )% | ||||||||
Income (loss) from operations |
(904 | ) | (1,734 | ) | (47.9 | )% | ||||||
Other income |
14 | 19 | (26.3 | )% | ||||||||
Loss before income tax |
(890 | ) | (1,715 | ) | (48.1 | )% | ||||||
Provision for income taxes |
(39 | ) | (41 | ) | (4.9 | )% | ||||||
Effective tax rate |
4.4 | % | 2.4 | % | ||||||||
Net loss |
(929 | ) | (1,756 | ) | (47.1 | )% | ||||||
Less: Net loss attributable to non-controlling interest |
239 | 89 | 168.5 | % | ||||||||
Net loss attributable to the shareholders of Premier |
$ | (690 | ) | $ | (1,667 | ) | (58.6 | )% | ||||
Net loss per share: |
||||||||||||
Basic income (loss) per share |
$ | (0.01 | ) | $ | (0.04 | ) | ||||||
Diluted net income (loss) per share |
$ | (0.01 | ) | $ | (0.04 | ) | ||||||
Revenue. During the six months ended August 31, 2011, total revenue decreased by $6.8 million
or 28% to $17.9 million compared to the same period of last year, as reflected in the following
table.
Revenue (in thousands) | ||||||||
Six Months Ended | ||||||||
August 31, | ||||||||
2011 | 2010 | |||||||
Exhibition Revenue |
||||||||
Admissions revenue |
$ | 14,213 | $ | 20,118 | ||||
Non-refundable license fees for current exhibitions |
1,797 | 2,756 | ||||||
Total Exibition revenue |
16,010 | 22,874 | ||||||
Merchandise and Other |
1,930 | 1,897 | ||||||
Total Revenue |
$ | 17,940 | $ | 24,771 | ||||
Key Non-financial Measurements |
||||||||
Number of venues presented |
20 | 26 | ||||||
Operating days |
2,312 | 3,071 | ||||||
Attendance (in thousands) |
1,166 | 1,930 | ||||||
Average attendance per operating day |
505 | 622 |
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Exhibition revenue decreased by $6.9 million or 30% to $16.0 million mainly due to the decline
in the number of exhibitions from 26 presented during the six months ended August 31, 2010 as
compared to 20 presented during the six months ended August 31, 2011. With fewer exhibitions
presented, the Company experienced a corresponding decline in attendance from 1,930,059 for the six
months ended August 31, 2010 to 1,166,494 for the six months ended August 31, 2011. This decrease
in exhibitions and attendance was largely related to the decision to close many of the Companys
touring self-run Bodies exhibitions in late fiscal 2011 and the first quarter of fiscal 2012.
Revenue from self-run exhibitions was 78% of revenue for the six months ended August 31, 2011,
compared to 84% of revenue for the six months ended August 31, 2010. The Companys revenue from
self-run exhibitions was comprised of 85% stationary exhibits and 15% of touring exhibits for the
six months ended August 31, 2011, as compared to 62% stationary exhibits and 38% touring exhibits
for the six months ended August 31, 2010.
Merchandise and other revenue remained flat at $1.9 million for the six months ended August
31, 2011 even though attendance declined by 40%, reflecting efforts made to improve the merchandise
product mix and higher sales to exhibition customers.
Cost of revenue. During the six months ended August 31, 2011, total cost of revenue decreased
by $6.2 million or 41% to $8.9 million compared to the same period of last year, as reflected in
the following table.
