10-K 1 f10k_052715.htm FORM 10-K f10k_052715.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

(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, 2015
   
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.
(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., N.E., Suite 900
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:
 
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share
The NASDAQ Stock Market LLC
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned 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
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ     No  o
 
Indicate by check mark 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
  Large accelerated filer o Accelerated filer o
  Non-accelerated filer o Smaller reporting company þ
  (Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
At August 31, 2014 the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $24,591,095 based upon the closing price for such Common Stock as reported on the NASDAQ Stock Market on August 31, 2014.  For purposes of the foregoing calculation only, all directors and officers of the registrant have been deemed affiliates.
 
The number of shares outstanding of the registrant’s common stock as of May 21, 2015 was 4,917,213.
 
 
 

 
 
TABLE OF CONTENTS
       
     
Page
       
 
 
 
 
 
 
       
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
       
 
 
 
 

 
As used in this Annual Report on Form 10-K for the year ended February 28, 2015 (the “Form 10-K”), the terms “Premier,” the “Company,” “our,” “us” or “we” refer to Premier Exhibitions, Inc., a Florida corporation.
 
 
This report contains information that may constitute “forward-looking statements.” Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “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, consummation and integration of acquisitions, mergers and other significant transactions, and statements expressing general views about future operating results — are forward-looking statements.  Management believes that these forward-looking statements are reasonable as and when made.  However, such statements are dependent upon, and can be influenced by, a number of external variables over which management has little or no control, including but not limited to, general economic conditions, public tastes and demand, competition, the availability of venues, the results of certain legal matters described herein, governmental regulation, cybersecurity breaches, and the efforts of co-sponsors and joint venture participants.  As a result, caution should be taken not to place undue reliance on any such forward-looking statements.  Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.  Forward-looking statements should not be relied upon as a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the performance that is ultimately achieved.  As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements.
 
 
 
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.
 
Our business has been divided into an exhibition management division and a content division.  The content division is the Company’s 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 the 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), Real Pirates and Pompeii exhibitions.  PEM also pursues “fee for service” arrangements to manage exhibitions based on content owned or controlled by third parties.  On April 20, 2012, PEM 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.  Subsequent to the asset purchase, Newco changed its name to “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, including the exhibit “One Day in Pompeii,” which is currently being toured by the Company.  The Company will operate any such additional properties through its exhibition management subsidiary.
 
 
1

 
As part of the purchase price for the assets of AEI, 10% of the ownership interest in PEM was transferred to AEG Live LLC.  This ownership interest is reported as a “non-controlling interest” in our financial statements, and the financials of PEM 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 opportunities.

The restructuring of the Company and changes in its management reflect that Premier has two operating segments – Exhibition Management and Content Management (RMS Titanic).

At the close of business on February 27, 2015 we effected a 1 for 10 reverse stock split of our issued common stock.  Except for any changes as a result of the treatment of fractional shares, each shareholder holds the same percentage of our common stock outstanding immediately after the reverse stock split as such shareholder held immediately prior to the reverse stock split. The reverse stock split did not affect the number of shares of common stock authorized in the Articles of Incorporation, which is 65,000,000. Because the number of shares of authorized common stock was not affected, the effect of the reverse stock split was to increase the authorized, but unissued, shares of common stock.   
 
On April 2, 2015 the Company announced that it had entered into a definitive merger agreement (“Merger Agreement”) whereby it will combine with Dinoking Tech Inc. (“DK”). Under the Merger Agreement, the DK shareholders will be entitled to up to 24% of the fully diluted ownership of the Company for all of the issued and outstanding shares of DK. In addition, an investor group has agreed to provide up to $13.5 million in convertible debt funding to Premier to repay $8 million of existing debt and $5.5 million for general corporate purposes, including the completion of the development of “Saturday Night Live: The Exhibition” and “Premier Exhibitions 5th Avenue,” the Company’s state-of-the-art exhibition and special events center located in New York City.  To date the investor group has provided $11.5 million of this funding, which was used to retire the debt owed to Pentwater Capital, to continue funding improvements on the building at 417 Fifth Avenue, and to complete our Saturday Night Live Exhibition.  The transaction has been approved by the Board of Directors of Premier. Premier’s principal shareholder, Sellers Capital, LLC, and the directors and officers of the Company have entered into agreements to vote in favor of the transaction. The completion of the transaction is subject to Premier shareholder approval among other customary closing conditions.  The shareholder meeting to approve the transaction is expected to be held no later than September 2015. The merger is expected to be completed in September 2015.
 
Under the terms of the Merger Agreement, Premier will acquire all outstanding shares of DK, of which Daoping Bao is the principal shareholder, for a total consideration of $6.4 million payable in Premier shares or shares exchangeable for Premier shares at transaction close. Premier has also agreed to future contingent payments to the DK shareholders of up to $8.6 million payable in either cash or stock if certain milestones are reached.
 
Upon the closing of the transaction, we expect that the DK shareholders and the investor group will hold approximately 47% of the outstanding Premier voting shares, subject to additional contingent payments, and the right to nominate four out of seven board members. Mr. Bao will become the Executive Chairman, President and Chief Executive Officer of Premier while DK will become an indirect wholly-owned subsidiary.
 
DK, based in Richmond, British Columbia, Canada, is the holding company of Dinosaurs Unearthed, an industry-leading traveling exhibition company with a range of indoor and outdoor exhibition experiences designed to engage and entertain audiences. Current exhibitions include Dinosaurs Alive!, Dinosaurs Unearthed, Extreme Dinosaurs, Xtreme BUGS!, and, to be launched in June 2015 in Australia, Creatures of the Deep.

Overview

Premier Exhibitions, Inc. and subsidiaries, (the “Company” or “Premier”) 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.premierexhibitions.com, www.snltheexhibition.com, www.thetitanicstore.com, www.thekingtutstore.com,  www.bodiestheexhibitionstore.com and www.thesnlstore.com.  Information on Premier’s websites is not part of this report.

 
2

 
Premier Exhibitions, Inc. and subsidiaries, (the “Company” or “Premier”) are 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.  As of February 28, 2015, our portfolio of touring exhibitions contains the following:

   
Year Ended February 28, 2015
 
   
Stationary
   
Touring
   
Total
 
Exhibitions owned or leased:
                 
"Bodies…The Exhibition" and "Bodies Revealed"
    3       4       7  
"Titanic: The Artifact Exhibition" and "Titanic: The Experience"
    3       5       8  
"Real Pirates"
    -       2       2  
"One Day in Pompeii"
    -       1       1  
"The Discovery of King Tut"
    -       1       1  
Total Exhibitions
    6       13       19  
 
Our touring exhibitions usually span four to six months.  As of February 28, 2015, our stationary exhibitions, which are longer-term exhibitions, are located in Las Vegas, Nevada, Orlando, Florida, Buena Park, California and Atlanta, Georgia.     On April 9, 2014, the Company signed a lease to open a new location in New York City, New York.  Our New York City location is expected to open in late May of 2015.
 
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 2½ 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 February 28, 2015, we had the ability to present eight 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  February 28, 2015 we had the ability to present seven concurrent human anatomy exhibitions.

During the past several years the Company has continued to diversify its exhibition content to expand beyond our Titanic and Bodies exhibitions.

Titanic Artifact Appraisal

On October 14, 2014, RMST, a division of Premier, announced that the only collection of artifacts ever recovered from the wreck of the R.M.S. Titanic has been appraised at over $218 million. These assets are reflected in the Consolidated Balance Sheet dated February 28, 2015, at a book value of $5.5 million.

For nearly twenty years, RMST has served as Salvor-in-Possession of the Titanic and its wreck site and is the only company that has ever conducted salvage operations at the Titanic. During that span, RMST conducted eight research and recovery operations at the wreck site, 2.5 miles beneath the ocean surface, and salvaged and conserved over 5,500 artifacts. In 2007, the collection, including the value of certain intellectual property and undertaking associated with the collection, had previously been appraised at $189 million.
 
 
3

 
The Alasko Company conducted the 2014 appraisal, which reflected a nearly $30 million increase in value from the 2007 appraisal. The Alasko Company appraisal reflects the market value of the historic collection based on a consideration of the market for comparable properties using a survey and analysis of market data pertaining to Titanic related materials. The appraisal does not include the value of intellectual property and archaeological assets compiled during the Company’s 2010 dive, including the first comprehensive survey map of the wreck site, and other photomosaics, sidescan sonar, and 3D imagery.

On October 14, 2014, the Company filed a Form 8-K and attached The Alasko Company appraisal report as an exhibit to the filing. The Alasko Company appraisal report inadvertently stated that the appraisal was made in consultation with American Appraisal Associates, Inc. American Appraisal Associates, Inc. played no role in the appraisal, and that reference has been deleted from the Alasko Company appraisal.  Other than the removal of that reference, the appraisal report is unchanged.

Sale of Titanic Artifacts

On December 20, 2011, Premier entered into an agreement with Guernsey’s auction house to conduct a sale of the Company’s Titanic artifact collection and related intellectual property.

  The formal auction process ended on April 10, 2012, and the Company announced that it was in discussions with multiple parties for the potential purchase of its Titanic artifacts collection and would conduct these negotiations and due diligence in confidence. On October 15, 2012, the Company announced that it had entered into a non-binding letter of intent with an entity representing a group of individuals working to effect a purchase of the stock of RMST for educational, regional economic development and cultural purposes in the Hampton Roads region of Southeastern Virginia.  On October 9, 2013 the Company’s Board terminated the non-binding letter of intent with the Consortium as this group failed to secure sufficient financing.
 
As the Company is currently focused on completing the DK Merger, it is not actively pursuing a sale of the Titanic artifacts and related intellectual property at this time.
 
Exhibitions
 
“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.  The Company’s attendance to its Titanic exhibitions is over 24 million visitors at venues in North America, South America, Asia, Europe and Australia.  During the year ended February 28, 2015, seven separate Titanic exhibitions were presented at twelve venues.

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.
 
“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 year ended February 28, 2015, six separate Bodies exhibitions were presented at seven 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.

 
4

 
Our full-body specimens and individual organs were obtained through plastination facilities mostly in China.  The full body specimens are persons who lived in China and died from natural causes.  Most of the bodies were unclaimed at death, and were ultimately delivered to medical schools for education and research.  Where known, information about the identities, medical history and causes of death is kept strictly confidential.  China has a large and highly competent group of anatomists and dissectors, who are essential to properly preparing these specimens for exhibition and educational purposes.  In a number of cases, our medical director has been able to identify medical problems that were present in certain organs and, where appropriate, those organs were clearly labeled in the exhibitions.  For example, an emphysema-diseased lung is displayed and identified, giving the visitors a visual understanding of the effects of the disease.

“Pompeii: One Day in Pompeii”

During the third fiscal quarter of 2014, the Company, in partnership with the Italian Superintendence for Archaeological Heritage of Naples and Pompeii (SANP), developed a new exhibition on the story of Pompeii that features over 150 authentic artifacts on loan from the Naples National Archaeological Museum. The exhibition will be presented through May 2015.
 
The exhibition offers visitors a rare look at some of the most valuable artifacts recovered from the debris of the city of Pompeii, many of which are making their North American debut. The Pompeii exhibition has a limited three-city tour which started at The Franklin Institute in Philadelphia on November 9, 2013 and will end the Pacific Science Center in Seattle in May 2015.  The opportunity to present this exhibition was acquired as part of the AEG Live, LLC transaction. During the year ended February 28, 2015, we presented one Pompeii exhibit at three venues.
 
Real Pirates

“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.

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.

We obtained the right to manage this exhibition as part of the AEG Live, LLC transaction.  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.  During the year ended February 28, 2015, we presented two separate Pirates exhibitions at four venues.
 
“The Discovery of King Tut”

During the fourth fiscal quarter of 2014, the Company entered into a License Agreement with Semmel Concerts GmbH, a German entity, to present an exhibition based on King Tutankhamun. The term of the Agreement is five years from the opening date of the exhibition.  The exhibition, titled “The Discovery of King Tut”, uses high quality artistic and scientific reproductions of artifacts found in the tomb of King Tutankhamun to recreate the moment of Howard Carter’s discovery of the lost tomb.  This exhibition opened at Union Station in Kansas City on April 4, 2014. During the year ended February 28, 2015, we presented one King Tut exhibition at two venues.

New Content

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 two new projects in development.  The Company has signed an Exhibit Promoter Agreement to present “Saturday Night Live: The Experience which will be presented in our New York City location.  The Company has also signed an Exhibit Promoter Agreement to present an exhibition featuring characters from the Ice Age movie franchise licensed from 20th Century Fox.

 
5

 
Discontinued Exhibitions

“Extreme Dinosaurs”

During the fourth fiscal quarter of 2014, the Company entered into a License Agreement with Dinosaurs Unearthed Corporation to present an animatronic exhibition based on dinosaurs. The term of the Agreement was approximately nine months from the opening date of the exhibition.  The exhibition, titled “Extreme Dinosaurs,” featured some of the newest dinosaur discoveries from the ‘Golden Age’ of paleontology, and explored why scientists believe these dinosaurs may have had such bizarre features like horns, plates, frills and feathers. Visitors will experience some of the world’s strangest dinosaurs showcased through life-size animatronic models, skeletons, real and replicated fossils, and more.  This exhibition opened at Atlantic Station in Atlanta on March 29, 2014 and closed on January 4, 2015.  During the year ended February 28, 2015, we presented one Extreme Dinosaurs exhibition at one venue.
 
“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.  We obtained the right to manage this exhibition as part of the AEG Live, LLC transaction.  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 gave 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.  We obtained the right to manage this exhibition as part of the AEG Live, LLC transaction.  This exhibition was closed in January 2013 and the artifacts were returned to Egypt.
 
“America I AM: The African American Imprint”

Presented in partnership with broadcaster Tavis Smiley, this unprecedented travelling museum exhibition celebrated the extraordinary impact of African Americans on our nation and the world. We obtained the right to manage this exhibition as part of the AEG Live, LLC transaction.  This exhibition was closed in March 2013.

Titanic Expeditions
 
In August 1987, TVLP contracted with the Institute of France for the Research and Exploration of the Sea (“IFREMER”) to conduct an expedition and dive to the wreck of the Titanic. Approximately 2,000 objects were recovered and 140 hours of video tape footage and an estimated seven thousand still photographs were taken during the course of the 32 dives in that original expedition.

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 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, the Institute of Nautical Archaeology, the National Oceanic Atmospheric Administration’s Office of the National Marine Sanctuaries, The National Park Service’s Submerged Resources Center and the Waitt Institute.  Never before had all of these entities partnered to work together on one project.  While all of these parties worked together to participate in the expedition, RMST has sole legal ownership of the film footage, data, and other assets generated from the expedition.
 
 
6

 
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 the following table (in thousands).
 
   
February 28, 2015
   
February 28, 2014
 
3D film
  $ 1,817     $ 1,817  
3D exhibitry
    857       857  
2D documentary
    631       631  
Gaming application and other application
    886       886  
Expedition web point of presence
    -       317  
Total expedition costs capitalized
    4,191       4,508  
Less: Accumulated amortization
    1,726       1,100  
  Accumulated depreciation
    500       646  
Expedition costs capitalized, net
  $ 1,965     $ 2,762  
 
The web point of presence was disposed during fiscal 2015.  The 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.

