<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

         FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

     For the transition period from              to

     Commission File No. 000-24452

                                RMS TITANIC, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

         Florida                                           59-2753162
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)

                   17 Battery Place, New York, New York 10004
                     Address of principal executive offices

Issuer's telephone number, including area code:  (212) 558-6300

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.0001 per share

         Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes   No X

         Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ].

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of June 12, 1999, was:
$17,326,278.

     The number of shares outstanding of each of the registrant's classes of
common stock, as of June 12, 1999, were: 16,187,119

<TABLE>
                                                     NUMBER OF SHARES
            TITLE OF EACH CLASS                        OUTSTANDING
            -------------------                        -----------

<S>                                                  <C>
            Common Stock, par value $.0001
            per share                                  16,187,119
</TABLE>

DOCUMENTS INCORPORATED BY REFERENCE: The registrant's definitive proxy
statement to be filed pursuant to Regulation 14A or definitive information
statement to be filed pursuant to Regulation 14C.
<PAGE>   2
              SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE
                    SECURITIES LITIGATION REFORM ACT OF 1995

         Except for historical information contained herein, this Annual Report
on Form 10-K contains forward-looking statements within the meaning of the
Private Securities Reform Act of 1995 which involve certain risks and
uncertainties. The Company's actual results or outcomes may differ materially
from those anticipated. Important facts that the Company believes might cause
such differences are discussed in the cautionary statements accompanying the
forward-looking statements and under in Item 7 "Managements's Discussion and
Analysis of Financial Conditions and Operations." Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements contained in the Report
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.

ITEM 1.  BUSINESS

         BACKGROUND
         ----------

         On May 4, 1993, RMS Titanic, Inc. acquired all of the assets and
assumed all of the liabilities of Titanic Ventures Limited Partnership ("TVLP"),
a Connecticut limited partnership (the "Acquisition"). References to the
"Company" in this Report relate to TVLP prior to the acquisition and the
combined entities of TVLP and RMS Titanic, Inc. after the Acquisition.

         Pursuant to a judgment entered in the Federal District Court for the
Eastern District of Virginia on June 7, 1994, the Company was declared
salvor-in-possession of the vessel RMS Titanic (the "Titanic"), the sole and
exclusive owner of any items recovered from the Titanic and, so long as the
Company is salvor-in-possession, the sole and exclusive owner of items recovered
from the Titanic in the future (the "Order"). The Order was re-affirmed by the
Federal District Court for the Eastern District of Virginia in 1996 and 1998.
See "Salvage Rights" below.

         The Company was formed in 1987 for the purposes of exploring the wreck
and surrounding oceanic areas of the Titanic, which sank in 1912 and lies more
than 12,500 feet below the surface of the Atlantic Ocean approximately 400 miles
off the coast of Newfoundland; obtaining oceanic material and scientific data
available therefrom in various forms, including still and moving photography and
artifacts from the wreck site; and utilizing such data and artifacts for
historical verification, scientific education and public awareness and in
revenue-producing activities such as touring exhibitions, television programs
and the sales of still photography. In August 1987, the Company 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. Utilizing
state-of-the-art technology of IFREMER, which is the French Government's, and
the world's largest, oceanographic institute, approximately sixty (60) days of
research and recovery operations were performed at the Titanic wreck site
through the use of a manned submersible NAUTILE. Approximately 1800 objects were
recovered during the course of thirty-two (32) dives on such 1987



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expedition. The recovered objects were conserved and preserved by Electricite de
France ("EDF"), the French government-owned utility. In addition to the
recovered objects, the Company's 1987 expedition also produced approximately 140
hours of videotape footage and an estimated 7,000 still photographs from the
wreck site.

         In June 1993, the Company successfully completed its second expedition
to the Titanic wreck site, recovering approximately 800 artifacts and producing
approximately 105 hours of videotape footage during the course of fifteen (15)
dives. In July 1994, the Company recovered over 1,000 objects and produced
approximately 125 hours of videotape footage during its third expedition to the
Titanic wreck site. In August 1996, the Company recovered 74 objects and
produced approximately 125 hours of videotape footage during its fourth
expedition to the Titanic wreck site. In cooperation with the Company, Discovery
Communications, Inc. produced three (3) hours of television programming based
upon the Company's activities and scientific studies undertaken during the 1996
expedition. Two hours of this programming, presented in "Titanic: Anatomy of A
Disaster," was the highest rated program in the history of The Discovery Channel
when it aired in April 1997. In addition to obtaining videotape footage for the
television productions, a substantial portion of the 1996 expedition was devoted
to the recovery of a section of the Titanic hull, measuring approximately 26
feet by 20 feet and weighing approximately 20 tons, from the debris field
surrounding the wreck (the "Big Piece"). Although the Company raised the Hull
Piece to within approximately 200 feet of the surface of the ocean, efforts to
recover this object were unsuccessful as a result of stormy weather conditions
and resulting ocean turbulence.

         In August 1998, the Company recovered 70 objects and produced
approximately 350 hours of videotape footage during its fifth expedition to the
Titanic wreck site. This expedition, again undertaken in cooperation with
Discovery Communications, Inc., produced five (5) hours of television
programming about the expedition, including the first-ever live broadcast from
the Titanic wreck site and a one (1) hour Dateline NBC special broadcast. Among
the highlights of the 1998 expedition was the successful recovery of the Big
Piece and extensive mapping of the Titanic and portions of the wreck site
through the capture of thousands of high resolution color digital photographs.

         The Company's 1993, 1994, 1996 and 1998 Titanic expeditions were also
conducted pursuant to charter agreements with IFREMER. The objects recovered in
the 1993, 1994, 1996 and 1998 expeditions were transported to a privately-owned
conservation laboratory in France for restoration and/or preservation processes
in preparation for exhibition, except for the Big Piece, with respect to which
conservation processes have been ongoing while on exhibit as part of the
Company's exhibition of its Titanic artifacts in the United States.

         During 1997 through the date of this report, exhibitions of objects
recovered from the Titanic were presented in association with the Company in
Norfolk, Virginia (which opened in November 1996 and was presented until March
31, 1997); in Memphis, Tennessee (from April 3, 1997 to September 30, 1997),
Hamburg, Germany (from May 8, 1997 to September 30, 1998); at the Queen Mary in
Long Beach, California (from May 31, 1997 to March 21, 1999); St. Petersburg,
Florida (from November 15, 1997 through May 31, 1998); Boston, Massachusetts
(from July 1, 1998 through November 30, 1998); Zurich, Switzerland (from
November 11, 1998 through May 9, 1999); St. Paul, Minnesota (from January 1,
1999 through May 9, 1999); a continuing tour to several cities in Japan (from
July 24, 1998 until its scheduled conclusion on July 31, 1999;) and in Atlantic
City, New Jersey (from May 29, 1999 until its


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scheduled conclusion on September 7, 1999).

          The Company has granted a subsidiary of SFX Entertainment, Inc. the
exclusive worldwide rights to present exhibitions of the Company's Titanic
artifacts commencing September 14, 1999 for a one-year period, subject to
extension for four (4) additional periods of one year each, in consideration of
minimum payments of $8.5 million per year to the Company.

         PLAN OF OPERATIONS
         ------------------

         The Titanic has captivated the thoughts and imagination of millions of
people throughout the world for the decades since 1912, when it struck an
iceberg and sank in the North Atlantic, causing the loss of more than 1500 of
the 2228 lives on board. The depth of the abiding international interest in the
Titanic over the more than eighty-five years since its sinking is reflected by
the December 1997 release of the highest grossing motion picture of all time,
"Titanic," as well as by a prodigious volume of works that have been published
about all facets of its story, the production of other feature length movies and
plays about its tragic voyage, and the broadcast of television programs about
its 1985 discovery and scientific examinations of the wreck approximately two
and one-half miles below the surface of the ocean. As the only entity that has
recovered and conserved items from the Titanic, the Company is in the unique
position to present, in a previously untold manner, a visible and tangible
perception of the Titanic by the exhibition of these artifacts to the general
public. Management of the Company intends to present such exhibitions throughout
the world, and to thereafter establish a permanent museum for the display of the
Titanic artifacts, in an enlightening and dignified manner that embodies respect
for those who lost their lives and embraces the advances in science that have
permitted the memory of the Titanic to be physically presented to current and
future generations. The principal sources of revenues of the Company have been
and are expected to be ticket sales for admission to exhibitions, merchandising
revenues, licensing revenues and sponsorship revenues.

