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Premier Exhibitions, Inc. – ‘10-K/A’ for 2/28/06

On:  Monday, 10/2/06, at 5:00pm ET   ·   For:  2/28/06   ·   Accession #:  950152-6-7943   ·   File #:  0-24452

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10/02/06  Premier Exhibitions, Inc.         10-K/A      2/28/06    4:491K                                   Bowne BCL/FA

Amendment to Annual Report   —   Form 10-K
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10-K/A   —   Premier Exhibitions, Inc. 10-K/A
Document Table of Contents

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11st Page   -   Filing Submission
"Report of Independent Registered Public Accounting Firm
"Consolidated Statements of Cash Flows for the Years Ended February 29, 2004 (Restated), February 28, 2005 (Restated) and February 28, 2006 (Restated)
"Consolidated Balance Sheets at February 28, 2005 and 2006 (Restated)
"Consolidated Statements of Stockholders' Equity for the Years Ended February 29, 2004, February 28, 2005 (Restated) and February 28, 2006 (Restated)

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  Premier Exhibitions, Inc. 10-K/A  

 

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K/A
Amendment No. 1
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the Fiscal Year Ended February 28, 2006
 
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 NO. 000-24452
(PREMIER EXHIBITIONS, INC. LOGO)
PREMIER EXHIBITIONS, INC.
(Exact name of registrant as specified in its charter)
     
Florida
  20-1424922
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
3340 Peachtree Rd., NE, Suite 2250
Atlanta, GA 30326
(Address of principal executive offices)
Registrant’s telephone number, including area code: 404-842-2600
 
      Securities registered pursuant to Section 12(b) of the Act: None
      Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.0001 per share
      Indicate by check mark if the registrant is a well-known seasonal issuer, as defined in Rule 405 of the Securities Act.     Yes o       No þ
      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.     Yes o       No þ
      Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ       No o
      Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o
      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
      Large accelerated filer     o          Accelerated filer     o       Non-accelerated filer     þ
      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 aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant, computed by reference to the closing price as reported on the OTC:BB, as of the last business day of the registrant’s most recently completed second fiscal quarter (August 31, 2005) was approximately $23,830,000.
      The number of shares outstanding of the registrant’s common stock, as of May 11, 2006, was 26,428,728.
      Portions of the registrant’s proxy statement, which will be filed within 120 day of the close of the registrant’s fiscal year in connection with the registrant’s 2006 annual meeting of shareholders, are incorporated by reference into Part III of this Form 10-K.
 
 


 

EXPLANATORY NOTE
     The Company is filing this Amendment No. 1 to its Annual Report on Form 10-K for the year ended February 28, 2006 because the Company has amended its financial statements for its fiscal years ended February 28, 2006 and February 28, 2005 to reflect a restatement of its consolidated balance sheets and related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended.
     The restatement was made by the Company in order to more appropriately apply Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” in accounting for the Company’s salvor-in-possession rights as well as certain of its exhibition licenses.
     The Company previously accounted for its salvor-in-possession rights as an asset. However, since the Company’s salvor-in-possession rights are an internally developed intangible asset, the Company has determined that under SFAS No. 142 that such asset should have been recognized by the Company as an expense when incurred.
     In addition, in accounting for exhibition licenses, the Company has recorded additional amortization in the fiscal years ended February 28, 2006 and 2005 as well as in the quarter ended May 31, 2006 for exhibition licenses acquired by the Company in April 2004. The Company had not recorded amortization on this asset because of ongoing litigation. However, the Company subsequently has determined that amortization on this asset should have been recorded over its useful life, which commenced in April 2004.
     As a result of the reclassifications set forth above, the Company has adjusted its deferred tax asset relating to its realization of net operating loss carry forward for the increased tax benefit.
     The table below reconciles the amounts previously reported by the Company to the restated amounts for the year ended February 28, 2005:
                         
    As Originally             Effect of  
    Reported     As Restated     Restatement  
Consolidated Balance Sheet — February 28, 2005
                       
Salvor-in-possession rights(2)
    879,000             (879,000 )
Exhibition licenses(1)
    685,000       622,000       (63,000 )
Accumulated deficit
    (12,665,000 )     (13,607,000 )     (942,000 )
 
Consolidated Statements of Operations — for the year ended February 28, 2005
                       
Depreciation and amortization(1)
    378,000       441,000       63,000  
Expedition costs(2)
          879,000       879,000  
Net income
    (1,475,000 )     (2,417,000 )     (942,000 )
Basic income (loss) per common share
    (0.07 )     (0.12 )     (0.05 )
Diluted income (loss) per common share
    (0.07 )     (0.12 )     (0.05 )
 
Consolidated Statements of Cash Flows — for the year ended February 28, 2005
                       
Depreciation and amortization(1)
    378,000       441,000       63,000  
Increase (decrease) in prepaid expenses and other current assets(1)
    (1,264,000 )     (1,031,000 )     233,000  
Purchase of exhibition licenses(1)
          (233,000 )     (233,000 )
Investment in salvor-in-possession rights(2)
    879,000             (879,000 )
Net cash provided (used) by operating activities
    595,000       (51,000 )     (646,000 )
Net cash provided (used) by financing activities
    (1,613,000 )     (967,000 )     646,000  
 
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss — for the year ended February 28, 2005
                       
Net loss
    (1,475,000 )     (2,417,000 )     (942,000 )
 
(1) Restated to record additional amortization for exhibition licenses acquired by the Company in April 2004.
(2) Restated to record internally developed salvor-in-possession rights as an expense when incurred.
(3) Restated to adjust the deferred tax asset relating to the Company’s realization of net operating loss carry forward for the increased tax benefit.
The table below reconciles the amounts previously reported by the Company to the restated amounts for the year ended February 28, 2006:
                         
    As Originally             Effect of  
    Reported     As Restated     Restatement  
Consolidated Balance Sheet — February 28, 2006
                       
Salvor-in-possession rights(2)
    879,000             (879,000 )
Exhibition licenses(1)
    3,607,000       3,475,000       (132,000 )
Deferred income taxes(3)
    2,100,000       2,504,000       404,000  
Accumulated deficit
    (7,717,000 )     (8,324,000 )     (607,000 )
 
Consolidated Statements of Operations — for the year ended February 28, 2006
                       
Depreciation and amortization(1)
    911,000       980,000       69,000  
Provision (benefit) for income taxes(3)
    (2,100,000 )     (2,504,000 )     (404,000 )
Net income
    4,948,000       5,283,000       335,000  
Basic income (loss) per common share
    0.21       0.22       0.01  
Diluted income (loss) per common share
    0.18       0.19       0.01  
 
Consolidated Statements of Cash Flows — for the year ended February 28, 2006
                       
Depreciation and amortization(1)
    911,000       980,000       69,000  
Increase (decrease) in deferred income taxes(3)
    (2,100,000 )     (2,504,000 )     (404,000 )
 
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (loss) — for the year ended February 28, 2006
                       
Net Income
    4,948,000       5,283,000       335,000  
 
(1) Restated to record additional amortization for exhibition licenses acquired by the Company in April 2004.
(2) Restated to record internally developed salvor-in-possession rights as an expense when incurred.
(3) Restated to adjust the deferred tax asset relating to the company’s realization of net operating loss carry forward for the increased tax benefit.

 



 

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
      Except for historical information contained herein, this Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involves certain risks and uncertainties. The actual results or outcomes of Premier Exhibitions, Inc. (hereinafter sometimes referred to as “we,” “us,” “our,” or the “Company”) may differ materially from those anticipated. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any such assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements contained in this report will prove to be accurate. In light of the significant uncertainties and risks inherent in the forward-looking statements included herein, such information should not be regarded as a representation by us that our objectives and plans will be achieved. Included in these risks are fluctuations in operating results, uncertainty regarding the results of certain legal proceedings, competition and other risks set forth herein and in other reports we have filed. Such statements consisting of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may”, “expect”, “will”, “anticipate”, “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. We do not have any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

1



 

ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
          You should read the following selected financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing in Items 7 and 8, respectively, of this report.
          The statements of operations data for the years ended February 28(29) 2002, 2003, 2004, 2005 and 2006, and the balance sheet data at February 28(29) 2002, 2003, 2004, 2005 and 2006 have been derived from our financial statements that have been audited by independent certified public accountants. The financial statements as of February 28, 2006, February 28, 2005 and February 29, 2004, and for each of the three years in the period ended February 28, 2006 are included in Item 8 of this report.
                                         
    Year ended February 28 (29),
    2002   2003   2004   2005   2006
                                         
    (In thousands, except per share and diluted weighted average shares)
Statement of Operations Data:
                                       
 
                                       
Revenue:
                                       
Continuing operations
  $ 2,768     $ 2,861     $ 2,864     $ 6,857     $ 13,041  
Discontinued operations
    644                          
 
                                       
Net income (loss)
                                       
Continuing operations
    (7,260 )     (827 )     (1,088 )     (2,417 )     5,283  
Discounted operations
    (168 )                        
Gain on sale
    644                          
 
                                       
Income (loss) per share (basic):
                                       
Continuing operations
    (0.38 )     (0.04 )     (0.06 )     (0.12 )     0.22  
Discontinued operations
    0       0       0       0       0  
 
                                       
Income (loss) per share (diluted):
                                       
Continuing operations
    (0.38 )     (0.04 )     (0.06 )     (0.12 )     0.19  
Discontinued operations
    0       0       0       0       0  
 
                                       
Diluted weighted average number of common shares outstanding
    18,058,573       18,615,294       18,960,047       20,818,898       28,230,491  
                                         
                                         
    At February 28 (29),
    2002   2003   2004   2005   2006
    (In thousands)
Balance Sheet Data:
                                       
Total Assets
  $ 8,839     $ 8,399     $ 7,253     $ 9,822     $ 22,363  
Long Term Obligations
                             
Total Liabilities
    1,497       1,849       1,249       3,085       2,688  
Shareholders’ Equity
    7,342       6,550       6,004       6,737       19,675  

2



 

Selected Quarterly Financial Information
(unaudited) (In thousands, except per share data)
                                         
    Period                          
Fiscal Year 2006   ended     5/31/05     8/31/05     11/30/05     2/28/06  
     
Revenue
          $ 2,532     $ 3,734     $ 2,772     $ 4,003  
Expenses
            1,996       2,214       2,869       3,305  
Loss on sale of fixed assets
            84  (2)                  
Other income
                        168  (3)      
Net income (loss)
            438       1,486       90       3,269  
Net income (loss) per share
                                       
Basic
            0.02       0.06       0.00       0.14  
Diluted
            0.02       0.06       0.00       0.11  
                                         
    Period                          
Fiscal Year 2005   ended     5/31/04     8/31/04     11/30/04     2/28/05  
     
Revenue
          $ 391     $ 2,381     $ 2,432     $ 1,653  
Expenses
            1,275       2,670       2,521       2,764  
Expedition costs
                  421  (5)     326  (5)     132  (5)
Loss on sale of fixed assets
                            356  (4)
Net income (loss)
            (887 )     (304 )     (103 )     1,123  
Net income (loss) per share
                                       
Basic
            (.05 )     (.02 )     .00       (.05 )
Diluted
            (.05 )     (.02 )     .00       (.05 )
 
(1)   During the year ended February 28, 2005, we sold the SV Explorer, a 178 foot- 1050 ton ship that was to be used in the expedition to the Titanic for $167,000 to Formaes ApS. Skelgaardsvej 10, DK-9340 Asss, a Danish company. This sale resulted in a total loss on the sale of fixed assets of $440,000. $84,000 of this loss was recorded during the quarter ended May 31, 2005.
(2)   On November 30, 2005, we sold a 3% ownership interest in the RMS Carpathia to Legal Access Technologies, Inc. for $500,000. In addition, we sold Legal Access Technologies a 25-year license to conduct joint expeditions with us to the wreck of the Carpathia for the purpose of exploring and salvaging the Carpathia for $200,000. Under the terms of this agreement, Legal Access Technologies was obligated to make a $100,000 payment to us on December 12, 2005 and to pay us the balance of $400,000 on February 15, 2006. In the event of default, we had the option to terminate this agreement. We reflected this transaction as a gain on the sale of the Carpathia interest of $459,000 during the quarter ended November 30, 2005. The payment obligations of Legal Access Technologies were secured by 1,400,000 shares of Legal Access Technologies’ common stock. Legal Access Technologies failed to make the second scheduled payment and, on April 3, 2006, we terminated our agreement with the Legal Access Technologies. In accordance with the agreement, we retained the Legal Access Technologies common stock securing the payment obligations of Legal Access Technologies. As a result of this default and our subsequent termination of the agreement, we reversed a gain of $459,000 net of the gain from the retention of the marketable securities of $168,000 that was previously recognized during our quarter ended November 30, 2005.
(3)   During the year ended February 28, 2005, we sold the SV Explorer, a 178 foot- 1050 ton ship that was to be used in the expedition to the Titanic for $167,000 to Formaes ApS. Skelgaardsvej 10, DK-9340 Asss, a Danish company. This sale resulted in a total loss on the sale of fixed assets of $440,000. $84,000 of this loss was recorded during the quarter ended May 31, 2005. The balance of $356,000 was recorded by us during the quarter ended February 28, 2005. See footnote 2 above.
(4)   During the year ended February 28, 2005, we incurred expedition costs related to our seventh expedition to the Titanic and Titanic wrecksite. The costs aggregated $879,000, of which $421,000 was recorded during the quarter ended August 31, 2004, $326,000 was recorded during the quarter ended November 30, 2004, and $132,000 was recorded during the quarter ended February 28, 2005.
          We have declared no cash dividends. Basic per share amounts exclude dilution and are computed using the weighted average number of common shares outstanding for the period. Unless the effects are anti-dilutive, 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.

3



 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     The discussion and analysis below should be read together with our financial statements and the notes related to those financial statements, as well as the other financial information included in this report.
Introduction
     The following discussion provides information to assist in the understanding of our financial condition and results of operations, and should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere herein. This discussion and analysis addresses the following topics:
    Overview of Our Business
 
    Key Exhibitions
 
    Results of Operations
 
    Liquidity and Capital Resources
 
    Off-Balance Sheet Arrangements
 
    Critical Accounting Policies
 
    Contractual Obligations
 
    Related Parties
 
    Recent Accounting Pronouncements
     Overview of Our Business
     We have been developing and touring museum quality exhibitions since 1993. We operate our business through our parent company, Premier Exhibitions, Inc. and our wholly-owned subsidiaries. Previously, we conducted our business through RMS Titanic, Inc., which is now our wholly-owned subsidiary. Presently our business consists of exhibitions based on the RMS Titanic and on human anatomy. We intend to present different exhibitions in the future, as well as additional exhibitions related to the Titanic and human anatomy.
     Effective on October 14, 2004, we reorganized into a holding company structure whereby we became the holding company of RMS Titanic, a wholly-owned subsidiary of ours which is the entity that conducts all of our Titanic expeditions. The reorganization was effected to generally provide for greater administrative and operational flexibilities and to broaden the alternatives available for future financings.
     The reorganization into a holding company structure was effected through the formation of Premier Exhibitions, Inc. as a wholly-owned subsidiary of RMS Titanic, Inc. and the formation of RMST MergerSub, Inc., a Florida corporation as a wholly-owned subsidiary of Premier Exhibitions, Inc. An agreement and plan of merger dated October 13, 2004 among RMS Titanic, Premier Exhibitions, and MergerSub provided for the merger of MergerSub with and into RMS Titanic, with RMS Titanic as the surviving corporation. As a result of the merger, RMS Titanic became a wholly-owned subsidiary of ours, and each outstanding share of common stock of RMS Titanic issued and outstanding immediately prior to the merger was converted into one share of our common stock. Also pursuant to the merger, each option to purchase RMS Titanic common stock was converted into an option to purchase, on the same terms and conditions, an identical number of shares of our common stock.

