PREMIER EXHIBITIONS, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Edgar Glimpses Via Acquire Media NewsEdge)
This report contains information that may constitute "forward-looking
statements." Generally, the words "believe," "expect," "intend," "estimate,"
"anticipate," "project," "will" and similar expressions identify forward-looking
statements, which generally are not historical in nature. However, the absence
of these words or similar expressions does not mean that a statement is not
forward-looking. All statements that address operating performance, events or
developments that we expect or anticipate will occur in the future - including
statements relating to revenue growth, improvements to margin and earnings per
share growth, and statements expressing general views about future operating
results - are forward-looking statements. Management believes that these
forward-looking statements are reasonable as and when made. However, such
statements are dependent upon, and can be influenced by, a number of external
variables over which management has little or no control, including but not
limited to, general economic conditions, public tastes and demand, competition,
the availability of venues, the results of certain legal matters described
herein and governmental regulation. As a result, caution should be taken not to
place undue reliance on any such forward-looking statements. Our Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by law. Forward-looking statements should not be relied upon
as a guarantee of future performance or results, nor will they necessarily prove
to be accurate indications of the performance that is ultimately achieved. As a
result, actual outcomes and results may differ materially from those expressed
in forward-looking statements.
In this report, the terms "Premier Exhibitions, Inc.," the "Company," "Premier",
"we," "us," and "our" mean Premier Exhibitions, Inc., a Florida corporation and
its subsidiaries. The condensed consolidated financial statements include the
accounts of Premier, its wholly owned subsidiaries after the elimination of all
significant intercompany accounts and transactions.
You are urged to read the risk factors described in our Annual Report on Form
10-K for our fiscal year ended February 28, 2013 ("fiscal 2013"), as filed with
the Securities and Exchange Commission. Except as required by law, we undertake
no obligation to update publicly any forward-looking statement for any reason,
even if new information becomes available. The following discussion should be
read in conjunction with the unaudited condensed financial statements and notes
appearing elsewhere herein and our Annual Report on Form 10-K for our fiscal
year ended February 28, 2013.
Premier's principal executive offices are located at 3340 Peachtree Road, NE,
Suite 900, Atlanta, Georgia 30326 and the Company's telephone number is (404)
842-2600. The Company is a Florida corporation and maintains websites located at
www.prxi.com, www.bodiesrevealed.com, www.bodiestheexhibition.com,
www.rmstitanic.net, www.thetitanicstore.com, and www.titanictheexperience.com.
Information on Premier's websites is not part of this report.
Corporate Structure and Management
On June 12, 2013, the Company entered into an amendment to the employment
agreement between the Company and Samuel S. Weiser, the Company's Chief
Executive Officer and President. Pursuant to the amendment the Company granted
Mr. Weiser an option to purchase 150,000 shares of common stock under the
Premier Exhibitions, Inc. 2009 Equity Incentive Plan, as Amended, to vest
one-third on each of the first three anniversaries of the date of grant. These
options were granted on July 13, 2013. In addition, Mr. Weiser will be eligible
for a bonus of up to 50% of his base salary under the Premier Exhibitions, Inc.
Annual Incentive Plan, consistent with other executives of the Company. The
amendment also amends the severance provision in Mr. Weiser's employment
agreement from six months of base salary to twelve months of base salary and
provides for a cost of living increase to base salary beginning in fiscal 2014.
Also on June 12, 2013, the Company entered into an amendment to the employment
agreement between the Company and Michael Little, the Company's Chief Financial
Officer and Chief Operating Officer. Pursuant to the amendment, the Company will
pay Mr. Little a salary of $280,000 per year, increased from $250,000 per
year. The Company also granted Mr. Little an option to purchase 100,000 shares
of common stock under the Premier Exhibitions, Inc. 2009 Equity Incentive Plan,
as Amended, to vest one-third on each of the first three anniversaries of the
date of grant. These options were granted on July 13, 2013.
Premier Exhibitions, Inc. and subsidiaries, (the "Company" or "Premier") is in
the business of presenting to the public museum-quality touring exhibitions
around the world. Since our establishment, we have developed, deployed, and
operated unique exhibition products that are presented to the public in
exhibition centers, museums, and non-traditional venues. Income from
exhibitions is generated primarily through ticket sales, third-party licensing,
sponsorships and merchandise sales.