         The long-term intent of the Company's research and recovery program is
to keep the artifacts recovered from the Titanic together as a "collection" and
make them available for exhibition to the public. Pursuant to its charter
agreements with IFREMER, the Company has agreed that the "collection" of
artifacts would not be sold by the Company to any individual or private
collector. However, if it became necessary to protect the interests of the
Company, all of the artifacts as a "collection" could be sold to an entity that
would make them available for exhibition to the public, subject to the
restrictions of the Company's agreement with IFREMER. Such agreement defines
"artifact" as any object that was either a part of the Titanic or a possession
of a person on board. Coins, coal, currency, diamonds (non-jewelry), precious
metals, and gem stones are not considered artifacts for purposes of the IFREMER
agreements.




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<PAGE>   5
         EXHIBITIONS
         -----------

         The Company plans to present exhibition tours of Titanic artifacts at
cities throughout the world. In pursuit of this plan, the Company has presented
exhibitions in association with third parties in cities in the United States,
Europe and Japan.

         Agreement with Subsidiary of SFX Entertainment, Inc.

         In March 1999, the Company entered into an agreement with Magicworks
Entertainment, Inc., a direct subsidiary of PACE Entertainment, Inc. and an
indirect subsidiary of SFX Entertainment, Inc. (collectively, "SFX"), pursuant
to which RMST granted SFX an exclusive worldwide license to exhibit the
Company's Titanic artifacts in consideration of the payment to the Company of a
minimum of $8.5 million annually. The license agreement has an initial term of
one year, commencing September 14, 1999, with SFX having the option to extend
the term for up to four additional one-year periods. Such $8.5 million payment
is payable as follows: $500,000 upon the effective date of the license
agreement, and payments of $2,000,000 each on a quarterly basis commencing
September 15, 1999. The license agreement became effective in May 1999. All
obligations of SFX under the license agreement have been guaranteed by SFX
Entertainment, Inc.

         Pursuant to the license agreement, the Company will receive sixty-five
(65%) percent and SFX will receive thirty-five (35%) percent of net ticket,
merchandise and sponsorship revenues, after deduction of mutually agreed upon
project expenses. The $8.5 million annual guaranteed minimum payment to be made
to the Company will be credited against its share of net revenues in excess of
project expenses. The Company has the right to terminate the license agreement
effective as of September 14, 2001, or annually thereafter, upon the occurrence
of certain conditions, including the merger or sale of majority control of the
Company or substantially all of its assets. If the Company terminates the
license agreement, SFX will have the right to continue one major exhibition,
containing no more than 200 of the Company's Titanic artifacts and involving an
investment by SFX in excess of $2,000,000, until no later than September 14,
2004 in consideration of the payment to the Company of a minimum of $2,250,000
annually. Upon recoupment of the project expenses, the Company has the right to
select and obtain legal title to, without the payment of additional
consideration, sixty-five (65%) of the exhibitry built for the exhibitions
presented during the term of the agreement.

         In addition, the license agreement provides that the Company shall
receive twenty (20%) percent of the profits, if any, from a current Titanic
themed exhibition in Orlando, Florida presented by SFX and third parties. Under
the license agreement, SFX does not have the right to include any of the
Company's Titanic artifacts in the Orlando exhibition. A member of the Board of
Directors is a related party to this exhibition.

         Atlantic City Exhibition

         The Company is currently presenting an exhibition of approximately 200
of its Titanic artifacts in Atlantic City at the Tropicana Hotel. This
exhibition, which includes the Big Piece recovered during the 1998 Titanic
expedition, commenced on May 29, 1999 and is scheduled to conclude on September
7, 1999. Pursuant to the exhibition agreement, Tropicana is responsible for
payment of all costs and expenses related to the presentation, operation and
marketing of the exhibition, with the exception of the


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Company's contribution of approximately $100,000 of the installation costs of
the exhibition. The exhibition agreement provides that the Company will receive
all ticket and merchandising revenue from the exhibition, without recoupment by
Tropicana of any of its costs for presenting, operating and marketing the
exhibition. It was further agreed that sponsorship revenues, less commissions,
will be divided equally between the Company and Tropicana.

         Merchandising operations at the Atlantic City exhibition are conducted
through an unaffiliated third party, Titanic Merchandising, Inc. ("TMI").
Pursuant to the Company's agreement with TMI, the Company receives thirty (30%)
percent of the gross revenues derived from the sale of merchandise at the retail
shop established within the exhibition premises. See "Business-Merchandising"
below.

         SFX has no rights or interest in any revenues of the Company derived
from the Atlantic City exhibition.

         Japan Exhibition

         The Company has entered into an agreement with Titanic Exhibition Japan
Inc. ("TEJI") for the exhibition of approximately 200 Titanic artifacts in seven
(7) venues in Japan commencing on or about July 24, 1998 and ending on or about
August 1, 1999. The Japanese exhibition has been presented in the cities of
Tokyo from July 24, 1998 to August 24, 1998; Yokohama from August 29, 1998 to
October 15, 1998; Joetsu from November 7, 1998 to November 29, 1998; Osaka from
December 5, 1998 to February 7, 1999; Hiroshima from April 3, 1999 to April 25,
1999 and in Fukuoka from April 29, 1999 to the present, with a scheduled closing
date of June 20, 1999. It is planned that the exhibition will be presented in
the city of Sapporo form June 26, 1999 to August 1, 1999. Pursuant to the
exhibition agreement, TEJI has agreed to pay the conservator of the Company's
artifacts $321,000 for the conservation and restoration of artifacts to be
displayed in the exhibition. The exhibition agreement further provides that TEJI
is responsible for payment of all costs and expenses related to the design,
construction, operation and marketing of the exhibition, and that the Company
will receive the greater of $3.00 per person who attends the exhibition or fifty
(50%) of the profits from the exhibition. Under the exhibition agreement,
"profits" means the excess of net revenues (including ticket, sponsorship,
merchandising and ancillary revenues, if any, derived from the exhibition) less
"project expenses" (which includes all costs and expenses of every kind and
description in establishing, operating and marketing the exhibition up to a
maximum of approximately $3,470,000). Additionally, the exhibition agreement
provides that RMST has the right to select and obtain legal title to fifty (50%)
of the exhibitry utilized in the exhibition at no additional cost to RMST, with
such rights to be exercised no later than the completion of the exhibition tour.

         SFX has no rights or interest in any revenues of the Company derived
from the Japan exhibition tour.






                                       6
<PAGE>   7
Prior Exhibitions

         The Company's prior exhibitions of its Titanic artifacts have included
the following:

         Prelude Exhibition at the National Maritime Museum
         --------------------------------------------------

         On October 4, 1994, the Company and the National Maritime Museum opened
The Wreck of the Titanic exhibition at the National Maritime Museum. This
exhibition, which was presented as a prelude to the Company's planned worldwide
exhibition tour, was scheduled to conclude on April 2, 1995. In March 1995, this
prelude exhibition was extended to October 1, 1995. A record-breaking number of
people visited the National Maritime Museum during the Prelude Exhibition, with
approximately 720,000 people having been admitted to the Museum during its term
of presentation.

         The Wreck of the Titanic exhibition featured the first major
presentation of artifacts recovered from the debris field surrounding the
Titanic wreck site. Approximately 150 artifacts were exhibited in an area
approximating 5,000 square feet. This exhibition, which covered several themes,
including the history of the Titanic, searching for and discovering the wreck,
the 1987, 1993 and 1994 recovery expeditions, artifact conservation and
preservation, and the contemplated world tour, also included a 4-meter model of
the bow section of the wreck, a one-third scale model of the Nautile (the
high-technology manned submersible used to explore the wreck site and recover
artifacts), and previously unseen footage of the wreck site. The principal
obligations of the Company with respect to the Prelude Exhibition were to make
the Titanic artifacts available for the term of such exhibit; provide
photographs, video footage and other information relating to the recovery of the
Titanic artifacts; provide models and plans of the worldwide exhibition for
display in the Prelude Exhibition; and to consult with the National Maritime
Museum with respect to the design and content of the Prelude Exhibition. The
National Maritime Museum was responsible for the design, fabrication and
operation of the Prelude Exhibition.