4



 

     As we continue to manage our own Titanic exhibitions directly, and with the expansion of our exhibitions to include anatomy-based exhibitions, we expect our operations to become more profitable. In addition, as we have been able to devote less time to litigation, we have been able to focus on opportunities for future growth of our business. We believe that we are a major exhibitor of premier exhibitions and we intend to continue to implement and expand upon our present strategy.
Key Exhibitions
     Titanic Exhibitions
     Historically we have derived most of our revenue from our Titanic exhibitions. Our wholly-owned subsidiary, RMS Titanic, Inc., operates our Titanic exhibitions. It is the only company permitted by law to recover objects from the wreck of the Titanic. The ocean liner Titanic sank approximately 400 miles off the southern coast of Newfoundland on April 15, 1912. The wreck lies 12,500 feet below the surface of the Atlantic Ocean. We have obtained oceanic material and scientific data available in various forms, including still photography, videotape and artifacts from the wreck site and are utilizing this data and the artifacts for historical verification, scientific education and public awareness. These activities generate revenue for us via ticket sales, third party licensing, sponsorship and merchandise sales for our multiple museum quality exhibitions that tour the world.
     Our Titanic exhibitions have been exhibited in more than forty venues throughout the world, including the United States, France, Greece, Japan, Switzerland, Chile, Argentina, China, England and other countries.
     “Bodies...The Exhibition” and “Bodies Revealed” Exhibitions
     We are using our experience in the exhibition business to conduct exhibitions not related to the Titanic. In March 2005, we acquired 100% of the membership interests in Exhibitions International, LLC, which enabled us to gain multi-year licenses and exhibition rights to multiple human anatomy exhibitions, each of which contains a collection of at least twenty whole human body specimens plus at least 150 single human organs and body parts. We are already in possession of six sets of medical specimens, one of which is known as “Bodies Revealed” and five of which are known as “Bodies...The Exhibition.” We acquired the rights to produce these exhibitions through separate exhibition agreements, each of which is for a five-year term and provides us with the right to extend for up to five additional years at our election.
     These specimens are assembled into anatomy-based exhibitions featuring preserved human bodies, and offer the public an opportunity to view the intricacies and complexities of the human body. The exhibitions include displays of dissected human bodies kept from decaying 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 keeps the flesh from decaying and maintains its natural look. Skin from the bodies is removed, or partially removed, to reveal muscular, nervous, circulatory, reproductive or digestive systems. The full body specimens are complimented by presentation cases of related individual organs, both healthy and diseased, that provide a detailed look into the elements that comprise each system.
     “Bodies Revealed” debuted in August 2004 in Blackpool, England and was the first non-Titanic exhibition we produced. We expanded our human anatomy exhibition business by creating two additional exhibitions known as “Bodies...The Exhibition.” The first opened in Tampa, Florida in August 2005 and the second in New York City in November 2005.
     Co-Production Agreement
     In April, 2005 we entered into an agreement with SAM Tour (USA), Inc. under which we agreed to work with SAM Tour to jointly produce human anatomy exhibitions. With SAM Tour, we will jointly present up to twelve human anatomy exhibitions entitled “Bodies...The Exhibition” and/or “Bodies Revealed.” With the limited exception of our human anatomy exhibition currently underway in London, England, the agreement stipulates mutual exclusivity. According to our agreement, we are responsible for producing the design, providing the exhibitry and providing the specimens necessary for each exhibition, while SAM Tour is financially responsible for the marketing, promotion, publicity, advertising and operation of such exhibitions. Under the agreement, SAM Tour finances the initial startup costs of each exhibition and we provide the exhibition expertise, exhibitry and specimens required for each exhibition. Under the agreement, SAM Tour initially recoups from total exhibition profits its investment, which includes the initial startup costs, all marketing and operating costs, and a license fee paid to us. The profits from each exhibition are then split equally between SAM Tour and us until the parties earn certain agreed upon amounts. Thereafter, additional profits are calculated on a graduated scale with ratios that increasingly favor us.

5



 

Results of Operations
     Year Ended February 28, 2006 as Compared to Year Ended February 28, 2005
     During the fiscal year ended February 28, 2006, our revenue increased approximately 90% to $13,041,000, as compared to $6,857,000 for the year ended February 28, 2005. This increase was chiefly due to increases in exhibition revenue of approximately 93% to $12,217,000 during the year ended February 28, 2006, as compared to $6,320,000 for the year ended February 28, 2005. The increase in revenue for fiscal 2006 reflects both the increase in the number of locations of Titanic exhibitions directly managed by us and the contributions of our “Bodies...The Exhibition” and “Bodies Revealed” exhibitions.
     We began directly managing our Titanic exhibitions during the first quarter of the fiscal year ended February 28, 2005. In our fiscal year ended February 28, 2005, we had five titanic exhibition locations compared to ten locations in our fiscal year ended February 28, 2006. This increase in the quantity of directly managed titanic exhibitions contributed approximately $1,000,000 during the fiscal year ended February 28, 2006.
     Our “Bodies...The Exhibition” and “Bodies Revealed” exhibitions contributed additional revenue for the year ended February 28, 2006 of approximately $4,800,000. There was no material contribution from our “Bodies...The Exhibition” and “Bodies Revealed” exhibitions during our fiscal year ended February 28, 2005.
     Our Titanic exhibitions contributed approximately 60% of our exhibition revenue while our “Bodies....The Exhibition” and “Bodies Revealed” exhibitions contributed approximately 40% of our exhibition revenue during the year ended February 28, 2006. Approximately 95% of our exhibition revenue in the year ended February 28, 2005 was contributed by our Titanic exhibitions.
     Merchandise and other revenue increased approximately 42% from $507,000 to $722,000 during the year ended February 28, 2005, as compared to the year ended February 28, 2006. This increase is attributable to an increase in the number of locations of our Titanic exhibitions that have gift shops that sell our merchandise.
     Our sale of coal recovered from the Titanic increased to $102,000 from $30,000, or approximately 240% during the year ended February 28, 2006 as compared to the year ended February 28, 2005. This increase is attributed to higher exhibit sales of coal. Coal-related jewelry is included in general merchandise sales.
     We incurred exhibition costs of $2,672,000 and $2,891,000, respectively, for the year ended February 28, 2006 and 2005. Exhibition costs are reflective of us conducting our own exhibitions, usually presented at museum venues for which we incur costs for advertising, marketing, promotion and installation and de-installation of exhibitry and artifacts. Prior to our fiscal year ended February 28, 2005, those costs were borne by our licensee that conducted our Titanic exhibitions. Exhibition costs related to our anatomical exhibitions consist of the rental costs of the specimens. Exhibition costs as a percentage of exhibition revenues were 22% and 46%, respectively, for the year ended February 28, 2006 and 2005.
     During the year ended February 28, 2006, our gross profit increased approximately 177% to $10,257,000, as compared to $3,700,000 in the year ended February 28, 2005. Gross profit was 79% and 54% of revenue for the years ended February 28, 2006 and 2005, respectively. This change was principally attributable to an increase in the number locations of Titanic exhibitions directly managed by us to ten from five in the prior year as well as to contributions from our anatomical exhibitions during the year ended February 28, 2006.
     Our general and administrative expenses increased to $6,620,000 during the year ended February 28, 2006, as compared to $4,397,000 for the year ended February 28, 2005. This 51% increase is attributable to increased personnel necessary to organize, administer and manage our exhibitions. We also recorded additional non-cash charges for the fair value of employee options and consultant warrants granted during the year ended February 28, 2006. We have elected to fully charge our operations for employee stock options issued in the year such options are granted.

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     Our depreciation and amortization expenses increased $539,000 or 122% to $980,000 during the year ended February 28, 2006, as compared to $441,000 for the year ended February 28, 2005. The increase primarily reflects additional investments made in fixed assets for our exhibitions. In addition, in the year ended February 28, 2005 and 2006, there was amortization expense associated with the amortization of exhibition licenses of $63,000 and $585,000, respectively.
     During the year ended February 28, 2005, we sold the SV Explorer, a 178 foot- 1050 ton ship that was to be used in the expedition to the Titanic for $167,000 to Formaes ApS. Skelgaardsvej 10, DK-9340 Asss, a Denmark company which resulted in a loss on the sale of fixed assets of $356,000 and $84,000 during the years ended February 28, 2005 and 2006, respectively.
     During the year ended February 28, 2005, we incurred expedition costs for our seventh expedition to the Titanic and Titanic wreck site in the amount of $879,000. As we have not conducted an expedition since 2004, there was no similar charge in the year ended February 28, 2006
     We realized income of $2,573,000 from operations during the year ended February 28, 2006, as compared to a loss of $2,373,000 from operations in year ended February 28, 2005. We attribute this increase in income from operations to higher revenues we generated by conducting our own exhibitions, despite related increases in general and administrative expenses, as well as to revenue contributions from our newest exhibitions, “Bodies Revealed” and “Bodies...The Exhibition.” Our loss for the year ended February 28, 2005 was primarily the result of our expedition.
     We incurred interest income of $85,000 and $2,000 for the year ended February 28, 2006 and 2005, respectively. We incurred interest expense of $47,000 and $46,000 for the year ended February 28, 2006 and 2005, respectively. Interest expense during the year ended February 28, 2006 and 2005 primarily pertains to a shareholder loan of $500,000 that was made in 2004 in anticipation of our capital needs as we transitioned to the direct management of our exhibitions.
     As a result of the default by Legal Access Technologies, Inc. and our subsequent termination of the agreement relating to the sale of the Carpathia interest, we retained marketable securities of $168,000 which is reflected as other income during the year ended February 28, 2006.
     We recorded an income tax benefit of $2,504,000 during the year ended February 28, 2006 relating to the realizability of our net operating loss carryforwards during our current year. We realized net income of $5,283,000 for the year ended February 28, 2006 as compared to a net loss of $2,417,000 in the same prior year period. Basic income (loss) per common share for the years ended February 28, 2006 and 2005 was $0.22 and ($0.12), respectively. The basic weighted average shares outstanding for the years ended February 28, 2006 and 2005 was 24,081,186 and 20,818,898, respectively. Diluted income (loss) per common share for the years ended February 28, 2006 and 2005 was $0.19 and ($0.12), respectively. The diluted weighted average shares outstanding for the years ended February 28, 2006 and 2005 was 28,230,491 and 20,818,898, respectively.
     Year Ended February 28, 2005 as Compared To Year Ended February 29, 2004
     During our fiscal year ended February 28, 2005, our revenues increased to $6,857,000 from $2,864,000 in our fiscal year ended February 29, 2004, which we refer to as fiscal year 2004 throughout this prospectus. This increase of approximately 139% is primarily a result of an increase of $3,643,000 in our exhibition revenues. We believe that these significant increases in revenues reflect the commencement of our direct management of our Titanic exhibitions, which began during the first quarter of fiscal year 2005.
     Merchandise and other revenue increased approximately 326% from $119,000 to $507,000, during the fiscal year 2005 as compared to the fiscal year 2004. These increases are attributable to higher sales of Titanic merchandise sold separately from the exhibitions during fiscal year 2005. Our revenue from the sale of coal-related items decreased from $68,000 to $30,000 or approximately 56% during the 2005 fiscal year as compared to the 2004 fiscal year. This decrease is attributable to lower exhibit sales of coal sold separately. Coal-related jewelry is included in general merchandise sales.
     The cost of sales of merchandise sold increased 134% to $257,000 from $110,000 in fiscal year 2005 as compared to fiscal year 2004. This increase was the result of higher revenues of merchandise during the 2005 fiscal year.

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     We incurred exhibition costs of $2,891,000 for the fiscal year 2005 as we began to conduct our own exhibitions with museum venues and thereby incur costs for advertising, marketing and promotion, as well as installation and de-installation of exhibitry and artifacts. There were no similar costs incurred in fiscal year 2004 as those costs were borne by our licensee who conducted our Titanic exhibitions.
     During the year ended February 28, 2005, our gross profit increased approximately 2,309% to $3,157,000, as compared to $131,000 in the year ended February 29, 2004. Gross profit was 46% and 5% of revenue for the years ended February 28 (29), 2005 and 2004, respectively. This significant change was primarily the result of us managing our own Titanic exhibitions during the year ended February 28, 2005. Previously, a licensee managed our Titanic exhibitions.
     Our general and administrative expenses increased $995,000, or approximately 29%, from $3,402,000 in fiscal year 2004 to $4,397,000 in fiscal year 2005. During fiscal year 2005, we hired personnel to organize, administer, and manage our exhibitions. Increases in expenses for legal, insurance, conservation and occupancy for fiscal year 2005 represented the largest portion of the remaining increase in general and administrative expenses.
     Our depreciation and amortization expenses increased to $441,000 from $253,000, or 74%, during fiscal year 2005 as compared to fiscal year 2004. These increases primarily reflect the acquisition of fixed assets during fiscal year 2005, including the five sets of exhibition exhibitry acquired from our former licensee, as well as additional investments made in fixed assets for our exhibitions.
     During the year ended February 28, 2005, we sold the SV Explorer, a 178 foot- 1050 ton ship that was to be used in the expedition to the Titanic for $167,000 to Formaes ApS. Skelgaardsvej 10, DK-9340 Asss, a Denmark company which resulted in a loss on the sale of fixed assets of $356,000 during the year ended February 28, 2005.
     During the year ended February 28, 2005, we incurred expedition costs for our seventh expedition to the Titanic and Titanic wreck site in the amount of $879,000. As we have not conducted an expedition since 2004, there was no similar charge in the year ended February 28, 2006.
     Our loss from operations increased to $2,373,000 in fiscal year 2005 as compared to $1,097,000 in fiscal year 2004, an increase of approximately 116%. This increase in operating loss is primarily attributable to the losses incurred from our transition from being a licensor of Titanic artifacts to a direct operator of Titanic exhibitions and our 2004 expedition. In addition, we incurred a substantial loss on the sale of fixed assets of $356,000 during the fiscal year ended February 28, 2005 which contributed to our operating loss.
     Interest income for fiscal year 2005 amounted to $2,000 as compared to $9,000 in the prior fiscal year. This decrease in interest income is a consequence of maintaining lower cash balances and the minimal interest earned on our bank accounts. We incurred interest expense of $46,000 for fiscal year 2005 on a shareholder loan of $500,000 that was made in anticipation of our capital needs during our transition to the direct management of our exhibitions. There was no interest expense incurred during fiscal year 2004, as we had no debt.
     Our loss from continuing operations before provision for income taxes was $2,417,000 in fiscal year 2005 as compared to a loss from continuing operations before taxes of $1,088,000 in fiscal year 2004. There was no provision for income taxes in either fiscal year. We incurred a loss of $(0.12) per share for fiscal year 2005, compared to a loss of $(.06) per share for fiscal year 2004. The weighted average common shares outstanding were 20,818,898 and 18,960,047 for fiscal years 2005 and 2004, respectively.

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Liquidity and Capital Resources
     In the year ended February 28, 2006, net cash provided by operating activities was $2,130,000 resulting from net income of $5,283,000, which was adjusted by $980,000 for depreciation and amortization, $1,285,000 for non-cash common stock and warrants for issued for services, an increase in deferred income tax assets of $2,504,000, and an increase in prepaid expenses and other current assets of $2,053,000 related to reimbursable expenses primarily from our co-production partner and prepaid lease payments for our anatomical specimens.
     In the year ended February 28, 2005, net cash used by operating activities was $51,000 resulting from a net loss of $2,417,000, which was adjusted by $441,000 for depreciation and amortization, $1,569,000 for non-cash common stock exchanged for options, an increase in accounts receivables of $704,000, and an increase in prepaid expenses and other current assets of $1,031,000 primarily related to prepaid services. In addition, our deferred revenue increased $1,000,000 related to unearned license fees on our Titanic exhibitions.
     In the year ended February 29, 2004, net cash used by operating activities was $925,000 resulting from a net loss of $1,088,000, which was adjusted by $253,000 for depreciation and amortization, $434,000 for non-cash compensatory stock options, an increase in accounts receivables of $225,000, an decrease in prepaid and refundable income taxes of $290,000, and an increase in other assets of $715,000. In addition, our deferred revenue decreased $735,000 related to the earning of license fees on our Titanic exhibitions.
     The following table sets forth our working capital (current assets less current liabilities) balances and our current ratio (current assets/current liabilities) at the dates indicated:
                         
    As of February 28 (29),
     (in thousands)   2004     2005     2006
Working Capital
  $ 13     $ 857     $ 7,054  
Current Ratio
    1.01       1.28       3.62  

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     Our net working capital increased by $6,197,000 at February 28, 2006, as compared to February 28, 2005. The increase in net working capital for fiscal 2006 was primarily due to an increase in cash of $2,871,000 as a result of the completion of a private placement in October 2005, as discussed below. In addition, our prepaid expenses and other current assets increased $2,053,000 as a result of an increase in prepaid specimen lease payments and increases in our reimbursable expenses primarily associated with our anatomical exhibitions. As a result, our current ratio increased from 1.28 to 2.62 from the year ended February 28, 2005 to 2006, respectively.
     Our net working capital increased by $844,000 at February 28, 2005, as compared to February 29, 2004. The increase in net working capital for fiscal 2005 was primarily due to an increase in cash and cash equivalents of $711,000, an increase of accounts receivable of $704,000, and an increase of prepaid expenses and other current assets of $1,264,000 primarily as a result of an increase in prepaid services. In addition our current liabilities increased at February 28, 2005, as compared to February 29, 2004, primarily from an increase in deferred revenue of $1,000,000 and a shareholder note payable of $425,000. Our current ratio increased from 1.01 to 1.28 from the year ended February 28, 2004 to 2005, respectively.
     Capital expenditures in our fiscal years ended February 28 (29), 2004, 2005 and 2006 were $21,000, $964,000, and 1,774,000, respectively. 2005 and 2006 capital expenditures primarily consisted of exhibition exhibitry. Capital expenditures, primarily for additional exhibitry for our exhibitions, are expected to aggregate approximately $2,500,000 during the year ending February 28, 2007.
     For the quarter ended May 31, 2006, cash provided by financing activities was $305,000 and included repaying the entire outstanding balance due on our shareholder loan in the amount of approximately $333,000, as well as borrowings on our credit facility of approximately $334,000. We also received approximately $296,000 in cash from the exercise of options and warrants during the quarter ended May 31, 2006. Our credit facility was repaid in full in July 2006, and as of August 31, 2006 there is no outstanding balance on this facility.
     Our shareholders’ equity was $19,675,000 at February 28, 2006 as compared with $6,737,000 at February 28, 2005.
      On January 9, 2006, we finalized a $750,000 revolving line of credit with Bank of America, N.A. This credit facility, which is evidenced by a promissory note made by us in favor of Bank of America, allows us to make revolving borrowings of up to $750,000. Interest under this credit facility is calculated from the date of each advance by Bank of America to us and is determined based upon changes in an index that is the rate of interest publicly announced from time to time by Bank of America as its prime rate. Under the credit facility, we must make interest only payments monthly and the outstanding principal amount plus all accrued but unpaid interest is payable in full at the expiration of the credit facility on June 30, 2006. The credit facility contains customary representations, warranties and covenants. We entered into the credit facility to help finance the expansion of our exhibition business. On April 26, 2006, we borrowed $333,014 under the credit facility to repay the remaining principal on our shareholder loan.
      In connection with the credit facility, we also granted Bank of America a security interest in all of our property, pursuant to a commercial security agreement, up to the amount advanced under the credit facility. In addition, in order to facilitate the establishment of the credit facility, Sam Tour (USA), Inc., our joint venture partner and secured lender, has agreed pursuant to a UCC lien subordination agreement that any security interest, lien or right it has or may have with respect to our property is subordinate to the security interest we granted in favor of Bank of America.