Science, Archaeology and Conservation Related to the Titanic and Titanic Artifacts
 
In addition to being important to our exhibition business, the Titanic is an important archaeological, historical and cultural site.  In addition to the alliance brought together for the 2010 expedition described above, we have long standing relationships with several other archaeologists and conservators for services to aid in stewardship of the Titanic wreck site.  Upon recovery from the Titanic wreck site, artifacts are in varying states of deterioration.  Having been submerged in the ocean for almost 100 years, artifacts have been subjected to the corrosive effects of seawater.  The conservation of all artifacts recovered from the wreck site of the Titanic is an extensive process that employs many techniques in order to stabilize them for display in our exhibitions.  We also own and maintain an extensive database, together with digital and photographic archives, that establish, with certainty, the origin of the artifacts.

Merchandising

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.

The Company has e-commerce websites that allows us to sell merchandise related to our shows over the internet, including www.thetitanicstore.com, which offers Titanic-themed merchandise, our Bodies, www.bodiestheexhibitionstore.com, King Tut, www.thekingtutstore.com, and Saturday Night Live, www.thesnlstore.com.  Information included on those websites is not part of this report.
 
 
7

 
Information Regarding Exhibitions Outside the United States

Our exhibitions regularly tour outside the United States of America (“U.S.”).  Approximately 13% of our revenues for fiscal year 2015 compared with 8% in fiscal 2014 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.  See “Risk Factors” in this report for more information.
 
Competition
 
The entertainment and exhibition industries are highly competitive.  In addition to competition from other exhibition offerings, we face competition with the broader market for consumer entertainment and discretionary spending.  We believe that our many years of experience in the exhibition industry have enabled us to present exhibitions with mass appeal to consumers of entertainment, museum, scientific and educational offerings.  These consumers recognize the quality and value of the educational experience that our exhibitions offer.

Seasonality
 
The Company’s revenue is impacted by the vacation and travel patterns of our customers.  Generally, the Company has its highest revenues in its fiscal first and second quarters.
 
Regulation  
 
We are subject to federal, state and local laws, both domestically and internationally, governing matters such as construction, renovation and operation of our venues;  licensing, permitting and zoning, including noise ordinances;  human health, safety and sanitation requirements;  the service of food and alcoholic beverages;  working conditions, labor, minimum wage and hour, citizenship and employment laws;  compliance with United States Foreign Corrupt Practices Act and similar regulations in other countries;  hazardous and non-hazardous waste and other environmental protection laws;  sales and other taxes and withholding of taxes;  privacy laws and protection of personally identifiable information; marketing activities via the telephone and online; and  primary ticketing and ticket resale services.  We believe that we are in material compliance with these laws. The regulations relating to our food service in our venues are many and complex. A variety of regulations at various governmental levels relating to the handling, preparation and serving of food, the cleanliness of food production facilities and the hygiene of food-handling personnel are enforced primarily at the local public health department level.

We also must comply with applicable licensing laws, as well as state and local service laws, commonly called dram shop statutes. Dram shop statutes generally prohibit serving alcoholic beverages to certain persons such as an individual who is intoxicated or a minor. If we violate dram shop laws, we may be liable to third parties for the acts of the customer. Although we generally hire outside vendors to provide these services at our larger operated venues and regularly sponsor training programs designed to minimize the likelihood of such a situation, we cannot guarantee that intoxicated or minor customers will not be served or that liability for their acts will not be imposed on us.

We are also required to comply with the ADA and certain state statutes and local ordinances that, among other things, require that places of public accommodation, including both existing and newly-constructed venues, be accessible to customers with disabilities. The ADA may require that certain modifications be made to existing venues to make them accessible to customers and employees who are disabled. In order to comply with the ADA and other similar ordinances, we may face substantial capital expenditures in the future.

We are required to comply with the laws regarding anti-bribery regulations. These regulations make it illegal for us to pay, promise to pay or receive money or anything of value to, or from, any government or foreign public official for the purpose of directly or indirectly obtaining or retaining business. This ban on illegal payments and bribes also applies to agents or intermediaries who use funds for purposes prohibited by the statute.
 
We are required to comply with federal, state and international laws regarding privacy and the storing, sharing, use, disclosure and protection of personally identifiable information and user data. Specifically, personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction.

 
8

 
In addition, in connection with our planned exhibition activities, we and our venues are subject to extensive federal, state and local environmental laws and regulations relating to the use, storage, disposal, emission and release of hazardous and non-hazardous substances, as well as zoning and noise level restrictions which may affect, among other things, the hours of operations of and the type of events we can produce at our venues.

We do not anticipate that the costs to comply with such laws and regulations will have material effect on our capital expenditures, earnings or competitive position.

Employees

As of February 28, 2015, we had 46 full-time employees. We are not a party to any collective bargaining agreements and we believe that our relations with our employees are good.  Additionally, from time to time we rely upon part-time employees and contractors for the production and operations of our semi-permanent exhibitions.  As of February 28, 2015, we employed 128 part-time employees.  Contractors are hired on an as needed basis.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).
 
Our corporate website is www.prxi.com. On our website, we make available, free of charge, documents we have filed with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed with or furnished to the SEC.  This information is available on our website as soon as reasonably practicable after we electronically file such materials with, or furnish such information to, the SEC.  Our SEC reports can be accessed through the “Investor Relations” subsection under “The Company” heading on our website.  The other information found on our website is not part of this or any other report we file with, or furnish to, the SEC.
 
In addition, our Code of Ethics and the charters for our Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee are available on our website.
 
 
If any of the risks or uncertainties discussed below and elsewhere in this report, including, but not limited to, the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the consolidated financial statements and the related notes included in this report, were to occur, our business, financial condition and results of operations could be seriously harmed.  Additional risks and uncertainties not currently known to us or that we presently deem to be immaterial could also seriously harm our business, financial condition and results of operations.
 
We have recently announced a transaction (the “Merger”) with Dinoking Tech, Inc. (“DK” or “Dinoking”), which is subject to conditions to closing that could result in the Merger being delayed, or not consummated, or can be terminated in certain circumstances, each of which could negatively impact our stock price and future business and operations.  If our shareholders do not approve the Merger or if we are otherwise unable to close the Merger, we may not be able to continue operations as they are currently conducted.

The Merger is subject to conditions to closing as set forth in the Merger Agreement, including obtaining the requisite approval of our shareholders.  In addition, each of the Company and DK has the right, in certain circumstances, to terminate the Merger Agreement.  If the Merger Agreement is terminated or any of the conditions to the Merger are not satisfied and, where permissible, not waived, the Merger will not be consummated.  Failure to consummate the Merger or any delay in the consummation of the Merger or any uncertainty about the consummation of the Merger may adversely affect our stock price or have an adverse impact on our future business operations.

If the Merger is not completed, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Merger, we would be subject to a number of risks, including the following:
 
 
·
negative reactions from the financial markets and from persons who have or may be considering business dealings with us;
 
 
9

 
 
·
financial difficulties that the Company may experience;

 
·
we will be required to pay certain costs relating to the Merger, whether or not the Merger is completed. We expect to incur acquisition-related expenses of approximately $1,000,000, consisting of legal and accounting fees and printing and other related charges in connection with the Merger. These amounts are preliminary estimates and the actual amounts may be higher or lower; and

 
·
we have agreed to pay a break-up fee of $1,000,000 if the Merger Agreement is terminated in certain circumstances.
 
Pursuant to the proposed Merger, DK assumed the $8 million loan that the Company had obtained on a short term basis from Pentwater Capital.  If the Merger does not close, the Company will need to pay this amount to DK. The Company may be unable to borrow funds to pay these amounts on attractive terms, or at all, and would then be in default under the transaction agreements.
 
In addition to these amounts payable, the Company may have no funding to conduct its operations if the Merger does not close.
 
We could also be subject to litigation related to any failure to complete the Merger or related to any proceeding commenced against us seeking to require us to perform our obligations under the Merger Agreement.
 
The Merger will present challenges associated with integrating operations, personnel, and other aspects of the companies and assumption of liabilities that may exist at Dinoking and which may be known or unknown by the Company.

The results of the combined company following the Merger will depend in part upon the Company’s ability to integrate Dinoking’s business with the Company’s business in an efficient and effective manner.  The Company’s attempt to integrate two companies that have previously operated independently may result in significant challenges, and the Company may be unable to accomplish the integration smoothly or successfully.  In particular, the necessity of coordinating geographically dispersed organizations and addressing possible differences in corporate cultures and management philosophies may increase the difficulties of integration.  Dinoking has operated in Canada and exists under the laws of the province of British Columbia, with substantially all of its personnel and operations in Canada.  The integration will require the dedication of significant management resources to become familiar with the Canadian operations and the culture of Dinoking, which may temporarily distract management’s attention from the day-to-day operations of the businesses of the combined company.  In addition, the combined company may adjust the way in which Dinoking has conducted its operations and utilized its assets, which may require retraining and development of new procedures and methodologies. The process of integrating operations and making such adjustments after the Merger could cause an interruption of, or loss of momentum in, the activities of one or more of the combined company's businesses and the loss of key personnel.  Employee uncertainty, lack of focus, or turnover during the integration process may also disrupt the businesses of the combined company. Any inability of management to integrate the operations of the Company and Dinoking successfully could have a material adverse effect on the business and financial condition of the combined company.

In addition, the Merger will subject the Company to contractual or other obligations and liabilities of Dinoking, some of which may be unknown.  Although the Company and its legal and financial advisors have conducted due diligence on Dinoking and its business, there can be no assurance that the Company is aware of all obligations and liabilities of Dinoking.  These liabilities, and any additional risks and uncertainties related to Dinoking’s business and to the Merger not currently known to the Company or that the Company may currently be aware of, but that prove to be more significant than assessed or estimated by the Company, could negatively impact the business, financial condition, and results of operations of the combined company following consummation of the Merger.
 
Completion of the Merger, including the conversion of the convertible note issued to the DK investor group (the “Convertible Note”), would result in the issuance of a significant amount of additional shares of our common stock, which would reduce the voting power of our current shareholders and may depress the trading price of our common stock.

Completion of the Merger would result in the issuance of a significant amount of shares our common stock.  Upon completion of the Merger, assuming conversion of the Convertible Note, but prior to any potential issuance of shares of the Company’s common stock in connection with future contingent payments, we expect that the DK investor group (comprised of the Dinoking shareholders and the lenders under the Convertible Note) (the “DK Group”) would together hold shares of the Company’s common stock and Special Voting Shares that represent approximately 47% of the voting power of the Company.  Our shareholders would experience further dilution in their voting power in the event we issue share of our common stock as future contingent payments to the Dinoking shareholders.  As a result, our existing shareholders will not exert the same degree of voting power with respect to the combined company that they did before the consummation of the Merger.  Further, the issuance of such a significant amount of common stock, and its potential sale in the public market from time to time, could depress the trading price of our common stock and you may lose all or a part of your investment.  
 
 
10

 
Dinoking may be less valuable to us than expected.

The value of Dinoking to us is based in large part on the profitability of its existing dinosaur and other exhibitions, its plans for expansion into China, and its potential ability to extend the Company’s exhibitions into China.  This requires us to make assumptions regarding the valuation of Dinoking, the profitability and popularity of Dinoking’s exhibitions, and the estimated capital needs of Dinoking as it works to expand into China.  Dinoking’s exhibitions may not remain profitable or Dinoking may be unable able to have profitable exhibitions in the future.  In addition, expanding into a new territory such as China involves significant capital expenditures and we may be required to seek additional financing to fund Dinoking’s, as well as the Company’s, potential expansion into China.  Furthermore, Dinoking’s or the Company’s exhibits may not be profitable in China.  If, after our combination with Dinoking, we are unable to maintain the profitability of Dinoking’s existing exhibitions, develop new exhibition concepts for Dinoking, or successfully expand into China, we may not achieve the desired return on our acquisition of Dinoking, and our results of operations could be harmed.
 
After the closing of the Merger, the Dinoking shareholders and the DK Group will be our largest shareholder and may have interests that are different than other shareholders of the Company.

Upon the closing of the Merger, and assuming conversion of the Convertible Note, but prior to payment of future contingent payments, we expect that the DK Group (comprised of the Dinoking shareholders and the lenders under the Convertible Note) would together hold shares of the Company’s common stock and Special Voting Shares that represent approximately 47% of the voting power of the Company and would be the Company’s largest shareholder. The DK Group may also potentially control our board of directors depending on whether they exercise their right under the Corporate Governance Agreement to appoint four members to our board of directors, which will be composed of seven members.  The DK Group may influence the outcome of various actions that require shareholder approval, including the election of our directors, delaying or preventing a transaction in which shareholders might receive a premium over the prevailing market price for their shares, and preventing changes in control of management.

The Merger may be deemed to be a change of control that could cause the Company to reduce its net operating loss carryforwards.

In the event the Merger is deemed to constitute a “change in control” (as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”)), our net operating loss carryforwards generated prior to the ownership change would be subject to annual limitations, which could reduce, eliminate, or defer the utilization of these losses.  A “change in control” includes a more than 50 percentage point increase in the ownership of our company by certain equity holders who are defined in Section 382 of the Code as “5 percent shareholders.”  The Internal Revenue Service has viewed an acquisition of an ownership percentage in a company that is represented by certain equity instruments, including common shares, that are issued in connection with a change in the board of directors to include the holders of the equity instruments or their agents as indicative of a transfer of a beneficial ownership interest in a company under Section 382 of the Code.  Accordingly, the DK Group’s appointment of four directors to our board of directors pursuant to the Corporate Governance Agreement together with the issuance of shares of our common stock to the DK Group in connection with the Merger and in the transactions contemplated in the Merger Agreement could be viewed as contributing to a more than 50 percentage point change in control of the Company under Section 382 of the Code.

The Merger Agreement contains provisions that may discourage other companies from trying to acquire the Company.

The Merger Agreement contains provisions that may discourage a third-party from submitting an acquisition or business combination proposal (referred to in this paragraph as an “acquisition proposal”) to the Company prior to the closing of the Merger that might result in greater value to the Company’s shareholders than the Merger.  The Merger Agreement generally prohibits the Company from soliciting any alternative acquisition proposal, although the Company may terminate the Merger Agreement prior to the Special Meeting in order to accept an unsolicited acquisition proposal that the Company’s board of directors determines is superior to the Merger.  In addition, before the Company’s board of directors may withdraw or modify its recommendation contained in this proxy statement or the Company may terminate the Merger Agreement to enter into a transaction that the Company’s board of directors determines is superior to the Merger, Dinoking has the opportunity to negotiate with the Company to modify the terms of the Merger in response to any competing acquisition proposals that may be made.  If the Company’s board of directors determines that an unsolicited acquisition proposal is superior to the Merger and terminates the Merger Agreement, the Company is obligated to pay a $1,000,000 break-up fee to Dinoking, which would represent an additional cost for a potential third party seeking an acquisition of, or business combination with, the Company.
 
 
11

 
Our cash flows from operations may not improve sufficiently to finance our ongoing operations or to make investments necessary for future growth without the need for additional financing.
 