Cost of Revenue | ||||||||||||
(in thousands, except percentages) | ||||||||||||
Six Months Ended | Percent Change | |||||||||||
August 31, | August 31, | 2011 vs. | ||||||||||
2011 | 2010 | 2010 | ||||||||||
Exhibition costs |
||||||||||||
Production |
$ | 458 | $ | 1,735 | (73.6 | )% | ||||||
Operating Expenses |
5,561 | 8,181 | (32.0 | )% | ||||||||
Marketing |
2,223 | 4,680 | (52.5 | )% | ||||||||
8,242 | 14,596 | (43.5 | )% | |||||||||
Exhibition expense as percent of exhibition revenue |
51.5 | % | 63.8 | % | ||||||||
Cost of merchandise |
633 | 500 | 26.6 | % | ||||||||
Cost of merchandise as percent of merchandise revenue |
32.8 | % | 26.4 | % | ||||||||
Total |
$ | 8,875 | $ | 15,096 | (41.2 | )% | ||||||
Cost of revenue as a percent of total revenue |
49.5 | % | 60.9 | % | ||||||||
Our exhibition costs of $8.2 million decreased 44%, or $6.4 million, compared to the same
period of the prior year, due to the closure of certain of the Companys touring Bodies self-run
exhibitions. As the Company reduced these exhibitions, the costs that it bore for production,
operations and marketing declined accordingly. In addition, we have undertaken aggressive cost
containment efforts for our remaining self-run exhibitions.
Cost of merchandise as a percent of merchandise revenue increased from 26% for the six months
ended August 31, 2010 to 33% for the six months ended August 31, 2011 primarily due to slightly
higher cost of the improved mix of merchandise offered.
Gross profit. During the six months ended August 31, 2011, our total gross profit decreased
by $0.6 million or 6%, comprised of a decline in exhibition gross profit of $0.5 million and a
decline in merchandise gross profit of $0.1 million. Both declines were primarily due to a
decrease in the number of exhibitions from 26 during the six months ended August 31, 2011 as
compared to 20 in the same period of the prior fiscal year. Our gross profit decreased primarily
due to lower revenue generated from fewer exhibitions. However, due to aggressive cost containment
efforts for our remaining self-run exhibitions, we were able to reduce costs by 41%, mitigating
most of the 30% decline in revenue.
Operating expenses. Overall
operating expense decreased by $1.4 million driven by the
decline in general and administrative expenses, partially offset by
the impact of the termination of our License Agreement with Playboy. Due
to the termination of the License Agreement, we recorded an impairment charge of $217 thousand for Playboy licenses net of accumulated
depreciation and an impairment charge of $141 thousand for construction in progress comprised of
expenses incurred in the creation of the Playboy exhibit. Of the total impairment of $358
thousand, $197 thousand was allocated to the non-controlling interest, as discussed below, and
therefore the net impact of the impairment to Premier is $161 thousand.
Additionally,
on August 16, 2011, we entered in to an agreement to fully settle all claims of Sports
Immortals against the Company. The agreement calls for a cash payment of $950 thousand. As we
had previously accrued $167 thousand for this legal action in fiscal 2010, we recorded an
additional $783 thousand of expense in the second quarter of fiscal 2012.
Offsetting
the impairment and litigation expense, our general and administrative expenses decreased by $2.1 million to $6.9
million for the six months ended August 31, 2011, compared to the same period of fiscal 2011. This
decrease was primarily due to $0.5 million of lower compensation and benefits expense due to the
reduction in administrative personnel required to support fewer exhibitions. The Company also
reduced its travel costs by $0.4 million and reduced its rent and other office expenses by $0.3
million as part of an overall effort to reduce expenses. In addition, accounting and other
professional fees declined by $1.0 million, as the Companys status as a smaller reporting company
has reduced certain accounting requirements and we have reduced our need for external consultants
and other professionals.
29
Table of Contents
Our depreciation and amortization expenses for the six months ended August 31, 2011 decreased
$0.5 million to $2.0 million. The decrease is primarily attributable to assets that have been fully
depreciated or amortized.
Income (loss) from operations. Our loss from operations declined by $0.8 million to ($0.9)
million for the six months ended August 31, 2011 as compared to ($1.7) million for the six months
ended August 31, 2010. This decline was mainly due to lower general and administrative expenses of
$2.1 million and lower depreciation and amortization expense of $0.5 million, which more than
offset the one-time impairment charge of $0.4 million and litigation settlement expense of $0.8
million, as well as the decline in gross profit of $0.6 million.