         Pursuant to the Prelude Exhibition agreement, the Company and the
National Maritime Museum equally shared all revenues from ticket sales through
April 2, 1995, net of value added tax, refunds and commissions ("Net Revenue"),
after recoupment by the National Maritime Museum of its costs and adjustments,
up to a maximum of pound sterling 600,000, incurred in connection with the
design and construction of the exhibition. Pursuant to the agreement, extending
the prelude exhibition from April 2, 1995 through October 1, 1995, the Company
received twenty (20%) percent of the Net Revenue. The Company's share of the Net
Revenues derived from the Prelude Exhibition amounted to $650,071 during the
twelve month period of its presentation.

         Merchandising activities with the National Maritime Museum and
Winterland Productions (UK) Limited ("Winterland") were undertaken in connection
with The Wreck of the Titanic exhibition, pursuant to which all merchandise was
designed, manufactured and/or acquired by Winterland, and profits from
merchandising activities were shared equally between the Company, the National
Maritime Museum and Winterland. The Company's share of profits from such
merchandising activities amounted to $174,305 during the Prelude Exhibition.


         Memphis Exhibition
         ------------------
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         Following the Prelude Exhibition, in 1996 the Company entered into an
agreement with the City of Memphis, Tennessee for the presentation of a larger
exhibition of Titanic artifacts in Memphis, Tennessee from April 3, 1997 through
September 30, 1997. Pursuant to the exhibition agreement, as amended, the City
of Memphis was responsible for payment of all costs and expenses related to the
design, construction and operation of the exhibition. Additionally, pursuant to
the agreement, the Company received exhibition revenues of $720,000 in
installments between September 1996 and August 1, 1997, and also received 65% of
the net profits, as defined, derived from ticket, merchandise and sponsorship
revenues in excess of $5,000,000, plus the actual out-of-pocket expenses
incurred by the City in packing, shipping and insuring the transit of the
objects from Semur-en-Auxious, France, where the conservation laboratory is
located, to Memphis, Tennessee. The exhibition agreement also granted the
Company a right of first refusal for the purchase of any or all display cases,
theatrical pieces, didactic panels, models, lighting instruments, and other
display items that may be developed by the City for the exhibition at a price
equal to seventy-five (75%) percent of the cost of the production thereof.

         The Memphis exhibition displayed in themed galleries more than 250
artifacts recovered between 1987 and 1994 by the Company in an area of
approximately 25,000 square feet, including a bronze cherub, the ship's
whistles, a steward's jacket, silver dinnerware, fine china, gold coins,
jewelry, delicate paper objects such as a stock certificate and personal
letters, communications and navigational gear, and a piece of one of Titanic's
engines. This exhibition also included an 18-foot scale model of the Titanic,
replications of a First Class stateroom, dining rooms, Third Class and crew
cabins and recreational areas of the Titanic, the Marconi Room, and a model of
the bow of the wreck.

         Approximately 635,000 individuals attended the Memphis exhibition
during the six-month term of its presentation. The Company earned approximately
$2,040,000 of revenue from this exhibition, inclusive of the minimum guaranteed
fees of $720,000.

         The objects exhibited at the Memphis exhibition and associated
exhibitry were transported and installed in the Florida International Museum in
St. Petersburg, Florida for an exhibition presented from November 15, 1997 to
May 31, 1998. See "St. Petersburg Exhibition" below.

         Hamburg Exhibition
         ------------------

         The Company entered into an agreement, as amended, with Cre - Co Finanz
GmbH ("CRE"), a company organized under the laws of Germany, for the
presentation of an exhibition of approximately 300 of the Company's Titanic
artifacts in Speicherstadt, the historic maritime center of Hamburg, Germany,
from May 8, 1997 through November 8, 1997 (the "Hamburg Exhibition Agreement").
This agreement was amended to extend the exhibition until September 30, 1998,
following previous extensions through January 31, 1998 and May 10, 1998. CRE was
responsible for payment of all expenses incurred in connection with establishing
and presenting this exhibition. In addition to displaying objects from Titanic
and her passengers and crew, the Hamburg exhibition included the first
opportunity for the public to view Titanic's bell, compass, telegraph and safe
together. The theme of the Hamburg exhibition was an interactive presentation of
the technological advances required to accomplish the recovery and conservation
of Titanic's artifacts, and included replicas of the First Class, Second Class
and Third Class cabins, and a model of the bow of the wreck.

                                       8
<PAGE>   9
         Pursuant to the Hamburg Exhibition Agreement, the Company received
two-thirds (2/3) and CRE received, through February 28, 1998, one-third (1/3) of
the profits from this exhibition (the "Profits), which were defined as net
revenues (including ticket, sponsorship, merchandising and ancillary revenues,
if any, derived from the exhibition) less "project expenses" (which included all
costs and expenses of every kind and description in establishing, operating and
marketing the exhibition up to a maximum of approximately $2,700,000, plus an
additional allowance, as defined, for operating expenses for attendance
thresholds between 300,000 and 700,000. Simultaneously with the execution of
this agreement, the Company was paid the sum of $350,000 as an advance against
its share of Profits (the "Advance"). In addition, CRE advanced the sum of
$110,000 during the 1998 fiscal year which was provided for the conservation of
artifacts utilized in the Hamburg exhibition. The Hamburg Exhibition Agreement
was amended so as to provide that in satisfaction of Cre's obligations to the
Company for the period ended February 28, 1998, CRE would pay to the Company the
sum of $433,189 and transfer to the Company exhibitry utilized in the Hamburg
exhibition which cost $559,414, which was due to the Company for its share of
exhibition revenue earned. It was further agreed that CRE would pay to the
Company, for the period from March 1, 1998 through May 1, 1998, the sum of
$2.00 per visitor to the exhibition, fifteen (15%) percent of gross merchandise
sales, and fifty (50%) of the gross catalogue sales at the exhibition. During
the period between May 2, 1998 and September 30, 1998, the Company received
two-thirds (2/3) of all ticket revenues in excess of a monthly operating budget
of 400,000 DM; twenty (20%) percent of gross merchandise sales (exclusive of
catalogue sales) and fifty (50%) of gross catalogue sales, less the costs per
unit for printing the catalogue. The Company further agreed to pay two-thirds of
the cost of approximately 325,000 DM to refurbish the Hamburg exhibition, and up
to two-thirds (2/3), or up to $150,000, whichever was less, for the
deinstallation and shipment of the exhibition to Zurich, Switzerland. The
objects exhibited at the Hamburg exhibition and associated exhibitry were
transported and installed in a venue in Zurich, Switzerland for an exhibition
presented from November 11, 1998 to May 9, 1999. See "Zurich Exhibition" below.

         The Company earned approximately $2,820,000 from the Hamburg
exhibition, inclusive of the $350,000 Advance paid to the Company, $110,000
advanced by CRE for the conservation of artifacts, and the $559,414 of exhibitry
transferred to the Company. Approximately 1.1 million people attended this
exhibition.

         St. Petersburg Exhibition
         -------------------------

         The Company entered into an agreement with the Florida International
Museum, Inc. ("FIM") and the City of Memphis (the "City") for an exhibition of
the artifacts and associated exhibitry displayed in the Memphis exhibition in
St. Petersburg, Florida from November 15, 1997 to May 15, 1998. Pursuant to the
exhibition agreement, FIM was responsible for payment of all costs and expenses
related to the design, construction and operation of the exhibition. This
agreement further provided that the Company would receive attendance fees (the
"Attendance Fees") as follows for attendees from whom FIM receives more than
$6.00 to attend the exhibition: $.34 per visitor for the first 250,000
visitors; $2.80 per visitor for 250,001 to 350,000 visitors; $3.10 per visitor
for 350,001 and 450,000 visitors; and $2.95 per visitor in excess of 450,000.
In addition, the Company would receive $1.00 for every visitor who pays $6.00
or less for admission to the exhibition. The exhibition agreement additionally
provided that the Company would receive ten (10%) of the gross revenue, as
defined, from the sale of merchandise at the FIM Gift Shop related to the
exhibition (the "Gift Shop Fee"). The minimum combined Attendance Fee and Gift
Shop Fee payable to the


                                       9
<PAGE>   10
Company was $300,000, $100,000 of which was paid in January 1997, $50,000 of
which was paid on November 15, 1997, and the balance of which was paid during
the term of the exhibition from the Company's share of ticket and merchandise
revenue. Additionally, pursuant to the agreement, FIM agreed to lease the
exhibitry utilized in the Memphis exhibition for $150,000. Such $150,000 payment
was remitted on the Company's behalf for the purchase of exhibitry from the City
under the agreement. The Company exercised its rights to purchase items of
exhibitry at a cost in excess of such $150,000.