We can provide no assurances that our cash flow from operations will improve sufficiently to finance our ongoing operations or to make investments necessary for future growth.  During fiscal 2015, we had a net loss of approximately $10.5 million and our cash and marketable securities balance was approximately $4.8 million as of February 28, 2015.  We currently do not have access to a revolving credit facility. There can be no assurance that our cash flows from operations will improve sufficiently during the next 12 months to fund our ongoing operations beyond that time. 
 
            If we are unable to sufficiently improve our financial performance or obtain financing, if and when we may need it, we may not be able to continue operations as they are currently anticipated or we may be unable to make capital investments needed for our existing exhibits or to develop new exhibits. 
 
Our limited access to capital may create a risk that the Company cannot continue as a going concern.

The Company’s operations in the recent past have been financed primarily through cash flow from operations, existing cash and, in fiscal 2015, the Pentwater Capital Management L.P. loans.   The Company has incurred net losses for the majority of the past several years. Moving forward, the Company expects to have significant cash outflows in the near term based on the New York City lease, leasehold improvements of the leased space and new content development.

While the Company recently repaid its debt facility of $8.0 million, the Company will have to repay these amounts to DK if the merger transaction does not close.  As a result, the Company must refinance the debt or obtain funds to repay the debt in full if that occurs.  The Company could be capital constrained and unable to fulfill the terms of this and other agreements if its access to capital sources does not improve in the near term.  Management believes that the Company’s access to capital depends on near-term improvement to its operating results.  See the section titled “Capital Resources” in this report for additional information.

If the Merger Agreement is not approved, or a public or private placement of equity securities or of convertible promissory notes, including potentially to some of the Company’s existing shareholders, is not completed, the Company may be required to seek the protection of the U.S. bankruptcy laws and/or cease operating as a going concern.

In addition, if the Company does not meet its payment obligations to third parties as they come due, the Company may be subject to an involuntary bankruptcy proceeding or other litigation claims. Even if the Company were successful in defending against these potential claims and proceedings, such claims and proceedings could result in substantial costs and be a distraction to management, and may result in unfavorable results that could further adversely impact our financial condition.

Our auditors have issued a going concern opinion. This means that there is substantial doubt that we can continue as an ongoing business, without additional financing, for the next twelve months.   If the Company makes a bankruptcy filing, is subject to an involuntary bankruptcy filing, or is otherwise unable to continue as a going concern, the Company may be required to liquidate its assets and may receive less than the value at which those assets are carried on its financial statements, and it is likely that shareholders will lose all or a part of their investments. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have recently entered into a long-term lease for exhibition space in New York City.  If we are unable to achieve planned levels of attendance at this facility, our financial position could be negatively impacted.
 
In April 2014, we entered into a ten year lease for exhibition space in New York City, with total payments over the life of the lease totaling approximately $45.8 million.  Our ability to satisfy these required payments and to add positive gross margin at this semi-permanent location depends on our ability to effectively prepare for the opening of the facility in a timely manner and effectively market the facility and generate ticket sales.  If we are unable to achieve our targeted levels of attendance, our results of operation and financial position would be negatively and materially impacted.
 
 
12

 
We have recently made changes to key management positions and our failure to successfully adapt to changes in key management, and/or our inability to fill other vacant key positions, may adversely affect our business.

 During our fiscal year 2015 our Board of Directors appointed our Chief Financial Officer and Chief Operating Officer to the additional positions of Interim President and Chief Executive Officer. In addition, our former Chief Executive Officer and President was named the Company’s Executive Chairman.  After the fiscal year end 2015, our Executive Chairman resigned from the Company.

These changes in key management, including the appointment of an interim chief executive officer leading the Company, as well as the potential for additional appointments, could create uncertainty among our employees, customers, partners and promoters and could result in changes to the strategic direction of our business, which could negatively affect our business, operating results and financial position.  Any failure of our management to work together to effectively manage our operations, our inability to hire other key management, and any failure to effectively integrate new management into our controls, systems and procedures may materially adversely affect our business, results of operations and financial condition.
 
Our current largest shareholder is an equity fund, and the plans of this fund could have an effect on our stock price and could result in changes to the strategic direction of the Company.
 
The largest shareholder of the Company is currently Sellers Capital Master Fund, Ltd. (“SCF”), which is controlled by Mark Sellers, Chairman of the Board of the Company and Managing Member of SCF’s general partner.  SCF purchased debt that was converted into shares of the Company’s common stock in a financing transaction in fiscal year 2010.  In addition, it has acquired common stock through open market purchases.
 
In June 2010, SCF informed the Company that at the request of the fund’s investors it intended to return all capital to them. On October 7, 2010, Mr. Sellers informed the Company that SCF is no longer marketing its ownership stake in Premier, and further that SCF no longer has a specific time frame within which to sell its stake in Premier.  Instead, Mr. Sellers indicated that SCF would retain its shares in the Company until such time as it could obtain what he believes to be a better value for the shares.  Management does recognize, however, that if a suitable buyer is not identified at the appropriate time, Mr. Sellers may choose to take another course of action, including potentially selling the shares in the open market or in a privately negotiated transaction or distributing the SCF shares to the fund’s limited partners.
 
The concentration of our equity ownership in an equity fund controlled by a Company director, and the potential that it could sell its block of common stock, could have an effect on our stock price and could result in changes to the strategic direction of the Company.  In addition, a single purchaser of the SCF block of common stock could also acquire effective control of the Company.  Such a shareholder may not agree with the present strategic direction of the board of directors and management, creating uncertainty that the current strategic focus of the Company will continue over the longer term.
 
If we pursue the sale of the artifacts that we have recovered from the Titanic wreck site,  we may not be able to maximize the full value associated with title to these artifacts.
 
In August 2011, the U.S. District Court for the Eastern District of Virginia, Norfolk Division issued an Order granting us an in-specie award to all of the artifacts we have recovered from the Titanic wreck since after the Company’s first expedition in 1987.  Together with the October 1993 Order from the French Maritime Tribunal granting us an in specie award to all of the artifacts recovered in our 1987 expedition, we now have title to all of the artifacts we have recovered from the Titanic wreck. Both of these in-specie awards come with certain limitations which govern how we care for the artifacts and how they may be sold.
 
As the Company is currently focused on completing the DK Merger, it is not actively pursuing a sale of the Titanic artifacts and related intellectual property at this time.
 
We have, however, previously announced our intent to pursue a sale of the artifacts.  If we pursue the sale of the artifacts, we could fail to sell the artifacts at or above their appraised value, and if we cannot complete a sale on terms favorable to the Company, our ability to put the artifacts to good and profitable use in the future may be diminished, particularly in light of the uncertainty created by the sale process. The sale process also consumed significant management time and Company resources in the past and may do so in the future, which may impact our operations.  In addition, our stock price may be negatively impacted if we are unable to sell the artifacts on favorable terms, which may reduce our ability to raise capital that may be necessary to fund ongoing operations.  If we do sell the artifacts, we might lose the right to exhibit the artifacts or to use the associated intellectual property, which would reduce our revenues.  Any of these factors could affect our results of operations and financial condition.

 
13

 
In addition, the announcement by the Company that we are not currently actively pursuing the sale of the artifacts or that the sale process, if pursued at a later time, will require more time than was originally anticipated may negatively impact our share price and/or our ability to complete a sale on favorable terms.

If we fail to comply with the continued listing requirements of the NASDAQ, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.
 
Our common stock is currently listed for trading on the NASDAQ. We must satisfy the NASDAQ’s continued listing requirements, including, among other things, the requirement that our audit committee be composed of at least three independent directors, or risk delisting, which could have a material adverse effect on our business. A delisting of our common stock from the NASDAQ could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. During fiscal year 2015, Premier received notification from the NASDAQ that the Company was not in compliance with NASDAQ Marketplace Rule 5450(c)(2)(A), requiring the audit committee to be composed of three independent directors and have an audit committee financial expert. The Company’s audit committee currently has only two members and does not currently have a member whom the Board has determined to be an audit committee financial expert. If the Company fails to add an additional director to the Board in the near term to satisfy the requirements under NASDAQ Marketplace Rule 5450(c)(2)(A), our common stock could be delisted.  In addition, the Company will have to satisfy the NASDAQ listing standards in connection with the Merger.
 
The price of our common stock may fluctuate significantly, and investors in our common stock could see the value of our common stock decline materially.
 
The stock market has recently experienced, and may experience in the future, extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. Such changes may occur without regard to the operating performance of these companies. In addition, the uncertainty related to our efforts to monetize the Titanic artifact collection has and may continue to add to this price volatility.  These fluctuations, both those related to our company and those related to factors that have little to nothing to do with our Company, have and could materially reduce our stock price in the future.
 
Moreover, companies that have had volatile market prices for their securities have been subject to securities class action lawsuits. Any such lawsuit filed against us, regardless of the outcome, could result in substantial legal costs and a diversion of our management’s attention and resources, which in turn could seriously harm our business, results of operations and financial condition.

Our inability to effectively and efficiently develop or acquire new exhibitions could seriously harm our results of operations and financial condition.
 
Our business depends on our ability to develop and present new exhibition concepts or acquire existing exhibition concepts to complement our current exhibitions.  If we are unable to identify new exhibitions or if we do not have sufficient capital to develop new exhibitions, our results of operations and financial condition could be seriously harmed.
 
In addition, the development of new exhibitions often involves significant capital expenditure.  If we are unable to effectively budget for new exhibition development, we may not achieve the desired return on new properties, and our results of operations could be harmed.
 
If our advertising, promotional and other marketing campaigns are not successful, our results of operations could be harmed.
 
Like many other companies that make entertainment available to the public, we utilize significant resources to advertise, promote and provide marketing support for our exhibitions.  For fiscal 2015 and 2014, we incurred marketing and advertising expenses of $4.2 million and $4.1 million, respectively.  We are also party to agreements pursuant to which we engage third-parties to assist us in the production, design, promotion and marketing of our exhibitions.  If our advertising, promotional and other marketing campaigns are not successful, or if we are not able to continue to secure on commercially reasonable terms the assistance of third-parties in our marketing and promotional activities, our results of operations will be harmed.
 
 
14

 
General economic weakness may have a negative impact on our revenues and make it difficult for us to obtain financing to operate our business.
 
Our results of operations are sensitive to changes in general economic conditions that impact consumer spending, including discretionary spending for our exhibitions, both domestically and in international markets where we operate.  Discretionary consumer spending is impacted by higher levels of unemployment, fuel prices, weakness in the housing markets, higher consumer debt levels, declines in consumer confidence in future economic conditions, higher tax rates, higher interest rates, and other adverse economic conditions. An economic slowdown, and other factors that cause consumers to reduce their discretionary spending to a point where attendance at our exhibitions declines, negatively affect our revenues and results of operations.
 
If the national or global economy or credit market conditions in general were to deteriorate in the future, it is possible that such changes could put additional negative pressure on discretionary consumer spending and other consumer purchasing habits, which would adversely affect our operating results and make it more difficult for us to obtain financing to operate our business.
 
The success of our businesses is dependent on the existence and maintenance of intellectual property rights in the products and services we create.
 
The value to us of our intellectual property is dependent on a number of factors, including the existence and application of laws in the U.S. and in jurisdictions around the world, the manner in which those laws are applied, and the efforts taken by the Company to protect and enforce its rights.
 
The unauthorized use of our intellectual property by others may reduce our revenues and increase the cost of protecting our intellectual property. The unauthorized use of intellectual property in the entertainment industry in general continues to pose significant challenges. Inadequate laws or weak enforcement mechanisms to protect intellectual property in one country can adversely affect the results of the Company’s operations worldwide, despite the Company’s efforts to protect its intellectual property. The international nature of our entertainment business requires us to devote substantial resources to protecting our intellectual property against unlicensed use.
 
With respect to intellectual property owned by the Company, the Company is subject to challenges by third parties. Successful challenges to the ownership of our intellectual property may result in increased costs or the loss of the opportunity to earn revenue derived from the intellectual property that is the subject of challenged rights.

Our exhibition business is sensitive to public tastes. If we are unable to anticipate or respond to changes in consumer preferences, demand for our exhibitions could decrease.
 
Our ability to generate revenue from our exhibitions is highly sensitive to changes in public tastes. Our success depends in part on our ability to anticipate the preferences of consumers and to offer appealing exhibitions. We typically book each exhibition venue several months in advance of an exhibition’s opening and incur certain upfront costs prior to our receiving any operating income.  Therefore, if the public is not receptive to a particular exhibition or location, we could incur a loss depending on the amount of the incurred costs. Moreover, if we are not able to anticipate, identify or react to changes in public tastes, reduced demand for our exhibitions will likely result.  Any of the foregoing could adversely affect our results of operations and financial condition.
 
Our business may be harmed as a result of litigation.
 
We have been a party to several ongoing material legal proceedings. These proceedings are described below in Item 3 of Part I of this report under the heading “Legal Proceedings” and also in the “Litigation and Other Legal Matters” footnote to our Consolidated Financial Statements included in Item 8 of Part II of this report. Should successful claims and other actions be brought against us in the future, our business, results of operations and financial condition could be seriously harmed. In addition, the professional cost associated with this litigation may consume the Company’s limited capital, which may constrain the Company’s ability to develop new content and pursue other opportunities.

If we are unable to maintain our salvor-in-possession rights to the Titanic wreck and wreck site, our Titanic exhibitions could face increased competition.

We are the exclusive salvor-in-possession of the Titanic wreck and wreck site. Our salvor-in-possession status enables us to prevent third parties from salvaging the Titanic wreck and wreck site and from interfering with our rights to salvage the wreck and wreck site. To maintain our salvor-in-possession rights, we must maintain a presence over the wreck site as interpreted by the courts. In addition, we may have to commence legal proceedings against third parties who attempt to violate our rights as salvor-in-possession, which may be expensive and time-consuming. Moreover, the court may not continue to recognize us as the sole and exclusive salvor-in-possession of the Titanic wreck and wreck site. If we were to lose our salvor-in-possession rights, our Titanic exhibitions could be exposed to competition, which could harm our operating results.

 
15

 
We may have a risk of collection of our revenue from exhibitions presented by third parties.
 
We rely upon third parties to present some of our exhibitions and in many cases those third parties operate the box office and control the sale of the tickets.  As a result, we are subject to the risk that we will be unable to collect our portion of the revenue from the exhibitions presented by third party partners.  Where we are unable to collect these revenues in accordance with the terms of the contract, we may incur the cost of litigation to recover the amounts owed to us and may ultimately not recover the full value of the receivable.
 
Our exhibitions are becoming subject to increasing competition that could negatively impact our operating results and financial condition.
 