Provision for income taxes. Our provision for income taxes for the six months ended August 31,
2011 was $39 thousand versus $41 thousand for the same period in the prior year. The provision for
income taxes for the six months ended August 31, 2011 mainly related to foreign tax expense for our
London Titanic exhibition, whereas the provision for income taxes for the six months ended August
31, 2010 was primarily due to state taxes in states where we do not have the benefit of net
operating loss caryforwards. The Company currently has operating losses that are being carried
forward and offset most of its current taxable income for U.S. federal income tax purposes.
Net income (loss). We realized a net loss of ($0.9) million for the six months ended August
31, 2011 as compared to a net loss of ($1.8) million for the same period of the prior year. The
decline in net loss of $0.8 million was primarily due to the decline in loss from operations of
$0.8 million, as outlined above.
Net income (loss) attributable to non-controlling interest. The consolidated joint venture
generated a loss of $239 thousand for the six months ended August 31, 2011 as compared to a loss of
$89 thousand for the same period last year. The increase in the loss of $150 thousand is mainly
due to the $197 thousand impact of the impairment of the Playboy license fee advances and expenses
incurred in the development of the Playboy exhibit, due to the termination of the License Agreement
with Playboy in the second quarter of fiscal 2012. The impairment was partially offset by $42
thousand of lower amortization expense of the Playboy license fee advances, as certain of them were
fully amortized during fiscal 2011.
Income (loss) per share. Basic and diluted loss per common share for the six months ended
August 31, 2011 and August 31, 2010 was $(0.01) and $(0.04), respectively. The basic and fully
diluted weighted average shares outstanding for the six months ended August 31, 2011 and 2010 were
as follows:
Six Months Ended August 31, | ||||||||
2011 | 2010 | |||||||
Basic weighted-average shares outstanding |
47,328,827 | 46,801,472 | ||||||
Effect of dilutive stock options and warrants |
| | ||||||
Diluted weighted-average shares outstanding |
47,328,827 | 46,801,472 | ||||||
30
Table of Contents
Liquidity and Capital Resources
The following tables reflect selected information about our cash flows during the six months
ended August 31, 2011 and 2010 and selected balance sheet data as of August 31, 2011 and February
28, 2011 (in thousands):
Liquidity
Selected cash flow information:
Six Months Ended August 31, | ||||||||
2011 | 2010 | |||||||
Net cash provided by (used in) operating activities |
$ | 1,108 | $ | (1,960 | ) | |||
Net cash used in investing activities |
(806 | ) | (3,517 | ) | ||||
Net cash provided by financing activities |
8 | 24 | ||||||
Effects of exchange rate changes on cash and cash equivalents |
20 | (77 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
$ | 330 | $ | (5,530 | ) | |||
Selected balance sheet data:
As of | ||||||||
August 31, | February 28, | |||||||
2011 | 2011 | |||||||
Cash and cash equivalents |
$ | 4,094 | $ | 3,764 | ||||
Certificates of deposit and other investments |
807 | 807 | ||||||
Working capital |
1,972 | 1,171 | ||||||
Total assets |
29,379 | 31,581 | ||||||
Total shareholders equity |
19,339 | 19,631 |
Operating Activities.
For the six months ended August 31, 2011, cash provided by operations was $1.1 million,
compared to cash used in operations of ($2.0) million for the six months ended August 31, 2010.
The following table sets forth our working capital (current assets less current liabilities)
balances and our current ratio (current assets/current liabilities) at August 31, 2011 and February
28, 2011.
As of | ||||||||
August 31, 2011 | February 28, 2011 | |||||||
Working capital (in thousands) |
1,972 | 1,171 | ||||||
Current ratio |
1.28 | 1.14 |
Investing Activities. Cash used in investing activities was ($806) thousand for the six
months ended August 31, 2011 compared to ($3.5) million for the six months ended August 31, 2010.
Of the cash used by investing activities, $910 thousand and $728 thousand for the six months ended
August 31, 2011 and 2010, respectively, was used to purchase property and equipment. In addition
for the six months ended August 31, 2010, the Company expended $2.6 million for its Titanic
expedition and $492 thousand for the purchase of exhibition licenses. This cash outflow was
partially offset by cash provided by the non-controlling interest in the Companys consolidated
joint venture of $77 thousand and $274 thousand for the six months ended August 31, 2011 and 2010,
respectively.