Titanic Ventures Limited Partnership ("TVLP"), a Connecticut limited
partnership, was formed in 1987 for the purposes of exploring the wreck of the
R.M.S. Titanic and its surrounding oceanic areas. In May of 1993, RMS Titanic,
Inc. ("RMST") entered into a reverse merger under which RMST acquired all of the
assets and assumed all of the liabilities of TVLP and TVLP became a shareholder
of RMST. In October of 2004, we reorganized and Premier Exhibitions, Inc. became
the parent company of RMST and RMST became a wholly-owned subsidiary. Additional
wholly-owned subsidiaries were established in order to operate the various
domestic and international exhibitions of the Company.
On September 29, 2011, the Company announced that it intended to separate its
operations into two operating subdivisions. The change is intended to better
position the Company to pursue strategic alternatives and manage both businesses
Our business has been divided into an exhibition management division and a
content division. The content division is the Company's existing subsidiary,
RMST, which holds all of the Company's rights with respect to the Titanic assets
and is the salvor-in-possession of the Titanic wreck site. These assets include
title to all of the recovered artifacts in the Company's possession, as well as
all of the intellectual property (data, video, photos, maps, etc.) related to
the recovery of the artifacts and scientific study of the ship.
The exhibition management division includes our exhibition operations and
merchandising operations. We formed a new entity, Premier Exhibition Management
LLC ("PEM"), in September 2011 to manage all of the Company's exhibition
operations. This currently includes the operation and management of our Bodies,
Titanic (pursuant to an intercompany agreement with RMST) and Real Pirates
exhibitions. PEM will also pursue "fee for service" arrangements to manage
exhibitions based on content owned or controlled by third parties. On April 20,
2012, Premier Exhibition Management LLC and its wholly owned subsidiary, PEM
Newco, LLC ("Newco"), both subsidiaries of the Company, entered into a purchase
agreement with AEG Live LLC, AEG Exhibitions LLC, and Arts and Exhibitions
International, LLC pursuant to which Newco purchased substantially all of the
assets of Arts and Exhibitions International, LLC ("AEI"). The assets purchased
include the rights and tangible assets relating to four touring exhibitions
known as "King Tut II," "Cleopatra," "America I Am" and "Real Pirates." Of these
four exhibitions, the Company is currently touring only "Real Pirates". The
acquired assets include rights agreements with the owners of the artifacts and
intellectual property comprising the exhibitions, museum/venue agreements for
existing exhibition venues, sponsorship agreements, a warehouse lease and an
office lease. In addition, the acquired assets include intellectual property
related to proposed future exhibitions that the Company may further develop and
produce. The Company will operate any such additional properties through its
exhibition management subsidiary. Subsequent to the asset purchase, Newco
changed its name to Arts and Exhibitions International, LLC.
As part of the purchase price for the assets of AEI, 10% of the ownership
interest in Premier Exhibition Management LLC was transferred to AEG Live LLC.
This ownership interest is reported as a "non-controlling interest" in our
financial statements, and the financials of Premier Exhibition Management LLC
are reported on a consolidated basis.
The exhibition management division also includes our exhibition merchandising
business, conducted under the Company's wholly owned subsidiary, Premier
Merchandising, LLC. This entity has purchased the merchandise rights related to
the AEI exhibition properties, and also pursues other exhibition merchandising
The restructuring of the Company and changes in its management reflect that
Premier has two operating segments - Exhibition Management and Content
Management (RMS Titanic).
--------------------------------------------------------------------------------As of August 31, 2013, our portfolio of exhibitions contains the following:
Year Ended August 31, 2013
Stationary Touring Total
"Bodies…The Exhibition" and "Bodies Revealed" 3 4 7
"Titanic: The Artifact Exhibition" and "Titanic: The
Experience 4 5 9
"Real Pirates" - 1 1
Exhibitions under management:
"Real Pirates" - 1 1
Total Exhibitions 7 11 18
Our touring exhibitions usually span four to six months. The stationary
exhibitions are longer-term engagements which are located in New York, New York,
Las Vegas, Nevada, Orlando, Florida, and Atlanta, Georgia. In fiscal 2013, our
New York, New York location was closed in late October 2012 due to the impact of
Hurricane Sandy and subsequent action by governmental authorities and the
landlord. We are currently in negotiations to open a new location in New York
City. In addition, we have leased an exhibition facility in Buena Park,
California which includes a "Bodies…The Exhibition and a "Titanic: The
Experience" and which opened in August of 2013.