Titanic exhibitions. Although we are currently the only entity that exhibits artifacts recovered from the wreck site of the Titanic, we currently encounter competition from other Titanic exhibitions that exhibit replicas of artifacts and memorabilia not obtained directly from the wreck site.  In addition, in the future we may encounter competition from other Titanic exhibitions or events, as our Titanic exhibition business continues to change.  We have recently settled litigation regarding Titanic exhibitions, as discussed in Item 3. “Legal Proceedings” in Part I of this report.  Another example of this competition emanates from an adverse ruling in 1999 by the U.S. Court of Appeals for the Fourth Circuit which left us with non-exclusive rights to photograph and film the Titanic wreck site. As a result of this ruling, other companies can now photograph and film the Titanic wreck site, which exposes us to increased competition that could, for example, result in our loss of future exhibitions or other opportunities, such as documentary film rights. Moreover, it is possible that other companies may, albeit in violation of our Salvor-in-Possession rights, attempt to explore the Titanic wreck site in the future. If any of these companies were successful, we would face increased competition as well as increased costs necessary to defend and preserve our rights.  The availability of remotely-operated vehicles for charter from third-parties to conduct expeditions may make it easier for others to gain access to the Titanic site in violation of our Salvor-in-Possession rights.  Any of these developments could have an adverse impact on our financial performance.
 
Human anatomy exhibitions.  Our human anatomy exhibitions face intense competition with other human anatomy exhibitions similar to ours offered by various companies in the U.S. and around the world.  As a result, we may lose visitors to our exhibits based on competitors’ claims, the proximity of competing exhibitions to ours, and our ability to advertise and otherwise entice visitors to our exhibits in the extremely competitive marketplace.  In addition, if a significant number of new human anatomy exhibitions were to enter the same markets in which our exhibitions are offered or are planned to be offered, attendance at our human anatomy exhibitions could decline and our results of operations and financial condition could be harmed.
 
The Company’s Titanic and Human anatomy exhibitions have been touring for a number of years.  Our ability to locate venues to present these exhibitions is impacted by the number of venues that have previously presented each exhibition.  As a result, each exhibition is subject to increasing competition from new properties in the market place.
 
Other exhibitions.  If we are successful in presenting our new exhibitions, competitors may bring similar exhibitions of their own to the market. To the extent competitors are successful at marketing and promoting competing exhibitions, our results of operations and financial condition could be harmed.
 
Events harming our reputation could adversely affect our business prospects, financial results and stock price.
 
We are dependent on our reputation. Events that can damage our reputation include, but are not limited to, legal violations, actual or perceived ethical problems, particularly related to our human anatomy exhibitions, actual or perceived poor employee relations, actual or perceived poor customer service, venue appearance or operational issues, or events outside of our control that generate negative publicity with respect to our company. Any event that has the potential to negatively impact our reputation could negatively affect our business prospects, financial results and stock price.
 
 
16

 
We are dependent upon our ability to locate effective venues for exhibitions, either in museums or in leased exhibition space.  If we are unable to lease exhibition venues on acceptable terms or to partner with museums to present our exhibitions, our results of operations could be adversely affected.
 
We require access to exhibition venues owned or leased by third parties to conduct our stationary exhibitions. Our long-term success depends, in part, on our ability to utilize such venues on commercially reasonable terms.  We also present our exhibitions in museums.  If we are unable to develop and maintain relationships with museums to present our exhibits, or if demand for our exhibits from the museum community declines, our results of operations and financial condition could be harmed.

Severe weather may impact our operations at our stationary exhibitions, which contribute a significant portion of our revenue and income.
 
Severe weather has significantly impacted our operations in New York City.  Severe weather may impact our operations and prohibit us from presenting exhibitions. Particularly where such severe weather impacts our stationary exhibit operations in New York City, New York, Atlanta, Georgia, Las Vegas, Nevada or Orlando, Florida, the inability to operate may significantly impact our revenues and income.  While the Company maintains property insurance and, where appropriate, business interruption coverage, insurance proceeds may not fully compensate the Company for its loss of revenue and business opportunity.
 
Through our co-promoters, we conduct exhibitions outside of the United States, which subjects us to additional business risks that could increase our costs and cause our profitability to decline.
 
During fiscal 2015, we derived approximately $3.7 million or 13% of our total revenue from exhibitions located outside of the U.S.  We intend to continue to pursue international exhibition opportunities.  Our international exhibitions are subject to a number of risks, including the following:
 
 
§
changes in foreign regulatory requirements;
 
 
§
difficulties in staffing, training and managing foreign operations;
 
 
§
changing and irregular enforcement of legal regulations;
 
 
§
difficulties in collecting amounts due from foreign partners; and
 
 
§
political and economic instability.
 
Certain aspects of our operations are subject to governmental regulation, and our failure to comply with any existing or future regulations could seriously harm our business, results of operations and financial condition.
 
Our exhibitions are subject to federal, state and local laws, both domestically and internationally, governing various matters, such as:
 
 
§
licensing and permitting;

 
§
health, safety, environmental and sanitation requirements;

 
§
working conditions, labor, minimum wage and hour, citizenship and employment laws; and

 
§
sales, use and other taxes and withholding.
 
We cannot predict the extent to which existing or future laws or regulations could impact our operations. Although we generally contract with a third party for various services at our venues, we cannot provide assurances that we or our third-parties are in full compliance with all applicable laws and regulations at all times, that we or our third-parties will be able to comply with any future laws and regulations or that we will not incur liabilities for violations by us or third-parties with which we maintain a relationship. Our failure or the failure of any of our third-parties with which we maintain a relationship to comply with laws and regulations could also cause us to be subject to investigations or governmental actions that could seriously harm our business.
 
 
17

 
We may be unable to hire and retain the personnel we need and, as a result, could lose our competitive position.
 
To meet our business objectives, we must continue to attract and retain skilled technical, operational, managerial and sales and marketing personnel. We face significant competition for these skilled professionals from other companies, research and academic institutions, government entities and other organizations. If we fail to attract and retain the necessary personnel, we may be unable to achieve our business objectives and may lose our competitive position, which could harm our business revenue.  In addition, our recent efforts to reduce headcount and general and administrative expenses may harm our ability to attract or retain the personnel we need.
 
Data loss or other breaches of our network security could materially harm our business and results of operations, and the processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.
 
Due to the internet-based nature of a significant portion of our ticketing and other businesses, we process, store, use and disclose large amounts of data, including personal information, for our customers. Any penetration of network security or other misappropriation or misuse of personal consumer information and data, including credit card information could cause interruptions in our operations and subject us to increased costs, litigation and other liabilities. Network security issues could lead to claims against us for others’ misuse of personal information, such as for credit card fraud or identity theft, which could result in litigation and financial liabilities, as well as administrative action from governmental authorities. In addition, security breaches or the inability to protect our data could lead to increased incidents of ticketing fraud and counterfeit tickets. Security breaches could also significantly damage our reputation with consumers, ticketing clients and other third parties and impose significant costs related to remediation efforts, such as credit or identity theft monitoring or repair costs for impacted customers. It is possible that advances in computer capabilities, new discoveries, undetected fraud, inadvertent violations of company policies or procedures or other developments could result in a compromise of information or a breach of the technology and security processes that are used to protect consumer transaction data. Recently, large retailers and website operators have been the victims of targeted security breaches resulting in the disclosure and/or misappropriation of large amounts of customer data, including credit card information. We have expended capital and other resources to protect against any such potential security breaches and their consequences and will be required to continue to do so in the future. We also face risks associated with security breaches affecting third parties with which we are affiliated or with which we otherwise conduct business. Consumers are generally concerned with security and privacy of the internet, and any publicized security problems affecting our businesses and/or those of third parties may discourage consumers from doing business with us, which could have an adverse effect on our business, financial condition and results of operations.

In addition to the above concerns related to network and data security, the sharing, use, disclosure and protection of personally identifiable information and other user data are governed by federal, state and international laws. Specifically, personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction. We could be adversely affected if legislation or regulations are expanded to require changes in business practices or privacy policies, or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, financial condition and results of operations.

We may also become exposed to potential liabilities as a result of differing views on the privacy of the consumer and other user data collected by us. Our failure or the failure of the various third-party vendors and service providers with which we do business to comply with applicable privacy policies or federal, state or similar international laws and regulations or any compromise of security that results in the unauthorized release of personally identifiable information or other user data could damage our reputation, discourage potential users from trying our products and services and/or result in fines and/or proceedings by governmental agencies and/or consumers, one or all of which could adversely affect our business, financial condition and results of operations.


None.
 
 
18

 

Principal Executive Offices

Our principal executive office is located at 3340 Peachtree Road, N.E., Suite 900, Atlanta, Georgia.  This space, which consists of 12,874 square feet, is used for management, administration and marketing purposes.  The Company entered into an eighth amendment to the lease for its principal executive office space in Atlanta, Georgia effective January 1, 2014 which extends the lease until May 31, 2017.

The Company leases various warehouse and exhibition space.   For further information about these spaces and the related lease agreements, see Note 15. Commitments and Contingencies.  All properties are used by the exhibition management segment and one warehouse is partially used by the content management (RMS Titanic) segment.

 
For the legal proceedings in which the Company is involved, see Note 17. Litigation and Other Legal Matters to our Consolidated Financial Statements.
 
 
Not applicable.
 
 
 
Market Information
 
Since November 16, 2006, our common stock has been quoted on the NASDAQ Stock Market (the “NASDAQ”) under the symbol “PRXI.” As of May 20, 2015, the closing price of our common stock was $4.61 per share. The following table provides the high and low sales prices for our common stock for fiscal 2015 and fiscal 2014.
 
Prices of our Common Stock *
 
             
   
High
   
Low
 
             
Fiscal 2015
           
             
Fourth Quarter ended February 28, 2015
  $ 7.60     $ 3.30  
Third Quarter ended November 30, 2014
    9.40       5.60  
Second Quarter ended August 31, 2014
    9.30       5.90  
First Quarter ended May 31, 2014
    10.10       7.50  
                 
Fiscal 2014
               
                 
Fourth Quarter ended February 28, 2014
  $ 12.70     $ 8.70  
Third Quarter ended November 30, 2013
    18.40       10.05  
Second Quarter ended August 31, 2013
    20.70       15.10  
First Quarter ended May 31, 2013
    29.60       19.70  
                 
* Stock prices have been adjusted to reflect the 1 for 10 reverse stock effective at the close of business on February 27, 2015.
 
As previously noted, at the close of business on February 27, 2015 we effected a 1 for 10 reverse stock split of our issued common stock.  Except for any changes as a result of the treatment of fractional shares, each shareholder holds the same percentage of our common stock outstanding immediately after the reverse stock split as such shareholder held immediately prior to the reverse stock split. The reverse stock split did not affect the number of shares of common stock authorized in the Articles of Incorporation, which is 65,000,000. Because the number of shares of authorized common stock was not affected, the effect of the reverse stock split was to increase the authorized, but unissued, shares of common stock.
 
 
19

 
During the year ended February 28, 2014 employees of the Company surrendered 1,354 shares of stock worth approximately $19 thousand to satisfy tax obligations with respect to the vesting of the restricted stock units issued. These shares were repurchased at the share price based upon the closing date on the day of vesting.
 
On June 17, 2013, the Company announced that the Board of Directors approved a stock repurchase authorization pursuant to which the Company may repurchase up to 150,000 shares of outstanding common stock.  The authorization will terminate on the date the full number of authorized shares have been repurchased or when otherwise terminated by the Board of Directors.  The Company may repurchase shares of its common stock on the open market at times and prices considered appropriate by the Board of Directors and management. Repurchasing will take place through brokers and dealers and may be made under a Rule 10b5-1 plan.  During the year ended February 28, 2014, the Company repurchased 38,731 shares at an average price of $13.10, excluding commissions, pursuant to authorization.

Holders
 
On May 20, 2015, we had approximately 1,902 holders which includes 1,834 holders that have not yet exchanged their shares in connection with the reverse stock split. This number does not include shareholders for whom shares are held in a “nominee” or “street” name.
 
Dividends
 
We have never declared or paid cash dividends on our common stock. We currently intend to retain any future earnings generated from our operations to finance operations and future growth.
 
Stock Performance Graph
 
The following graph compares the yearly changes in cumulative total shareholder return on shares of our common stock with the cumulative total return of the Standard & Poor's 600 Small Cap Index and the Russell 3000® Index.  In each case, we assumed an initial investment of $100 on February 28, 2010.  Each subsequent date on the chart represents the last day of the indicated fiscal year.  Total returns assume the reinvestment of all dividends.  Our stock performance may not continue into the future with the trends similar to those depicted in this graph.  We neither make nor endorse any predictions as to our future stock performance.

 
 
20

 
 
Date
Russell 3000 Index
S&P 600 Small Cap Index
PRXI
2/28/10
$100.00
$100.00
$100.00
2/28/11
$121.97
$129.72
$138.10
2/29/12
$124.88
$134.75
$194.44
2/28/13
$138.95
$152.50
$182.54
2/28/14
$172.70
$199.38
$69.84
2/28/15
$193.42
$212.12
$28.57
 
 
 
Not required for smaller reporting companies.
 
 
The following discussion contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, many of which are outside of our control and are difficult for us to forecast or mitigate.  The factors that could cause our actual results to differ materially from those expressed or implied by us in any forward-looking statements contained herein or made elsewhere by or on behalf of us include the risks described elsewhere in this Form 10-K and in certain of our other Securities and Exchange Act Commission filings.
 
The consolidated results of operations for the years ended February 28, 2015 and February 28, 2014 are not necessarily indicative of the results that may be expected for any future period.  The following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Part II, Item 8 of this Form 10-K and in conjunction with the “Risk Factors” included in Part I, Item 1A of this Form 10-K.

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 in this  report. This discussion and analysis is organized into the following sections:
 
 
§
Overview;
 
§
Key Exhibitions;
 
§
Results of Operations;
 
§
Liquidity and Capital Resources;
 
§
Contractual Obligations;
 
§
Off-Balance Sheet Arrangements;
 
§
Critical Accounting Policies; and
 
§
Recent Accounting Pronouncements.

Overview

Premier Exhibitions, Inc. and subsidiaries, (the “Company” or “Premier”) are 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.

Our business has been divided into an exhibition management division and a content division.  The content division is the Company’s 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.  The exhibition management division includes our exhibition operations and merchandising operations.  We formed the entity of Premier Exhibition Management LLC (“PEM”), in September 2011 to manage all of the Company’s exhibition operations.
 
 
21

 
Merger Agreement

On April 2, 2015 the Company announced that it had entered into a definitive merger agreement (“Merger Agreement”) whereby it plans to combine with Dinoking Tech Inc. (“DK”). Under the Merger Agreement, the DK shareholders will be entitled to up to 24% of the fully diluted ownership of the Company for all of the issued and outstanding shares of DK. In addition, an investor group has agreed to provide up to $13.5 million in convertible debt funding to Premier to repay $8 million of existing debt and $5.5 million for corporate purposes, including the completion of the development of “Saturday Night Live: The Exhibition” and “Premier Exhibitions 5th Avenue,” the Company’s state-of-the-art exhibition and special events center located in New York City.  To date the investor group has provided $11.5 million of this funding, which was used to retire the debt owed to Pentwater Capital, to continue funding improvements on the building at 417 Fifth Avenue, and to complete our Saturday Night Live Exhibition.  The transaction has been approved by the Board of Directors of Premier. Premier’s principal shareholder, Sellers Capital, LLC, and the directors and officers of the Company have entered into agreements to vote in favor of the transaction. The completion of the transaction is subject to Premier shareholder approval among other customary closing conditions.  The shareholder meeting to approve the transaction is expected to be held no later than September 2015. The merger is expected to be completed in September 2015.