Financing Activities. Cash provided by financing activities was $8 thousand for the six
months ended August 31, 2011 compared to $24 thousand for the six months ended August 31, 2010.
Cash provided by financing for both periods related to proceeds from stock option exercises.
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Capital Resources
Purchase and Registration Rights Agreements
On May 20, 2011, the Company and Lincoln Park Capital Fund, LLC (LPC), entered into a
Purchase Agreement (the LPC Purchase Agreement) and a Registration Rights Agreement (the
Registration Rights Agreement), whereby the Company has the right to sell, at its sole
discretion, to LPC up to $10 million of the Companys common stock over a 36-month period (any such
shares sold being referred to as the Purchase Shares). Under the Registration Rights Agreement,
the Company agreed to file a registration statement with the SEC covering the Purchase Shares and
the Commitment Shares (as defined below).
After the registration statement is declared effective, the Company will generally have the
right, but not the obligation, over a 36-month period, to direct LPC to periodically purchase the
Purchase Shares in specific amounts under certain conditions at the Companys sole discretion. The
purchase price for the Purchase Shares will be the lower of (i) the lowest trading price on the
date of sale or (ii) the arithmetic average of the three lowest closing sale prices for the common
stock during the 12 consecutive business days ending on the business day immediately preceding the
purchase date. In no event, however, will the Purchase Shares be sold to LPC at a price of less
than $1.00 per share.
In consideration for entering into the LPC Purchase Agreement, the Company issued to LPC
149,165 shares of common stock as an initial commitment fee (the Initial Commitment Shares) on
May 25, 2011, and is required to issue up to 149,165 shares of common stock as additional
commitment shares on a pro rata basis (the Additional Commitment Shares) as the Company directs
LPC to purchase the Companys shares under the Purchase Agreement over the term of the agreement.
The LPC Purchase Agreement may be terminated by the Company at any time at the Companys discretion
without any cost to the Company. The proceeds that may be received by the Company under the LPC
Purchase Agreement are expected to be used for general corporate purposes, including working
capital.
Under the LPC Purchase Agreement, the Company has agreed that, subject to certain exceptions,
it will not, during the term of the LPC Purchase Agreement, effect or enter into an agreement to
effect any issuance of common stock or securities convertible into, exercisable for or exchangeable
for common stock in a Variable Rate Transaction, which means a transaction in which the Company:
| issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive
additional shares of common stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of common stock at any time after the initial issuance of such debt or equity
securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance
of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to our business or the
market for the common stock; or |
||
| enters into any agreement, including, but not limited to, an equity line of credit, whereby it may sell securities at a future determined price. |
The Company has also agreed to indemnify LPC against certain losses resulting from its breach
of any of its representations, warranties or covenants under the agreements with LPC.
Capital requirements. We believe that our expected cash flows from operations together with
our existing cash will be sufficient to meet our anticipated cash needs for working capital
requirements, debt obligations and capital expenditures for the next 12 months. If cash generated
from operations with our existing cash is insufficient to satisfy our liquidity requirements, we
may obtain financing pursuant to the Lincoln Park Capital agreements described above, or we may
seek additional financing, which could include the issuance of equity or debt securities. The sale
of equity or convertible debt securities could result in additional dilution to our shareholders.
Additional indebtedness would result in increased fixed obligations and could result in operating
covenants that would restrict our operations. We cannot assure that financing will be available in
amounts or on terms acceptable to us, or at all.
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Contractual Obligations
During the six months ended August 31, 2011, there have been no material changes to our
contractual obligations as disclosed in our Annual Report filed on Form 10-K for our fiscal year
ended February 28, 2011 other than the changes noted below.