In addition to developing new content for future exhibitions, the Company
continually evaluates its touring capacity and may expand or contract to suit
the addressable market for its content.
We first became known for our Titanic exhibitions which present the story of the
ill-fated ocean liner, the R.M.S. Titanic (the "Titanic"). The Titanic has
captivated the imaginations of millions of people throughout the world since
1912 when she struck an iceberg and sank in the North Atlantic on her maiden
voyage approximately 400 miles off the coast of Newfoundland. More than 1,500 of
the 2,228 lives on board the Titanic were lost.
We own approximately 5,500 Titanic artifacts recovered from the wreck site 2 ½
miles below the ocean's surface which we have the right to present at our
exhibitions. In 1994, a federal district court declared us salvor-in-possession
of the Titanic wreck and wreck site, and, as such, we have the exclusive right
to recover additional objects from the Titanic wreck site. Through our
explorations, we have obtained and are in possession of the largest collection
of data, information, images and cultural materials associated with the Titanic
shipwreck. We believe that our salvor-in-possession status puts us in the best
position to provide for the archaeological, scientific and educational
interpretation, public awareness, historical conservation and stewardship of the
Titanic shipwreck. As of August 31, 2013, we had the ability to present 9
concurrent Titanic exhibitions. Management continues to explore ways to expand
the Titanic model beyond the exhibition business to broaden the Company's reach.
In 2004, we diversified our exhibitions beyond the Titanic and into human
anatomy by acquiring licenses that give us rights to present exhibitions of
human anatomy sets, each of which contains a collection of whole human body
specimens plus single human organs and body parts. As of August 31, 2013 we had
the ability to present 7 concurrent human anatomy exhibitions of which 1 set is
being used by S2BN under a Co-promotion agreement which ends in October 2013.
In 2008, we further expanded our exhibition portfolio when we entered into a
long-term license agreement to present an exhibition series entitled "Dialog in
the Dark." Our "Dialog in the Dark" exhibitions were intended to provide
visitors with an opportunity to experience the paradox of learning to "see"
without the use of sight.
In February 2012, the Company decided to close its Atlanta, Georgia "Dialog in
the Dark" exhibition effective March 6, 2012. Our final remaining Dialog in the
Dark exhibition became inactive when our facility at The South Street Seaport
was closed due to Hurricane Sandy and subsequent action by governmental
authorities and the landlord, and management has decided not to reopen that
exhibition. As of February 28, 2013, we have closed all of our "Dialog in the
Dark" exhibitions and have no plans to re-open any "Dialog in the Dark"
exhibitions. In July 2013, the Company reached a termination and settlement
agreement with the licensor and will no longer present this exhibition.
South Street Seaport
The Company's Bodies and Dialog in the Dark exhibitions at The South Street
Seaport in New York City "Seaport" were closed at the end of October 2012 and
remained closed through fiscal year ending February 28, 2013 due to
complications from Hurricane Sandy and subsequent action by governmental
authorities and the landlord. The exhibitions remain closed. Following
Hurricane Sandy, municipal authorities ordered that the building may not be
reopened to the public until the landlord made the necessary repairs. In
December 2012, the landlord notified the Company that it had no estimate for the
date the facility would be reopened. On January 2, 2013, the landlord notified
the Company that it intended to terminate the Company's South Street Seaport
lease on June 30, 2013.
During the months of March 2013 through August 2013, the Company received no
revenue at the Seaport. The revenue earned at the Seaport for the three and six
months ended August 31, 2012 was approximately $1.7 million and $3.4 million,
respectively. The Company will not be resuming operations at the Seaport.
The Company has property and business interruption coverage at the
Seaport and has submitted claims for each. The carrier has denied coverage
under both policies, and the Company and the carrier are entering into a
mediation regarding the coverage decision. The amount of potential recovery for
these claims is uncertain at this time, and the Company has not recorded a
receivable for insurance proceeds.