For additional information about our operations, business segments and the Merger Agreement, see Item 1. Business in this Form 10-K.

Key Exhibitions

Exhibitions
 
As of February 28, 2015, we are configured to present five different types of exhibitions, as reflected in the following table:
 
   
Year Ended February 28, 2015
 
   
Stationary
   
Touring
   
Total
 
Exhibitions owned or leased:
                 
"Bodies…The Exhibition" and "Bodies Revealed"
    3       4       7  
"Titanic: The Artifact Exhibition" and "Titanic: The Experience"
    3       5       8  
"Real Pirates"
    -       2       2  
"One Day in Pompeii"
    -       1       1  
"The Discovery of King Tut"
    -       1       1  
Total Exhibitions
    6       13       19  
 
Our touring exhibitions usually span four to six months.  As of February 28, 2015, our stationary exhibitions, which are longer-term exhibitions, are located in Las Vegas, Nevada, Orlando, Florida, Buena Park, California and Atlanta, Georgia.  On April 9, 2014, the Company signed a lease to open a new location in New York City, New York.  Our New York City location is expected to open in late May of 2015.
 
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.

For additional information about our exhibitions, see Item 1.Business in this Form 10-K.

 
22

 
Results of Operations
 
An analysis of our consolidated statements of operations for fiscal 2015 and fiscal 2014, with percent changes from 2014 to 2015, is as follows:
 
   
Analysis of Consolidated Statements of Operations
 
   
2015
   
2014
   
% Change
 
   
(In thousands except percentages and per share data)
 
                   
                   
Revenue
  $ 29,390     $ 29,348       0.1 %
Cost of revenue (exclusive of depreciation and amortization)
    19,784       15,368       28.7 %
Gross profit
    9,606       13,980       (31.3 )%
Gross profit as a percent of revenue
    32.7 %     47.6 %        
                         
Operating expenses
    20,093       14,731       36.4 %
Loss from operations
    (10,487 )     (751 )     1,296.4 %
                         
Other expense
    (1,206 )     (190 )     534.7 %
                         
Loss before income tax
    (11,693 )     (941 )     1,142.6 %
                         
Income tax benefit
    -       (163 )     (100.0 )%
Effective tax rate
    0.0 %     -17.3 %        
                         
Net loss
    (11,693 )     (778 )     1,403.0 %
Less: Net loss attributable to non-controlling interests
    (1,218 )     (64 )     1,803.1 %
Net loss attributable to shareholders of Premier Exhibitions, Inc.
  $ (10,475 )   $ (714 )     1,367.1 %
                         
Net loss per share
                       
Basic loss per share (1)
  $ (2.13 )   $ (0.14 )        
Diluted net loss per share (1)
  $ (2.13 )   $ (0.14 )        
 
(1)
Basic and diluted income per share for the years ended February 28, 2015 and 2014has been adjusted to reflect the 1 for 10 reverse stock split effective February 26, 2015.
 
Revenue.  During the year ended February 28, 2015, revenue was flat compared to prior year.  The following table illustrates revenue for fiscal 2015 and fiscal 2014.
 
   
Revenue
 
   
2015
   
2014
 
   
(in thousands)
 
Exhibition Revenue
           
Admissions revenue
  $ 18,535     $ 18,854  
Non-refundable license fees for current exhibitions
    5,426       4,039  
Total Exhibition revenue
    23,961       22,893  
Merchandise and Other
    4,925       5,747  
Management fee
    474       708  
Licensing fee
    30       -  
Total Revenue
  $ 29,390     $ 29,348  
                 
Key Non-financial Measurements *
               
Total number of exhibitions presented
    29       32  
Semi-permanent exhibitions presented
    6       7  
Partnered exhibitions presented
    13       18  
Exhibitions rented to promoters or museums
    10       7  
Total operating days for semi-permanent, partner and rented exhibitions
    5,323       4,868  
Total attendance for semi-permanent and partner presented exhibitions (in 000's)
    1,787       1,582  
Average attendance per day for semi-permanent and partnered exhibitions presented
    447       325  
Average ticket price for semi-permanent and partnered exhibitions presented
  $ 16.16     $ 14.74  
Average retail per attendee for semi-permanent and partnered exhibitions presented
  $ 2.69     $ 3.23  
                 
Semi-permanent exhibitions:
               
Total operating days
    2,183       2,224  
Total attendance (in 000's)
    727       736  
Average attendance per day
    330       331  
Average ticket price
  $ 20.77     $ 20.63  
Average retail per attendee
  $ 3.58     $ 3.56  
 
* These key non-financial measurements do not include exhibitions under management.

Exhibition revenue increased $1.1 million primarily due to our new Pompeii and King Tut exhibitions which were offset partially by a decrease in revenue related to the Titanic brand being in smaller markets in fiscal 2015. For the year ended February 28, 2014, we did not recognize exhibition revenue for the AEI exhibitions but instead received a management fee for managing these properties. During the fiscal year ended February 28, 2015, we recognized $620 thousand in revenues related to the AEI exhibitions.

 
23

 
With 29 exhibits presented, the Company experienced a corresponding increase in attendance from 1.6 million in fiscal 2014 to 1.8 million in fiscal 2015. We attribute this increase in attendance to the addition of our Pompeii and King Tut exhibitions. Revenue from self-run exhibitions was 60.7% of total revenue in fiscal 2015, compared to 60.6% of revenue in fiscal 2014. These comparisons exclude the AEI portfolio.

Merchandise revenue decreased $0.8 million to $4.9 million for the fiscal year ended February 28, 2015. Merchandise revenue decreased as a result of two Titanic touring sets being inactive nearly the entire 2015 fiscal year.  In addition, four Titanic touring sets were run by partners and the Company receives wholesale revenues instead of the higher retail revenues which reduces our average retail per attendee.  Partially offsetting these decreases was the addition of merchandise revenues from King Tut and Pompeii.

During fiscal year ended 2015, no touring exhibition related to “Bodies” were promoted by S2BN under the co-promotion agreement compared to one touring exhibition in fiscal 2014.
 
Cost of Revenue.  During fiscal year 2015, cost of revenue as a percent of revenue was 67.3% as compared to 52.4% for fiscal year 2014, as reflected in the following table.
 
   
Cost of Revenue
 
   
2015
   
2014
   
% Change
 
   
(in thousands, except percentages)
 
Exhibition costs
                 
                   
Production
  $ 1,558     $ 785       98.5 %
Operating Expenses
    11,925       8,191       45.6 %
Marketing
    4,206       4,138       1.6 %
      17,689       13,114       34.9 %
Exhibition expense as percent of exhibition revenue
    73.8 %     57.3 %        
                         
Cost of merchandise
    2,095       2,254       (7.1 )%
Cost of merchandise as percent of merchandise revenue
    42.5 %     39.2 %        
Total
  $ 19,784     $ 15,368       28.7 %
Percent of total revenue
    67.3 %     52.4 %        
 
Our exhibition costs of $17.7 million, increased 34.9% or $4.6 million compared to the prior year, due mainly to the additional expense related to our New York City location of $2.2 million and an increase in royalty and license fees of $1.1 million related to our new Pompeii and King Tut exhibitions. In addition, production expense increased $0.8 million due mainly to an increase in installation and de-installation cost in the current year.
 
Cost of merchandise as a percent of merchandise revenue increased from 39.2% in fiscal year 2014 to 42.5% in fiscal year 2015 due to flat labor cost and declining revenue.
 
The relatively flat revenue and increase in costs of goods sold resulted in our gross profit decreasing from $14.0 million or 47.6% during fiscal 2014 to $9.6 million or 32.7% for the fiscal year ended February 28, 2015. A significant portion of the decrease in gross margin relates to the expense related to our New York City location with no corresponding revenue.
 
 
24

 
 
Operating Expenses. Operating expense increased by 36.4% during fiscal 2015 compared to fiscal 2014.  The following table illustrates operating expenses and percentage changes for fiscal 2015 vs. fiscal 2014:
 
   
Operating expenses
 
   
2015
   
2014
   
% Change
 
   
(in thousands, except percentage data)
 
                   
General and administrative
  $ 12,809     $ 12,761       0.4 %
Depreciation and amortization
    4,560       4,150       9.9 %
Net gain on disposal of assets
    (4 )     (115 )     (96.5 ) %
Write-off of assets
    104       798       (87.0 ) %
Impairment of goodwill and intangible assets
    2,926       -       N/A %
Gain on note payable fair market value adjustment
    (338 )     (2,566 )     (86.8 ) %
Contract and legal settlements
    36       (297 )     112.1 %
Total
  $ 20,093     $ 14,731       36.4 %
 
General and administrative. General and administrative (“G&A”) expense increased by $48 thousand, as reflected in the following table:
 
   
2015
   
2014
   
Increase (decrease)
 
   
(in thousands)
 
Exhibition expense
  $ 461     $ 461     $ -  
Artifact expense
    115       180       (65 )
Compensation
    6,185       6,117       68  
Employee benefits
    140       159       (19 )
Insurance
    924       829       95  
Office expense
    1,733       1,600       133  
Travel     388       422       (34 )
Professional fees
    2,180       2,299       (119 )
Stock compensation
    262       231       31  
Bad debt expense
    -       67       (67 )
Other     421       396       25  
Total
  $ 12,809     $ 12,761     $ 48  
 
As reflected by the table above,  G&A expense was relatively flat with the prior year.
 
Depreciation and Amortization. Depreciation and amortization increased $0.4 million from the prior year.  The increase is attributable to the assets placed in service during fiscal 2014 related to our Buena Park location and our Pompeii exhibition.
 
Net (gain)/loss on disposal of assets. During fiscal 2014, we sold certain property and equipment that was no longer used and received insurance proceeds for equipment destroyed by Hurricane Sandy which resulted in a gain of $115 thousand. 

Write-off of assets.  During fiscal 2015, we wrote-off assets of $104 thousand related to exhibitions under development or in process but terminated by the Company.  During fiscal 2014, we wrote-off assets of $798 thousand.  This write-off represented assets related to the termination of the non-binding letter of intent for the sale of the Titanic assets and long-term development costs related to an exhibition that was under development but terminated by the Company.

Impairment of goodwill and intangible assets. During the annual fiscal 2015 review of goodwill and other intangible assets, management proceeded directly to the two-step quantitative impairment test for its goodwill and future rights fees.  Under the two-step quantitative impairment the evaluation of impairment involves comparing the current fair value to its carrying value.  The Company uses a discounted model forecast model when testing for impairment, as management believes forecasted cash flows are the best indicator of such fair value.  A number of significant assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including markets and market share, sales volumes and prices, production costs, tax rates, capital spending, discount rate, and working changes.  Cash flows forecasts are generally based on approved business unit operating plans for the early years and historical relationships in later years.  The betas used in calculating the reporting unit weighted average cost of capital rate are estimated for the business unit. The change in cash flows relates primarily to the cancellation of our Federal Bureau of Investigation project in the fourth quarter of fiscal 2015 which reduced the future cash flows that supported these intangible assets.

 
25

 
While completing our annual impairment test of our single reporting unit in the fourth quarter of fiscal 2015 we determined that our goodwill was impaired and that our future rights fees were impaired by $2.7 million.

Gain on note payable fair market value adjustment. During fiscal 2015, we recognized a gain on note payable fair market value adjustment, based upon an update of the expected future cash flows of the exhibitions and discounted the cash flows at 12.0% to estimate the future payments to AEG Live, LLC based upon the note agreement.  Based upon our calculation, the note payable was reduced by $338 thousand to reflect the fair value of the note payable, which resulted in this corresponding gain.
 
 During fiscal 2014, we recognized a gain on note payable fair market value adjustment, based upon an update of the expected future cash flows of the exhibitions and discounted the cash flows at 7.0% to estimate the future payments to AEG Live, LLC based upon the note agreement.  Based upon our calculation, the note payable was reduced by $2.6 million to reflect the fair value of the note payable, which resulted in this corresponding gain.
 
Contracts and legal settlements. During fiscal 2015, the Company entered into two legal settlements. One agreement required Imagine Exhibitions, Inc., a Georgia corporation, Imagine Exhibitions, Inc., a Nevada corporation, Imagine Exhibitions PTE, LTD, and TZ, Inc. to collectively pay the Company $725 thousand on or before December 4, 2014. The Company received this amount in December 2014 and recorded income of $725 thousand related to this settlement.

The other agreement requires RMST to pay Seaventures (“SV”) the agreed sum of $425 thousand, as follows: $75 thousand to SV on or before April 10, 2015; $100 thousand on or before March 1, 2016; $100 thousand on or before March 1, 2017; and $150 thousand on or before March 1, 2018. In addition the Company must stage at least two Joint Exhibitions with SV within 24 months from the date of execution of the agreement in which SV is entitled to a portion of the net revenues or $1 per ticket sold depending on the location of the exhibition.  The Company recorded a liability and a related expense of $344 thousand net of $81 thousand discount at 12% to reflect the present value of the future payments.
 
Offsetting these settlements slightly are the legal fees related to the settlements.

Other expense. We recognized interest expense of $909 thousand on our notes payable in fiscal 2015 as compared to $342 thousand during fiscal 2014.  In addition, we recognized realized losses from foreign currency translations of $313 thousand and $137 thousand in fiscal 2015 and 2014, respectively.
 
Income tax benefit. We recorded an income tax benefit in fiscal 2014 of $163 thousand.  The fiscal 2014 income tax benefit relates to the true-up from the fiscal 2013 income tax returns.
 
Net loss attributable to non-controlling interest. This represents AEG Live, LLC’s loss on its 10% interest in PEM.

Net loss attributable to shareholders of Premier Exhibitions, Inc. We realized a net loss of $10.5 million for fiscal 2015 as compared to a net loss of $0.7 million in fiscal 2014.
 
Fiscal 2015 as Compared to Fiscal 2014 – Segment results
 
Exhibition Management Segment

An analysis of operations for our Exhibition Management segment for fiscal 2015 and fiscal 2014, with percent changes from 2014 to 2015 is as follows:
 
 
26

 
 
   
Analysis of Consolidated Statements of Operations
 
   
2015
   
2014
   
% Change
 
   
(In thousands except percentages)
 
                   
                   
Revenue
  $ 29,390     $ 29,348       0.1 %
Cost of revenue (exclusive of depreciation and amortization)
    20,983       17,137       22.4 %
Gross profit
    8,407       12,211       (31.2 ) %
Gross profit as a percent of revenue
    28.6 %     41.6 %        
                         
Operating expenses
    18,861       12,818       47.1 %
Loss from operations
    (10,454 )     (607 )     1,622.2 %
                         
Other expense
    (1,207 )     (190 )     535.3 %
                         
Loss before income tax
    (11,661 )     (797 )     1,363.1 %
                         
Income benefit
    -       (108 )     (100.0 ) %
Effective tax rate
    0.0 %     -13.6 %        
                         
Net loss
    (11,661 )     (689 )     1,592.5 %
Less: Net loss attributable to non-controlling interests
    (1,218 )     (64 )     1,803.1 %
Net loss attributable to shareholders of Premier Exhibitions, Inc.
  $ (10,443 )   $ (625 )     1,570.9 %
 
Revenue.  During the year ended February 28, 2015, revenue was flat compared to prior year.  The following table illustrates revenue for fiscal 2015 and fiscal 2014.
 