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     During the year ended February 28, 2006, we received approximately $166,000 for the exercise of 224,000 warrants and options at exercise prices of $.32 per share to $1.50 per share.
     In the fiscal year ended February 28, 2005, we received a shareholder loan of $500,000 that provided funding to assist us in our transition to directly managing our own exhibitions. This shareholder loan was unsecured and had a five-year term with interest at six percent over the prime rate and required quarterly payments of interest and principal. We repaid this loan in April 2006.
     In October 2005, we completed a private placement of our securities, in which we raised $4,968,477 by selling units consisting of shares of common stock and warrants to purchase shares of common stock. Each unit consisted of 20,000 shares of common stock at a price of $1.67 per share and a five-year warrant to purchase 13,320 shares of common stock at an exercise price of $2.50 per share. On a fully-diluted basis, the units sold in the October 2005 private placement represented a total of 4,956,577 shares of our common stock. This total consists of 2,975,136 shares of common stock and warrants to purchase up to 1,981,441 shares of common stock. The warrants provide for customary anti-dilution adjustments in the event of stock splits, stock dividends, and recapitalizations. The warrants do not confer any voting rights or any other shareholder rights. The proceeds of this private placement are being used for general working capital purposes.
     For the year ended February 28, 2005, cash provided by financing activities was $1,703,000, which included a private placement of securities in August 2004 and a loan provided by two shareholders. In August 2004, we closed a private placement in which we sold 1,469,927 shares of common stock and warrants to purchase 441,003 shares of common stock for aggregate consideration of $1,514,000. The net proceeds of this private placement were $1,278,000 after fees, expenses and other costs. In connection with this private placement, we also issued

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warrants to purchase 293,985 shares of common stock to our placement agent. All of the warrants issued in the private placement are exercisable over a five-year term at an exercise price of $1.50 per share. This private placement was used to supplement our working capital needs.
     We conducted our seventh research and recovery expedition to the Titanic wreck site in fiscal year 2005. During fiscal year 2005, we spent $879,000 on this expedition and expensed this amount as expedition costs in our financial statements.
     In order to protect our salvor-in-possession status and to prevent third parties from salvaging the Titanic wreck and wreck site, or interfering with our rights and ability to salvage the wreck and wreck site, we may have to commence judicial proceedings against third parties. Such proceedings could be expensive and time-consuming. Additionally, in order to maintain our salvor-in-possession status we are required to maintain a reasonable presence over the wreck. We may be required to incur the costs for future expeditions so as to maintain our salvor-in-possession status. Our ability to undertake future expeditions may be dependent upon the availability of financing. No assurances can be given that any financing will be available on satisfactory terms, if at all.

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Contractual Obligations
     We have a non-cancelable operating lease for the rental of each set of the specimens used in our anatomical exhibitions. The leases are payable quarterly for a term of five years with five annual options to extend.
     We have non-cancelable operating leases for office space. The leases are subject to escalation for our pro rata share of increases in real estate taxes and operating costs. During fiscal year 2005, we entered into another non-cancelable operating lease for warehouse space through December 31, 2007.
     The lease for our principal executive offices was amended a second time on November 8, 2005 when the leased space was increased to approximately 6,000 square feet. The amended lease provides for base annual lease payments of $110,591 with a 2.5% annual adjustment. The second amended lease, which increased our office space by over 1,800 square feet, requires us to pay an additional total of $71,242 over the duration of the lease.
     The following table illustrates our contractual obligations and commitments as of February 28, 2006:
                                         
    Payments due by period
            Less than                   More than
Contractual Obligations   Total   1 year   1-3 years   3-5 years   5 years
Specimen fixed rentals
  $ 23,000,000     $ 4,000,000     $ 10,000,000     $ 9,000,000        
Real estate operating lease
    881,000       306,000       575,000              
Contractual commitment — Clear Channel Entertainment, Inc.
    500,000       500,000                    
Note payable — SAM Tour (USA), Inc.(1)
    500,000       500,000                    
Note payable – shareholder(2)
    350,000       350,000                    
Total
  $ 25,231,000     $ 5,656,000     $ 10,575,000     $ 9,000,000        
 
(1)   Repaid in full during the quarter ended August 31, 2006.
 
(2)   Repaid in full during the quarter ended May 31, 2006.
     On October 1, 2005, we entered into two three-year consulting agreements for investor relations services with a firm and an individual that require us to pay aggregate monthly cash consulting fees of $52,250 in October 2005, November 2005 and December 2005. Thereafter, consulting fees are $22,550 per month during the first year and reduce to $13,300 for the remaining term. These agreements also require us to issue 350,000 shares of common stock and 250,000 five-year warrants to purchase our common stock at an exercise price of $2.00 per share. The fair value of the warrants is estimated on the date of grant using the Black-Scholes option-pricing model and is being amortized over the three-year agreement term. We recorded $173,273 in consulting expense related to these two agreements during the year ended February 28, 2006. The common stock has not been issued at May 31, 2006, and is recorded as a common stock payable in our financial statements. The common stock and the common stock underlying the warrants have “piggyback” registration rights.

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     On November 30, 2005, we sold a 3% ownership interest in the RMS Carpathia to Legal Access Technologies, Inc. for $500,000. In addition, we sold Legal Access Technologies a twenty-five year license to conduct joint expeditions with us to the RMS Carpathia for the purpose of exploring and salvaging the RMS Carpathia for $200,000. Under the terms of this agreement, Legal Access Technologies, Inc. was obligated to make payments under a payment schedule of $100,000 on December 12, 2005 and the balance of $400,000 on February 15, 2006. In the event of default, we had the sole and exclusive option to terminate the agreement. We reflected this transaction as a gain on the sale of the Carpathia interest of $459,000 during the quarter ended November 30, 2005. Pursuant to the terms of the agreement Legal Access Technologies, Inc. was obligated to make the following scheduled payments to us: (i) $100,000 on December 12, 2005; and (ii) $400,000 on February 15, 2006. The $100,000 payment was collateralized with 1,400,000 shares of Legal Access Technologies, Inc.’s common stock, which satisfied its obligation to make the first payment. Legal Access Technologies, Inc. failed to make the second scheduled payment and, on April 3, 2006, we terminated our agreement with Legal Access Technologies, Inc. In accordance with the agreement, we retained the collateral in the form of Legal Access Technologies, Inc.’s common stock. As a result of this default and our subsequent termination of the agreement, we reversed the gain of $459,000 net of the gain from the retention of the marketable securities of $168,000 that was recognized during our quarter ended November 30, 2005.
Off-Balance Sheet Arrangements
     We have no off-balance sheet financial arrangements.
Critical Accounting Policies
     We have identified the policies below as critical to our business operations and the understanding of our results of operations. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
     Our critical accounting policies are as follows:
    Revenue recognition;
 
    Accounts receivables;
 
    Accounting for income taxes;
 
    Legal contingencies;
 
    Property and equipment;
 
    Impairment of long-lived and intangible assets; and
 
    Capitalizing exhibition license costs.

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     Revenue Recognition
     Exhibition Revenue. We recognize exhibition revenue for our Titanic and anatomical specimen exhibitions when earned and reasonably estimable. Our exhibition agreements may have a fixed fee, may be based on a percentage of revenue, or a combination of the two. A variable fee arrangement may include a nonrefundable or recoupable guarantee paid in advance or over the exhibition period. The following are the conditions that must be met in order to recognize revenue:
    persuasive evidence of an exhibition arrangement with a customer exists;
 
    the exhibit is complete and, in accordance with the terms of the arrangement, has been delivered;
 
    the exhibition period of the arrangement has begun and/or the customer can begin its exploitation, exhibition or sale;
 
    the arrangement fee is fixed or determinable; and
 
    collection of the arrangement fee is reasonably assured.
     Our revenue may be predicated on a percentage or share of our customers’ revenue from our exhibitions. Our percentage of the ticket sales, for these exhibitions, as well as merchandise sales, are recognized at point of sale. Advance ticket sales are recorded as deferred revenue pending the “event date” on the ticket.
     In exhibition arrangements that have a variable fee structure, a customer or our co-production partner may guarantee to pay us a nonrefundable minimum amount that is to be applied against variable fees. We record this non-refundable guarantee as deferred revenue until all the conditions of revenue recognition have been met.
     Our customers and co-production partners provide us with gross receipt information, marketing costs, promotional costs, and any other fees and expenses. We utilize this information to determine our portion of the revenue by applying the contractual provisions included in our arrangements with our customers and co-production partners. The amount of revenue recognized in any given quarter or quarters from all of our exhibitions depends on the timing, accuracy, and sufficiency of information we receive from our customers and co-production partners to determine revenues and associated gross profits.
     Audio Tour Revenue. Revenue derived from equipping and operating an audio tour is recognized upon customer purchase of the audio tour.
     Merchandise Revenue. Revenue collected by third-party vendors with respect to the sale of exhibit-related merchandise is recorded when the merchandise is shipped to the third-party vendor. Revenue from our sale of coal recovered from the Titanic wreck site is recognized at the date of shipment to customers. Recovery costs attributable to the coal are charged to operations as revenue from coal sales are recognized.
     Sponsorship Revenue. Revenue from corporate sponsors of an exhibition are generally recognized over the period of the applicable agreements commencing with the opening of the related attraction. Revenue from the granting of sponsorship rights related to our Titanic expeditions is recognized at the completion of the expedition.
     Licensing Revenue. Revenue from the licensing of the production and exploitation of audio and visual recordings by third parties, related to our Titanic expeditions, is recognized at the time that the expedition and dive takes place. Revenue from the licensing of still photographs and video is recognized at the time the rights are granted to the licensee.

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     Accounts Receivable
     Accounts receivable are customer obligations due under normal trade terms. We regularly evaluate the need for an allowance for uncollectible accounts by taking into consideration factors such as the type of client (e.g., governmental agencies or private sector), trends in actual and forecasted credit quality of the client, including delinquency and late payment history; and current economic conditions that may affect a client’s ability to pay. In certain circumstances and depending on customer creditworthiness we may require a bank letter of credit to guarantee the collection of our receivables. Our allowance for bad debt is determined based on a percentage of aged receivables.
     Accounting for Income Taxes
     As part of the process of preparing our consolidated financial statements we are required to estimate our Federal income taxes as well as income taxes in each of the states in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences could result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not probable, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense in the tax provision in the statement of operations.
     Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
     Legal Contingencies
     We are currently involved in certain legal proceedings, as discussed in this prospectus under the heading “Legal Proceedings.” To the extent that a loss related to a contingency is reasonably estimable and probable, we accrue an estimate of that loss. Because of the uncertainties related to both the amount and range of loss on certain pending litigation, we may be unable to make a reasonable estimate of the liability that could result from an unfavorable outcome of such litigation. As additional information becomes available, we will assess the potential liability related to our pending litigation and make or, if necessary, revise our estimates. Such revisions in our estimates of the potential liability could materially impact our results of operations and financial position.
     Property and Equipment
     Property and equipment are stated at cost. Expenditures for major renewals and improvements are capitalized while expenditures for maintenance and repairs not expected to extend the life of an asset beyond its normal useful life are charged to expense when incurred. Equipment is depreciated over the estimated useful lives of the assets under the straight-line method of depreciation for financial reporting purposes and both straight-line and other methods for tax purposes.
     Impairment of Long-Lived Assets and Other Intangibles
     In the event that facts and circumstances indicate that the carrying value of long-lived assets, including associated intangibles, may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the assets carrying amount to determine if a write down to market value or discounted cash flows is required.
     Artifacts recovered in the 1987 Titanic expedition are carried at the lower of cost of recovery or net realizable value (“NRV”). The government of France granted us ownership of these artifacts. The costs of recovery are the direct costs of chartering of vessels and related crews and equipment required to complete the dive operations for that expedition.

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     To ascertain that the aggregate NRV of the artifacts exceeds the direct costs of recovery of such artifacts, we evaluate various evidential matters. Such evidential matters include documented sales and offerings of Titanic-related memorabilia, insurance coverage obtained in connection with the potential theft, damage or destruction of all or part of the artifacts and other evidential matter regarding the public interest in the Titanic.
     At each balance sheet date, we evaluate the period of amortization of intangible assets. The factors used in evaluating the period of amortization include: (i) current operating results, (ii) projected future operating results, and (iii) other material factors that affect the continuity of the business.
     We amortize our exhibition licenses on a straight-line basis over a term commencing on the effective date of the exhibition license or right in accordance with the term of the licensing arrangement.
     Accounting Policy for Capitalizing Exhibition License Costs
     Exhibition licenses represent exclusive rights to exhibit certain anatomical specimens and organs paid for the use of the licensor’s technology, documentation, and know-how with respect to the plastination of human body specimens and organs. Depending upon the agreement with the rights holder, we may obtain the rights to use anatomical specimens and organs in multiple exhibitions over multiple years.
     We evaluate the future recoverability of capitalized exhibition licenses on a quarterly basis or when events or circumstances indicate the capitalized license may not be recoverable. The recoverability of capitalized exhibition license costs is evaluated based on the expected performance of the exhibitions in which the anatomical specimens and organs are to be used. As our exhibition licenses extend for multiple exhibitions over multiple years, we also assess the recoverability of capitalized exhibition license costs based on certain qualitative factors such as the success of other exhibitions utilizing anatomical specimens and whether there are any anatomical specimen-related exhibitions planned for the future. We will expense exhibition license costs when we believe such amounts are not recoverable. Capitalized exhibition license costs for those exhibitions that are cancelled are charged to expense in the period of cancellation.
     Commencing upon the related exhibition’s debut, capitalized exhibition license costs are amortized under the contract terms. As exhibition license contracts may extend for multiple years, the amortization of capitalized exhibition license costs relating to such contracts may extend beyond one year. For exhibitions that have been opened, we evaluate the future recoverability of capitalized amounts on a quarterly basis. The primary evaluation criterion is actual exhibition performance.
     Significant management judgments and estimates are utilized in the assessment of the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected exhibition performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If actual exhibition revenues to date, combined with currently forecast future exhibition revenues, are less than the revenue required to amortize the remaining licensing costs an impairment charge could result. Additionally, as noted above, as many of exhibition licenses extend for multiple products over multiple years, we also assess the recoverability of exhibition license costs based on certain qualitative factors such as the success of other exhibitions utilizing anatomical specimens, whether there are any anatomical specimen-related exhibitions planned for the future. Material differences may result in the amount and timing of charges for any period if management makes different judgments or utilizes different estimates in evaluating these qualitative factors.
Recent Accounting Pronouncements
     In November 2004, the Financial Accounting Standard Board (the “FASB”), issued SFAS No. 151, “Inventory Costs: an amendment of APB No. 43, Chapter 4”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe the provisions of SFAS No. 151, will have a material impact on our financial position or results of operations.
     In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets” which amends Accounting Principles Board (“APB”) Opinion No. 29, “Accounting for Nonmonetary Transactions”. SFAS No. 153 amends APB No. 29 to eliminate the fair-value exception for nonmonetary exchanges of similar productive assets and replace it with a general exception for nonmonetary exchanges that do not have commercial substance. It is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. This statement is not anticipated to have a material impact on our financial position or results of operations.
     In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS 123R”), which replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” FAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under FAS 123 no longer will be an alternative to financial statement recognition. We were required to adopt FAS 123R by March 1, 2006. Under FAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. We early adopted the fair value recognition provisions of FAS 123R, using the modified prospective transition method requiring us to recognize expense related to the fair value of our stock-based compensation awards during fiscal year 2005. Our adoption of FAS 123(R) did not have a material impact on our financial position or results of operations.
     In November 2005, the FASB issued FASB Staff Position No. FAS 123R, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards,” which provides an alternative transition method to establish the beginning balance of the additional paid-in capital pool (the “APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of FAS 123R.
     In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment. SAB No. 107 provides guidance regarding the interaction between FAS 123R and certain SEC rules and regulations, including guidance related to valuation methods; the classifications of compensation expense; non-GAAP financial measures; the accounting for income tax effects of share-based payment arrangements; disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations subsequent to the adoption of FAS 123R; and modifications of options prior to the adoption of FAS 123R.

17



 

     In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which will require that, unless it is impractical to do so, a change in an accounting principle be applied retrospectively to prior periods’ financial statements for all voluntary changes in accounting principles and upon adoption of a new accounting standard if the standard does not include specific transition provisions. SFAS No. 154 supersedes APB Opinion No. 20, “Accounting Changes,” which previously required that most voluntary changes in accounting principles be recognized by including in the current period’s net income (loss) the cumulative effect of changing to the new accounting principle. SFAS No. 154 also provides that if an entity changes its method of depreciation, amortization, or depletion for long-lived, non-financial assets, the change must be accounted for as a change in accounting estimate. Under APB No. 20, such a change would have been reported as a change in an accounting principle. SFAS No. 154 became applicable to accounting changes and error corrections made by us starting in our fiscal year ended February 28, 2006. The effect of applying this new standard will depend upon whether material voluntary changes in accounting principles, changes in estimates or error corrections occur as well as consideration of transition and other provisions included in the new standard.
     In June 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 05-06, “Determining the Amortization Period for Leasehold Improvements.” EITF Issue No. 05-06 provides guidance for determining the amortization period used for leasehold improvements acquired in a business combination or purchased after the inception of a lease, collectively referred to as subsequently acquired leasehold improvements. EITF Issue No. 05-06 provides that the amortization period used for the subsequently acquired leasehold improvements to be the lesser of (i) the subsequently acquired leasehold improvements’ useful lives, or (ii) a period that reflects renewals that are reasonably assured upon the acquisition or the purchase. EITF Issue No. 05-06 is effective on a prospective basis for subsequently acquired leasehold improvements purchased or acquired in periods beginning after the date of the FASB’s ratification, which was on June 29, 2005. The adoption of EITF Issue No. 05-06 has not had material effect on our financial position, cash flows or results of operations.
     In October 2005, the FASB issued FASB Staff Position (“FSP”) 13-1, “Accounting for Rental Costs Incurred During a Construction Period,” to clarify the proper accounting for rental costs incurred on building or ground operating leases during a construction period. FSP 13-1 requires that rental costs incurred during a construction period be expensed, not capitalized. The statement is effective for the first reporting period beginning after December 15, 2005. We do not believe adoption of FSP 13-1 will have a material effect on our financial position, cash flows or results of operations.