"Titanic: The Artifact Exhibition" and "Titanic: The Experience"
By featuring the artifacts recovered from the wreck site, our exhibitions tell
the Titanic's story from construction through her sinking and discovery as well
as the Company's efforts to preserve the wreck site and conserve recovered
artifacts. The artifacts are placed in historically correct re-creations of the
significant rooms onboard the ship and are illuminated by moving stories of her
passengers and crew. The Company has supplemented the exhibitions with assets
generated during the 2010 Titanic expedition such as 3D exhibitry and
film. Approximately 23 million visitors have attended our Titanic exhibitions at
venues throughout the world, including in the United States ("U.S."), Canada,
Czech Republic, Germany, Norway, France, Greece, Japan, Switzerland, Chile,
Argentina, China, Mexico, Hungary, South Korea, Spain, Brazil, the United
Kingdom, and Australia. During the second quarter of fiscal 2014, we presented
9 separate Titanic exhibitions at 9 venues, including "Titanic: The Experience."
Consistent with the Company's desire to increase its number of permanent
exhibitions, on October 17, 2011 the Company purchased the assets of a
Titanic-themed exhibition (Titanic: The Experience or "TTE") in Orlando,
Florida. Through this acquisition, the Company now has a presence in the large
Orlando tourist market.
The Company has supplemented the acquired exhibitry with authentic Titanic
artifacts from our existing collections and also by including assets generated
during the 2010 Titanic expedition such as 3D exhibitry and film. In addition,
this exhibition is expected to increase the Company's penetration into the
Orlando market for merchandise sales.
"Bodies...The Exhibition" and "Bodies Revealed"
We presently have the right to display multiple human anatomy sets, each of
which contains a collection of whole human body specimens plus single human
organs and body parts, which are known as "Bodies Revealed" and "Bodies...The
Exhibition." We secured the rights to produce these two types of human anatomy
exhibitions through separate exhibition agreements. During the second quarter of
fiscal 2014, we presented 6 separate Bodies exhibitions at 6 venues.
These specimens are assembled into anatomy-based exhibitions featuring preserved
human bodies, organs and body parts to offer the public an opportunity to view
the intricacies and complexities of the human body. The exhibitions include
displays of dissected human bodies which are permanently preserved through a
process called polymer preservation, also known as plastination. In essence, the
bodies are drained of all fat and fluids, which are replaced with polymers such
as silicone rubber, epoxy and polyester. This preserves the flesh and maintains
its natural look. Skin from the bodies is removed, or partially removed, to
reveal musculoskeletal, nervous, circulatory, and reproductive or digestive
systems. The full body specimens are complimented by presentation cases of
related individual organs and body parts, both healthy and diseased, that
provide a detailed look into the elements that comprise each system of the
body. Using more than 200 specimens, each exhibition follows a systems-based
approach to human anatomy which examines the skeletal, muscular, nervous,
digestive, respiratory, circulatory, urinary, integumentary (skin, sweat glands,
hair, and nails), and reproductive systems.
Our full-body specimens and individual organs were obtained through plastination
facilities mostly in China. The full body specimens are persons who lived in
China and died from natural causes. Most of the bodies were unclaimed at death,
and were ultimately delivered to medical schools for education and
research. Where known, information about the identities, medical history and
causes of death is kept strictly confidential. China has a large and highly
competent group of anatomists and dissectors, who are essential to properly
preparing these specimens for exhibition and educational purposes. In a number
of cases, our medical director has been able to identify medical problems that
were present in certain organs and, where appropriate, those organs were clearly
labeled in the exhibitions. For example, an emphysema-diseased lung is displayed
and identified, giving the visitors a visual understanding of the effects of the
Arts and Exhibitions International, LLC ("AEI")
On April 20, 2012, we expanded our exhibition portfolio through the purchase of
the exhibition business of AEI which gave us the rights to present the following
"Tutankhamun and the Golden Age of the Pharaohs"
For the first time in a generation, King Tut's treasures were under license from
Egypt's Supreme Council of Antiquities and drew record-breaking crowds at
museums around the world. The exhibition includes an array of possessions
unearthed from Tutankhamun's tomb, including King Tut's golden canopic
coffinette and the crown found on his head when the tomb was discovered.
Attendees learn about the extraordinary discovery of King Tut's tomb and the
belief and burial processes of Ancient Egypt, and view results from the latest
scientific testing conducted on King Tut's mummy and what it is telling
researchers about his life and death. More than nine million visitors attended
the exhibition to date. This exhibition was closed in January 2013 and the
artifacts were returned to Egypt.