         This exhibition agreement was amended so as to provide for an extension
of the term of this exhibition to May 31, 1998, with the Company to receive,
during the period from May 16, 1998 through May 31, 1998, $2.60 per visitor from
whom FIM receives more than $6.00 per ticket and $1.00 per visitor from whom FIM
receives $6.00 or less per ticket. In all other respects, the exhibition
agreement among FIM, the City of Memphis and the Company remained unchanged.

         The Company earned approximately $1,577,500 from this exhibition. Upon
closing of the exhibition on May 31, 1998, approximately 830,000 people had
attended the exhibition.

         Queen Mary Exhibition
         ---------------------

         The Company entered into an agreement with the RMS Foundation, Inc. to
exhibit artifacts, expedition equipment, photographs and film footage from the
1996 Titanic expedition aboard the Queen Mary in Long Beach, California (the
"Queen Mary") from June 1, 1997 through January 5, 1998 (the "Initial Term") in
an exhibition titled "Titanic: The Expedition." This agreement was amended from
time-to- time so as to extend this exhibition until March 21, 1999 (the
"Extension Term"). Approximately thirty (30) unrestored artifacts recovered
during the Summer of 1996 expedition (including one of Titanic's whistles, a
large silver soup tureen, binoculars in a leather case, and a porthole) and
fourteen (14) conserved artifacts from prior expeditions are displayed at the
Queen Mary, together with a life-size rendition of the 20 ton section of the
Titanic hull that the Company sought to raise from the debris field surrounding
the Titanic wreck site during the Summer of 1996 Expedition, a two-ton flotation
bag used in artifact recovery operations, and a full-size replica of a three-ton
light tower that the Company utilized to illuminate portions of the wreck during
the Company's 1996 expedition to the Titanic. The theme of this exhibition is
the exploration of, and efforts to recover objects from, the Titanic wreck.
Pursuant to the Queen Mary exhibition agreement, RMS Foundation is responsible
for payment of all costs and expenses related to the design, construction and
operation of the exhibition. Pursuant to the agreement, as amended, the Company
received from the sale of up to 150,000 tickets, $2.00 per ticket during the
Initial terms and $2.50 per ticket during the Extension Term, and $3.00 per
ticket from the sale of more than 150,000 tickets. In addition, the Company
receives fifty (50%) percent of net profits, as defined, from the sale of
merchandise at the Queen Mary exhibition, and fifty (50%) of any sponsorship
revenue.

         The "Titanic: The Expedition" presented at the Queen Mary is designed
to be presented in an area of approximately 6,000 square feet, as compared to
the Memphis, Hamburg, and St. Petersburg exhibitions, which have occupied
between 30,000 square feet to more than 40,000 square feet. The Queen Mary
exhibition is substantially the same as the "Titanic: The Expedition" exhibition
presented at the National Maritime Center (NAUTICUS) in Norfolk, Virginia from
November 27, 1996 through March 31, 1997, from which the Company derived ticket
and merchandising revenues of approximately $125,000 through February 28, 1997.

                                       10
<PAGE>   11
         The Queen Mary exhibition closed on March 21, 1999, with approximately
264,000 visitors having attended this exhibition. The Company earned
approximately $713,000 from this exhibition.

         Boston Exhibition
         -----------------

         The Company entered into an agreement with Resource Plus and Event
Management International ("EMI"), a division of the World Trade Center Boston,
for the presentation of more than 175 artifacts in Boston, Massachusetts from
July 1, 1998 through on or about November 15, 1998. This exhibition primarily
included the Company's Titanic artifacts presented in the Memphis and St.
Petersburg exhibitions. Pursuant to the exhibition agreement, EMI was
responsible for payment of all costs and expenses related to the design,
construction, operation and marketing of the exhibition, and the Company was
entitled to receive two-thirds (2/3), and EMI will receive one-third (1/3), of
the profits from this exhibition (the "Profits"), which were defined as net
revenues (including ticket, sponsorship, merchandising and ancillary revenues,
if any, derived from the exhibition) less "cost of operations" (which includes
all costs and expenses of every kind and description in operating and marketing
the exhibition up to a maximum of approximately $2,525,000, but does not include
the costs of the exhibitry utilized in the exhibition). The exhibition agreement
further provided that the ownership interest in certain exhibitry and equipment
aggregating $750,000 was transferred to the Company as of August 31, 1998, in
satisfaction of the minimum exhibition fees due to the Company. This exhibition
closed on November 29, 1998, with attendance of approximately 250,000 visitors.
The Company did not earn exhibition fees in excess of the minimum. The objects
exhibited at the Boston exhibition and associated exhibitry were transported and
installed in a venue in St. Paul, Minnesota for an exhibition presented from
January 1, 1999 through May 9, 1999. See "St. Paul Exhibition" below.

         St. Paul Exhibition
         -------------------

         The Company entered into an agreement with Media Rare, Inc. for the
presentation of the objects and exhibitry contained in the Company's Boston
exhibition for a period of four (4) months commencing on January 1, 1999 and
ending on April 30, 1999. Pursuant to this agreement, the Company received a
minimum payment of $1,000,000. This minimum payment is a credit against the
Company's share of two-thirds of the net profits, as defined, derived from
ticket, merchandise and sponsorship revenues in excess of a budget of
approximately $2,000,000. The budget for this exhibition includes a $300,000
payment to the Company for the lease of its exhibitry for the St. Paul
exhibition.

         This exhibition was extended from May 1, 1999 to May 9, 1999 pursuant
to an amendment to the exhibition agreement, which provided that the Company
shall receive a minimum of $3.00 per visitor to the exhibition during the
extension period, with two-thirds (2/3) of any profits of revenues in excess of
a budget of approximately $113,000 for the extension period to be paid to the
Company, after crediting the $3.00 per visitor fee paid to the Company against
such profit distribution.

         Japan Exhibition
         ----------------

         The Company has entered into an agreement with Titanic Exhibition Japan
Inc. ("TEJI") for the exhibition of approximately 200 Titanic artifacts in seven
(7) venues in Japan commencing on July


                                       11
<PAGE>   12
24, 1998 and ending on or about August 1, 1999. The Japanese exhibition has been
presented in the cities of Tokyo, Yokohama, Joetsu, Osaka and Hiroshima, is
currently being presented in the city of Fukuoka, and is scheduled to be
presented in the city of Sapporo. Pursuant to the exhibition agreement, TEJI has
agreed to pay the conservator of the Company's artifacts $321,000 for the
conservation and restoration of artifacts to be displayed in the exhibition. The
exhibition agreement further provides that TEJI is responsible for payment of
all costs and expenses related to the design, construction, operation and
marketing of the exhibition, and that the Company will receive the greater of
$3.00 per person who attends the exhibition or fifty (50%) of the profits from
the exhibition. Under the exhibition agreement, "profits" means the excess of
net revenues (including ticket, sponsorship, merchandising and ancillary
revenues, if any, derived from the exhibition) less "project expenses" (which
includes all costs and expenses of every kind and description in establishing,
operating and marketing the exhibition up to a maximum of approximately
$3,470,000. Additionally, the exhibition agreement provides that RMST has the
right to select and obtain legal title to fifty (50%) of the exhibitry utilized
in the exhibition at no additional cost to RMST, with such rights to be
exercised no later than the completion of the exhibition tour.

         THE PERMANENT MUSEUM
         --------------------

         Upon completion of a world tour of the Company's artifacts, the Company
intends to establish a permanent museum for the artifacts at a facility in a
major United States or European market where tourism is well-established. The
selection of the site of such museum will be made by management based primarily
upon the recommendations of the International Advisory Committee (see
"International Advisory Committee" below), the size of the potential market and
the costs of establishing and operating an appropriate facility.

         MERCHANDISING
         -------------

         The merchandising efforts in connection with the Memphis, Hamburg,
Queen Mary and St. Petersburg exhibitions were undertaken by the parties with
which the Company is presenting such exhibitions. The Company does not have
responsibility for procurement of any merchandise or the operation of the
merchandise shops at the venues.