18



 

 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
     
  20
 
   
Consolidated Financial Statements:
   
 
   
  21
 
   
  22
 
   
  23
 
   
  24
 
   
  25 - 46
 
   

19



 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Premier Exhibitions, Inc.
We have audited the accompanying consolidated balance sheets of Premier Exhibitions, Inc. and its subsidiaries as of February 28, 2006 and February 28, 2005, and the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended February 28, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required at this time, to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 15 to the consolidated financial statements, the accompanying consolidated balance sheets as of February 28, 2006 and 2005, and the related consolidated statements of operations, cash flows, and shareholders' equity for the years ended February 28, 2006 and 2005 have been restated.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Premier Exhibitions, Inc. and its subsidiaries as of February 28, 2006 and February 28, 2005 and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2006, in conformity with U.S. generally accepted accounting principles.
/s/ Kempisty & Company CPAs, P.C.
Kempisty & Company
Certified Public Accountants, P. C.
New York, New York
May 31, 2006 (Except for Notes 13, 14 and 15, which are dated October 2, 2006)

20



 

Premier Exhibitions, Inc. and Subsidiaries
Consolidated Balance Sheets
                 
    February 28,     February 28,  
    2005     2006  
    (Restated)     (Restated)  
Assets
               
Current assets:
               
Cash and cash equivalents (Note 3)
  $ 1,258,000     $ 4,129,000  
Marketable securities (Note 3)
          570,000  
Accounts receivable
    1,057,000       1,585,000  
Prepaid and refundable taxes
    222,000        
Prepaid expenses and other current assets (Note 3)
    1,405,000       3,458,000  
 
           
Total current assets
    3,942,000       9,742,000  
 
               
Artifacts owned, at cost (Note 2)
    4,476,000       4,476,000  
Salvor’s lien (Note 2)
    1,000       1,000  
Property and equipment, net (Note 3)
    738,000       2,033,000  
Exhibition licenses, net (Note 3)
    622,000       3,475,000  
Deferred income taxes (Note 4)
          2,504,000  
Other assets
    43,000       132,000  
 
               
 
           
 
  $ 9,822,000     $ 22,363,000  
 
           
 
               
Liabilities and Stockholders’ Equity
               
 
               
Current liabilities:
               
Accounts payable and accrued liabilities (Note 3)
    1,660,000       1,038,000  
Deferred revenue
    1,000,000       300,000  
Notes payable
    425,000       1,350,000  
 
           
Total current liabilities
    3,085,000       2,688,000  
 
               
Commitments and contingencies
           
 
               
Stockholders’ equity:
               
Common stock; $.0001 par value; authorized 40,000,000 shares; issued and outstanding 22,299,939 and 26,062,089 shares at February 28, 2005 and 2006, respectively
    2,000       3,000  
Common stock payable
          920,000  
Additional paid-in capital
    20,316,000       27,178,000  
Accumulated deficit
    (13,607,000 )     (8,324,000 )
Accumulated other comprehensive income (loss)
    26,000       (102,000 )
 
           
Total stockholders’ equity
    6,737,000       19,675,000  
 
           
 
               
 
  $ 9,822,000     $ 22,363,000  
 
           
The accompanying notes are an integral part of the consolidated financial statements.

21



 

Premier Exhibitions, Inc. and Subsidiaries
Consolidated Statements of Operations
                         
    Year Ended     Year Ended     Year Ended  
    February 29,     February 28,     February 28,  
    2004     2005     2006  
          (Restated)     (Restated)  
Revenue:
                       
Exhibition revenues
  $ 2,677,000     $ 6,320,000     $ 12,217,000  
Merchandise and other
    119,000       507,000       722,000  
Sale of coal
    68,000       30,000       102,000  
 
                 
Total revenue
    2,864,000       6,857,000       13,041,000  
 
Cost of revenue:
                       
Exhibition costs
          2,891,000       2,672,000  
Cost of merchandise sold
    110,000       257,000       102,000  
Cost of coal sold
    21,000       9,000       10,000  
 
                 
Total cost of revenue (exclusive of depreciation and amortization shown separately below)
    131,000       3,157,000       2,784,000  
 
Gross profit
    2,733,000       3,700,000       10,257,000  
 
                 
 
Operating expenses:
                       
General and administrative
    3,402,000       4,397,000       6,620,000  
Depreciation and amortization
    253,000       441,000       980,000  
Litigation settlement
    175,000              
Loss on sale of fixed assets
          356,000       84,000  
Expedition costs
          879,000        
 
                 
Total operating expenses
    3,830,000       6,073,000       7,684,000  
 
                 
 
Income (loss) from operations
    (1,097,000 )     (2,373,000 )     2,573,000  
 
Other income and expenses:
                       
Interest income
    9,000       2,000       85,000  
Interest expense
          (46,000 )     (47,000 )
Other income
                168,000  
 
                 
Total other income and expenses
    9,000       (44,000 )     206,000  
 
Income (loss) before provision for income taxes
    (1,088,000 )     (2,417,000 )     2,779,000  
 
Provision (benefit) for income taxes
                (2,504,000 )
 
Net income (loss)
  $ (1,088,000 )   $ (2,417,000 )   $ 5,283,000  
 
                 
 
Net income (loss) per share:
                       
Basic income (loss) per common share
  $ (0.06 )   $ (0.12 )   $ 0.22  
 
                 
Diluted income (loss) per common share
  $ (0.06 )   $ (0.12 )   $ 0.19  
 
                 
 
Shares used in basic per share calculations
    18,960,047       20,818,898       24,081,186  
 
                 
Shares used in diluted per share calculations
    18,960,047       20,818,898       28,230,491  
 
                 
The accompanying notes are an integral part of the consolidated financial statements.

22



 

Premier Exhibitions, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
Years ended February, 29, 2004, February 28, 2005 (Restated), and February 28, 2006 (Restated)
                                                         
                                            Accumulated        
    Common Stock     Common     Additional             Other        
    Number of             Stock     Paid-in     Accumulated     Comprehensive     Stockholders’  
    Shares     Amount     Payable     Capital     Deficit     Income (Loss)     Equity  
    18,675,047     $ 2,000     $       $ 16,650,000     $ (10,102,000 )   $     $ 6,550,000  
 
Common stock issued for services
    450,000                     108,000                   108,000  
Issuance of compensatory stock options
                        434,000                   434,000  
Net loss
                              (1,088,000 )           (1,088,000 )
 
 
                                         
    19,125,047     $ 2,000     $     $ 17,192,000     $ (11,190,000 )   $     $ 6,004,000  
 
                                         
 
                                                       
Common stock issued for services
    805,000                     277,000                   277,000  
Issuance of common stock in exchange for options
    900,000                     1,569,000                   1,569,000  
Issuance of common stock in equity raise
    1,469,892                     1,278,000                   1,278,000  
Net loss
                              (2,417,000 )           (2,417,000 )
Foreign currency translation gain
                                            26,000       26,000  
 
 
                                         
Balance, February 28, 2005 (Restated)
    22,299,939     $ 2,000     $     $ 20,316,000     $ (13,607,000 )   $ 26,000     $ 6,737,000  
 
                                         
 
                                                       
Common stock issued for exercise of warrants and options
    87,014             97,000       69,000                   166,000  
Common stock issued for equity investment
    300,000                     500,000                   500,000  
Common stock and warrants issued for acquisition
    200,000                     608,000                   608,000  
Common Stock issued in exchange for surrender of warrants
    200,000                                        
Common Stock and warrants issued for private placement
    2,975,136                     4,968,000                   4,968,000  
Issuance of employee stock options
                        256,000                   256,000  
Issuance of consulting warrants
                        462,000                   462,000  
Issuance of consulting stock for services
                  823,000                         823,000  
Net income
                              5,283,000             5,283,000  
 
Other comprehensive loss:
                                                     
Unrealized loss on marketable securities
                                  (98,000 )     (98,000 )
Foreign currency translation loss
                                  (30,000 )     (30,000 )
 
                                                   
Total other comprehensive loss
                                  (128,000 )     (128,000 )
 
 
                                         
Balance, February 28, 2006 (Restated)
    26,062,089     $ 3,000     $ 920,000     $ 27,179,000     $ (8,324,000 )   $ (102,000 )   $ 19,675,000  
 
                                         
The accompanying notes are an integral part of the consolidated financial statements.

23



 

Premier Exhibitions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
                         
    Year Ended     Year Ended     Year Ended  
    February 29,     February 28,     February 28,  
    2004     2005     2006  
    (Restated)     (Restated)     (Restated)  
Cash flows from operating activities:
                       
Net income (loss)
  $ (1,088,000 )   $ (2,417,000 )   $ 5,283,000  
 
                 
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
                       
Depreciation and amortization
    253,000       441,000       980,000  
Issuance of common stock for interest expense
          6,000        
Issuance of common stock in exchange for options
          1,569,000        
Issuance of common stock and warrants for services
    108,000       277,000       1,285,000  
Issuance of compensatory stock options
    434,000             256,000  
(Increase) decrease in cost of artifacts
          3,000       (1,000 )
Loss on disposal of fixed assets
          356,000       84,000  
Other income from default on sale of Carpathia
                (168,000 )
Changes in operating assets and liabilities:
                       
(Increase) decrease in accounts receivable
    (225,000 )     (704,000 )     (528,000 )
(Increase) decrease in deferred income taxes
                (2,504,000 )
(Increase) decrease in prepaid and refundable taxes
    290,000       (1,000 )     222,000  
(Increase) decrease in prepaid expenses and other current assets
    618,000       (1,031,000 )     (2,053,000 )
(Increase) decrease in other assets
    (715,000 )     39,000       596,000  
Increase (decrease) in deferred revenue
    (735,000 )     1,000,000       (700,000 )
Increase (decrease) in accounts payable and accrued liabilities
    135,000       411,000       (622,000 )
 
                 
Total adjustments
    163,000       2,366,000       (3,153,000 )
 
                 
 
 
                 
Net cash provided by operating activities
    (925,000 )     (51,000 )     2,130,000  
 
                 
 
Cash flows used by investing activities:
                       
Purchases of property and equipment
    (21,000 )     (964,000 )     (1,774,000 )
Purchase of exhibition licenses
    (452,000 )     (233,000 )     (2,082,000 )
Proceeds from sale of fixed assets
          230,000        
Purchase of certificate of deposit
                (500,000 )
 
                 
Net cash used by investing activities
    (473,000 )     (967,000 )     (4,356,000 )
 
                 
 
Cash flows from financing activities:
                       
Proceeds from notes payable
          500,000       2,425,000  
Principal payments on notes payable
          (75,000 )     (2,932,000 )
Proceeds from option and warrant exercises
                166,000  
Proceeds from sale of common stock
          1,278,000       5,468,000  
 
                 
Net cash provided by financing activities
          1,703,000       5,127,000  
 
                 
 
Effects of exchange rate changes on cash and cash equivalents
          26,000       (30,000 )
 
                 
Net increase (decrease) in cash and cash equivalents
    (1,398,000 )     711,000       2,871,000  
Cash and cash equivalents at beginning of year
    1,945,000       547,000       1,258,000  
 
                 
Cash and cash equivalents at end of year
  $ 547,000     $ 1,258,000     $ 4,129,000  
 
                 
Supplemental disclosure of cash flow information:
                       
Cash paid during the period for interest
  $     $ 40,000     $ 39,000  
 
                 
     Supplemental disclosure of non-cash investing and financing activities:
During the year ended February 28, 2006, the Company issued 200,000 shares of its common stock and 300,000 warrants to acquire its common stock in conjunction with its acquisition of Exhibitions International, LLC. The value of the Common Stock was $308,000 and the estimated value of the warrants was approximately $299,000. The Company also assumed approximately $750,000 of the debt of Exhibitions International, LLC. These values are included in exhibition licenses in the Company’s financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
24