"Cleopatra: The Exhibition"
The world of Cleopatra lost to the sea and sand for nearly 2,000 years, surfaced
in Cleopatra: the Exhibition. Never-before-seen artifacts and multi-media
atmospheres give visitors a front-row seat in the riveting present-day quest for
Cleopatra VII, which extends from the sands of Egypt to the depths of the
Mediterranean Sea. More than 150 artifacts from Cleopatra's world represent
facets of her elusive history, from her family to the places she lived, walked
and worshiped. These artifacts were on view in the U.S. for the first time,
bringing with them new insights into the tragedies and triumphs of one of the
most remarkable and intriguing leaders in history. This exhibition was closed in
January 2013 and the artifacts were returned to Egypt.
Real Pirates tells the compelling story of the Whydah, the first authenticated
pirate shipwreck in U.S. waters, and the stories of the diverse people whose
lives converged on the vessel. Sunk in a fierce storm off the coast of Cape Cod,
Massachusetts in April 1717, the Whydah was located in 1984 by underwater
explorer Barry Clifford, who had been fascinated with finding the ship since
tales from his youth. Many before him tried and failed, and only after decades
of tireless searching did Clifford discover the wreck site, which he's still
actively excavating today.
The exhibition features more than 200 authentic items recovered from the Whydah
- real treasure last touched by real pirates. Ranging from cannons and coins and
from the massive ship's bell to personal items that the pirates wore, visitors
are given an unprecedented glimpse into unique economic, political and social
circumstances of the early 18th-century Caribbean.
Effective November 13, 2012, the Company signed a binding letter of intent with
Barry Clifford to develop and present a second Real Pirates exhibition, which
the Company began touring in March 2013. As of August 31, 2013 we had the
ability to present 2 concurrent Pirates exhibitions, one of which is under
"America I AM: The African American Imprint"
Presented in partnership with broadcaster Tavis Smiley, this unprecedented
travelling museum exhibition celebrates the extraordinary impact of African
Americans on our nation and the world. From the first Africans who arrived in
Jamestown to the nation's first black president, this award-winning exhibition
takes visitors from all walks of life on an emotional journey through history.
Spanning 500 years, the exhibition includes artifacts, documents, multimedia,
photos and music that have helped shape the nation and the way we live today.
This exhibition was closed in March 2013.
The Company continues to pursue new content opportunities. To mitigate the risk
associated with building an exhibition and then attempting to book the
exhibition after incurring the capital expenditure, the Company has begun
optioning new content opportunities to assess market demand and evaluate the
expected return on the investment based on that market assessment. The Company
currently has 2 new projects in development. In November 2013, we plan to open
an exhibition at the Franklin Institute in Philadelphia that tells the story of
the City of Pompeii, Italy. Through a license with an agency of the Italian
government, the Company can present the Pompeii exhibitions at three total
venues using the artifacts from Pompeii's ruins. The Company also has
development agreements in place, to develop an exhibition featuring characters
from the Ice Age movie franchise licensed from 20th Century Fox.
"Dialog in the Dark"
In 2008, we further expanded our exhibition portfolio when we entered into a
long-term license agreement to present an exhibition series entitled "Dialog in
the Dark." Our "Dialog in the Dark" exhibitions were intended to provide
visitors with an opportunity to experience the paradox of learning to "see"
without the use of sight. As of February 28, 2013, we have closed all of our
"Dialog in the Dark" exhibitions and have no plans to re-open any "Dialog in the
Dark" exhibitions. All assets related to this exhibition were impaired as of
February 29, 2012. In July 2013, the Company reached a termination and
settlement agreement with the licensor and will no longer present this
We intend to acquire, develop and present additional new exhibitions for
presentation in the future, including exhibitions both related and unrelated to
our currently ongoing exhibitions. Management has created a process to evaluate
and develop new content that can be used to create new touring exhibitions.
In August 1987, TVLP contracted with the Institute of France for the Research
and Exploration of the Sea ("IFREMER") to conduct an expedition and dive to the
wreck of the Titanic. Approximately 2,000 objects were recovered and 140 hours
of video tape footage and an estimated seven thousand still photographs were
taken during the course of the 32 dives in that original expedition. A French
maritime tribunal subsequently conveyed to us title to these artifacts. In 1993,
RMST acquired all of the assets and assumed all of the liabilities of TVLP. In
July 2004, the U.S. District Court for the Eastern District of Virginia (the
"District Court") concluded that such conveyance by the French tribunal was not
valid and sought to deprive us of title to these artifacts. We appealed that
decision to the U.S. Court of Appeals for the Fourth Circuit (the "Appellate
Court"). On January 31, 2006, the Court of Appeals reversed and vacated the
ruling of the lower court. This decision reaffirmed the validity of our title to
the approximately 2,000 artifacts recovered during the 1987 expedition.