         The Company has entered into an agreement with an unaffiliated third
party, Titanic Merchandise Inc. ("TMI"), to operate and manage retail
merchandise operations at the Company's exhibitions in the United States until
July 1, 2001. Pursuant to this agreement, TMI is responsible for all costs
associated with the retail operations, including but not limited to build-out,
inventory and operational costs and has agreed to pay to RMST and the
co-presenters of the exhibition, such as EMI with respect to the Boston
exhibition, an amount equal to thirty (30%) of the gross revenue realized
through retail sales at the exhibition site. TMI has also agreed to pay to RMST
an amount equal to ten (10%) percent of its gross revenue received from sales
made by TMI to third parties, and an amount equal to five (5%) of the suggested
retail price bearing the Company's logos or incorporating other proprietary
rights of RMST, whether sold at exhibitions or through retail outlets other than
the exhibitions.

         The Company intends to manufacture replicas of selected artifacts or to
sell licenses to third parties for replication of artifacts that have been
recovered from the Titanic. It is contemplated that the


                                       12
<PAGE>   13
Company will receive a negotiated royalty from the sales of the artifact
replicas in consideration of the granting of such licenses. No assurances can be
given that such licensing arrangements will be successfully consummated, or if
consummated, will result in the Company's receipt of significant revenues. The
Company also intends to pursue the direct marketing of merchandise through its
web site (http://www.titanic-online.com) and through third parties.

         The Company has entered into an agreement with Tehabi Books for the
publication of a "coffee table" book titled "Titanic Legacy of the World's
Greatest Ocean Liner" to be distributed by Time-Life Books, which was published
in October 1997 (the "Book"). The Book was on the New York Times Bestseller List
for thirteen (13) consecutive weeks ending in April 1998. Pursuant to its
agreement with Tehabi, all expenses related to the development and production of
the book, including but not limited to all payments to the printer, the author
and the owners of all photographic rights, were the sole responsibility of
Tehabi. The Company granted to Tehabi the exclusive right to publish in book
form all photographs owned by the Company that were selected for inclusion in
the Book, in consideration for which the Company receives a royalty, for the
first 50,000 copies of the book, of $175 per photograph or image owned by the
Company (the "Photographs"), and $87.50 per Photograph for every additional
50,000 copies, prorated according to the number of additional books produced.
In addition, Tehabi and the Company agreed that Tehabi would receive the first
$200,000 of net revenue derived from its sale of the Book (which was defined as
gross revenue less certain actual manufacturing costs, such as printing costs
and photography royalties paid to the Company for Books produced over the first
50,000 copies), the Company would receive the next $40,000 of net revenue, and
the parties would equally share all net revenue in excess of $240,000.

         EXPEDITIONS TO THE TITANIC
         --------------------------

         As a consequence of the depth of the Titanic approximately two and
one-half miles below the surface of the ocean in the North Atlantic, the Company
is dependent upon chartering vessels outfitted with highly advanced deep sea
technology in order to conduct expeditions to the Titanic. With respect to its
1987, 1993, 1994, 1996 and 1998 expeditions, the Company entered into charter
agreements with IFREMER, pursuant to which IFREMER supplied the crew and
equipment necessary to conduct research and recovery efforts. In addition to
utilization of the research vessel NADIR, recovery efforts are undertaken
through the manned submersible NAUTILE. Small, hard-to-reach areas necessary for
visual reconnaissance efforts are accessed by a small robot, known as ROBIN,
controlled by crewmen on board the NAUTILE. The dive team has the capability of
retrieving heavy objects, such as a lifeboat davit weighing approximately 4,000
lbs., to fragile objects weighing but a few ounces. Because of the immense
pressure of approximately 6,000 pounds per square inch at the wreck site, it is
impossible for the dive team to reach such depths and explore the wreck site
through any means other than a submersible. The NAUTILE and ROBIN are each
equipped with video and still cameras that record all recovery and exploration
efforts. In connection with its 1987, 1993, 1994, 1996 and 1998 expeditions to
the wreck site, the Company engaged experts from various fields, including
maritime scientists and other professional experts, to assist in the Company's
exploration and recovery efforts. Management of the Company intends to engage
experts from such fields for its future expeditions to the Titanic.

         During the Company's 1998 expedition to the Titanic, in addition to
recovering the largest artifact to date -- a 26 foot by 20 foot outer section of
the hull of Titanic weighing approximately 20 tons, known


                                       13
<PAGE>   14
as the "Big Piece,"  other objects recovered during this expedition included a
port-side gangway door from D-Deck, found on the sea bed with its latch
mechanism open; a golden chandelier from one of the ship's first class public
rooms; a stateroom coat hook; a light switch control panel from the galley
area; a skylight from the first class elevator shaft; a small 60-second
hourglass used for navigation; a round dial with spindle and spring mechanism
that may be an electronic wall clock from the Marconi radio room. During the
1998 expedition, a new area of the debris field apparently containing large
amounts of passenger baggage was discovered, which the Company intends to
explore and to focus attention upon for future recovery operations.

         Additionally, through the use of ultra-high resolution digital
underwater technology, more than 3,000 individual digital photographs were
captured of the Titanic's wreck site. These photographs have been compiled and
processed utilizing special computerized software into the world's first
high-resolution photomosaic of the Titanic's wreck site, including the
first-ever composition of the entire mangled stern section as well as portions
of the debris field surrounding the wreck.

         The Company's ability to conduct expeditions to the Titanic is subject
to the availability of necessary research and recovery vessels and equipment for
chartering by the Company during the months between June and September, which is
the "weather window" for such activities in the North Atlantic. Research and
recovery efforts with a manned submersible are presently limited to the
availability of the NAUTILE pursuant to charter arrangements with IFREMER. To
the best of the knowledge of management of the Company, no other submersible
with the capability of reaching the depth of the Titanic is commercially
available to or acceptable by the Company for chartering. While management of
the Company believes that the utilization of a manned submersible is the
preferred means for conducting its research and recovery efforts, the Company
could conduct sufficient operations through the use of unmanned,
surface-controlled, remote operated vehicles, an adequate number of which, in
management's opinion, would be available for chartering by the Company on
acceptable terms from numerous sources of supply.

         RESTORATION AND CONSERVATION
         ----------------------------

         Upon recovery from the wreck site, artifacts are in varying states of
deterioration and fragility. Having been submerged in the depths of the ocean
for more than eighty-five (85) years, objects have been subject to the corrosive
effects of chlorides present in the sea water. The restoration of many of the
metal, leather and paper artifacts requires the application of sophisticated
electrolysis and other electrochemical techniques. Various artifacts recovered
from the 1987 expedition were restored and conserved by the laboratories of
Electricite de France, the French government-owned utility. Except for those
unrestored artifacts that are exhibited in Atlantic City, New Jersey and in the
touring exhibition in Japan, unrestored artifacts recovered from the 1993, 1994,
1996 and 1998 expeditions are presently undergoing conservation processes at
LP3, a privately-owned conservation laboratory in Semur-en-Auxois, France.

         SALVAGE RIGHTS
         --------------

         Pursuant to a judgment entered in the Federal District Court for the
Eastern District of Virginia on June 7, 1994, the Company was declared
salvor-in-possession of the wreck and wreck site of the Titanic, the true, sole
and exclusive owner of any items recovered from the Titanic and, so long as the
Company is


                                       14
<PAGE>   15
salvor-in-possession, the sole and exclusive owner of all items recovered from
the Titanic in the future. The Court's judgment includes, without limitation,
the contents, cargo, hull, machinery, engine, tackle, apparel and appurtenances
of the Titanic, and provides that all potential claimants are barred and
precluded from filing claims so long as the Company is salvor-in-possession. No
other entity has the right to salvage the Titanic while the Company is
salvor-in-possession. In order to maintain salvor-in-possession status, the
Company, among other things, will need to maintain a reasonable presence at the
wreck through periodic expeditions and will need to continue efforts at salvage
and preservation of artifacts during the period between salvage expeditions.

         In February 1996, a third-party instituted a motion in the Federal
District Court for the Eastern District of Virginia seeking rescission of the
June 7, 1994 order awarding to the Company salvor-in-possession status. By order
dated May 10, 1996 entered after trial, such motion was denied. The court also
modified its June 7, 1994 order to the extent of requiring the Company to file
more frequent periodic reports as to the status of its activities. In August
1996, the Court amended such May 10, 1996 order so as to include the award of
exclusive rights to photograph the Titanic within the award of
salvor-in-possession status, and enjoined third-parties from entering the wreck
site for purposes of obtaining photography or for other purposes.