Lease Agreement for Warehouse Space for Artifacts and Other Exhibitry
The Companys current lease for warehouse and lab space in
Atlanta, Georgia for the conservation, conditioning and storage of artifacts and other exhibitry
expires December 31, 2011. Other storage space has been rented on a month-to-month basis, in
various locations, as needed. In order to consolidate storage and reduce related costs, on October
12, 2011 the Company entered into a lease agreement for approximately 48,536 square feet of
warehouse and lab space in Atlanta, Georgia. For security purposes, we do not disclose the
location of this property. The agreement is for a five year term with two additional options to
extend for up to an additional ten years. Minimum annual rent for the first three years is $158
thousand, payable in equal monthly installments, and $167 thousand a year thereafter.
Off-Balance Sheet Arrangements
We have no off-balance sheet financial arrangements.
Critical Accounting Policies
There have been no material changes to our critical accounting policies as disclosed in our
Annual Report filed on Form 10-K for our fiscal year ended February 28, 2011.
Recent Accounting Pronouncements
Recently Adopted
In October 2009, the FASB issued new accounting guidance related to multiple-deliverable
revenue arrangements, which requires an entity to allocate consideration at the inception of an
arrangement to all of its deliverables based on their relative selling prices. This guidance
eliminates the use of the residual method of allocation and requires allocation using the
relative-selling-price method in all circumstances in which an entity recognizes revenue for an
arrangement with multiple deliverables. The guidance is effective for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010. The Company
adopted the guidance effective March 1, 2011 and is applying it prospectively. The adoption of
this guidance did not have a material effect on our financial position or results of operations.
Recently Issued
Presentation of Comprehensive Income
In June 2011, the FASB issued new accounting guidance related to the presentation of other
comprehensive income (OCI). This guidance eliminates the option to present components of OCI as
part of the statement of changes in shareholders equity, which is the option that the Company
currently uses to present OCI. The guidance allows for a one-statement or two-statement approach,
outlined as follows:
| One-statement approach: Present the components of net income and total net
income, the components of OCI and a total for OCI, along with the total of
comprehensive income in a single continuous statement. |
||
| Two-statement approach: Present the components of net income and total net
income in the statement of net income. A statement of OCI would immediately follow
the statement of net income and include the components of OCI and a total for OCI,
along with the total of comprehensive income |
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Table of Contents
The guidance also requires an entity to present on the face of the financial statements any
reclassification adjustments for items that are reclassified from OCI to net income. The guidance
is effective for interim and annual periods beginning after December 15, 2011. The adoption of
this guidance will not have an effect on the Companys financial position or results of operations,
but will only impact how certain information related to OCI is presented in the financial
statements.
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs
In May 2011, the FASB issued amendments to its accounting guidance related to fair value
measurements in order to more closely align its disclosure requirements with those in International
Financial Reporting Standards (IFRS). This guidance clarifies the application of existing fair
value measurement and disclosure requirements and also changes certain principles or requirements
for measuring fair value or for disclosing information about fair value measurements. The guidance
is effective for interim and annual periods beginning after December 15, 2011. The adoption of
this guidance is not expected to have a material effect on the Companys financial position or
results of operations.
Item 4. Controls and Procedures.
Under the supervision and with the participation of our management, including our President
and Chief Executive Officer and our Chief Financial Officer, our management has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this Quarterly Report on Form 10-Q. Based on this evaluation, our President and Chief Executive
Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this
Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to ensure that
information required to be disclosed in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms and is accumulated and communicated to our
management, including our President and Chief Executive Officer and our Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting during the period
covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
34
Table of Contents
PART II OTHER INFORMATION
Information presented in PART I of this FORM 10-Q is incorporated herein by reference.
Item 1. Legal Proceedings.
During the six months ended August 31, 2011, there were no material changes to the legal
proceedings discussion in our Annual Report on Form 10-K for the year ended February 28, 2011 other
than the changes noted below.
Sports Immortals, Inc.