We completed additional expeditions to the wreck of the Titanic in 1994, 1996,
1998, 2000 and 2004 recovering approximately 3,500 additional artifacts and
additional video tape footage and still photographs. With the depth of the
Titanic wreck approximately two and one-half miles below the surface of the
North Atlantic Ocean, our ability to conduct expeditions to the Titanic has been
subject to the availability of necessary research and recovery vessels and
equipment for chartering by us from June to September, which is the "open
weather window" for such activities.
--------------------------------------------------------------------------------2010 Expedition to Titanic Wreck Site
During August and September 2010, our wholly owned subsidiary RMST, as
salvor-in-possession of the RMS Titanic (the "Titanic") and its wreck site,
conducted an expedition to the Titanic wreck site. RMST brought together an
alliance of the world's leading archaeologists, oceanographers and scientists
together with U.S. governmental agencies to join RMST in the 2010 expedition to
the wreck site and the post-expedition scientific study. This alliance included
the Woods Hole Oceanographic Institution ("WHOI"), the Institute of Nautical
Archaeology ("INA"), the National Oceanic Atmospheric Administration's Office of
the National Marine Sanctuaries ("NOAA/ONMS"), The National Park Service's
Submerged Resources Center ("NPS") and the Waitt Institute. Never before had all
of these entities partnered to work together on one project. While all of these
parties worked together to participate in the expedition, RMST has sole legal
ownership of the film footage, data, and other assets generated from the
While the general purpose of the expedition was to collect and interpret
archeological and scientific data utilizing state-of-the-art high definition 2D
and 3D cameras and sonar scanning equipment, the Company also planned and
executed the expedition in order to create digital assets for commercial
purposes, including a 2D documentary that was aired by a major cable network in
April 2012, a separate HD3D film featuring a tour of the bow and stern sections
of the ship that is now being distributed, and assets to be utilized in
enhancing the Titanic exhibitions, as well as other applications. The collected
data will also provide the basis for an archaeological site plan, and ultimately
a long-term management plan for the Titanic wreck site.
We have capitalized $4.5 million of costs related to the expedition, discussed
in more detail below, which have been allocated to specific assets as reflected
in Footnote 4 of the financial statements.
In order to increase interest in the expedition, the Company established a
central web point of presence for the expedition (ExpeditionTitanic.com), which
will also continue to serve as the central site to convey the ongoing efforts to
preserve the legacy of the Titanic. During the 2010 expedition, the website
featured updates from the crew and other expedition participants, images of the
wreck site, and photo/live feed updates that allowed visitors to the site to
follow the expedition as it was in process. These features account for most of
the capitalized website costs of $317 thousand, which were capitalized in
accordance with ASC 350, "Intangibles - Goodwill and Other" ("ASC 350"), as they
served as a significant draw to the website and also have future value as assets
to be used in our exhibits and/or movies. The remaining capitalized website
costs were for additional graphics, which were also capitalized in accordance
with ASC 350. Website costs are depreciated on a straight-line basis, using a
three year useful life.
During fiscal 2011, the Company capitalized an additional $3.9 million in costs
related to the expedition, comprised of $562 thousand in general management
costs and $3.3 million in ship charter costs, underwater gear, and filming
costs. Costs directly related to the 2D documentary, 3D film, 3D exhibitry or
gaming and other applications were separately ascribed to the respective assets;
additional costs related to all four types of assets were allocated ratably
based on the anticipated future revenue associated with the asset, based on the
reasonable expectations of management. Included in these costs is $2.0 million
related to agreements with WHOI for optical services and the use of two
autonomous underwater vehicles.