   
2015
   
2014
 
   
(In thousands)
 
Exhibition Revenue
           
Admissions revenue
    18,535       18,854  
Non-refundable license fees for current exhibitions
    5,426       4,039  
Total Exhibition revenue
    23,961       22,893  
Merchandise and Other
    4,925       5,747  
Management fee
    474       708  
Licensing fees
    30       -  
Total Revenue
  $ 29,390     $ 29,348  
                 
Key Non-financial Measurements *
               
Total number of exhibitions presented
    29       32  
Semi-permanent exhibitions presented
    6       7  
Partnered exhibitions presented
    13       18  
Exhibitions rented to promoters or museums
    10       7  
Total operating days for semi-permanent, partner and rented exhibitions
    5,323       4,868  
Total attendance for semi-permanent and partner presented exhibitions (in 000's)
    1,787       1,582  
Average attendance per day for semi-permanent and partnered exhibitions presented
    447       325  
Average ticket price for semi-permanent and partnered exhibitions presented
  $ 16.16     $ 14.74  
Average retail per attendee for semi-permanent and partnered exhibitions presented
  $ 2.69     $ 3.23  
                 
Semi permanent exhibitions:
               
Total operating days
    2,183       2,224  
Total attendance (in 000's)
    727       736  
Average attendance per day
    330       331  
Average ticket price
  $ 20.77     $ 20.63  
Average retail per attendee
  $ 3.58     $ 3.56  
 
* These key non-financial measurements do not include exhibitions under management.
 
Exhibition revenue increased $1.1 million primarily due to our new Pompeii and King Tut exhibitions which were offset partially by a decrease in revenue related to the Titanic brand being in smaller markets in fiscal 2015. For the year ended February 28, 2014, we did not recognize exhibition revenue for the AEI exhibitions but instead received a management fee for managing these properties. During the fiscal year ended February 28, 2015, we recognized $620 thousand in revenues related to the AEI exhibitions.

With 29 exhibits presented, the Company experienced a corresponding increase in attendance from 1.6 million in fiscal 2014 to 1.8 million in fiscal 2015. We attribute this increase in attendance to the addition of our Pompeii and King Tut exhibitions. Revenue from self-run exhibitions was 60.7% of total revenue in fiscal 2015, compared to 60.6% of revenue in fiscal 2014. These comparisons exclude the AEI portfolio.

 
27

 
Merchandise revenue decreased $0.8 million to $4.9 million for the fiscal year ended February 28, 2015. Merchandise revenue decreased as a result of two Titanic touring sets being inactive nearly the entire 2015 fiscal year.  In addition, four Titanic touring sets were run by partners and the Company receives wholesale revenues instead of the higher retail revenues which reduces our average retail per attendee.  Partially offsetting these decreases was the addition of merchandise revenues from King Tut and Pompeii.

During fiscal year ended 2015, no touring exhibition related to “Bodies” were promoted by S2BN, under the co-promotion agreement compared to one touring exhibition in fiscal 2014.
 
Cost of Revenue.  During fiscal year 2015, cost of revenue as a percent of revenue was 71.5% as compared to 58.4% for fiscal year 2014, as reflected in the following table.
 
   
2015
   
2014
   
% Change
 
   
(In thousands except percentages)
 
Exhibition costs
                 
                   
Production
  $ 1,558     $ 785       98.5 %
Operating Expenses
    13,124       9,960       31.8 %
Marketing
    4,206       4,138       1.6 %
      18,888       14,883       26.9 %
Exhibition expense as percent of exhibition revenue
    79.0 %     65.0 %        
                         
Cost of merchandise
    2,095       2,254       (7.1 ) %
Cost of merchandise as percent of merchandise revenue
    42.5 %     39.2 %        
Total
  $ 20,983     $ 17,137       22.4 %
Cost of revenue as a percent of total revenue
    71.5 %     58.4 %        
 
Our exhibition costs of $18.9 million increased 26.9% or $4.0 million compared to the prior year, due mainly to the additional expense related to our New York City location of $2.2 million and an increase in royalty and license fees of $1.1 million related to our new Pompeii and King Tut exhibitions. In addition, production expense increased $0.8 million due mainly to an increase in installation and de-installation cost in the current year.
 
Cost of merchandise as a percent of merchandise revenue increased from 39.2% in fiscal year 2014 to 42.5% in fiscal year 2015 due to flat labor cost and declining revenue.

The relatively flat revenue and increase in costs of goods sold resulted in our gross profit decreasing from $12.2 million or 41.6% during fiscal 2014 to $8.4 million or 28.5% for the fiscal year ended February 28, 2015. A significant portion of the decrease in gross margin relates to the expense related to our New York City location with no corresponding revenue.

Operating Expenses.  Operating expense increased by 47.1% during fiscal 2015 compared to fiscal 2014.  The following table illustrates operating expenses and percentage changes for fiscal 2015 vs. fiscal 2014:

   
2015
   
2014
   
% Change
 
   
(In thousands except percentages)
 
                   
                   
General and administrative
  $ 11,577     $ 11,567       0.1 %
Depreciation and amortization
    4,560       4,097       11.3 %
Net gain on disposal of assets
    (4 )     (115 )     (96.5 ) %
Write-off of assets
    104       132       (21.2 ) %
Impairment of goodwill and intangible assets
    2,926       -       N/A %
Gain on note payable fair market value adjustment
    (338 )     (2,566 )     (86.8 ) %
Contract and legal settlements
    36       (297 )     112.1 %
Total
  $ 18,861     $ 12,818       47.1 %

 
28

 
General and administrative. G&A expense was relatively flat with the prior year.
 
Depreciation and Amortization. Depreciation and amortization increased $0.4 million from the prior year.  The increase is attributable to the assets placed in service during fiscal 2014 related to our Buena Park location and our Pompeii exhibition.
 
Net (gain)/loss on disposal of assets. During fiscal 2014, we sold certain property and equipment that was no longer used and received insurance proceeds for equipment destroyed by Hurricane Sandy which resulted in a gain of $115 thousand. 

Write-off of assets.  During fiscal 2015, we wrote-off assets of $104 thousand related to exhibitions under development or in process but terminated by the Company.  During fiscal 2014, we wrote-off assets of $132 thousand.  This write-off represented assets related to the termination of the non-binding letter of intent for the sale of the Titanic assets and long-term development costs related to an exhibition that was under development but terminated by the Company.

For information regarding the results for this segment with respect to Impairment of goodwill and intangible assets, Gain on note payable fair market value adjustment and Contracts and legal settlements, see the discussion above in this Item 7 under “Results of Operations.”

Other expense. We recognized interest expense of $909 thousand on our notes payable in fiscal 2015 as compared to $342 thousand during fiscal 2014.  In addition, we recognized realized losses from foreign currency translations of $313 thousand and $137 thousand in fiscal 2015 and 2014, respectively.
 
Income tax benefit. We recorded an income tax benefit in fiscal 2014 of $108 thousand.  The fiscal 2014 income tax benefit relates to the true-up from the fiscal 2013 income tax returns.
 
Net loss attributable to non-controlling interest. This represents AEG Live, LLC’s loss on its 10% interest in PEM.

Net loss attributable to shareholders of Premier Exhibitions, Inc. We realized a net loss of $10.4 million for fiscal 2015 as compared to a net loss of $0.6 million in fiscal 2014.
 
RMS Titanic Segment
 
An analysis of operations for our RMS Titanic segment for fiscal 2015 and fiscal 2014, with percent changes from 2014 to 2015, is as follows:
 
   
2015
   
2014
   
% Change
 
   
(In thousands except percentages)
 
                   
                   
Revenue
  $ 1,199     $ 1,769       (32.2 ) %
Cost of revenue (exclusive of depreciation and amortization)
    -       -       - %
Gross profit
    1,199       1,769       (32.2 ) %
Gross profit as a percent of revenue
    100.0 %     100.0 %        
                         
Operating expenses
    1,232       1,913       (35.6 ) %
Loss from operations
    (33 )     (144 )     (77.1 ) %
                         
Other income
    1       -       N/A %
                         
Loss before income tax
    (32 )     (144 )     (77.8 ) %
                         
Income benefit
    -       (55 )     (100.0 ) %
Effective tax rate
    0.0 %     38.2 %        
                         
Net loss attributable to the shareholders of Premier Exhibitions, Inc.
  $ (32 )   $ (89 )     (64.0 ) %
 
 
29

 
Revenue.  During the fiscal year 2015, total revenue decreased by $570 thousand, or 32.2%, to $1.2 million compared to fiscal year 2014, due to the decrease in revenues from Titanic exhibitions and the decrease in merchandise sales.  PEM pays RMST a royalty fee for the use of Titanic artifacts in its exhibits. The royalty fee is calculated based on 10% of revenues generated from Titanic ticket sales, merchandising, and other ancillary revenue-related streams. As Titanic net revenues decreased to $12.0 million from $17.7 million, royalty revenue decreased accordingly.

Operating Expenses. Operating expenses decreased 35.6% during fiscal 2015 as compared to fiscal 2014 due to the write-off of $666 thousand in fees previously included in prepaid assets related to the termination of the non-binding letter of intent related for the sale of the Titanic assets in fiscal 2014.
 
Income tax expense/(benefit). We recorded an income tax benefit for fiscal 2014 of $55 thousand.  The fiscal 2014 income tax benefit relates to the true-up from the fiscal 2013 income tax returns.
 
Net income/(loss) attributable to shareholders of Premier Exhibitions, Inc. We realized a net loss for the year ended February 28, 2015 of $32 thousand compared to a net loss of $89 thousand for the same period in the prior year based on the items discussed above.
 
Liquidity and Capital Resources
 
Liquidity
 
The following tables reflect selected information about our cash flows during the fiscal year ended 2015 and 2014:

Selected cash flow information:
           
   
2015
   
2014
 
   
 
       
Net cash provided by /(used in) operating activities
  $ (1,386 )   $ 483  
Net cash used in investing activities
    (4,505 )     (2,939 )
Net cash provided by/ (used in) financing activities
    7,255       (512 )
Effects of exchange rate changes on cash and cash equivalents
    -       9  
Net increase/(decrease) in cash and cash equivalents
  $ 1,364     $ (2,959 )

Cash flows provided by/(used in) operating activities
 
Cash used in operating activities was $1.4 million for fiscal year 2015 as compared to cash provided by operating activities of $483 thousand in the prior year.  The decrease in cash flow from operating activities is mainly due to the increase in net loss of the Company.  In addition, we had an increase in prepaid expenses of $0.6 million. Partially offsetting this was an increase in impairment of goodwill and intangible assets of $2.9 million, an increase in accounts payable and accrued liabilities of $2.2 million and deferred rent of $1.4 million.
 
Cash flows used in investing activities

Cash used in investing activities was $4.5 million for fiscal year 2015 compared to $2.9 million in the prior year.  Of the cash used in investing activities, the majority was used in the purchase of property and equipment of $4.0 million and $3.1 million in fiscal 2015 and 2014, respectively.  The investment in property and equipment in fiscal year 2015 relates to our New York City location to be opened in May 2015 and $300 thousand the Company paid to AEG Live, LLC for the tangible assets that were required to be returned to AEG Live, LLC at the expiration of the purchase agreement.  In addition, during fiscal year 2015, $801 thousand was used to purchase a restricted certificate of deposit for our New York City lease.  For fiscal year 2015, these were partially offset by the redemption of a certificate of deposit of $407 thousand.  In fiscal year 2014, the investment in property and equipment related primarily to the opening of our Company’s Buena Park location and our new Pompeii exhibition.  For fiscal year 2014, this was partially offset by proceeds from the disposal of assets of $143 thousand.
 
 
30

 
Cash flows provided by/(used in) financing activities
 
Cash provided by financing activities was $7.3 million for fiscal year 2015 compared to cash used of $512 thousand for fiscal year 2014.  Cash provided by financing activities for fiscal 2015 relates primarily to the proceeds of $8.0 million from the issuance of notes payable.  This was partially offset by the repayment of $220 thousand of the note payable to AEG Live, LLC, and $488 thousand in deferred financing costs paid.  Cash used in financing activities in fiscal 2014 relates to primarily to the purchase of treasury stock of $534 thousand and repayment of notes payable of $130 thousand. This was partially offset by proceeds from the exercise of stock options of $185 thousand.

Capital Resources
 
Capital requirements

The Company’s operations in the recent past have been financed primarily through cash flow from operations, existing cash and, in fiscal 2015, the Pentwater Capital Management L.P. loans.  The Company has incurred net losses for the majority of the past several years. Moving forward, the Company expects to have significant cash outflows in the near term based on the New York City lease, leasehold improvements of the leased space and new content development.
 
On September 30, 2014, Premier Exhibitions, Inc. entered into a short-term Secured Promissory Note and Guarantee with each of two affiliates of Pentwater Capital Management LP. Together the Notes provided for a loan to the Company in the aggregate amount of $8.0 million. The Notes provided for the payment by the Company of interest on a monthly basis at the rate of 12% per annum, and the Notes were to mature and were required to be repaid in full on March 31, 2015.
 
The Notes included customary events of default, and also included events of default relating to the preservation of the Titanic assets and maintaining Samuel S. Weiser as an employee of the Company. The Notes also required the Company to maintain minimum unrestricted liquidity of $2.0 million. Upon the occurrence of an event of default, the Company had to pay default interest at the base rate plus 3%, and the Pentwater affiliates could declare all amounts outstanding under the Notes to be immediately due and payable.
 
The Notes were guaranteed by each of RMST, PEM, Arts and Exhibitions International LLC, and Premier Merchandising, LLC, all of which are subsidiaries of the Company. The Notes were secured by substantially all of the assets of the Company and the subsidiary guarantors, including the stock of each of the subsidiary guarantors. The security interest did not apply to the Titanic assets held by RMST, but applied to all revenues, contracts and agreements lawfully arising out of the Titanic assets.
 
The proceeds from these Notes were used to satisfy the Company’s obligations under the New York City lease and proposed new content agreements.
 
Because the Notes matured and had to be paid in full on March 31, 2015, the Company had to obtain replacement financing for the Notes or negotiate an extension or forbearance with the Pentwater affiliates by that date. The Company considered a number of potential transactions that would provide replacement capital for the Company, including a financing transaction with one or more potential strategic partners, a private placement of equity securities, and a private placement of convertible promissory notes, including potentially to some of the Company’s existing shareholders.
 
As discussed above, on April 2, 2015, the Company announced that it had entered into a definitive merger agreement (“Merger Agreement”) whereby it plans to combine with DK. Upon the signing of the Merger Agreement, $8.0 million of the proceeds were used to repay the existing $8.0 million Secured Promissory Note and Guarantee entered into with two affiliates of Pentwater Capital Management LP on September 30, 2014.

If the Merger Agreement is not approved, or a public or private placement of equity securities or of convertible promissory notes, including potentially to some of the Company’s existing shareholders, is not completed, the Company may be required to seek the protection of the U.S. bankruptcy laws and/or cease operating as a going concern.