On July 30, 2009, Sports Immortals, Inc. and its principals, Joel Platt and Jim Platt
(together, Sports Immortals), filed an action against the Company in the Circuit Court of the
Fifteenth Judicial District in Palm Beach County, Florida for claims arising from their license
agreement with the Company under which the Company obtained rights to present sports memorabilia
exhibitions utilizing the Sports Immortals, Inc. collection. The plaintiffs allege that the
Company breached the contract when the Company purported to terminate it in April of 2009, and they
seek fees and stock warrant agreements required under the agreement. The Company filed its answer
and counterclaims on September 7, 2009. Answering the complaint, the Company denied plaintiffs
allegations and maintained that the Sports Immortals, Inc. license agreement was properly
terminated. The Company counterclaimed against the plaintiffs for breach of contract, fraudulent
inducement and misrepresentation, breach of the covenant of good faith and fair dealing, and
violation of Floridas deceptive and unfair practices act. On August 16, 2011, the Company and
Sports Immortals entered into a Settlement and Release Agreement (the Agreement). In exchange
for full settlement and release of all claims of Sports Immortals, pursuant to the Agreement the
Company agreed to pay $475 thousand currently, $475 thousand on the first anniversary of
settlement, and to exchange certain warrants previously issued to Jim Platt and Joel Platt for
warrants with an exercise price set at the market price on the date of settlement of $1.82. An
expense of $6 thousand for the exchange of these warrants is included in General and administrative
expenses on the Condensed Consolidated Statements of Operations. In fiscal 2010, the Company
accrued $167 thousand as an estimate of the cost to settle this litigation. An additional expense
of $783 thousand is included in Litigation Settlement on the Condensed Consolidated Statements of
Operations for the three and six months ended August 31, 2011. The $950 thousand settlement
payable is reflected in Accounts payable and accrued liabilities on the Condensed Consolidated
Balance Sheets. The first installment of the settlement agreement of $475 thousand was paid on
September 7, 2011.
Status of Salvor-in-Possession and Interim Salvage Award Proceedings
The Company has been party to a salvage case titled RMS Titanic, Inc. v. The Wrecked and
Abandoned Vessel, et al., in rem for over 15 years. The Company sought to maintain its status as
sole Salvor-in-Possession of the Titanic wreck site and also sought an interim salvage award in the
form of title to the recovered Titanic artifacts or a monetary award.
On August 15, 2011, the District Court granted an in-specie award of title to the artifacts to
RMST for the Post 1987 Artifacts. Title to the Post 1987 Artifacts comes with certain covenants
and conditions drafted and negotiated by the Company and the United States government. These
covenants and conditions govern the maintenance and future disposition of the artifacts. These
covenants and conditions include the following:
| The approximately 2,000
1987 Artifacts and the approximately 3,500 Post 1987
Artifacts must be maintained as a single collection; |
||
| The combined collections can only be sold together, in their entirety, and any buyer
would be subject to the same conditions applicable to RMST; and |
||
| RMST must comply with provisions that guarantee the long-term protection of all of the
artifacts. These provisions include the creation by RMST of a trust and reserve fund (the
Trust Account). The Trust Account will be irrevocably pledged to and held for the
exclusive purpose of providing a performance guarantee for the maintenance and
preservation of the Titanic collection for the public interest. The Company will pay into
the Trust Account a minimum of twenty five thousand dollars ($25 thousand) for each future
fiscal quarter until the corpus of such Trust Account equals five million dollars ($5
million). Though not required under the covenants and conditions, Company will make
additional payments into the Trust Account as it deems appropriate consistent with its
prior representations to the Court and sound fiscal operations. |
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Table of Contents
Gunther Von Hagens and Plastination Company, Inc.
On August 5, 2011, the Company filed suit in the U.S. District Court for the Southern District
of New York against Gunther Von Hagens, and his company, Plastination Company, Inc. The suit
alleges that Von Hagens and Plastination breached a settlement agreement with the Company,
tortiously interfered with the Companys business, conspired against the Company and engaged in
unfair competition practices. These claims relate to information Von Hagens and Plastination
provided to ABC News and other third-parties about the origin of the human anatomy specimens
licensed by the Company and used in its human anatomy exhibitions. The Company has sued for
unspecified damages. The case is in its very early stages and recovery is uncertain.
Item 1A. Risk Factors.