         An unrelated entity announced the intention of conducting a
photographic expedition, known as Operation Titanic, to the Titanic wreck site
during August 1998, when the Company intended to conduct its 1998 expedition.
The Company commenced legal proceedings and obtained an injunction prohibiting
such photographic expedition during August 1998 or at any other time so long as
the Company is salvor-in-possession of the wreck and wreck site of the Titanic.
Notwithstanding such injunction, the Operation Titanic photographic expedition
occurred in September 1998. In March 1999, the District Court's granting of an
injunction prohibiting the photographic expedition was reversed by the Fourth
Circuit of the United States. The Company is considering appealing the reversal
of the District Court's determination to the United States Supreme Court.
Future photographic expeditions to the Titanic have been announced by
third-parties.  In the  event that such photographic expeditions are undertaken
while the Company is conducting its expedition, safety hazards regarding the
deployment of submersibles chartered by the Company while other submersibles
are deployed could interfere with the Company conducting its expeditions. See
"Item 3. Legal Proceedings" below.

         Management of the Company believes that all requirements to maintain
its salvor-in-possession status have been satisfied and will be satisfied in the
foreseeable future. Should the Company not maintain its salvor-in-possession
status, other entities could conduct salvage operations and recover items from
the Titanic wreck site. Management believes, however, that salvage operations by
other entities, if successful, would not have a material adverse affect upon the
Company's plan of exhibition activities. However, the loss of exclusive
photographic rights could have a materially adverse affect upon the Company's
ability to generate revenues from ancillary activities, such as television
productions related to, or passenger cruises accompanying, research and recovery
expeditions.

         INTERNATIONAL ADVISORY COMMITTEE
         --------------------------------

         In March 1994, the Company and the National Maritime Museum initiated
the formation of an


                                       15
<PAGE>   16
International Advisory Committee with the purpose to "safeguard the future of
the Titanic wreck site and objects raised from it and to ensure that they are
conserved to the highest standards to be saved for future generations in a
Titanic Memorial Museum." The members of the International Advisory Committee,
in addition to the Company and the National Maritime Museum of Greenwich,
London, England, are as follows: Musee de la Marine, Paris, France; IFREMER; The
Maritime Association, New York, New York; Titanic International Society,
Freehold, New Jersey; Charles A. Haas (author and historian); National Maritime
Museum, Stockholm, Sweden; National Maritime Museum of Norway, Oslo, Norway;
John P. Eaton (author and historian); and the British Titanic Historical
Society, Lancashire, England. Annual meetings of the Committee were held in
London, England in October 1994, 1995 and 1996. It is expected that a meeting of
the Committee will be held in the fall of 1999.

         MARKETING
         ---------

         The organizations in association with which the Company is presenting
its exhibitions are responsible for undertaking and paying for the marketing and
promotion of the exhibitions. The Company intends to establish special
promotional programs for school-age children and educational institutions, and
plans to develop and distribute teaching materials to aid in the historical and
scientific studies currently used in school curriculum regarding the Titanic.

         COMPETITION
         -----------

         The entertainment and exhibition industries are intensely competitive.
There can be no assurances that the Company will be able to compete effectively.
Many of the entities with which the Company will be competing have substantially
greater resources than the Company. Additionally, following the success of the
motion picture "Titanic" in December 1997, a number of entities have undertaken,
or announced an intention to offer, exhibitions or events with the theme of
Titanic or involving memorabilia related to its sinking. Although the Company is
the only entity that exhibits artifacts recovered from the wreck site of the
Titanic, competition may be encountered from these exhibitions or events for the
consumer's interest in Titanic or with respect to the interest of prospective
venues for presenting the Company's Titanic exhibition. Management intends to
compete with other entities based upon the mass appeal of its planned exhibits
to consumers of entertainment, museum, scientific and educational offerings and
the quality and value of the entertainment experience, emphasizing the unique
and distinctive perspective of the Titanic that the Company will incorporate
into its exhibits as Titanic's salvor-in-possession and as the only entity that
has the rights to objects recovered from the Titanic.

         The success of the Company's merchandising efforts will depend largely
upon the consumer appeal of its merchandise and the success of its exhibitions.
Management of the Company believes that its merchandise will compete primarily
on the basis of its unique character and quality.

         EMPLOYEES
         ---------

         As of June 5, 1999, the Company had six (6) employees, one of whom is
its President. The Company is not a party to any collective bargaining
agreement.

         The Company's future business and operating results depend in
significant part upon the continued


                                       16
<PAGE>   17
contributions of George Tulloch, the Company's President. The Company does not
maintain a key person life insurance policy on Mr. Tulloch. The Company's future
business and operating results also depend in significant part upon its ability
to attract and retain qualified additional management, marketing and support
personnel for its operations. Competition for such personnel is intense, and
there can be no assurance that the Company will be successful in attracting or
retaining such personnel. The loss of Mr. Tulloch or the Company's inability to
attract and retain skilled employees, as needed, could materially and adversely
affect the Company's business, financial condition and results of operations.

         ENVIRONMENTAL MATTERS
         ---------------------

         The Company will be subject to environmental laws and regulation by
federal, state and local authorities in connection with its planned exhibition
activities. The Company does not anticipate that the costs to comply with such
laws and regulations will have any material effect on the Company's capital
expenditures, earnings or competitive position.

ITEM 2.  DESCRIPTION OF PROPERTY

         The Company's principal executive offices are located in New York, New
York and consist of premises of approximately 3,500 square feet which were
leased pursuant to a lease expiring in September 1998, and month-to-month
thereafter. The Company has executed a five-year lease for such premises which
is expected to commence in or about June 1999.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is a named defendant in a lawsuit commenced in the United
States District Court for the Eastern District of Virginia) on or about May 4,
1998 (Haver v. RMS Titanic, Inc., Civil Action No.: 2:98cv507). The plaintiff
therein seeks a declaratory judgment permitting him to participate in a
photographic expedition to the wreck of the Titanic known as Operation Titanic.
This action does not challenge the Company's salvor-in-possession status. On or
about May 4, 1998, the Company instituted a motion for a preliminary injunction
in the United States District Court for the Eastern District of Virginia against
Deep Ocean Expeditions, Mike McDowell, Bakers World Travel, Quark Expedition,
Ralph White, Don Walsh, Alfred S. McLaren, WildWings, and Mr. Haver, all of whom
are involved in Operation Titanic, seeking an order enjoining such parties from
conducting their proposed photographic expedition. (R.M.S. Titanic, Inc. v. The
Wrecked and Abandoned Vessel, etc. believed to be the RMS Titanic, in rem, Civil
Action No. 2:93cv902). The United States District Court for the Eastern District
of Virginia has previously held, in August 1996, that RMS Titanic, Inc. had the
right to exclude others from taking photographs of the wreck and to control
entry in to the wreck site. The Court's ruling to that effect also states that
the Company has the right to exclude others from the wreck site regardless of
whether the Company is at the wreck site while other groups attempt to visit the
site. Pursuant to stipulation, the action commenced by Mr. Haver and the
Company's motion for a preliminary injunction have been consolidated. By Order
dated June 23, 1998, the Court granted the Company's motion for a preliminary
injunction enjoining certain parties from visiting the wreck site to view and
photograph the wreck. Certain of the enjoined parties have appealed the Order to
the U.S. Court of Appeals for the Fourth Circuit. In March 1999 the U.S. Court
of Appeals for the Fourth Circuit issued an opinion affirming the Company's
status as salvor-in-possession of the wreck of the Titanic, and reversing that
portion of the District Court's


                                       17
<PAGE>   18
ruling that the Company could exclude others from viewing and photographing the
wreck and wreck site. The Company is considering appealing the decision of the
U.S. Court of Appeals to the United States Supreme Court.