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
     Premier Exhibitions, Inc. initially conducted business as Titanic Ventures Limited Partnership (“TVLP”). In 1993, the Company acquired all of TVLP’s assets and assumed all of TVLP’s liabilities. The transaction was accounted for as a “reverse acquisition” with TVLP deemed to be the acquiring entity. Premier Exhibitions, Inc. and TVLP are referred to as the “Company” as the context dictates.
     Effective at the close of business on October 14, 2004, the Company reorganized into a holding company structure whereby Premier Exhibitions, Inc. became the holding company of RMS Titanic, Inc., a wholly-owned subsidiary of the Company. RMS Titanic, Inc. is the entity that conducts the Company’s Titanic exhibitions.
     The reorganization into a holding company structure was effected through the formation of Premier Exhibitions, Inc. as a wholly owned subsidiary of RMS Titanic, Inc. and the formation of RMST MergerSub, Inc., a Florida corporation, as a wholly owned subsidiary of Premier Exhibitions, Inc. An agreement and plan of merger dated October 13, 2004 between RMS Titanic, Premier Exhibitions, and MergerSub provided for the merger of MergerSub with and into RMS Titanic, Inc. with RMS Titanic, Inc. as the surviving corporation. As a result of the merger, RMS Titanic, Inc. became a wholly-owned subsidiary of the Company, and each outstanding share of common stock of RMS Titanic, Inc. issued and outstanding immediately prior to the merger was converted into one share of Premier Exhibitions, Inc. common stock. Also pursuant to the merger agreement, each option to purchase RMS Titanic, Inc. common stock was converted into an option to purchase, on the same terms and conditions, an identical number of shares of Premier Exhibitions, Inc. common stock.
     In June 2000, the Company established a wholly-owned United Kingdom subsidiary, Danepath Ltd., for the purpose of purchasing the research vessel, RRS Challenger, a 178 foot- 1050 ton ship that was to be utilized in the expedition to the RMS Titanic wreck site during that summer. This vessel was acquired on June 30, 2000 from the Natural Environment Research Council, a British governmental agency. The name of the vessel was changed to the SV Explorer. On April 2, 2002, the Company sold its Danepath subsidiary to Argosy International Ltd., an affiliated party. In January 2003, in settlement of an outstanding obligation from Argosy, the Company acquired the vessel, the SV Explorer, and related marine equipment in a wholly owned United Kingdom subsidiary of the Company, Seatron Limited. On January 21, 2005, the Company sold the SV Explorer for $167,000 to Formaes ApS. Skelgaardsvej 10, DK-9340 Asss, a Denmark company. The sale resulted in a loss of $440,000 during the years ended February 28, 2005 and 2006.
     In May 2001, the Company acquired the ownership rights to the shipwreck the RMS Carpathia. The Carpathia was the vessel that rescued the survivors from the Titanic. The asset is valued at a cost of ($1,374,000) which is the un-amortized value of other intangible assets purchased by the Company in April 2000 from this same entity ($555,000), plus the fair market value of 1,104,545 newly issued shares of common stock ($819,000).
     On March 6, 2002, in a separate agreement, the Company sold to Argosy International, for minimal consideration, its 100% ownership interest in White Star Marine Recovery, Ltd. That sale terminated the Company’s obligation under an agreement with Argosy International for the consulting services of Graham Jessop. At the time of this sale, White Star Marine Recovery had no assets other than this consulting contract.
     The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.
     The Company was formed in 1987 for the purposes of exploring the wreck and surrounding oceanic area of the vessel the Titanic; obtaining oceanic material and scientific data available in various forms, including still and moving photography and artifacts (together “Artifacts”) from the wreck site, and utilizing such data and Artifacts in revenue-producing activities such as touring exhibitions, television programs and the sale of still photography. The Company also earns revenue from the sale of coal and Titanic-related products.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     The Company was declared salvor-in-possession of the Titanic pursuant to a judgment entered in the Federal District Court for the Eastern District of Virginia. On April 12, 2002, the United States Court of Appeals for the Fourth Circuit (the “Fourth Circuit”) affirmed two orders of the United States District Court for the Eastern District of Virginia, Norfolk Division. R.M.S. Titanic, Inc. v. The Wrecked and Abandoned Vessel..., 2002 U.S. App. LEXIS 6799 (4th Cir. 2002). Dated September 26, 2001 and October 19, 2001, these orders restricted the sale of Artifacts recovered by the Company from the Titianic wreck site. In rendering its opinion, the Fourth Circuit reviewed and declared ambiguous the June 7, 1994 order of the District Court that had awarded ownership to the Company of all items then salvaged from the wreck of the Titanic as well as all items to be salvaged in the future by the Company so long as the Company remained salvor-in-possession of the Titanic. Having found the June 7, 1994 order ambiguous, the Fourth Circuit reinterpreted the order to convey only possession, not title, pending determination of a salvage award.
     As a consequence of the Fourth Circuit’s decision, the Company reviewed the carrying cost of Artifacts recovered from Titanic expeditions to determine impairment of values. Up until the ruling by the Fourth Circuit, the Company was carrying the value of the artifacts that it recovered from the Titanic wreck site at the respective costs of the expeditions, as the Company believed it was the owner of all Artifacts recovered. The Company had relied on ownership being granted by the United States District Court in the June 7, 1994 Order. As a consequence of this review and in compliance with the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 142- Impairment of Long-Lived Assets and SFAS No. 121- The Valuation of Non-Goodwill Intangibles, it was determined that an impairment of realizable values had occurred because of the Fourth Circuit’s ruling that removed ownership of certain Artifacts from the Company that were under the jurisdiction of the United States District Court. The District Court has jurisdiction of all Artifacts that have been recovered from the Titanic wreck site, except for 1,800 Artifacts recovered in the Company’s 1987 expedition to the titanic. These 1987 Artifacts were previously granted to the Company by the government of France in 1993. Furthermore, the salvor’s lien that the Fourth Circuit Court acknowledged the Company was entitled to under its salvor-in-possession status could not be quantified other than for a de minimus amount because of the uncertainty of the wide latitude given a United States Federal Maritime Court to apply the Blackwall factors for a salvor’s award and the adjustment to such an award, if any, for revenues the Company may have derived from the Artifacts. In this process of determining the appropriate award, courts generally rely on the six factors set out in The Blackwall, 77. U.S. (10 Wall.) 1,14 (1869) that include: (1) the labor expended by the salvors in rendering the salvage service; (2) the promptitude, skill, and energy displayed in rendering the service and saving the property; (3) the value of the property employed by the salvors in rendering the service, and the danger to which such property was exposed; (4) the risk incurred by the salvors in securing the property from the impending peril; (5) the value of the property saved and (6) the degree of danger from which the property was rescued. Therefore an impairment charge of an amount equal to the costs of recovery for all expeditions after 1987, net of tax benefit, was established less a re-classification of $1,000, a de minimus amount, for the value of a salvor’s lien.
     Since August 1987, the Company has completed seven expeditions to the wreck site of the Titanic and has recovered approximately 5,500 Artifacts, including a large section of the Titanic’s hull and coal from the wreck site.
     Costs associated with the care, management and preservation of recovered Artifacts are expensed as incurred. A majority of the Artifacts not in exhibition are located within the United States.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     To ascertain that the aggregate net realizable value (“NRV”) of the Artifacts exceeds the direct costs of recovery of such Artifacts, the Company evaluates various evidential matters. Such evidential matters includes documented sales and offerings of Titanic-related memorabilia, insurance coverage obtained in connection with the potential theft, damage or destruction of all or part of the Artifacts and other evidential matter regarding the public interest in the Titanic.
     At each balance sheet date, the Company evaluates the period of amortization of intangible assets. The factors used in evaluating the period of amortization include: (i) current operating results, (ii) projected future operating results, and (iii) other material factors that affect the continuity of the business.
     Management believes that the carrying values of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value as a result of the short-term maturities of these instruments.
     The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses on these accounts. The Company considers highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents are stated at cost, which approximates market value. The Company’s cash equivalents are primarily invested in commercial paper, money market funds, and U.S. government-backed securities. The Company performs periodic evaluations of the relative credit standing of the financial institutions and issuers of its cash equivalents.
     Marketable securities which are available for sale are carried at fair value and the net unrealized gains and losses, net of the related tax effect, computed in marking these securities to market have been reported within stockholders’ equity.
     Accounts receivable are customer obligations due under normal trade terms. The Company uses the allowance method to account for uncollectible accounts receivable. The Company regularly evaluates the need for an allowance for uncollectible accounts by taking into consideration factors such as the type of client; governmental agencies or private sector; trends in actual and forecasted credit quality of the client, including delinquency and late payment history; and current economic conditions that may affect a client’s ability to pay. The Company’s bad debt expense and allowance for doubtful accounts for its fiscal years ended February 28, 2005 and 2006, and for the quarter ended May 31, 2006, was $0 in each such period. The Company’s policy is to write-off as uncollectible amounts not collected within 120 days, unless legal proceedings have been implemented to attempt to collect such amounts. In certain circumstances, and depending on customer creditworthiness, the Company may require a bank letter of credit to guarantee the collection of its receivables.
     Prepaid expenses consist of prepaid consulting and services that are amortized over the term of the agreements, prepaid lease payments that are expensed when earned, and reimbursable expenses that are capitalized and recovered from each venue or our co-production partner.
     Exhibition licenses represent exclusive rights to exhibit certain anatomical specimens and organs paid for the use of the licensor’s technology, documentation, and know-how with respect to the plastination of human body specimens and organs. Depending upon the agreement with the rights holder, the Company may obtain the rights to use anatomical specimens and organs in multiple exhibitions over multiple years.
     The Company evaluates the future recoverability of capitalized exhibition licenses on a quarterly basis or when events or circumstances indicate the capitalized license may not be recoverable. The recoverability of capitalized exhibition license costs is evaluated based on the expected performance of the exhibitions in which the anatomical specimens and organs are to be used. As the Company’s exhibition licenses extend for multiple exhibitions over multiple years, the Company also assesses the recoverability of capitalized exhibition license costs based on certain qualitative factors such as the success of other exhibitions utilizing anatomical specimens and whether there are any anatomical specimen-related exhibitions planned for the future. The Company expenses exhibition license costs when it believes such amounts are not recoverable. Capitalized exhibition license costs for those exhibitions that are cancelled are charged to expense in the period of cancellation.
     Commencing upon the related exhibition’s debut, capitalized exhibition license costs are amortized under the contract terms. As exhibition license contracts may extend for multiple years, the amortization of capitalized exhibition license costs relating to such contracts may extend beyond one year. For exhibitions that have been opened, the Company evaluates the future recoverability of capitalized amounts on a quarterly basis. The primary evaluation criterion is actual exhibition performance.
     Significant judgments and estimates are utilized by Company management in the assessment of the recoverability of capitalized costs. In evaluating the recoverability of capitalized costs, the assessment of expected exhibition performance utilizes forecasted sales amounts and estimates of additional costs to be incurred. If actual exhibition revenues, combined with currently forecast future exhibition revenues, are less than the revenue required to amortize the remaining licensing costs an impairment charge could result. Additionally, as noted above, as many of exhibition licenses extend for multiple products over multiple years, the Company also assesses the recoverability of exhibition license costs based on certain qualitative factors such as the success of other exhibitions utilizing anatomical specimens and whether there are any anatomical specimen-related exhibitions planned for the future. Material differences may result in the amount and timing of charges for any period if Company management makes different judgments or utilizes different estimates in evaluating these qualitative factors.
     Revenue from the licensing of the production and exploitation of audio and visual recordings by third parties, related to the Company’s expeditions, is recognized at the time that the expedition and dive takes place.
     Revenue from the licensing of still photographs and video is recognized at the time the rights are granted to the licensee.
     Revenue from the granting of sponsorship rights related to the Company’s expeditions and dives is recognized at the completion of the expedition.
     Revenue sharing from the sale of Titanic-related products by third parties is recognized when the item is sold.
     Revenue from license agreements is recognized pro-rata over the life of the agreements. Amounts received in excess of amounts earned are shown as deferred revenue.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Revenue from exhibitions is recognized when earned and reasonably estimable. The Company’s exhibition agreements may have a fixed fee, may be based on a percentage of revenue, or a combination of the two. A variable fee arrangement may include a nonrefundable or recoupable guarantee paid in advance or over the exhibition period. The following are the conditions that must be met in order to recognize revenue:
    persuasive evidence of an exhibition arrangement with a customer exists;
 
    the exhibit is complete and, in accordance with the terms of the arrangement, has been delivered;
 
    the exhibition period of the arrangement has begun and/or the customer can begin its exploitation, exhibition or sale;
 
    the arrangement fee is fixed or determinable; and
 
    collection of the arrangement fee is reasonably assured.
     The Company sells coal recovered from the Titanic wreck site. Revenue from sales of such coal is recognized at the date of shipment to customers. Recovery costs attributable to the coal are charged to operations as revenue from coal sales are recognized.
     Income tax expense includes income taxes currently payable and deferred taxes arising from temporary differences between financial reporting and income tax bases of assets and liabilities. They are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
     Property and equipment are stated at cost. Depreciation of property and equipment is provided for by the straight-line method over the following estimated lives of the related assets
         
Exhibitry equipment
  5 years
Marine equipment
  10 years
Office equipment
  5 years
Furniture and fixtures
  5 years
     Basic earnings per share is computed based on the weighted-average number of common shares outstanding. Diluted earnings per share is computed based on the weighted-average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive shares of common stock include non-qualified stock options and nonvested share awards. The computation of dilutive shares outstanding excludes the out-of-the-money non-qualified stock options because such outstanding options’ exercise prices were greater than the average market price of our common shares and, therefore, the effect would be antidilutive (i.e., including such options would result in higher earnings per share). The exercise prices of all of the Company’s outstanding options and warrants are less than the market value of the common stock underlying such securities. As a result, the Company has not excluded any securities in calculating its earnings per share because such securities would be antidilutive.
     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts in the financial statements. Actual results could differ from those estimates.
     In the event that facts and circumstances indicate that the carrying value of long lived assets, including associated intangibles may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the assets carrying amount to determine if a write down to market value or discounted cash flows is required.
     Recent Accounting Pronouncements
     In November 2004, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 151, “Inventory Costs: an amendment of APB No. 43, Chapter 4”, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe the provisions of SFAS No. 151, when applied, will have a material impact on its financial position or results of operations.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets” which amends Accounting Principles Board (“APB”) Opinion No. 29, “Accounting for Nonmonetary Transactions”. SFAS 153 amends APB 29 to eliminate the fair-value exception for nonmonetary exchanges of similar productive assets and replace it with a general exception for nonmonetary exchanges that do not have commercial substance. It is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. This statement is not anticipated to have a material impact on the Company’s financial position or results of operations.
     In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS 123R”), which replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” FAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under FAS 123, no longer will be an alternative to financial statement recognition. The Company was required to adopt FAS 123R by March 1, 2006. Under FAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The Company early adopted the fair value recognition provisions of FAS 123R, using the modified prospective transition method, requiring it to recognize expense related to the fair value of our stock-based compensation awards during the fiscal year ended February 28, 2005. The adoption of FAS 123R did not have a material impact on the Company’s financial position or results of operations.
     In November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards,” which provides an alternative transition method to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of FAS 123R.
     In March 2005, the SEC issued Staff Accounting Bulletin No. 107, Share-Based Payment (“SAB No. 107”). SAB No. 107 provides guidance regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations, including guidance related to valuation methods; the classifications of compensation expense; non-GAAP financial measures; the accounting for income tax effects of share-based payment arrangements; disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operation subsequent to the adoption of SFAS No. 123(R); and modifications of options prior to the adoption of SFAS No. 123(R).
     In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which will require that, unless it is impractical to do so, a change in an accounting principle be applied retrospectively to prior periods’ financial statements for all voluntary changes in accounting principles and upon adoption of a new accounting standard if the standard does not include specific transition provisions. SFAS No. 154 supersedes APB Opinion No. 20, “Accounting Changes,” which previously required that most voluntary changes in accounting principles be recognized by including in the current period’s net income (loss) the cumulative effect of changing to the new accounting principle. SFAS No. 154 also provides that if an entity changes its method of depreciation, amortization, or depletion for long-lived, non-financial assets, the change must be accounted for as a change in accounting estimate. Under APB No. 20, such a change would have been reported as a change in an accounting principle. SFAS No. 154 became applicable to accounting changes and error corrections made by the Company in fiscal year ended February 28, 2006. The effect of applying this new standard will depend upon whether material voluntary changes in accounting principles, changes in estimates or error corrections occur as well as consideration of transition and other provisions included in the new standard.
     In June 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 05-06, “Determining the Amortization Period for Leasehold Improvements.” EITF 05-06 provides guidance for determining the amortization period used for leasehold improvements acquired in a business combination or purchased after the inception of a lease, collectively referred to as subsequently acquired leasehold improvements. EITF 05-06 provides that the amortization period used for the subsequently acquired leasehold improvements to be

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the lesser of (i) the subsequently acquired leasehold improvements’ useful lives, or (ii) a period that reflects renewals that are reasonably assured upon the acquisition or the purchase. EITF 05-06 is effective on a prospective basis for subsequently acquired leasehold improvements purchased or acquired in periods beginning after the date of the FASB’s ratification, which was on June 29, 2005. The adoption of EITF No. 05-06 has not had material effect on the Company’s financial position, cash flows or results of operations.
     In October 2005, the FASB issued FASB Staff Position (“FSP”) 13-1, “Accounting for Rental Costs Incurred During a Construction Period,” to clarify the proper accounting for rental costs incurred on building or ground operating leases during a construction period. The FSP requires that rental costs incurred during a construction period be expensed, not capitalized. The statement is effective for the first reporting period beginning after December 15, 2005. The Company does not believe adoption of FSP 13-1 will have a material effect on the Company’s financial position, cash flows or results of operations.
Note 2. Artifacts
     Artifacts recovered in the 1987 Titanic expedition are carried at the lower of cost of recovery or NRV. The Government of France granted the Company ownership of these Artifacts in 1993. The costs of recovery are the direct costs of chartering of vessels and related crews and equipment required to complete the dive operations for that expedition. Coal recovered in two expeditions is the only item available for sale. Periodically, as sales of coal occur, ten percent of the sale value is deducted from the carrying costs of Artifacts recovered. During 2006, 2005 and 2004, $1,400, $3,000, and $6,000, respectively, were deducted from Artifacts.
     Artifacts, at cost, consists of the following:
                 
    February 28, 2005   February 28, 2006
 
Artifacts recovered, Titanic
  $ 3,102,000     $ 3,102,000  
Artifacts, Carpathia
    1,374,000       1,374,000  
 
 
  $ 4,476,000     $ 4,476,000  
     On April 12, 2002, the United States Court of Appeals for the Fourth Circuit reinterpreted the June 7, 1994 order that had awarded ownership of the Artifacts to the Company to convey only possession, not title, pending determination of a salvage award.
     As a consequence of the Fourth Circuit’s decision, the Company reviewed the carrying cost of Artifacts recovered from Titanic expeditions to determine impairment of values. Up until the ruling by the Fourth Circuit, the Company was carrying the value of the Artifacts that it recovered from the Titanic wreck site at the respective costs of the expeditions as the Company believed it was the owner of all Artifacts recovered. The Company had relied on ownership being granted by the United States District Court in the June 7, 1994 Order. As a consequence of this review and in compliance with the requirements of “SFAS 142” — Impairment of Long-Lived Assets and “SFAS 121,” The Valuation of Non-Goodwill Intangibles, it was determined that an impairment of realizable values had occurred because of the Fourth Circuit’s ruling that removed ownership of certain Artifacts from the Company that were under the jurisdiction of the United States District Court. The District Court has jurisdiction of all Artifacts that have been recovered from the Titanic wreck site except for those 1,800 Artifacts recovered in the 1987 expedition. These 1987 Artifacts were previously granted to the Company by the government of France in 1993. Furthermore, the salvor’s lien that the Fourth Circuit Court acknowledged the Company was entitled to under its salvor-in-possession status could not be quantified other than for a de minimus amount because of the uncertainty of the wide latitude given a United States Federal Maritime Court to apply the Blackwall factors for a salvor’s award and the adjustment to such an award, if any, for revenues the Company may have derived from the Artifacts. In this process of determining the appropriate award, courts generally rely on the six factors set out in The Blackwall, 77. U.S. (10 Wall.) 1,14 (1869) that include: (1) the labor expended by the salvors in rendering the salvage service; (2) the promptitude, skill, and energy displayed in rendering the service and saving the property; (3) the value of the property employed by the salvors in rendering the service, and the danger to which such property was exposed; (4) the risk incurred by the salvors in securing the property from the impending peril; (5) the value of the property saved and (6) the degree of danger from which the property was rescued. Therefore an impairment charge of an amount

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equal to the costs of recovery for all expeditions after 1987, net of tax benefit, was established less a re-classification of $1,000, a de minimus amount, for the value of a salvor’s lien.
     In May 2001, the Company acquired ownership of the wreck of the RMS Carpathia. To-date the Company has not undertaken any expeditions to the Carpathia and it has not recovered artifacts from the wreck of the Carpathia. The Company evaluates and reviews the wreck’s impairment in compliance with the requirements of “SFAS 142,” Impairment of Long-Lived Assets and SFAS 121- The Valuation of Non-Goodwill Intangibles.” The Company evaluates and records impairment losses, as circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by the asset is less than the carrying amount of the asset. No such events have occurred with regard to the Carpathia. The Company at present has no definitive plans to conduct an expedition to the Carpathia.
     On November 30, 2005, the Company sold a 3% ownership interest in the RMS Carpathia to Legal Access Technologies, Inc. for $500,000. In addition, the Company sold it a twenty-five year license to conduct joint expeditions with the Company to the Carpathia for the purpose of exploring and salvaging the Carpathia for $200,000. Under the terms of this agreement, Legal Access Technologies, Inc. was obligated to make payments under a payment schedule of $100,000 on December 12, 2005 and the balance of $400,000 on February 15, 2006. In the event of default, the Company had the option to terminate this agreement. The Company reflected this transaction as a gain on the sale of the Carpathia interest of $459,000 during the quarter ended November 30, 2005. Pursuant to the terms of the agreement, Legal Access Technologies, Inc. was obligated to make the following scheduled payments to the Company: (i) $100,000 on December 12, 2005; and (ii) $400,000 on February 15, 2006. The $100,000 payment was collateralized with 1,400,000 shares of Legal Access Technologies, Inc.’s common stock, which satisfied its obligation to make the first payment. Legal Access Technologies, Inc. failed to make the second scheduled payment and, on April 3, 2006, the Company terminated its agreement with Legal Access Technologies, Inc. In accordance with the agreement, the Company retained the collateral in the form of Legal Access Technologies, Inc.’s common stock. As a result of this default and the Company’s subsequent termination of the agreement, the Company reversed the gain of $459,000 net of the gain from the retention of the marketable securities of $168,000 that was recognized during our quarter ended November 30, 2005.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Balance Sheet Details
The composition cash, cash equivalents, and available-for-sale marketable securities is as follows:
                 