For a complete list of our Risk Factors, please refer to our Annual Report on Form 10-K for
our fiscal year ended February 28, 2011. During the six months ended August 31, 2011, there were
no material changes to our Risk Factors other than the changes noted below. You should consider
carefully the Risk Factors. If any of these risks actually occur, our business, financial
condition or results of operations would likely suffer. In that case, the trading price of our
common stock could decline, and you may lose all or a part of the money you paid to buy our common
stock.
The sale of our common stock to LPC may cause dilution and the sale of the shares of common
stock acquired by LPC could cause the price of our common stock to decline.
In connection with entering into the Purchase Agreement with Lincoln Park Capital Fund, LLC
(LPC), we authorized the issuance to LPC of up to 5,298,330 shares of our common stock and agreed
to file a registration statement allowing the resale of those shares. The number of shares
ultimately offered for sale by LPC is dependent upon the number of shares the Company sells to LPC
under the agreement. The purchase price for the common stock to be sold to LPC pursuant to the
Purchase Agreement will fluctuate based on the price of our common stock. All shares sold by the
Company to LPC are expected to be freely tradable. Depending upon market liquidity at the time, a
sale of shares by LPC at any given time could cause the trading price of our common stock to
decline. We can elect to direct purchases in our sole discretion but no sales may occur if the
price of our common stock is below $1.00 and therefore, LPC may ultimately purchase all, some or
none of the 5,298,330 shares of common stock. After it has acquired such shares, it may sell all,
some or none of such shares. Therefore, sales to LPC by us under the agreement may result in
substantial dilution to the interests of other holders of our common stock. The sale of a
substantial number of shares of our common stock under this offering, or anticipation of such
sales, could make it more difficult for us to sell equity or equity-related securities in the
future at a time and at a price that we might otherwise wish to effect sales. However, we have the
right to control the timing and amount of any sales of our shares to LPC and the agreement may be
terminated by us at any time at our discretion without any cost to us.
We have recently filled a key vacant management position and our failure to successfully adapt
to changes in key management, and/or our inability to fill other vacant key positions, may
adversely affect our business.
Our Board of Directors has recently filled the vacant Chief Financial Officer role and is
considering the addition of a Chief Operating Officer position. Changes in key management and the
potential for additional appointments could create uncertainty among our employees, customers,
partners and promoters and could result in changes to the strategic direction of our business,
which could negatively affect our business, operating results and financial position. Any failure
of our management to work together to effectively manage our operations, our inability to hire
other key management, and any failure to effectively integrate new management into our controls,
systems and procedures may materially adversely affect our business, results of operations and
financial condition.
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We believe that our future success depends to a significant degree on the skills and efforts
of our management team. If we lose the services of any of our current senior executive officers and
key employees, our ability to achieve our business objectives could be seriously harmed, in turn
adversely affecting our business and operating results.
We have been awarded in-specie awards granting us title to all of the artifacts we have
recovered from the Titanic wreck site. We may not be able to maximize the full value associated
with title to these artifacts.
In August, 2011 the U.S. District Court for the Eastern District of Virginia, Norfolk Division
issued an Order granting us an in-specie award to all of the artifacts we have recovered from the
Titanic wreck since after the Companys first expedition in 1987. Together with the October, 1993
Order from the French Maritime Tribunal granting us an in specie award to all of the artifacts
recovered in our 1987 expedition, we now have title to all of the artifacts we have recovered from
the Titanic wreck. Both of these in-specie awards come with certain limitations which govern how we
care for the artifacts and how they may be sold. Our ability or inability to put these artifacts to
good use, or to maximize the full value associated with title to these artifacts, may affect our
results of operations and financial condition.
If we are unable to maintain our Salvor-in-Possession rights to the Titanic wreck and wreck
site, our Titanic exhibitions could face increased competition.