         The Company is a named defendant in a lawsuit commenced in the United
States District Court for the Southern District of New York on or about December
16, 1997 (Lindsay v. The Wrecked and Abandoned Vessel RMS Titanic, et al., in
rem, and RMS Titanic, Inc. et al., No. 97Civ9248), as disclosed in the Company's
report on Form 8-K dated June 15, 1998. The plaintiff alleges therein, inter
alia, that he rendered certain services to the Company in connection with its
1996 expedition to the Titanic wreck site and in particular connection with the
alleged production of film, video and still images of the Titanic illuminated by
certain light towers. The relief sought includes an accounting and a judgment
declaring the plaintiff a co-salvor of the 1996 expedition and awarding him, in
specie, the underwater, film, video and still photographs allegedly obtained by
plaintiff from the use of the light towers. The plaintiff also seeks an award of
compensatory damages of up to approximately $500,000 and punitive damages in
excess of $2,000,000 based upon claims of breach of contract, copyright
infringement, fraudulent misrepresentation, money lent, quantum meruit and
conversion. Management of the Company has filed an answer denying the essential
allegations of the complaint, and has asserted counterclaims seeking
compensatory and punitive damages against the plaintiff based upon, among other
things, claims that the plaintiff has wrongfully removed and retained property
owned by the Company and has infringed upon the Company's copyright to the
images obtained with the light towers. The Company filed a motion to dismiss the
complaint and/or transfer it to the Eastern District of Virginia. By order dated
September 1, 1998, the Court granted the Company's motion to dismiss the
plaintiff's claim for an accounting, and otherwise denied the Company's motion
to dismiss and/or transfer the action. This action is now in the stage of
discovery proceedings, with a motion instituted by the Company to dismiss
plaintiff's claim for copyright infringement, as alleged in an amended
complaint, presently pending before the Court. The Company intends to defend
itself vigorously against the plaintiff's claims and to pursue its
counterclaims.

         The Company is a named defendant in a lawsuit commenced in the Arizona
Superior Court, Maricopa County (North American Capital Consultants, Inc. v. RMS
Titanic, Inc. et al.) On March 3, 1999, the Company removed the action to the
United States District Court for the District of Arizona (No. CIV
99-0401-PHX-SMM). The complaint alleges that the Company breached a contractual
obligation to deliver to the plaintiff - a financial public relations firm -
250,000 warrants exercisable, at various prices per share, into freely-trading
common stock of the Company, and further claims that the actions of the Company,
in allegedly promising to deliver such warrants, constituted negligent
misrepresentation, fraud, and breach of fiduciary duty, and that the plaintiff
is entitled to recover damages on a quantum meruit basis. The complaint seeks an
order requiring the Company to deliver the warrants, damages in the amount of
$250,000 and unspecified punitive damages, attorneys' fees and costs. The
Company has filed an answer denying the essential allegations of the complaint,
and has asserted a counterclaim alleging the plaintiff's breach of its
contractual obligations to the Company and is seeking damages of approximately
$36,000 plus attorneys' fees and costs. A proposed settlement of this action
is presently under consideration, the terms of which would not have a material
financial affect upon the Company. If this action is not resolved through
settlement, the Company intends to defend vigorously against the plaintiff's
claims and to pursue its counterclaim. This action is now in the discovery
stage of proceedings.

                                       18
<PAGE>   19
ITEM 4.  SUBMISSION OF MATTERS OF VOTE OF SECURITY HOLDERS

         During its fiscal year ended February 28, 1999, no matters were
submitted to the vote of the Company's security holders.

                                    PART II

ITEM 5.  PRICE RANGE OF SECURITIES

         (a) MARKET INFORMATION. The Company's Common Stock is traded on the
over-the-counter market on a limited and sporadic basis. The following table
sets forth the range of high and low bid quotations of the Company's Common
Stock for the periods set forth below, as reported by OTC Bulletin Board of
Nasdaq Trading & Market Services. Such quotations represent inter-dealer
quotations, without adjustment for retail markets, markdowns or commissions, and
do not necessarily represent actual transactions.

FISCAL PERIOD
-------------
<TABLE>
<CAPTION>

                                          COMMON STOCK
                                          ------------

                                 HIGH                       LOW
                                 BID                        BID

1999

<S>                            <C>                        <C>
1st Quarter                    2.0625                      .875
2nd Quarter                    1.9375                      .78125
3rd Quarter                    1.6563                      .78125
4th Quarter                    2.75                       1.1875


                                HIGH                       LOW
                                BID                        BID

1998
1st Quarter                     .58                        .38
2nd Quarter                     .47                        .375
3rd Quarter                     .71875                     .38
4th Quarter                    2.00                        .5625
</TABLE>

----------

     (a) HOLDERS. The approximate number of holders of record of the Company's
Common Stock as of June 10, 1999 was 1068.

     (c) DIVIDENDS. The Company has not paid or declared any dividends upon its
Common Stock since its inception, and intends to re-invest earnings, if any, in
the Company to accelerate its growth. Accordingly, the Company does not
contemplate or anticipate paying any dividends upon its Common Stock in the
foreseeable future.

                                       19
<PAGE>   20
ITEM 6.  SELECTED FINANCIAL INFORMATION

         The selected financial data set forth below is qualified by reference
to, and should be read in conjunction with, the Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Form 10-K. The selected
financial data have been derived from the Company's Financial Statements which
have been audited by Goldstein Golub Kessler LLP, independent certified public
accountants, as indicated in their reports. Their report on the financial
statements as of February 28, 1999 and February 28, 1998 and for each of the
three years in the period ended February 28, 1999 is included elsewhere in this
Form 10-K. Their reports on the statement of financial position as of February
28, 1997 and the financial statements for the years ended February 28, 1996 and
February 28, 1995, and for the two years in the period ended February 28, 1996,
are not included herein.
<TABLE>
<CAPTION>

YEAR ENDED FEBRUARY 28(29),          1995              1996          1997        1998          1999
<S>                             <C>             <C>             <C>           <C>           <C>
Statement of Operations Data:
   Revenue                      $    204,366    $    724,541    $ 1,246,564   $ 4,658,270   $ 9,856,841
   Net income (loss)            $ (1,531,036)   $   (149,632)   $   157,534   $ 3,367,437   $ 4,063,194

   Income (loss)
      per share (1)             $       (.11)   $       (.01)   $       .01   $       .21   $       .25

   Weighted average number of
   common shares outstanding      13,620,390      15,834,644     16,141,950    16,181,868    16,187,128



FEBRUARY 28(29),                        1995            1996           1997          1998          1999

Balance Sheet Data:

   Total assets                 $  6,164,641    $  6,060,456    $ 8,005,384   $10,078,696   $13,909,713
   Long Term Obligations        $    300,000              --             --            --            --
Total Liabilities               $  3,433,666    $  2,194,624    $ 3,941,978   $ 2,642,103   $ 2,409,926
   Owners' Equity               $  2,730,975    $  3,865,832    $ 4,063,406   $ 7,436,593   $11,499,787
</TABLE>

     The Company has declared no cash dividends.

     (1) Earnings per share is based upon the weighted average number of common
     shares outstanding for the periods presented after giving retroactive
     effect to the shares issued in connection with the Acquisition described in
     Note 2 of Notes to Financial Statements. The Company adopted Statement of
     Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, during
     fiscal year 1998. SFAS No. 128 required retroactive restatement for all
     periods presented in the financial statements. The adoption of SFAS No. 128
     had no effect on the restatement of the net income (loss) per common share.




                                       20
<PAGE>   21
ITEM  7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following discussion provides information to assist in the
understanding of the Company's financial condition and results of operations,
and should be read in conjunction with the financial statements and related
notes appearing elsewhere herein.

RESULTS OF OPERATIONS

YEAR ENDED FEBRUARY 28, 1999 AS COMPARED
TO YEAR ENDED FEBRUARY 28, 1998
----------------------------------------

         During its fiscal year ended February 28, 1999 (the ("1999 fiscal
year"), the Company's revenues increased approximately 112% as compared to its
fiscal year ended February 28, 1998 (the "1998 fiscal year"), primarily as a
result of an increase of approximately 2,947% in the Company's licensing fees
during its 1999 fiscal year as compared to its 1998 fiscal year, and an increase
of approximately 32% in the Company's exhibition and related merchandise
revenues during its 1999 fiscal year as compared to its 1998 fiscal year. These
changes were primarily a result of the Company having earned licensing fees of
approximately $3,345,000 during the 1999 fiscal year related to the production
and exploitation of audio and visual recordings with respect to the Company's
expedition to the Titanic wreck site during the summer of 1998 (the "Summer of
1998 Expedition"), and the scope of the Company's exhibition activities during
the 1999 fiscal year as compared to the 1998 fiscal year. Revenue from
merchandise, book and other activities increased approximately 178% during the
1999 fiscal year as compared to the 1998 fiscal year. This change resulted
primarily from revenue derived during the 1999 fiscal year derived from a book
published in conjunction with unrelated third parties and revenue derived from
the sale of merchandise through the Company's web site
(http://www.titanic-online.com). The Company's revenue from the sale of coal
increased approximately 51% during the 1999 fiscal year as compared to the 1998
fiscal year, primarily as a result of increases in the amount of coal sold
through the Company's web site, in the merchandise shops of the Company's United
States exhibitions, and through other direct marketing activities.