During fiscal 2012, as additional costs were incurred for assets developed by
our vendors, an additional $262 thousand in underwater gear and filming cost was
A significant project such as this requires management by a team of
professionals, from the Expedition Leader to other individuals specializing in
project management, legal and other specialties which were necessary to ensure
that the expedition was conducted efficiently and effectively. A portion of the
general management expenses that we capitalized is an allocation of production
overhead, which, in accordance with Accounting Standards Codification
926-20-25-2, includes an allocation of costs of the individuals with either
exclusive or significant responsibility for the production of a film. For those
individuals with a significant, but not an exclusive responsibility, we
allocated their costs based on hours worked related to the expedition and tasks
related to the development of the film versus hours worked on other matters. In
addition, included in capitalized general management expenses are legal and
public relations costs incurred associated with the creation of the digital
--------------------------------------------------------------------------------The web point of presence and 3D exhibitry assets are included in Property and
equipment on the Consolidated Balance Sheets. The 3D film, 2D documentary,
gaming, and other application assets are included in Film, gaming and other
application assets on the Consolidated Balance Sheets.
Certain costs related to the expedition were expensed as incurred, and not
included in the capitalized assets discussed above. Examples of these
expenditures include costs to advertise the expedition, ongoing maintenance of
the expedition web point of presence, certain legal and public relations fees,
mapping and profiling of Titanic artifacts, and any management costs subsequent
to the ship's return in September 2010.
Science, Archaeology and Conservation Related to the Titanic and Titanic
In addition to being important to our exhibition business, the Titanic is an
important archaeological, historical and cultural site. In addition to the
alliance brought together for the 2010 expedition described above, we have long
standing relationships with several other archaeologists and conservators for
services to aid in stewardship of the Titanic wreck site. Upon recovery from the
Titanic wreck site, artifacts are in varying states of deterioration. Having
been submerged in the ocean for almost 100 years, artifacts have been subjected
to the corrosive effects of seawater. The conservation of all artifacts
recovered from the wreck site of the Titanic is an extensive process that
employs many techniques in order to stabilize them for display in our
exhibitions. We also own and maintain an extensive database, together with
digital and photographic archives, that establish, with certainty, the origin of
We earn revenue from the sale of exclusively sourced merchandise, such as
apparel, posters, gifts and Titanic-related jewelry (some of which utilizes coal
we have recovered from the shipwreck). In addition, we also publish exhibition
catalogs and provide ancillary services such as audio tours and visitor
exhibition themed photographs, which are sold at our exhibition gift shops. We
intend to continue to focus on merchandising activities, including increasing
our "Self-run" retail model, at all our exhibition locations to increase revenue
per attendee and our margins on these sales.
During the second quarter of fiscal 2011, we launched an e-commerce website that
allows us to sell merchandise related to our shows over the internet. Also, at
the end of the third quarter of fiscal 2012, we re-launched our e-commerce
website as www.thetitanicstore.com, which offers Titanic-themed merchandise.
Consistent with the Company's desire to take advantage of additional
distribution channels for our merchandise, we entered into agreements with a
direct response marketer, and an online and television retailer, to produce,
market, and sell Titanic-themed merchandise in order to capitalize on the 100th
anniversary of the sinking of the Titanic in April 2012. The agreement with the
direct response marketer is for the development and promotion, via direct
channels of distribution, of Titanic commemorative jewelry and other items. The
agreement with the online and television retailer was for the development and
promotion of jewelry, housewares, fragrances, and other Titanic-themed
merchandise inspired by, or replicated based on authentic artifacts. This
merchandise was launched during a television program aired in April 2012. Due to
the strength of the April 2012 show an additional airing was done during the
same month. In addition, the merchandise is also available on the retailer's
On July 12, 2012, the Company purchased substantially all of the assets of
Exhibit Merchandising, LLC for $125 thousand. As part of the acquisition of the
assets of Exhibit Merchandising, LLC, we obtained the rights to sell all
merchandise related to "Tutankhamun and the Golden Age of the Pharaohs",
"Cleopatra: The Exhibition" and "Real Pirates." These merchandising rights are
operated under our Premier Merchandising, LLC subsidiary.
--------------------------------------------------------------------------------Information Regarding Exhibitions Outside the United States
Our exhibitions regularly tour outside the United States of America
("U.S."). Approximately 13% of our revenues and 2% of attendance for the three
months ended August 31, 2013 compared with 2% and 14%, respectively for the
three months ended August 31, 2012 resulted from exhibition activities outside
the U.S. . Many of our financial arrangements with our international trade
partners are based upon the U.S. dollar which limits the Company's exposure to
the risk of currency fluctuations between the U.S. dollar and the currencies of
the countries in which our exhibitions are touring.
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