In addition, if the Company does not meet its payment obligations to third parties as they come due, the Company may be subject to an involuntary bankruptcy proceeding or other litigation claims. Even if the Company were successful in defending against these potential claims and proceedings, such claims and proceedings could result in substantial costs and be a distraction to management, and may result in unfavorable results that could further adversely impact our financial condition.

 
31

 
If the Company makes a bankruptcy filing, is subject to an involuntary bankruptcy filing, or is otherwise unable to continue as a going concern, the Company may be required to liquidate its assets and may receive less than the value at which those assets are carried on its financial statements, and it is likely that shareholders will lose all or a part of their investments. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Contractual Obligations and Commitments

The following table illustrates our contractual obligations and commitments as of February 28, 2015, assuming we do not exercise any of our options to extend (in thousands):
 
Contractual Obligations
 
Total
   
1 Year
   
1-3 Years
   
3-5 Years
   
5 Years
 
                               
Specimen, artifact and license agreements (*)
  $ 3,413     $ 1,858     $ 305     $ 850     $ 400  
Real estate operating leases
    54,787       8,415       14,773       9,496       22,103  
Capital lease obligations
    63       31       32       -       -  
Interest payable on capital lease obligation
    6       4       2       -       -  
Royalty payable
    714       413       301       -       -  
Interest payable on royalty payable
    96       48       48       -       -  
Notes payable
    8,190       8,190       -       -       -  
Interest payable on notes payable
    90       90       -       -       -  
Purchase obligations (**)
    824       824       -       -       -  
Equipment leases
    133       47       63       23       -  
Total
  $ 68,316     $ 19,920     $ 15,524     $ 10,369     $ 22,503  
 
* The specimen, artifact and licenses agreements include certain per ticket fees which are not included above.

** Purchase obligations represent unpaid contract amounts for contracts signed before fiscal year end 2015 related to our Saturday Night Live Exhibition.

Lease Arrangements

Principal Executive Offices

Our principal executive office is located at 3340 Peachtree Road, N.E., Suite 900, Atlanta, Georgia.  This space, which consists of 12,874 square feet, is used for management, administration and marketing purposes.  The Company entered into an eighth amendment to the lease for its principal executive office space in Atlanta, Georgia effective January 1, 2014 which extends the lease until May 31, 2017.

The Company leases various warehouse and exhibition space.   For further information, see Note 15. Commitments and Contingencies.  All properties are used by the exhibition management segment and one warehouse is partially used by the content management (RMS Titanic) segment.

Specimens, Artifacts and License Agreements
 
The Company currently has two lease agreements for specimens used in its “Bodies” exhibitions, with expiration dates in February and March 2016 with one year options through fiscal year 2020.
 
The Company has a non-cancellable license agreement for certain artifacts used in its “One Day in Pompeii” exhibition. The leases are payable at the opening of each new venue. This agreement expires after the third “One Day in Pompeii” exhibition in June 2015.
 
The Company has a non-cancellable license for certain artifacts used in its “Real Pirates” exhibition. The leases are payable quarterly and have a term of five years. This agreement expires in March 2018.
 
On October 13, 2014, Premier Exhibition Management, LLC, a subsidiary of Premier Exhibitions, Inc., entered into an Exhibit Promoter Agreement with Broadway Video Entertainment, Inc. (“BV”) to produce an exhibition based on the television show “Saturday Night Live.”  The term of the agreement is five years from the opening date of the exhibition.
 
 
32

 
The exhibition will feature the characters, stories, programs, cast and creators of Saturday Night Live and will be presented at the Company’s new venue in New York City.  The Company is required to open the exhibit by June 1, 2015, subject to certain rights to cure any delay.

On November 4, 2014, Premier Exhibition Management, LLC entered into a License with Twentieth Century Fox Licensing & Merchandising, a division of Fox Entertainment Group, Inc., as administrator for Twentieth Century Fox Film Corporation (“FOX”) to produce one exhibition based on the Ice Age series of films. The initial term of the agreement is five years from the opening date of the first exhibition. The Company has one five-year option to renew the term which is subject to the Company’s full compliance with its obligations under the agreement.

The exhibition will feature the artwork, characters, stories, and creative elements of the following four theatrical motion pictures: “ICE AGE,” “ICE AGE: THE MELTDOWN,” “ICE AGE: DAWN OF DINOSAURS,” and “ICE AGE: CONTINENTAL DRIFT.”  The Company will present the exhibition at museums, science centers and exhibition centers throughout the world.  The Company is required to open the exhibit by March 31, 2016, and FOX has the right to terminate the agreement if the first exhibit is not opened by that date.

The Discovery of King Tut

During the fourth fiscal quarter of 2014, the Company entered into a License Agreement with Semmel Concerts GmbH, a German entity, to present an exhibition based on King Tutankhamun. The term of the agreement is five years from the opening date of the exhibition. The exhibition, titled “The Discovery of King Tut,” uses high quality artistic and scientific reproductions of artifacts found in the tomb of King Tutankhamun to recreate the moment of Howard Carter’s discovery of the lost tomb.
 
Notes and Royalty Payable
 
On October 17, 2011, the Company entered into an Asset Purchase Agreement to purchase the assets of a Titanic-themed exhibition (“Titanic: The Experience” or “TTE”) in Orlando, Florida from Worldwide Licensing & Merchandising, Inc. and its shareholder, G. Michael Harris (together, “Worldwide”). Pursuant to the Agreement, the Company purchased the assets of the Orlando exhibition from Worldwide in an installment sale.  The Company agreed to pay Worldwide directly a total of $800 thousand over a two-year period, and also agreed to assume rental and other arrearages owed by Worldwide, totaling $720 thousand, which the Company will pay over a four-year period.  Based upon an interest rate of 7.6% the net present value of these payments was approximately $1,377 thousand as of the date of the transaction.
 
On June 29, 2012, the Asset Purchase Agreement was amended to accelerate certain payments to Worldwide.  To induce the Company into this agreement, Worldwide agreed to forgive one payment of $90 thousand.  Based upon the imputed interest rate of 7.6%, this represented a decrease in the note of approximately $71 thousand.
 
On November 26, 2012, the Asset Purchase Agreement was amended to accelerate the final payment to Worldwide.  To induce the Company into this agreement, Worldwide agreed to reduce the final payment by approximately $12 thousand.  The final payment was also reduced by approximately $6 thousand to repay accounts receivable owed to the Company.  Based upon the imputed interest rate of 7.6%, this represented a decrease in the note of approximately $10 thousand.  The final payment of $62 thousand was made to Worldwide in December 2012.  In January 2014, the Company entered into an additional amendment to the lease to provide the Company with the option to terminate the lease in June 2015.
 
As of February 28, 2015, the short-term portion of this note payable was $190 thousand and relates to rental and other arrearages payable on behalf of Worldwide.
 
On April 20, 2012, PEM and its wholly owned subsidiary, Newco,  entered into a purchase agreement with AEG Live LLC, AEG Exhibitions LLC, and AEI pursuant to which Newco purchased substantially all of the assets of 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 Company issued a non-recourse non-interest bearing note of $14.2 million as part of this transaction.  The Company originally recorded the note at $16.4 million.  The increase from $14.2 million to $16.4 million was primarily attributable to prepaid licenses and expenses paid by Arts and Exhibition International, LLC that were added to the note balance.  The book value of the note was subsequently reduced by $3.7 million for the amount that was not expected to be repaid based upon the terms of the note related to the expected future cash flows of the exhibitions and $1.3 million to discount the note to its net present value at an imputed interest rate of 7.0%.  Based upon the expected repayment amount of $12.7 million and an imputed interest rate of 7.0%, the fair value of this note was approximately $11.4 million as of April 20, 2012.  During the fiscal second quarter of 2014, a payment of $4.1 million was made to AEG Live, LLC from the restricted assets held by the Company.  These payments are made from cash accounts managed but not owned by the Company and are required to be paid to AEG Live, LLC based upon the purchase agreement terms.

 
33

 
During fiscal 2014, the Company, using Level 3 inputs based upon FASB ASC 820, updated the expected future cash flows of the exhibitions and discounted the cash flows at 7.0% to estimate the future payment to AEG Live, LLC based upon the note agreement.  As a result of this review, the note payable was reduced by $2.6 million to reflect the updated estimated future payments under the note agreement.  This amount is included in the consolidated statement of operations as a gain on note payable fair market value adjustment.  In addition, we evaluated the Company’s future rights fees as part of this update and determined that the future rights fees are not impaired.  As of February 28, 2014, the balance sheet reflects the short-term portion of the note payable at $170 thousand and the long-term portion at $950 thousand, including accrued interest. In March 2014, the Company paid $300 thousand and purchased the tangible assets that were required to be returned to AEG Live, LLC at the end of the purchase agreement.

On April 17, 2014, PEM and AEG terminated the Promissory Note. As part of the termination of the Promissory Note, PEM and AEG entered into a Revenue Payment Agreement providing for modified future payments to AEG with respect to bookings of acquired exhibitions.  Pursuant to the Revenue Payment Agreement, going forward PEM will make payments to AEG equal to (a) 90% of net revenues from future bookings and (b) 20% of the net revenues from proposed exhibitions acquired from AEG that are ultimately developed and presented.  “Net Revenues” are determined after deduction by PEM of the direct expenses of operating the exhibitions.  Pursuant to the Revenue Payment Agreement, AEG will pay to PEM a management fee of 10% of gross revenues (after deducting any booking fees) for each calendar year thereafter; provided that the management fee shall not be less than the following minimum fees: $500,000 in calendar year 2014; and $125,000 in calendar years 2015 and 2016.

During fiscal 2015, the Company, using Level 3 inputs based upon FASB ASC 820, updated the expected future cash flows of the exhibitions and discounted the cash flows at 12.0% to estimate the future payment to AEG Live, LLC based upon the note agreement.  As a result of this review, the note payable was reduced by $338 thousand to reflect the updated estimated future payments under the note agreement.  This amount is included in the consolidated statement of operations as a gain on note payable fair market value adjustment.  In addition, we evaluated the Company’s future rights fees as part of this update and determined that the future rights fees were impaired by $2.7 million.

As of February 28, 2015, the short-term portion of the royalty payable was $413 thousand and the long-term portion was $301 thousand.
 
As discussed above under “Liquidity and Capital Resources,” on September 30, 2014, Premier Exhibitions, Inc. entered into a Secured Promissory Note and Guarantee with each of two affiliates of Pentwater Capital Management LP.  Together the Notes provided for a loan to the Company in the aggregate amount of $8.0 million.  The Notes provided for the payment by the Company of interest on a monthly basis at the rate of 12.0% per annum, and the Notes matured on March 31, 2015.  The Notes required the Company to pay a closing fee to the Pentwater affiliates in the aggregate amount of 3% of the loan amount and the fees and expenses incurred by the Pentwater affiliates in connection with the negotiation and execution of the Notes.  Deferred financing cost related to this loan totaled $388 thousand. The remaining unamortized amounts are included in deferred financing costs on the consolidated balance sheet of the Company.

The Notes included customary events of default, and also included events of default relating to the preservation of the Titanic assets and maintaining Samuel S. Weiser as an employee of the Company.  The Notes also required the Company to maintain minimum unrestricted liquidity of $2.0 million.  Upon the occurrence of an event of default, the Company was required to pay default interest at the base rate plus 3%, and the Pentwater affiliates could declare all amounts outstanding under the Notes to be immediately due and payable.  These amounts are included in deferred financing costs on the consolidated balance sheet of the Company.

The Company was permitted to prepay the Notes at any time, at 102% of the face amount during the first three months of the term and 100% of the face amount during the second three months of the term.  The Company was required to prepay the note at 102% of the face amount upon a change of control, which would occur upon a change in ownership of 35% of the outstanding shares of the Company or any transfer of any shares of RMST.

 
34

 
The Notes were guaranteed by each of RMST, PEM, Arts and Exhibitions International LLC, and Premier Merchandising, LLC, all of which are subsidiaries of the Company.

The Notes were secured by substantially all of the assets of the Company and the subsidiary guarantors, including the stock of each of the subsidiary guarantors.  The security interest did not apply to the Titanic assets held by RMST, but applied to all revenues, contracts and agreements lawfully arising out of the Titanic assets.

The lenders’ exercise of rights and remedies with respect to the stock of RMST and any revenues, contracts and agreements lawfully arising out of the Titanic assets were expressly governed by and subject to the terms and conditions of the applicable court orders governing the ownership of the Titanic assets by RMST, which included (i) the Opinion issued by the United States District Court for the Eastern District of Virginia with respect to Action No. 2:93cv902, dated as of August 12, 2010; (ii) the Order issued by the United State District Court for the Eastern District of Virginia with respect to Action No. 2:93cv902, dated as of August 15, 2011; (iii) the Revised Covenants and Conditions for the Future Disposition of Objects Recovered from the R.M.S. Titanic by RMST pursuant to an in-specie salvage award granted by the United States District Court for the Eastern District of Virginia, dated as of August 15, 2011; and (iv) the Process Verbal, issued on October 12, 1993 by the Maritime Affairs Administrator for the Ministry of Equipment Transportation and Tourism, French Republic to TVLP.

As of February 28, 2015, the short-term portion of this notes payable was $8.0 million.  This note was repaid in April 2015. See Note 22. Subsequent Events for further details.

Capital lease obligations

The Company leases certain computer and security equipment under capital leases.  As of February 28, 2015, the balance sheet reflects the short-term portion of capital lease obligations of $31 thousand and the long-term portion of $32 thousand.

Legal settlement

On April 3, 2015 RMST entered into a Full and General Mutual Release Settlement and Confidentiality Agreement (the “Agreement”) with Seaventures, LTD (“SV”). The Agreement settles litigation between the Company and SV in the Circuit Court for Orange Country, Florida.

The Agreement requires RMST to pay SV the agreed sum of $425 thousand, as follows: $75 thousand to SV on or before April 10, 2015; $100 thousand on or before March 1, 2016; $100 thousand on or before March 1, 2017; and $150 thousand on or before March 1, 2018. In addition the Company must stage at least two Joint Exhibitions with SV within 24 months from the date of execution of the Agreement in which SV is entitled to a portion of the net revenues or $1 per ticket sold depending on the location of the exhibition.  Each of the parties to the Agreement executed mutual general releases.  The Company recorded a liability of $344 thousand net of $81 thousand discount at 12% to reflect the present value of the future payments which is included in accounts payable and accrued liability as of February 28, 2015.

Purchase obligations

The Company has signed significant purchase agreements related to its new Saturday Night Live Exhibition.  Unpaid contracts amounts at the end of fiscal 2015 related to Saturday Night Live exhibition were $824 thousand.

Subsequent to fiscal year end 2015, the Company signed contracts of $1.6 million related to its new exhibition Saturday Night Live and funded $1.6 million in additional leasehold improvements.