    February 28, 2005   February 28, 2006
 
Cash
  $ 1,258,000     $ 729,000  
Money market mutual funds
          3,400,000  
     
Total
  $ 1,258,000     $ 4,129,000  
 
               
Certificate of deposit
          500,000  
Securities
          70,000  
     
Total
  $     $ 570,000  
The composition of prepaid expenses and other current assets is as follows:
                 
    February 28, 2005   February 28, 2006
 
Deposits
  $ 5,000     $ 6,000  
Prepaid insurance
    118,000       38,000  
Prepaid commissions
    60,000       60,000  
Reimbursable expenses — exhibitions (1)
    109,000       1,165,000  
Prepaid lease payments
          921,000  
Prepaid services
    1,079,000       1,242,000  
Deferred financing costs
    34,000       26,000  
 
Total
  $ 1,405,000     $ 3,458,000  
The composition of property and equipment, which is stated at cost, is as follows:
                 
    February 28, 2005   February 28, 2006
 
Exhibitry equipment
  $ 2,323,000     $ 3,955,000  
Office equipment
    227,000       276,000  
Furniture and fixtures
    164,000       173,000  
 
 
    2,714,000       4,404,000  
Less accumulated depreciation
    1,976,000       2,371,000  
 
Total
  $ 738,000     $ 2,033,000  
 
 
(1)   Reimbursable expenses – exhibitions are primarily costs incurred by the Company for the installation of exhibitions that are reimbursed from either a museum or a co-production partner. The nature of these installation costs include travel related expenses for the installation crew, labor, materials, artifact and specimen freight costs and other costs related to opening an exhibition. These costs are normally reimbursed within 45 to 60 days of opening of an exhibition.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     On January 21, 2005, the Company sold the SV Explorer, a 178 foot- 1050 ton ship that was to be utilized in the expedition to the Titanic for $167,000 to Formaes ApS. Skelgaardsvej 10, DK-9340 Asss, a Denmark company which resulted in a loss of $440,000 during the years ended February 28, 2005 and 2006.
The composition of exhibition licenses is as follows:
                 
    February 28, 2005   February 28, 2006
 
Exhibition License (April 2004)
  $ 685,000     $ 685,000  
Exhibition License (May 2005)
          3,438,000  
 
 
    685,000       4,123,000  
Less accumulated amortization
    63,000       648,000  
 
Total
  $ 622,000     $ 3,475,000  
 
     In April 2004, the Company entered into an exhibition tour agreement to license the rights to exhibit certain anatomical specimens owned by Exhibit Human: The Wonders Within, Inc. The licensed specimens are currently in the Company’s possession and are being exhibited in one of its exhibitions. The Company advanced $685,000 in cash to the licensor under the license and exhibition tour agreement. The Company recorded this amount as an intangible asset, and the Company is amortizing the license over its useful life, which is ten years (the original term of this license is five years with automatic extensions for an additional five years at the Company's option, which extensions do not require payment of any additional consideration by the Company). The useful life of the April 2004 agreement coincides with the term of the agreement.
     In May 2005, the Company acquired a company that held certain exclusive licensing rights to certain anatomical specimens and exhibitry that significantly broadened the Company’s offerings in its human anatomy educational exhibition business. The purchase price paid for the license was $3,438,000 (see Note 11 — Acquisition) in the form of cash, common stock, warrants, and the assumption of debt which represents its fair value. This amount was recorded as an intangible asset and is being amortized over the period of its estimated benefit period of 5 years. As of February 28, 2006, accumulated amortization was $516,000.
     The useful life of the May 2005 exhibition license coincides with the term of the agreement pursuant to which the Company was granted both exclusive rights to present plastinated human body specimen exhibitions obtained from Dalian Medical University Plastination Co. LTD, in the United States, Canada, and South America, as well as non-exclusive rights to present exhibitions in Western Europe. The term of the agreement is for a period of five years from the opening of the Company’s first exhibition utilizing the specimens subject to the license. The Company has therefore determined that a useful life of five years for this license is appropriate.
     Based on the current amounts of exhibition licenses subject to amortization, the estimated amortization expense for each of the succeeding 5 years is as follows: 2007, 2008, 2009, 2010 - $688,000; 2011 – $171,000.
     The composition of accounts payable and accrued liabilities is as follows:
                 
    February 28, 2005   February 28, 2006
 
Professional and consulting fees payable
  $ 1,231,000     $ 280,000  
Settlement accruals
    107,000       599,000  
Other
    322,000       159,000  
     
 
  $ 1,660,000     $ 1,038,000  

33



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Income Taxes
     The total provision for income taxes differs from that amount which would be computed by applying the U.S. federal income tax rate to income before provision for income taxes. The reasons for these differences are as follows:
                         
    Year Ended February 28 (29),
    2004   2005   2006
 
Current:
                       
Statutory federal income tax rate
    (34.0 )%     (34.0 )%     34.0 %
State and local net of federal deferred
    (6.0 )%     (6.0 )%     6.0 %
Net operating loss carry-forward
    40.0 %     40.0 %     (40.0 )%
Reverse of valuation allowance
    0.0 %     0.0 %     (74.0 )%
     
Effective income tax rate
    0.0 %     0.0 %     (74.0 %)
The net deferred income tax asset consists of the following:
                 
    Year Ended February 28,
    2005   2006
 
Net operating loss carry-forward
  $ 2,800,000     $ 2,504,000  
Deferred tax asset — expenses not currently deductible
           
Valuation allowance for doubtful tax assets
    (2,800,000 )      
     
 
  $     $ 2,504,000  
     The net operating loss carry-forwards of approximately $5,842,000 expire in varying amounts from 2021 to 2027. The Company recognizes the amount of taxes payable or refundable for the current year and recognizes deferred tax liabilities and assets for the expected future tax consequences of events and transactions that have been recognized in the Company’s financial statements or tax returns. The Company currently has substantial net operating loss carryforwards. The Company has reversed valuation allowance against net deferred tax assets. The change in the valuation allowance for the year ending February 28, 2006 was a reduction of $2,800,000.
     The Company determines its effective tax rate by estimating its permanent differences resulting from the differing treatment of items for tax and accounting purposes. The carrying value of the Company’s net deferred tax assets is based on the Company’s present belief that it is more likely than not that it will be able to generate sufficient future taxable income to utilize such deferred tax assets, based on estimates and assumptions. If these estimates and related assumptions change in the future, the company may be required to record or adjust valuation allowances against its deferred tax assets resulting in additional income tax expense in the company’s consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for changes to valuation allowances quarterly. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the present need for a valuation allowance, in the event the company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. Should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

34



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Stockholders’ Equity
Income (Loss) Per Share
     Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares outstanding during the period.
     Diluted net income (loss) per share is computed by using the weighted-average number of shares of common stock outstanding and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method.
     The following table illustrates the computation of basic and dilutive net income (loss) per share and provides a reconciliation of the number of weighted-average basic and diluted shares outstanding:
                         
    Year Ended February 28 (29),
    2004   2005   2006
     
        (Restated)   (Restated)
Numerator:
                       
Net income (loss)
  $ (1,088,000 )   $ (2,417,000 )   $ 5,283,000  
Denominator:
                       
Basic weighted-average shares outstanding
    18,960,047       20,818,898       24,081,186  
Effect of dilutive stock options & warrants
                4,149,305  
     
Diluted weighted-average shares outstanding
    18,960,047       20,818,898       28,230,491  
     
 
                       
Net income (loss) per share:
                       
Basic
  $ (0.06 )   $ (0.12 )   $ 0.22  
     
Diluted
  $ (0.06 )   $ (0.12 )   $ 0.19  
     
Other Comprehensive (Loss) Income
The composition of accumulated other comprehensive (loss) income, net of related taxes are as follows:
                 
    February 28, 2005   February 28, 2006
 
Foreign currency translation adjustments
  $ 26,000     $ (30,000 )
Unrealized loss on marketable securities
          (98,000 )
     
 
  $ 26,000     $ (128,000 )
Common Stock Issuances
     Prior to the acquisition of TVLP’s assets, the Company initiated an exchange agreement with the holders of certain Class B warrants in which the holders would receive shares of the Company’s common stock in exchange for certain Class B warrants. Through February 28, 2003, the Company had received 20,700 Class B warrants to be exchanged for 20,700 shares of common stock of the Company, of which 16,500 shares still remain to be issued. There were 2,810,963 warrants outstanding as of February 28, 2006.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     During the year ended February 29, 2004, the Company issued 450,000 shares of common stock as payment for services and compensation.
     During the year ended February 28, 2005, the Company issued 150,000 shares of common stock as payment for services and 625,000 shares as payment for compensation.
     During the year ended February 28, 2006, the Company agreed to issue 350,000 shares of common stock as payment for services reflected in common stock payable.
     During the year ended February 28, 2005, the Company sold 1,469,927 shares of common stock and warrants to purchase 441,003 shares of common stock for aggregate consideration of $1,514,000. The net proceeds of the private placement were $1,278,000 after fees, expenses and other costs. In connection with the private placement, the Company issued warrants to purchase 293,985 shares of common stock to its placement agent. All of the warrants issued in the private placement are exercisable over a five-year term at an exercise price of $1.50 per share.
     On April 13, 2005, the Company received $500,000 in connection with the sale of 300,000 shares of the Company’s common stock to its joint venture partner. The common shares were issued in this transaction at a price of $1.67 per share in a private transaction.
     During the year ended February 28, 2006, in connection with the Exhibitions International, LLC acquisition, the Company issued the following securities: (1) 200,000 shares of the Company stock, valued at $1.54 per share; and (2) 300,000 warrants to acquire Company common stock with a three year term, each of which is for 100,000 shares with at respective strike prices of $1.25, $1.50 and $1.75.
     In October 2005, the Company completed a private placement of its securities, in which the Company sold units consisting of shares of common stock and warrants to purchase shares of common stock. Each unit consisted of 20,000 shares of common stock at a price of $1.67 per share and a five-year warrant to purchase 13,320 shares of common stock at an exercise price of $2.50 per share. The units sold in the October 2005 private placement represented a total of 4,956,577 shares of the Company’s common stock. This total consists of 2,975,136 shares of common stock and warrants to purchase up to 1,981,441 shares of common stock. The warrants provide for customary anti-dilution adjustments in the event of stock splits, stock dividends, and recapitalizations. The warrants do not confer any voting rights or any other shareholder rights.
     On October 1, 2005, the company entered into two three-year consulting agreements for investor relations services with a firm and an individual which required monthly cash consulting fees of $52,250 in October 2005, November 2005 and December 2005. Thereafter, consulting fees are $22,550 per month during the first year and reduce to $13,300 for the remaining term. These agreements require the Company to issue 350,000 shares of common stock and 250,000 five-year warrants to purchase the Company’s common stock at an exercise price of $2.00 per share. The fair value of the warrants is estimated on the date of grant using the Black-Scholes option-pricing model and is being amortized over the three-year agreement term. We recorded $224,400 in consulting expense related to these two agreements during the year ended February 28, 2006. The common stock has not been issued at February 28, 2006, and is recorded as a common stock payable in the Company’s financial statements. The common stock and the common stock underlying the warrants have customary “piggyback” registration rights.
Note 6. Stock Options
     In April 2000, the Company adopted an incentive stock option plan (the “2000 Plan”) under which options to purchase 3,000,000 shares of common stock may be granted to certain key employees, directors and consultants. The exercise price of the options granted is based on the fair market value of such shares as determined by the board of directors at the date of the grant of such options. In December 2003, the Company adopted a second incentive stock option plan (the “2004 Plan”) under which options to purchase 3,000,000 shares of common stock may be granted to certain key employees, directors and consultants. The exercise price was based on the fair market value of such shares as determined by the board of directors at the date of the grant of such options.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     On October 16, 2005 the Company’s Board of Directors adopted resolutions to: (i) amend the 2000 Stock Option Plan to reduce the number of authorized but unissued options available for issuance under the 2000 Plan by 1,370,000; and (ii) amend the 2004 Plan to reduce the number of authorized but unissued options available for issuance under the 2004 Plan by 1,030,000. The net effect of these resolutions will be to reduce the aggregate available authorized but unissued options available under the Company’s shareholder approved stock option plans by 2,400,000.
The following table summarizes activity under the Company’s equity incentive plans for the years February 29, 2004, February 28, 2005, and February 28, 2006:
                                                 
    February 29,   February 28,   February 28,
    2004   2005   2006
            Weighted           Weighted           Weighted
    Number of   Average   Number of   Average   Number of   Average
    Unexercised   Exercise   Unexercised   Exercise   Unexercised   Exercise
    Options   Price   Options   Price   Options   Price
 
Outstanding at beginning of year
    3,750,000     $ 1.24       4,450,000     $ 0.89       2,350,000     $ 0.36  
Granted
    950,000       0.31       700,000       1.64       1,503,846       2.04  
Exercised
                                (224,174 )     0.73  
Cancelled
    (250,000 )     4.00       (2,800,000 )     1.90       (83,000 )     0.32  
     
Outstanding at end of year
    4,450,000     $ 0.89       2,350,000     $ 0.36       3,546,672     $ 1.05  
     
     In May 2001, the Company granted an option to purchase 250,000 shares of the Company’s common stock at $0.88 per share to its Vice President and Director of Operations. This option has a 5-year maturity from the date of grant. This option was canceled by its term ninety days after the employee’s resignation during the fiscal year ended February 28, 2003.
     In February 2002, the Company granted an option to purchase 600,000 shares of the Company’s common stock at $0.40 per share to its former Vice President and Chief Financial Officer. This option has a 10-year maturity from the date of grant.
     In February 2002, the Company granted an option to purchase 500,000 shares of the Company’s common stock at $0.40 per share to its President and Chief Executive Officer. This option has a 10-year maturity from the date of grant.
     In February 2002, the Company reset the option strike price for 300,000 outstanding options owned by its directors to $0.40.
     During August 2004, two officers of the Company, its President and Vice President of Finance, as requested by the Company’s investment banker, exchanged options that they held for common stock at a ratio of two options for the issuance of one share of common stock. The purpose of this transaction was to make available more common shares to be sold in a private placement of the Company’s securities. The Company’s President exchanged 1.2 million options for 600,000 shares of common stock to vest over a two-year period. The Company’s Vice President of Finance exchanged 600,000 options for 300,000 shares of common stock to be vested over at two-year period.

37



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     During the year ended February 29, 2004, the Company granted options to employees and directors on 950,000 shares of the Company’s common stock at exercise prices of $0.28 to $0.32 per share. These options have a 10-year maturity from the date of grant.
     During the year ended February 28, 2005, the Company granted options to employees and directors on 700,000 shares of the Company’s common stock at an exercise price of $1.64 per share. These options have a 10-year maturity from the date of grant.
     During the year ended February 28, 2006, the Company granted options to employees, directors, and consultants on 1,503,846 shares of the Company’s common stock at exercise prices of $0.85 to $3.65 per share. These options have a 10-year maturity from the date of grant.
     As of February 28, 2006, options to purchase 1,630,000 shares of common stock are outstanding under the 2000 Plan and 1,916,672 shares of common stock under the 2004 Plan. The following table summarizes the information about all stock options outstanding at February 28, 2006:
                                         
    Options Outstanding   Options Exercisable
            Weighted                
    Options   Average           Options    
    Outstanding   Remaining   Weighted-   Exercisable   Weighted-
    at   Contractual   Average   at   Average
    February 28,   Life   Exercise   February 28,   Exercise
Range of Exercise Prices   2006   (Years)   Price   2006   Price
$.28 to $.32
    825,000       7.78     $ 0.31       825,000     $ 0.31  
$.40 to $.65
    1,410,000       4.93     $ 0.40       1,410,000     $ 0.40  
$.85 to $3.65
    1,311,672       9.43     $ 2.20       240,396     $ 1.02  
 
                                       
 
    3,546,672                       2,475,396          
 
                                       
     In December 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment” (“FAS 123R”), which replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” FAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under FAS 123, no longer will be an alternative to financial statement recognition. The Company was required to adopt FAS 123R by March 1, 2006. Under FAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The Company early adopted the fair value recognition provisions of FAS 123R using the modified prospective transition method requiring it to recognize expense related to the fair value of our stock-based compensation awards during Fiscal 2005. The adoption of FAS 123R did not have a material impact on the Company’s financial position or results of operations.
     The Company has historically used, and continues to use, the Black-Scholes option-pricing model to estimate the fair value of stock options granted. This model assumes that option exercises occur at the end of an option’s contractual term, and that expected volatility, expected dividends, and risk-free interest rates are constant over the option’s term.
     The Company used the following weighted-average assumptions under the Black-Scholes model for its fiscal years ended February 28 (29), 2004, 2005 and 2006:
                         