We are the exclusive Salvor-in-Possession of the Titanic wreck and wreck site. Our
Salvor-in-Possession status enables us to prevent third parties from salvaging the Titanic wreck
and wreck site and from interfering with our rights to salvage the wreck and wreck site. To
maintain our Salvor-in-Possession rights, we must maintain a presence over the wreck site as
interpreted by the courts. In addition, we may have to commence legal proceedings against third
parties who attempt to violate our rights as Salvor-in-Possession, which may be expensive and
time-consuming. Moreover, the court may not continue to recognize us as the sole and exclusive
Salvor-in-Possession of the Titanic wreck and wreck site. If we were to lose our
Salvor-in-Possession rights, our Titanic exhibitions could be exposed to competition, which could
harm our operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities | ||||||||||||||||
Maximum number | ||||||||||||||||
(or approximate | ||||||||||||||||
Total number of | dollar value) of | |||||||||||||||
shares (or units) | shares (or units) that | |||||||||||||||
Total number of | purchased as part of | may yet be | ||||||||||||||
shares (or units) | Average price paid | publicly announced | purchased under the | |||||||||||||
Period | purchased | per share (or unit) | plans or programs(1) | plans or programs(1) | ||||||||||||
(a) | (b) | (c) | (d) | |||||||||||||
July 1, 2010 through July 31, 2010 |
14,367 | $ | 1.18 | 14,367 | 985,633 | |||||||||||
August 1, 2010 through August 31, 2010 |
100,714 | $ | 1.15 | 100,714 | 884,919 | |||||||||||
Total |
115,081 | 115,081 |
(1) | On July 29, 2010, the Company announced a share repurchase program, pursuant to which up to 1
million shares of common stock could be repurchased. This program expired on July 28, 2011. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
PREMIER EXHIBITIONS, INC. |
||||
Dated: October 14, 2011 | By: | /s/ Christopher J. Davino | ||
Christopher J. Davino, | ||||
President and Chief Executive Officer (Principal Executive Officer) | ||||
Dated: October 14, 2011 | By: | /s/ Michael J. Little | ||
Michael J. Little, | ||||
Senior Vice President and Chief Financial Officer (Principal Financial Officer) | ||||
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INDEX TO EXHIBITS
Exhibit | Filed | Incorporated by Reference | |||||||||||||||||||
No. | Exhibit Description | Herewith | Form | Exhibit | Filing Date | ||||||||||||||||
10.1 |
Settlement Agreement and Release, dated August 16, 2011, by and between Premier Exhibitions, Inc., Sports Immortals, Inc., Jim Platt and Joel Platt | 8-K | 10.1 | 8/22/2011 | |||||||||||||||||
10.2 |
The Bylaws of Premier Exhibitions, Inc., as amended September 16, 2011 | 8-K | 3.1 | 9/21/2011 | |||||||||||||||||
10.3 |
Industrial Lease Agreement, dated October 12, 2011, by and between Premier Exhibitions, Inc. and Selig Enterprises, Inc.*** | X | |||||||||||||||||||
31.1 |
Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer | X | |||||||||||||||||||
31.2 |
Rule 13a-14(a)/15d-14(a) Certification of Senior Vice President and Chief Financial Officer | X | |||||||||||||||||||
32.1 |
Section 1350 Certifications | X | |||||||||||||||||||
101.INS |
XBRL Instance Document (1) | X | |||||||||||||||||||
101.SCH |
XBRL Taxonomy Extension Schema | X | |||||||||||||||||||
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase | X | |||||||||||||||||||
101.DEF |
XBRL Taxonomy Extension Definition Linkbase | X | |||||||||||||||||||
101.LAB |
XBRL Taxonomy Extension Label Linkbase | X | |||||||||||||||||||
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase | X |
*** | Premier Exhibitions, Inc. has requested confidential treatment from the Securities
and Exchange Commission with respect to certain portions of this exhibit.
|
|
(1) | Attached as Exhibit 101 to this report are the following Interactive Data Files
formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of August 31, 2011
and February 28, 2011; (ii) Condensed Consolidated Statements of Operations for the three and six months ended
August 31, 2011 and 2010; (iii) Condensed Consolidated Statements of Cash Flow for the six months ended August 31, 2011 and
2010; and (iv) Notes to Condensed Consolidated Financial Statements.
|
40