Titanic Artifact Sale Transaction Costs

The Company was party to a Consignment Agreement with Guernsey’s auction house to sell the Company’s Titanic artifacts and related intellectual property.  If a transaction had been closed, the Company would have been required to pay Guernsey’s a fee of up to 8% of the sale price if a purchase agreement were entered into within 60 days of the auction deadline, and up to 4% of the sale price if a purchase agreement were entered into thereafter.  The actual amount of the commission would have depended on the sale price, identity of the purchasing party and the date when the sale was closed.  The obligation to pay a fee to Guernsey for a Titanic artifact sale has ended pursuant to the terms of the agreement.  In addition, if a transaction to sell the Titanic artifact collection was closed, the Company may have been required to pay a transaction bonus to Christopher Davino, former President of RMST, dependent upon the sale price, identity of the purchasing party and the date when the sale is closed.  The obligation to pay a transaction bonus to Mr. Davino has also ended.  In addition, the Company expects to incur other legal, accounting and investment banking expenses if and when a sale of the Titanic artifacts is completed. Prepaid fees related to the auction and professional fees related to the sale to the Consortium totaled $666 thousand and were written-off in fiscal 2014.  This write-off is included in the consolidated statements of operations as write-off of assets.

 
35

 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet financial arrangements.
 
Critical Accounting Policies
 
The Company has identified the policies below as critical to the business operations and the understanding of the results of operations.
 
 (a) Revenue Recognition
 
When evaluating multiple element arrangements, the Company considers whether the components of the arrangement represent separate units of accounting.
 
The Company recognizes revenue when the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable, and (4) the fee is probable of collection. The Company allocates the fees in a multi-element arrangement to each element based on the relative fair value of each element, using vendor-specific objective evidence (“VSOE”) of the fair value of each of the elements, if available. VSOE is generally determined based on the price charged when an element is sold separately. In the absence of VSOE of fair value, the fee is allocated among each element based on third-party evidence (“TPE”) of fair value, which is determined based on competitor pricing for similar deliverables when sold separately. When the Company is unable to establish fair value using VSOE or TPE, the Company uses estimated selling price (“ESP”) to allocate value to each element. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold separately. The Company determines ESP for deliverables by considering multiple factors including, but not limited to, prices it charges for similar offerings, market conditions, competitive landscape and pricing practices.

Deferred revenue includes payments or billings recorded prior to performance and amounts received under multiple element arrangements in which the fair value for the undelivered elements does not exist. In these instances, revenue is recognized when the fair value for the undelivered elements is established or when all contractual elements have been completed and delivered.

 
(i)
Exhibition Revenue
 
The Company recognizes exhibition revenue for exhibits when earned and reasonably estimable. The exhibition agreements may have a fixed fee, may be based on a percentage of gross profit, 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 exhibition is complete and in accordance with the terms of the arrangement;
 
 
§
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.
 
If all of the conditions as outlined above are not met, revenue is recorded as deferred revenue until all conditions are met.
 
 
36

 
Exhibition Revenue is primarily comprised of the following:  Admissions, Licensing, and Audio Tour Revenue. All revenues are shown net of any applicable sales or use taxes.
 
Admissions Revenue
 
Admissions revenue includes ticket sales from the Company’s semi-permanent exhibitions and partner gross profit distribution.
 
Revenue from the semi-permanent exhibitions is derived from ticket sales at venues operated solely by the Company.  The revenue is recorded upon the customer’s ticket purchase.  Advance ticket sales are recorded as deferred revenue pending the “event date” on the ticket.
 
Partner gross profit distribution represents the Company’s share of gross profit from partner run exhibitions. Exhibition gross profit is generally calculated as net ticket sales and other ancillary revenue less exhibition expenses as stated in the exhibition agreement. The Company’s share or percentage is defined in the exhibition agreement and recognized over the duration of the exhibition.  Independent partners provide the Company with box office information, operational expenses, marketing costs, and other exhibition expenses.  The Company utilizes this information to determine the amount of revenue to recognize by applying the contractual provisions included in the exhibition agreement.  The amount of revenue recognized for the period depends on timing, accuracy and completeness of information received from independent partners.
 
Licensing Revenue
 
Licensing revenue is derived from fees paid by independent partners to co-produce, display and promote our exhibitions. The Company recognizes license fees ratably over the duration of the exhibition.
 
Audio Tour Revenue
 
Revenue derived from equipping and operating an audio tour is recognized upon customer purchase.
 
 
(ii) 
Merchandise and Other Revenue
 
Merchandise revenue includes self-run and the Company’s share of independent partner merchandise gross profit.  Revenues from the Company’s semi-permanent exhibitions are recorded upon customer purchase. In most cases, independent partner revenue is derived as a percentage of the merchandise gross profit and typically recorded on a consignment basis.
 
 (b) Exhibition Licenses
 
Exhibition licenses primarily represent exclusive rights to exhibit certain anatomical specimens and organs acquired 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.  In addition, licenses have been obtained to exhibit the Company’s “Dialog in the Dark” exhibitions and for Playboy exhibitions, both of which were impaired during the year ended February 29, 2012.  Costs are capitalized and amortized over the remaining useful life of the specimens and organs for the anatomical specimens and organs.  Costs incurred to renew or extend license agreements are capitalized upon renewal of the license and are amortized over the term of the agreement.
 
Quarterly, the Company evaluates the future recoverability of any unamortized exhibition license costs based on the exhibition’s performance, success of other exhibitions, whether there are any exhibitions planned for the future, and/or specific events that would impair recoverability.  An impairment charge may result if the actual exhibition revenues, combined with currently forecasted future exhibition revenues, are less than the revenue required to amortize the remaining licensing costs.  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.
 
 
37

 
When we test for impairments, the valuation techniques used to determine the value of our exhibition licenses are based on unobservable inputs (Level 3 per ASC 820). Based upon the results of our impairment tests in fiscal 2015 and fiscal 2014 impairments were $0 thousand versus $0 thousand.
 
(c) Goodwill and Purchased Finite-Lived Intangible Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets.  Although goodwill is not amortized, we review our goodwill for impairment annually, or more frequently, if events or changes in circumstances warrant a review. While completing our annual impairment test of our single reporting unit in the fourth quarter of fiscal 2015 we determine that our goodwill was impaired.  See Note 8. Goodwill and Other Intangible Assets for further details. We completed our annual impairment test of our single reporting unit in the fourth quarter of fiscal year 2014 and determined that there was no impairment.

Acquired intangible assets with finite lives, including future rights fees, are amortized over their estimated useful lives and reflected in the Depreciation and Amortization line item on our consolidated statements of operations. Our acquired intangible assets are reviewed for impairment whenever an impairment indicator exists. We continually monitor events or changes in circumstances that could indicate that the carrying amounts of our long-lived assets, including our intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.  Fair value is determined using a discounted cash flow analysis that involves the use of significant estimates and assumptions, some of which may be based in part on historical experience, forecasted information and discount rates. While completing our annual impairment test of our single reporting unit in the fourth quarter of fiscal 2015 we determine that a portion of our future rights fees were impaired.  See Note 8. Goodwill and Other Intangible Assets for further details. We completed our annual impairment test of our single reporting unit in the fourth quarter of fiscal year 2014 and determined that there was no impairment.

(d) Income Taxes
 
Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the basis of assets and liabilities reported for financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.  As of February 28, 2015 and February 28, 2014, the Company established a valuation allowance of $17.2 million and $11.7 million, respectively, against all net deferred tax assets.
 
The Company utilizes a two-step approach for evaluating tax positions.  Recognition (Step 1) occurs when an enterprise concludes that a tax position, based solely on its technical merits is more likely than not to be sustained upon examination. Measurement (Step 2) is only addressed if Step 1 has been satisfied. Under Step 2, the tax benefit is measured at the largest amount of benefit, determined on a cumulative probability basis that is more likely than not to be realized upon final settlement.  The term “more likely than not” is interpreted to mean that the likelihood of occurrence is greater than 50%.
 
 (e) Stock Compensation
 
The Company follows the fair value recognition provisions in the FASB guidance for stock compensation.  The Company’s stock-based compensation expense is measured at the grant date based on the fair value of the award and is amortized on a straight-line basis over the awards’ vesting period.  Stock compensation expense of $262 thousand and $231 thousand for fiscal 2015 and 2014, respectively, is included in “General and administrative expenses” in the Consolidated Statements of Operations.
 
Stock Options.  Fair value of stock options is determined using the Black-Scholes pricing model using weighted-average assumptions including expected volatility, risk-free interest rates, and the expected life of the award.  Expected volatilities are based on the historical volatility of the Company’s common stock.  The Company uses the simplified method for estimating the expected life within the valuation model which is the period of time that options granted are expected to be outstanding.  The risk free rate for periods within the expected life of the option is based on the U.S. Treasury Note rate.
 
Restricted Stock.  The Company grants restricted stock or restricted stock units (“RSUs”) to certain of its employees and directors.  Fair value of restricted stock and RSUs is determined based on the fair value of the Company’s stock on the date of grant.

 
38

 
Warrants.  The Company has granted warrants under various service agreements.  None of these agreements are outstanding at February 28, 2015 or February 28, 2014.
 
Stock Appreciation Rights.  The Company granted stock appreciation rights to one of its executive officers.  Fair value of stock appreciation rights is determined using the Black-Scholes pricing model using weighted-average assumptions including expected volatility, risk-free interest rates, and the expected life of the award.  Expected volatilities are based on the historical volatility of the Company’s common stock.  The Company uses the simplified method for estimating the expected life within the valuation model which is the period of time that stock appreciation rights granted are expected to be outstanding.  The risk free rate for periods within the expected life of the stock appreciation rights is based on the U.S. Treasury Note rate.  Fair value is recalculated at the end of each reporting period.

If assumptions change during the life of the awards’ vesting period, the Company may modify or reverse the related stock compensation expense in accordance with current FASB guidance.  The Company has experienced a reversal of stock compensation expense in prior years related to forfeitures of options and RSUs in instances where forfeitures were not anticipated or incorporated into the stock compensation expense calculation.
 
Recent Adopted and Issued Accounting Pronouncements
 
See Note 3. Recent Accounting Pronouncements for discussion regarding recently adopted and issued accounting pronouncements.
 

Not required for smaller reporting companies.
 
 
39

 
 

 
40

 
 
The Board of Directors and Shareholders of Premier Exhibitions, Inc.:
 
We have audited the accompanying consolidated balance sheets of Premier Exhibitions, Inc. and subsidiaries (the “Company”) as of February 28, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the years then ended. We have also audited the accompanying consolidated financial statement schedule for the years ended February 28, 2015 and 2014 listed in the index at Item 15. These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule 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 audit to obtain reasonable assurance about whether the consolidated financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation and schedule. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Premier Exhibitions, Inc. and subsidiaries at February 28, 2015 and 2014 and the consolidated results of their operations, comprehensive loss and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 21 and 22 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Notes 21 and 22. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
We were not engaged to examine management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of February 28, 2015, included in Management’s Report on Internal Control Over Financial Reporting, referred to in Item 9A of the Company’s Annual Report on Form 10-K, and, accordingly, we do not express an opinion thereon.
 
 
/s/ Cherry Bekaert LLP
 
 
Atlanta, Georgia
May 29, 2015
 
 
41

 
Premier Exhibitions, Inc.
(in thousands, except share data)

   
February 28,
 
   
2015
   
2014
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 4,798     $ 3,434  
Certificates of deposit and other investments
    -       407  
Accounts receivable, net of allowance for doubtful accounts of $220 and $392, respectively
    1,417       1,331  
Merchandise inventory, net of reserve of $25 and $17, respectively
    1,127       1,206  
Income taxes receivable
    49       263  
Prepaid expenses
    2,684       2,012  
Other current assets
    459       381  
Total current assets
    10,534       9,034  
                 
Artifacts owned, at cost
    2,881       2,901  
Salvor's lien
    1       1  
Property and equipment, net of accumulated depreciation of $22,766 and $19,799, respectively
    11,503       9,287  
Exhibition licenses, net of accumulated amortization of $6,069 and $5,857, respectively
    1,629       1,841  
Film and gaming assets, net of accumulated amortization of $1,726 and $1,101, respectively
    1,608       2,233  
Deferred financing costs, net of accumulated amortization of $318
    65       -  
Construction deposit
    134       -  
Lease incentive
    5,899       -  
Goodwill
    -       250  
Future rights fees, net of accumulated amortization of $3,551 and $438, respectively
    829       3,942  
Restricted cash
    426       -  
Restricted certificate of deposit
    801       -  
Deferred income taxes
    60       302  
Long-term exhibition costs
    261       215  
Subrogation rights
    250       250  
Total Assets
  $ 36,881     $ 30,256  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 4,782     $ 2,550  
Deferred rent
    668       751  
Deferred revenue
    2,901       3,076  
Deferred income taxes
    60       302  
Short-term portion of capital lease obligations
    31       39  
Short-term portion of royalty payable, net of discount of $48
    413       -  
Short-term portion of notes payable, net of discount of $10 and $66, respectively
    8,190       170  
Total current liabilities
    17,045       6,888  
                 
Long-Term liabilities:
               
Lease abandonment
    997       1,440  
Deferred rent
    8,867       -  
Long-term portion of capital lease obligations
    32       61  
Long-term portion of royalty payable, net of discount of $48
    301       -  
Long-term portion of notes payable, net of discount of $0 and $134, respectively
    -       1,126  
Total long-term liabilities
    10,197       2,627  
                 
Commitment and Contingencies
               
                 
Shareholders' equity:
               
Common stock; $.0001 par value; authorized 65,000,000 shares; issued 4,916,644 and 4,906,209 shares, respectively; outstanding 4,916,443 and 4,906,008 shares, respectively
    1       1  
Additional paid-in capital
    54,104       53,826  
Accumulated deficit
    (46,105 )     (35,630 )
Accumulated other comprehensive loss
    (13 )     (326 )
Less treasury stock, at cost; 201 shares
    (1 )     (1 )
Equity Attributable to Shareholders of Premier Exhibitions, Inc.
    7,986       17,870  
Equity Attributable to Non-controlling interest
    1,653       2,871  
Total liabilities and shareholders' equity
  $ 36,881     $ 30,256  

The accompanying notes are an integral part of the consolidated financial statements.
 
 
42

 
Premier Exhibitions, Inc.
(in thousands, except share and per share data)
 
   
Year Ended February 28,
 
   
2015
   
2014
 
Revenue:
           
Exhibition revenue
  $ 23,961     $ 22,893  
Merchandise and other
    4,925       5,747  
Management fee
    474       708  
Licensing fee
    30       -  
Total revenue
    29,390       29,348  
                 
Cost of revenue:
               
Exhibition costs
    17,689       13,114  
Cost of merchandise sold
    2,095       2,254  
Total cost of revenue (exclusive of depreciation and amortization shown separately below)
    19,784       15,368  
                 
Gross profit
    9,606       13,980  
                 
Operating expenses:
               
General and administrative
    12,809       12,761  
Depreciation and amortization
    4,560       4,150  
Net gain on disposal of assets
    (4 )     (115 )
Write-off of assets
    104       798  
Impairment of goodwill and intangible assets
    2,926       -  
Gain on note payable fair market value adjustment
    (338 )     (2,566 )
Contract and legal settlements loss/(gain)
    36       (297 )
Total operating expenses
    20,093       14,731  
                 
Loss from operations
    (10,487 )     (751 )
                 
Interest expense
    (909 )     (342 )