    2004     2005     2006  
Dividend yield:
    0 %     0 %     0 %
Expected volatility:
    100 %     100 %     100 %
Risk-free interest rate:
    4.75 %     4.75 %     4.75 %
Expected lives:
    7.07       6.07       8.00  
     The Company based its risk-free interest rate assumption on the U.S. Treasury yield curve in effect at the time of the grant. The Company has historically not declared dividends and does not intend to do so in the future. As such, the Company assumed the dividend yield would be zero in its model.
     The Company accounts for all other issuances of common stock, stock options, warrants or other equity instruments to employees and non-employees as the consideration for goods or services received by the Company based on the fair value of the equity instruments issued (unless the fair value of the consideration received can be more reliably measured. The Company uses the Black-Scholes option-pricing model to determine the fair value of any options, warrants or similar equity instruments issued by the Company.
     Total compensation expense for the Company’s employee stock options, included in “general and administrative expense” on the Company’s Statement of Operations was approximately $450,000 and $256,000 during the years ended February 28, 2005 and 2006, respectively. Unamortized employee stock option expense totaled approximately $4,600,000 at May 31, 2006 and the Company will amortize this expense through the fourth quarter of fiscal 2011, when the last presently issued option has fully vested.
     Total compensation expense for employee stock options, included in “general and administrative expense” on the Company’s Statement of Operations was $412,000 for the quarter ended May 31, 2006. The Company expects to record approximately $412,000 in compensation expense included in “general and administrative expense” per quarter for the remainder of fiscal 2007 and related to employee stock option arrangements.
     The Company recognized a 100% valuation allowance against deferred tax assets relating to the exercise of employee stock options during the years ended February 28, 2005 and 2006, and during the quarter ended May 31, 2006.
     The weighted-average fair value of stock options granted is based on a theoretical statistical model using the preceding Black-Scholes option pricing model. In actuality, because the Company’s stock options do not trade on a secondary exchange, employees can receive no value or derive any benefit from holding stock options under these arrangements without an increase in the market price of the Company. Such an increase in stock price would benefit all stockholders commensurately.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Litigation and Other Legal Matters
     Status of International Treaty Concerning the Titanic Wreck
     The U.S. Department of State and the National Oceanic and Atmospheric Administration of the U.S. Department of Commerce are working together to implement an international treaty with the governments of the United Kingdom, France and Canada concerning the Titanic wreck site. If implemented in this country, this treaty could affect the way the U.S. District Court for the Eastern District of Virginia monitors the Company’s salvor-in-possession rights to the Titanic. These rights include the exclusive right to explore the wreck site, claim possession of and perhaps title to artifacts recovered from the site, restore and display recovered artifacts, and make other use of the wreck. The Company has raised numerous objections to the U.S. Department of State regarding the participation of the U.S. in efforts to reach an agreement governing salvage activities with respect to the Titanic. The treaty, as drafted, does not recognize the Company’s existing salvor-in-possession rights in 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 proposed, the treaty currently has no binding legal effect.
     Several years ago the Company initiated legal action to protect its rights to the Titanic wreck site from this treaty. On April 3, 2000, the Company filed a motion for declaratory judgment in U.S. District Court for the Eastern District of Virginia asking that the court declare unconstitutional the efforts of the U.S. to implement the treaty. On September 15, 2000, the court ruled that the Company’s motion was not ripe for consideration and that the Company may renew its motion when and if the treaty is agreed to and signed by the parties, final guidelines are drafted, and Congress passes implementing legislation. As discussed above, the treaty has been finalized and is not yet in effect because Congress has not adopted implementing legislation, thus it is not yet time for the Company to refile its motion. Neither the implementation of the treaty nor the Company’s decision whether to refile the legal action regarding its constitutionality will have an impact on the Company’s ownership interest over the artifacts that it has already recovered.
     As discussed in more detail below, in light of a January 31, 2006 decision by the U.S. Court of Appeals for the Fourth Circuit, title to the 1800 artifacts recovered by the Company during the 1987 expedition now rests firmly with the Company; title to the remaining artifacts in the Company’s collection will be resolved by the salvor-in-possession legal proceedings pending in U.S. District Court for the Eastern District of Virginia.
     Status of Salvor-in-Possession and Interim Salvage Award Proceedings
     On April 12, 2002, the U.S. Court of Appeals for the Fourth Circuit affirmed two orders of the U.S. District Court for the Eastern District of Virginia in the Company’s ongoing salvor-in-possession case. These orders, dated September 26, 2001 and October 19, 2001, respectively, restricted the sale of artifacts recovered by the Company from the Titanic wreck site. In its opinion, the appellate court reviewed and declared ambiguous the June 1994 order of the district court that had awarded ownership to the Company of all items then salvaged from the wreck of the Titanic as well as all items to be salvaged in the future so long as the Company remained salvor-in-possession. Having found the June 1994 order ambiguous, the court of appeals reinterpreted the order to convey only possession, not title, pending determination of a salvage award. On October 7, 2002, the U.S. Supreme Court denied the Company’s petition of appeal.
     On May 17, 2004, the Company appeared before the United States District Court for the Eastern District of Virginia for a pre-trial hearing to address issues in preparation for an interim salvage award trial. At that hearing, the Company confirmed its intent to retain its salvor-in-possession rights in order to exclusively recover and preserve artifacts from the wreck site of the Titanic. In addition, the Company stated its intent to conduct another expedition to the wreck site. As a result of that hearing, on July 2, 2004, the court rendered an opinion and order in which it held that it would not recognize the 1993 Proces-Verbal, pursuant to which the government of France granted the Company all artifacts recovered from the wreck site during the 1987 expedition. The court also held that the Company would not be permitted to present evidence at the interim salvage award trial for the purpose of arguing that the Company should be awarded title to the Titanic artifacts through the law of finds.

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PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     The Company appealed the July 2, 2004 Court Order to the U.S. Court of Appeals for the Fourth Circuit. On January 31, 2006, the Court of Appeals reversed the lower court’s decision to invalidate the 1993 Proces-Verbal, pursuant to which the government of France granted to the Company all artifacts recovered from the wreck site during the 1987 expedition. As a result, the court tacitly reconfirmed that the Company owns the 1800 artifacts recovered during the 1987 expedition. The appellate court affirmed the lower court’s ruling held that the Company will not be permitted to present evidence at the interim salvage award trial for the purpose of arguing that it should be awarded title to the remainder of the Titanic artifacts through the law of finds.
     Other Ongoing Litigation
     In October 2005, Exhibit Human: The Wonders Within, Inc. filed for binding arbitration against the Company. In its claim, Exhibit Human alleges that the Company breached its contract with them under which the Company acquired a license to exhibit certain anatomical specimens that the Company presents in its “Bodies Revealed” exhibition. Later that month, the Company filed a counterclaim against Exhibit Human in which it alleges that Exhibit Human breached its obligations to the Company under the same contract. The Company is still in the initial stages of this arbitration. Although the Company intends to defend itself at the arbitration and to vigorously pursue the counterclaim, the Company cannot predict the outcome of this case.
     On April 6, 2006, the Company filed an action against Exhibit Human: The Wonders Within, Inc. in the United States District Court for the Northern District of Georgia under which it seeks a declaratory judgment from the court finding that the parties reached an enforceable agreement for the acquisition of certain licensing rights to the anatomical specimens that the Company presents in its “Bodies Revealed” exhibition. This lawsuit has not yet been served. Although the Company intends to vigorously pursue the litigation, the Company cannot predict the outcome of the case.
     On May 16, 2006, the Company was served with a lawsuit styled as Stefano Arts v. Exhibitions International, LLC, et al, now pending in state court in Fulton County, Georgia. The plaintiff alleges that the Company breached a contract with it and that the Company tortuously interfered with a separate contract entered into between it and a third-party. The plaintiff seeks a percentage of profits earned from the Company's “Bodies...The Exhibition” presentation in Tampa. While the Company cannot predict the outcome of the case, the Company believes the lawsuit is frivolous and the Company intends to aggressively defend itself at trial.
     On August 22, 2006 the Company filed an action entitled RMS Titanic, Inc. v Georgette Allthinos, International Advantage Inc. and Renaissance Entertainment, EPE in the Circut Court of the State of Florida for Hillsborough County, in which the Company alleges damages stemming from the defendants failure to compensate the Company for moneys due to the Company under a contract for the presentation of a Titanic exhibition in Athens, Greece. The Company has alleged breach of contract, fraud, conversion, and breach of fiduciary duty in the complaint. None of the defendants has yet been served and the Company cannot predict the outcome of the case.
     Settled Litigation and Other Concluded Matters
     On March 24, 2006, the Company entered into a settlement agreement with Plastination Company, Inc. whereby it amicably settled the litigation Plastination Company v. Premier Exhibitions, Inc., which was pending in the United States District Court for the Northern District of Ohio. The terms of the settlement agreement are confidential, and the Company does not believe that they are material to its business.
     On January 30, 2006, the United States District Court for the Eastern District of Virginia approved a settlement agreement between the parties to Lawrence D’Addario v. Arnie Geller, Gerald Couture, Joe Marsh and R.M.S. Titanic, Inc. This lawsuit was commenced on April 25, 2002 and had alleged fraud, self-dealing, mismanagement, diversion and waste of corporate assets by the Company and some of its officers, directors and shareholders.
     On February 2, 2006, the United States District Court for the Middle District of Florida approved a settlement agreement between the parties to Dave Shuttle and Barbara Shuttle v. Arnie Geller, G. Michael Harris, Gerald Couture, and R.M.S. Titanic, Inc. This lawsuit, which was commenced on March 22, 2004 and had alleged breaches of fiduciary duty by management, was directly related to the D’Addario case.
     The D’Addario settlement and the Shuttle settlement utilize the same form of settlement agreement. The primary component of such settlement agreement is the Company’s adoption of a five-year corporate governance plan. The material terms of the corporate governance plan are set forth below:
    The Company’s board of directors must be comprised of a majority of independent directors.
 
    The Company must have an audit committee of the board of directors, comprised exclusively of independent directors, which, among other things, has oversight responsibility for the Company’s internal control and corporate compliance.
 
    The Company must have a corporate governance committee of the board of directors, comprised of a majority of independent directors, which, among other things, oversees the Company’s

40



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      implementation of the corporate governance plan, reviews all contracts between the Company and its officers, pre-screens director nominees, and reviews the compensation of its five most highly paid officers.
 
    The Company’s independent directors must meet at least twice each calendar year and have the authority to retain counsel, accountants, or other experts.
 
    The Company’s directors must review the compensation paid to them by the Company and make any appropriate changes.
 
    All persons nominated to become a director must satisfy certain requirements and possess core competencies.
 
    Once a year over the five-year period for which the corporate governance plan is applicable, the Company’s board of directors must submit a written report to counsel representing the former plaintiff confirming our compliance with the corporate governance plan.
     If the Company does not comply with the corporate governance plan, such non-compliance will be remedied by injunctive relief pursuant to Florida corporate law.
     In addition to the corporate governance plan, the terms of each of the D’Addario settlement and Shuttle settlement, respectively, required the parties to execute mutual releases, thereby waiving any claims that were raised or could have been raised in each such litigation. Finally, in connection with the D’Addario settlement and Shuttle settlement, the Company agreed to pay an aggregate of $300,000 of the plaintiffs’ attorneys’ fees and costs, which includes plaintiffs’ attorneys’ out-of-pocket expenses of approximately $150,000. Such amounts represent the entire cash settlement for both actions and were paid by the Company’s insurance carrier.
Note 8. Notes Payable and Long-Term Debt
     Two of the Company’s shareholders lent the Company an aggregate of $500,000 on May 5, 2004. The loan is unsecured, and it is for a term of five years. The interest rate for the loan is the prime rate plus six percent. The loan requires quarterly payments of principal in the amount of $25,000 and accrued interest. In consideration of the loan, the Company also issued an aggregate of 30,000 shares of its common stock to these shareholders. This stock was valued at $35,000 and was recorded as a deferred financing cost and is being amortized to interest expense over the term of the loan.
     Pursuant to the Company's acquisition of Exhibits International, LLC in March 2005 the Company assumed pursuant to a Note $750,000 of indebtedness, of which $250,000 was repaid during the fiscal year ended February 28, 2006. As of February 28, 2006, the Company owned $500,000 under such note. $250,000 of such amount became due on May 31, 2006 and $250,000 will become due on November 30, 2006. The Note does not bear interest except that if a default should occur the interest rate will be 10% per annum.
     In April 2005, the Company entered into a term sheet with SAM Tour (USA), Inc. for a joint venture to co-produce four exhibitions for four domestic markets with a major entertainment producer. The joint venture partner provided the Company with $2,425,000 of funding. $1,000,000 of this funding was a credit facility provided to the Company. This joint venture arrangement provides the Company with minimum exhibition revenue guarantees and revenue participation and include provisions for repayment of the advance funding. The Company provided a general security interest over its assets as part of this transaction. The credit facility was repayable quarterly in the amount of $100,000 in 2005 commencing September 30th and $150,000 in 2006 and thereafter and accrued interest at the rate of ten percent per annum and was repayable in full on September 30, 2006. In December 2005, the Company’s joint venture partner exercised its option to extend for two additional exhibitions which caused the exhibition guarantee amounts to be set off against principal and interest payment obligations on this $1,000,000 credit facility. As of the option exercise date, there were no principal and interest payments remitted to the joint venture partner.
     The Company is re-paying the $2,425,000 promissory note in tranches as it opens new exhibitions. Each new “Bodies...The Exhibition” or “Bodies Revealed” exhibition opened reduces the outstanding principal amount of the promissory note by between $425,000 and $500,000. The following summary shows the amounts paid under the promissory note for each exhibition opened:
                 
Exhibition Location   Amount Paid     Repayment Date  
Tampa:
  $ 425,000     August 18, 2005
New York:
  $ 500,000     November 19, 2005
Atlanta:
  $ 500,000     February 28, 2006
Mexico City, Mexico
  $ 500,000     February 28, 2006
 
             
Total:
  $ 1,925,000          
     As of February 28, 2006, the Company owed $500,000 under the promissory note.
     On January 9, 2006, the Company finalized a $750,000 revolving line of credit with Bank of America, N.A. This credit facility, which is evidenced by a promissory note made by the Company in favor of Bank of America, allows the Company to make revolving borrowings of up to $750,000. Interest under this credit facility is calculated from the date of each advance by Bank of America to the Company and is determined based upon changes in an index which is the rate of interest publicly announced from time to time by Bank of America as its prime rate. Under this credit facility, the Company must make interest only payments monthly and the outstanding principal amount plus all accrued but unpaid interest is payable in full at the expiration of the credit facility on June 30, 2006. This credit facility contains customary representations, warranties and covenants.

41



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     In connection with the above-described credit facility, the Company has also granted Bank of America a senior security interest in all of the Company’s property pursuant to a commercial security agreement up to the amount advanced on the facility. In addition, in order to facilitate the Company’s establishment of the credit facility, Sam Tour (USA), Inc., a secured lender of the Company, has agreed pursuant to a UCC lien subordination agreement that any security interest, lien or right it has or may have with respect to the Company’s property is subordinate to the security interest granted by the Company in favor of Bank of America.
     The Company entered into the above-described credit facility in order to help finance the expansion of the Company’s exhibition business. On April 26, 2006, the Company advanced $333,014 on the credit facility to repay the remaining principal on its shareholder loan.
Note 9. Commitments and Contingencies
     During the year ended February 28, 2002, the Company entered into agreements for the services of two individuals for an annual aggregate amount of $600,750. Each individual, at his option, may elect to receive his compensation in shares of the Company’s common stock. For this purpose, the common stock will be valued at 50% of its closing bid price as of the date of the election. However, for financial statement purposes the Company will charge the full value of the common stock issued to compensation expense.
     On February 2, 2002, the Company executed an employment agreement with its President and Chief Executive Officer. The employment agreement was for a five-year term and provides for annual base salaries of $330,750 per year, with annual 5% increases. On April 10, 2004, this employment agreement was extended on the same terms and conditions with a new termination date of February 2, 2009.
     On February 2, 2002, the Company executed an employment agreement with its former Vice President and Chief Financial Officer. The employment agreement is for a four-year term and provides for annual base salaries of $270,000 per year, with annual 5% increases. On April 10, 2004, this employment agreement was extended on the same terms and conditions with a new termination date of February 2, 2008. On July 7, 2005, the Company’s Vice President and Chief Financial Officer passed away which terminated the employment agreement.
     On February 21, 2006, the Company executed an employment agreement with its new Vice President and Chief Financial Officer. The employment agreement is for a three-year term and provides for an annual base salary of $210,000 per year, with annual 7% increases.
     On March 14, 2006, the Company executed an employment agreement with its Vice President and Chief Legal Counsel. The employment agreement is for a three-year term and provides for an annual base salary of $173,250 per year.
     On March 14, 2006, the Company entered into an amendment to its August 4, 2003 employment agreement with its Vice President – Exhibitions. The original employment agreement was for a three-year term and provided for an annual base salary of $150,000 per year, with annual 5% increases. The amendment extends the term of employment agreement for an additional three years from January 27, 2006, the effective date of the Amendment.
Lease Arrangements
     The Company has a non-cancelable operating lease for the rental of each set of its specimens used in its exhibitions. The leases are payable quarterly for a term of five-years with five annual options to extend.
     The Company has non-cancelable operating leases for office space. The leases are subject to escalation for the Company’s pro rata share of increases in real estate taxes and operating costs. During the fiscal year ended February 28, 2005, the Company entered into another non-cancelable operating lease for warehouse space through December 31, 2007.

42



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     The lease for the Company’s principal executive offices was amended a second time on November 8, 2005 when the leased space was increased to approximately 6,000 square feet. The amended lease provides for base annual lease payments of $110,591 with a 2.5% annual adjustment. The second amended lease, which increased the Company’s office space by over 1,800 square feet, requires the Company to pay an additional total of $71,242 over the duration of the lease.
     Rent expense charged to operations under these leases was as follows:
                         
    Year Ended February 28 (29),
    2004   2005   2006
 
Real estate fixed rentals
  $ 94,000     $ 124,000     $ 207,000  
Specimen fixed rentals
                1,250,000  
     
 
  $ 94,000     $ 124,000     $ 1,457,000  
Aggregate minimum rental commitments at February 28, 2006, are as follows:
         
Fiscal Year        
 
2007
  $ 4,306,000  
2008
    5,320,000  
2009
    5,255,000  
2010
    5,000,000  
2011
    4,000,000  
Thereafter
     
 
 
  $ 23,881,000  
 
Note 10. Related Party Transactions
     Included in accounts payable and accrued liabilities at February 28, 2005 and February 28, 2006 is $25,000 due to certain partners of TVLP.
     Two of the Company’s shareholders lent the Company an aggregate of $500,000 on May 5, 2004. The loan is unsecured and has a term of five years. The interest rate for the loan is the prime rate plus six percent. The loan requires quarterly payments of principal in the amount of $25,000 and accrued interest. In consideration of the loan, the Company also issued an aggregate of 30,000 shares of its common stock to these shareholders. This stock was valued at $35,000 and was recorded as a deferred financing cost and is being amortized to interest expense over the term of the loan.
     The Company issued an aggregate of 900,000 shares of common stock to its president and chief executive officer and its former chief financial officer during the second quarter of fiscal year 2004. The Company issued these shares to these officers in exchange for such officers tendering to the Company options they held to acquire up to 1,800,000 shares of the Company’s common stock. The value of the exchange was $1,179,000, based on a price of $1.31 per share, which was the market price of a share of the Company’s common stock on the date of the exchange.

43



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Acquisitions
     In March 2005, the Company, through a newly formed wholly owned subsidiary, Premier Acquisitions, Inc. (“PAI”), a Nevada corporation, acquired all the membership interests in Exhibitions International, LLC (“EI”), a Nevada LLC. EI held certain exclusive licensing rights to certain anatomical specimens and exhibitry that would significantly broaden the Company’s offerings in its human anatomy educational exhibition business. The acquisition of EI was completed as follows: (1) payment of $1,500,000 by PAI for 100% of the membership interests of EI; (2) payment by PAI of a debt of EI in the amount of $582,000; (3) the assumption of $750,000 of debt; (4) the issuance of 200,000 shares of the Company’s common stock, valued at $1.54 per share; and (5) the issuance to EI of two-year warrants to acquire 300,000 shares of the Company’s common stock, which warrants have respective strike prices of $1.25 (with respect to 100,000 shares of common stock), $1.50 (with respect to 100,000 shares of common stock), and $1.75 (with respect to 100,000 shares of common stock). The common stock underlying the warrants has piggyback registration rights.
     The fair value of the two-year warrants for EI to acquire 300,000 shares of the Company’s common stock was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
         
Expected life of options:
  2 years
Risk-free interest rate:
    4.75 %
Expected volatility:
    100.0 %
Expected dividend yield:
  $ -0-  
     The estimated value of these warrants is approximately $299,000, which is recorded in exhibition licenses in the Company’s financial statements.
Note 12. Employee Savings Plans
     Effective March 2004, the Company adopted the RMS Titanic, Inc. 401(k) and Profit Sharing Plan under section 401(k) of the Internal Revenue Code of 1986, as amended. Under the Plan, all employees eligible to participate may elect to contribute up to the lesser of 12% of their salary or the maximum allowed under the Code. All employees who are at least age 21 and have completed 1,000 hours of service are eligible. The Company may elect to make contributions to the Plan at the discretion of the Board of Directors. During the fiscal year ended February 28, 2006, the Company made no contributions to the plan. The Plan name has been changed to Premier Exhibitions 401(k) and Profit Sharing Plan.

44



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Quarterly Financial Data (Unaudited)
                                                                   
    Quarter Ended
    As Originally       As Originally       As Originally       As Originally    
    Reported   As Restated   Reported   As Restated   Reported   As Restated   Reported   As Restated
 
    May 31,   May 31,   August 31,   August 31,   November 30,   November 30,   February 28,   February 28,
Fiscal 2006   2005   2005   2005   2005   2005   2005   2006   2006
 
Revenues
  $ 2,532,000     $ 2,532,000     $ 3,734,000     $ 3,734,000     $ 2,772,000     $ 2,772,000     $ 4,003,000     $ 4,003,000    
Expenses
    2,064,000       1,996,000 (1)   2,197,000       2,214,000 (1)   2,852,000     2,869,000 (1)(4)   3,287,000       3,305,000 (1)
Net income
    455,000       438,000 (1)   1,503,000       1,486,000 (1)   423,000     90,000 (1)(4)   2,883,000       3,269,000 (1)
Basic income per common share
    0.02       0.02       0.07       0.06 (1)   0.02     0.00 (1)(4)   0.11       0.14 (1)(3)
Diluted income per common share
    0.02       0.02       0.06       0.06       0.02     0.00 (1)(4)   0.10       0.11 (1)(3)
     
    Quarter Ended
    As Originally       As Originally       As Originally       As Originally    
    Reported   As Restated   Reported   As Restated   Reported   As Restated   Reported   As Restated
 
    May 31,   May 31,   August 31,   August 31,   November 30,   November 30,   February 28,   February 28,
Fiscal 2005   2004   2004   2004   2004   2004   2004   2005   2005
 
Revenues
  $ 391,000     $ 391,000     $ 2,381,000     $ 2,381,000     $ 2,432,000     $ 2,432,000     $ 1,653,000     $ 1,653,000    
Expenses
    1,263,000       1,275,000 (1)   2,232,000       2,670,000 (1)(2)   2,178,000     2,521,000 (1)(2)   2,263,000       2,764,000 (1)(2)
Net income (loss)
    (875,000 )     (887,000 )(1)   134,000       (304,000 )(1)(2)   240,000     (103,000 )(1)(2)   (974,000 )     (1,123,000 )(1)(2)
Basic income (loss)
per common share
    (0.05 )     (0.05 )     0.01       (0.02 )(1)(2)   0.01     0.00  (1)(2)   (0.04 )     (0.05 )(1)(2)
Diluted income (loss) per common share
    (0.05 )     (0.05 )     0.01       (0.02 )(1)(2)     0.01     0.00 (1)(2)   (0.04 )     (0.05 )(1)(2)  
(1) Restated to record additional amortization for exhibition licenses acquired by the Company in April 2004.
(2) Restated to record internally developed salvor-in-possession rights as an expense when incurred.
(3) Restated to adjust the deferred tax asset relating to the company’s realization of net operating loss carry forward for the increased tax benefit.
(4) On November 30, 2005, the Company sold a 3% ownership interest in the RMS Carpathia to Legal Access Technologies, Inc. for $500,000. In addition, the Company sold it a twenty-five year license to conduct joint expeditions with the Company to the Carpathia for the purpose of exploring and salvaging the Carpathia for $200,000. Under the terms of this agreement, Legal Access Technologies, Inc. was obligated to make payments under a payment schedule of $100,000 on December 12, 2005 and the balance of $400,000 on February 15, 2006. In the event of default, the Company had the option to terminate this agreement. The Company reflected this transaction as a gain on the sale of the Carpathia interest of $459,000 during the quarter ended November 30, 2005. Pursuant to the terms of the agreement, Legal Access Technologies, Inc. was obligated to make the following scheduled payments to the Company: (i) $100,000 on December 12, 2005; and (ii) $400,000 on February 15, 2006. The $100,000 payment was collateralized with 1,400,000 shares of Legal Access Technologies, Inc.’s common stock, which satisfied its obligation to make the first payment. Legal Access Technologies, Inc. failed to make the second scheduled payment and, on April 3, 2006, the Company terminated its agreement with the Legal Access Technologies, Inc. In accordance with the agreement, the Company retained the collateral in the form of Legal Access Technologies, Inc.’s common stock. As a result of this default and the Company’s subsequent termination of the agreement, the Company reversed the gain of $459,000 net of the gain from the retention of the marketable securities of $168,000 that was recognized during our quarter ended November 30, 2005.
Note 14. Subsequent Events
     On March 14, 2006, the Company executed an employment agreement with its Vice President and Chief Legal Counsel. The employment agreement is for a three-year term and provides for an annual base salary of $173,250 per year.
     On March 14, 2006, the Company entered into an amendment to its August 4, 2003 employment agreement with its Vice President – Exhibitions. The original employment agreement was for a three-year term and provided for an annual base salary of $150,000 per year, with annual 5% increases. The amendment extends the term of employment agreement for an additional three years from January 27, 2006, the effective date of the Amendment.
     On March 14, 2006, the Company entered into a Second Amendment to the February 4, 2002 Employment Agreement with the Company’s President and Chief Executive Officer. The Second Amendment provided a quarterly cash bonus equal to 10% of the Company’s quarterly net income. On March 21, 2006, the Company entered into a Third Amendment to the February 4, 2002 Employment Agreement. The Third Amendment terminated the quarterly cash bonus equal to 10% of the Company’s quarterly net income.
     On March 24, 2006, the Company entered into a settlement agreement with Plastination Company, Inc. whereby it amicably settled the litigation Plastination Company v. Premier Exhibitions, Inc., which was pending in the United States District Court for the Northern District of Ohio. The terms of the settlement agreement are confidential, and the Company does not believe that they are material to its business.
     On April 12, 2006, the Compensation Committee of the Board of Directors of the Company approved the extension of the Employment Agreement of the Company’s President and Chief Executive Officer for an additional two-year period expiring February 4, 2011.
     On April 12, 2006, the Compensation Committee of the Board of Directors granted and subsequently rescinded an extension of the term of options previously issued to the estate of its former Chief Financial Officer under the 2000 and 2004 employee stock option plans. This extension was not required since the estate intends on exercising these options before expiration.

45



 

PREMIER EXHIBITIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Restated Financial Statements
     The Company has amended its financial statements for its fiscal years ended February 28, 2006 and February 28, 2005 to reflect a restatement of its consolidated balance sheets and related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended.
     The restatement was made by the Company in order to more appropriately apply Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” in accounting for the Company’s salvor-in-possession rights as well as certain of its exhibition licenses.
     The Company previously accounted for its salvor-in-possession rights as an asset. However, since the Company’s salvor-in-possession rights are an internally developed intangible asset, the Company has determined that under SFAS No. 142 that such asset should have been recognized by the Company as an expense when incurred.
     In addition, in accounting for exhibition licenses, the Company has recorded additional amortization in the fiscal years ended February 28, 2006 and 2005 as well as in the quarter ended May 31, 2006 for exhibition licenses acquired by the Company in April 2004. The Company had not recorded amortization on this asset because of ongoing litigation. However, the Company subsequently has determined that amortization on this asset should have been recorded over its useful life, which commenced in April 2004.
     As a result of the reclassifications set forth above, the Company has adjusted its deferred tax asset relating to its realization of net operating loss carry forward for the increased tax benefit.
     The table below reconciles the amounts previously reported by the Company to the restated amounts for the year ended February 28, 2005:
                         
    As Originally             Effect of  
    Reported     As Restated     Restatement  
Consolidated Balance Sheet — February 28, 2005
                       
Salvor-in-possession rights(2)
    879,000             (879,000 )
Exhibition licenses(1)
    685,000       622,000       (63,000 )
Accumulated deficit
    (12,665,000 )     (13,607,000 )     (942,000 )
 
Consolidated Statements of Operations — for the year ended February 28, 2005
                       
Depreciation and amortization(1)
    378,000       441,000       63,000  
Expedition costs(2)
          879,000       879,000  
Net income
    (1,475,000 )     (2,417,000 )     (942,000 )
Basic income (loss) per common share
    (0.07 )     (0.12 )     (0.05 )
Diluted income (loss) per common share
    (0.07 )     (0.12 )     (0.05 )
 
Consolidated Statements of Cash Flows — for the year ended February 28, 2005
                       
Depreciation and amortization(1)
    378,000       441,000       63,000  
Increase (decrease) in prepaid expenses and other current assets(1)
    (1,264,000 )     (1,031,000 )     233,000  
Purchase of exhibition licenses(1)
          (233,000 )     (233,000 )
Investment in salvor-in-possession rights(2)
    879,000             (879,000 )
Net cash provided (used) by operating activities
    595,000       (51,000 )     (646,000 )
Net cash provided (used) by financing activities
    (1,613,000 )     (967,000 )     646,000  
 
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss — for the year ended February 28, 2005
                       
Net loss
    (1,475,000 )     (2,417,000 )     (942,000 )
 
(1) Restated to record additional amortization for exhibition licenses acquired by the Company in April 2004.
(2) Restated to record internally developed salvor-in-possession rights as an expense when incurred.
(3) Restated to adjust the deferred tax asset relating to the Company’s realization of net operating loss carry forward for the increased tax benefit.
The table below reconciles the amounts previously reported by the Company to the restated amounts for the year ended February 28, 2006:
                         
    As Originally             Effect of  
    Reported     As Restated     Restatement  
Consolidated Balance Sheet — February 28, 2006
                       
Salvor-in-possession rights(2)
    879,000             (879,000 )
Exhibition licenses(1)
    3,607,000       3,475,000       (132,000 )
Deferred income taxes(3)
    2,100,000       2,504,000       404,000  
Accumulated deficit
    (7,717,000 )     (8,324,000 )     (607,000 )
 
Consolidated Statements of Operations — for the year ended February 28, 2006
                       
Depreciation and amortization(1)
    911,000       980,000       69,000  
Provision (benefit) for income taxes(3)
    (2,100,000 )     (2,504,000 )     (404,000 )
Net income
    4,948,000       5,283,000       335,000  
Basic income (loss) per common share
    0.21       0.22       0.01  
Diluted income (loss) per common share
    0.18       0.19       0.01  
 
Consolidated Statements of Cash Flows — for the year ended February 28, 2006
                       
Depreciation and amortization(1)
    911,000       980,000       69,000  
Increase (decrease) in deferred income taxes(3)
    (2,100,000 )     (2,504,000 )     (404,000 )
 
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (loss) — for the year ended February 28, 2006
                       
Net Income
    4,948,000       5,283,000       335,000  
 
(1) Restated to record additional amortization for exhibition licenses acquired by the Company in April 2004.
(2) Restated to record internally developed salvor-in-possession rights as an expense when incurred.
(3) Restated to adjust the deferred tax asset relating to the company’s realization of net operating loss carry forward for the increased tax benefit.

46



 

PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
      The following documents are filed as part of this report:
(a) Financial Statements.
      The following financial statements of the Company are included in Item 8 of this Annual Report:
     
Report of Independent Registered Public Accounting Firm
   
 
Consolidated Balance Sheets at February 29, 2005 and February 28, 2006 (Restated)
   
 
Consolidated Statements of Operations for the years ended February 28(29), 2004, 2005 (Restated) and 2006 (Restated)
   
 
Consolidated Statements of Stockholders’ Equity for the years ended February 28(29), 2004, 2005 (Restated) and 2006 (Restated)
   
 
Consolidated Statements of Cash Flows for the years ended February 28(29), 2004 (Restated) , 2005 (Restated) and 2006 (Restated)
   
 
Notes to Consolidated Financial Statements
   

47



 

SIGNATURES
      Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the Registrant had duly caused this Amendment No. 1 to the Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
  Premier Exhibitions, Inc.
         
 
By: /s/ Arnie Geller
 
Arnie Geller,
President and Chief Executive Officer
  October 2, 2006
      Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, this Amendment No. 1 to the Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and as of the date indicated:
         
 
/s/ Arnie Geller
 
Arnie Geller, President,
Chief Executive Officer,
Chairman of the Board
(Principal Executive Officer)
  October 2, 2006
 
/s/ Stephen Couture
 
Stephen Couture, Vice President and
Chief Financial Officer, Director
(Principal Financial Officer and
Principal Accounting Officer)
  October 2, 2006
 
/s/ N. Nick Cretan
 
N. Nick Cretan, Director
  October 2, 2006
 
/s/ Doug Banker
 
Doug Banker, Director
  October 2, 2006
 
/s/ Alan Reed
 
Alan Reed, Director
  October 2, 2006

48


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-K/A’ Filing    Date    Other Filings
2/4/11
2/2/093,  SC 13D/A
2/2/08
12/31/07
2/28/0710-K,  8-K
11/30/0610-Q
Filed on:10/2/0610-Q/A,  8-K,  S-1/A
9/30/06
8/31/0610-Q
8/22/064
6/30/068-K
5/31/0610-Q,  10-Q/A
5/16/06
5/11/06
4/26/06
4/12/06
4/6/06
4/3/068-K
3/24/06
3/21/068-K
3/14/064,  8-K
3/1/063
For Period End:2/28/0610-K,  NT 10-K
2/21/063,  4,  8-K
2/15/064
2/2/06
1/31/06
1/30/068-K
1/27/06
1/9/068-K
12/15/05
12/12/05
11/30/0510-Q,  10-Q/A,  4
11/19/05
11/8/05
10/16/05
10/1/05
8/31/0510-Q
8/18/05
7/7/05SC 13D
6/29/05
6/15/05
5/31/0510-Q,  NT 10-K
4/13/05
2/28/0510-K,  NT 10-K
1/21/0510-Q
11/30/0410-Q,  NT 10-Q
10/14/048-K,  8-K/A
10/13/0410-Q
8/31/0410-Q
7/2/04
5/17/04
5/5/04
4/10/04
3/22/04
2/29/0410-K,  10-K/A,  NT 10-K
2/28/04
8/4/03
2/28/0310-K,  8-K,  NT 10-K,  PRE 14A
10/7/02
4/25/02
4/12/02
4/2/02
3/6/02
2/28/0210-K,  10-K/A,  3,  4,  8-K,  8-K/A,  NT 10-K
2/4/02
2/2/02
10/19/014/A
9/26/01
9/15/00
6/30/004
4/3/00
6/7/94
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