         The Company's cost of coal sold increased approximately 36% during the
1999 fiscal year as compared to the 1998 fiscal year as a result of an increase
in the volume of coal sales during these corresponding periods. General and
administrative expenses of the Company increased approximately 47% during the
1999 fiscal as compared to the 1998 fiscal year, primarily as a result of an
increase in professional fees and expenses of $150,000 incurred during the 1999
fiscal year related to the deinstallation and transportation of the Hamburg,
Germany exhibition to Zurich, Switzerland. The Company's depreciation and
amortization expenses increased approximately 961% during the 1999 fiscal year
as compared to the 1998. During the 1999 fiscal year, the Company incurred
$1,845,000 of costs related to vessel and equipment chartering related to the
Company's audio-visual licensee's requirements for the Summer of 1998
Expedition, as compared to zero costs attributable to license fees during the
1998 fiscal year. During the 1999 fiscal year, the Company recorded an
impairment loss of $150,000 attributable to exhibitry equipment related to the
Company's exhibition of Titanic artifacts in


                                       21
<PAGE>   22
Hamburg, Germany based upon the determination that certain items of exhibitry
would not be utilized in the planned re-location and presentation of the Hamburg
exhibition in Zurich, Switzerland commencing in November 1998.

         The Company's income before provision for income taxes increased
approximately 67% during the 1999 fiscal year as compared to the 1998 fiscal
year. The Company's provision for income taxes increased approximately 1,108%
during the 1999 fiscal year as compared to the 1998 fiscal year. After
application of the available portion of its net operating loss carryforward for
the 1998 and 1999 fiscal years, the Company's net income increased approximately
21% during the 1999 fiscal year as compared to the 1998 fiscal year.

YEAR ENDED FEBRUARY 28, 1998 AS COMPARED
TO YEAR ENDED FEBRUARY 28, 1997
----------------------------------------

         During its fiscal year ended February 28, 1998 (the ("1998 fiscal
year"), the Company's revenues increased approximately 274% as compared to its
fiscal year ended February 28, 1997 (the "1997 fiscal year"), primarily as a
result of an increase of approximately 3,479% in the Company's exhibition
revenues during its 1998 fiscal year as compared to its 1997 fiscal year. This
increase in exhibition revenues was principally attributable to the presentation
of major exhibitions of two separate collections of the Company's Titanic
artifacts in Memphis, Tennessee for approximately six (6) months during the 1998
fiscal year, in Hamburg, Germany for approximately ten (10) months during the
1998 fiscal year, and in St. Petersburg, Florida for approximately three and
one-half months during the 1998 fiscal year. In addition, during the 1998 fiscal
year, the Company's smaller exhibition of Titanic artifacts, "Titanic: The
Expedition," was presented in Norfolk, Virginia for one (1) month and in Long
Beach, California for approximately seven (7) months during the 1998 fiscal
year. In comparison, the only exhibition activity of the Company during the 1997
fiscal year was the presentation of its smaller exhibition in Norfolk, Virginia
for approximately one (1) month.

         During the 1998 fiscal year, licensing fees decreased approximately
87%, primarily as a result of the Company having earned licensing fees related
to the production and exploitation of audio and visual recordings with respect
to the Company's expedition to the Titanic wreck site during the 1997 fiscal
year. The Company did not conduct an expedition to the Titanic wreck site during
the 1998 fiscal year, and license fees during this period were derived from the
grant of rights to use portions of the Company's stock video footage and still
photographs. During its 1998 fiscal year, the Company earned zero revenue from
sponsorship rights, as compared to having earned $150,000 from the granting of
sponsorship rights with respect to the Company's expedition to the Titanic wreck
site during the 1997 fiscal year.

         The Company's revenue from the sale of merchandise and books increased
approximately 827% during the 1998 fiscal year as compared to the 1997 fiscal
year, primarily as a result of the Company, during the 1998 fiscal year, having
published a book in conjunction with unrelated third parties and having
established a web site which promoted the sale of merchandise through mail-order
and the Company's 1-800-TITANIC telephone number. The Company's revenue from the
sale of coal increased approximately 56% during its 1998 fiscal year as compared
to its 1997 fiscal year, primarily as a result of sales of coal made through the
Company's web site and in the merchandise shops of the Company's United States
exhibitions.

         The Company's cost of coal sold increased approximately 75% during the
1998 fiscal year as compared to the 1997 fiscal year, primarily as a result of
an increase in coal sales during these corresponding periods. General and
administrative expenses of the Company increased approximately 10% during the
1998 fiscal as compared to the 1997 fiscal year, primarily as a result of an
increase in conservation expenses in connection with the preparation of objects
for exhibition in Memphis, Tennessee and Hamburg, Germany.

                                       22
<PAGE>   23

                         LIQUIDITY AND CAPITAL RESOURCES

         In connection with its 1994 expedition to the wreck site of the
Titanic, the Company entered into an agreement with IFREMER to charter equipment
and crew necessary to conduct research and recovery efforts. Pursuant to the
terms of such charter agreement, the Company paid IFREMER the sum of $300,000
and was obligated to pay an additional $700,000 in two installments of $350,000
each payable on September 30 and December 1, 1994. The installment due to
IFREMER on September 30, 1994 was paid during the first quarter of the Company's
1996 fiscal year, payment of the final $350,000 installment was extended to
October 1, 1995. During the 1996 fiscal year, the Company paid $70,000 on
account of such obligation, with the $280,000 balance thereof having been paid
subsequent to February 29, 1996. The source of such $280,000 payment was from an
unaffiliated entity with which the Company entered into an agreement for the
marketing of coal and the sale of cabins on cruise ships which accompanied the
Company on its 1996 research and recovery expedition, and this payment was made
as an advance against the Company's share of profits from Titanic coal sales and
sales of such cruise ship cabins. The $280,000 advance was reduced by
approximately $180,600 from the sale of coal during the 1999, 1998, 1997 and
1996 fiscal years, resulting in an unpaid balance of approximately $99,400 as of
February 28, 1999. There were no profits from sale of cruise ship cabins for the
1996 expedition.

         The Company entered into an agreement with IFREMER to charter equipment
and crew necessary to conduct a research and recovery expedition to the wreck
site of the Titanic in the Summer, 1996. Pursuant to the terms of such charter
agreement, the Company agreed to pay IFREMER 2,000,000 French francs
(approximately $400,000 U.S. Dollars) on or before June 20, 1996; 2,100,000
French francs (approximately $420,000 U.S. Dollars) on or before July 15, 1996;
and the sum of $980,000, payable as follows: (a) remittance of fifty (50%) of
the wholesale price of any products sold by the Company involving the 1996
expedition, up to a maximum of $480,000; and (b) up to a maximum of $500,000
payable from the following sources: (i) $.50 per visitor to any exhibition
organized by the Company; (ii) a lump sum of $250,000 for the Memphis
exhibition, payable prior to March 1, 1997; and (iii) one-third of the Company's
revenues received from any exhibition of artifacts organized by a third party,
as described. The agreement further provides that in the event the payments from
these sources do not amount to $980,000 within three (3) years after September
1, 1996, any remaining balance shall be paid from the Company's exhibition
revenues, as defined above. The Company has satisfied its obligations to pay
$500,000 of its exhibition revenue to IFREMER, as described above, and has not
received any income from the sale of products involving the 1996 expedition.

         In connection with the Summer of 1998 Expedition, the Company entered
into an agreement with IFREMER to charter equipment and crew necessary for this
expedition, which commenced on August 3,


                                       23
<PAGE>   24
1998 and concluded on August 31, 1998. Pursuant to the terms of such charter
agreement, the Company agreed to pay IFREMER, in addition to a deposit of
$200,000, the sum of $1,460,000 for this expedition, inclusive of all amounts
that were due and owing to IFREMER for the Summer of 1996 Expedition ($480,000).
The Company agreed to pay $1,260,000 of such charter costs prior to the
commencement of the Summer of 1998 Expedition, with the $200,000 balance to be
paid upon the conclusion of the expedition. Pursuant to the agreement between
the Company and its audio-visual licensee for the Summer of 1998 Expedition, the
Company's audio-visual licensee paid $1,150,000 of such charter costs on the
Company's behalf. The balance of $280,000 payable by the Company to IFREMER
under the charter agreement was paid during the 1999 fiscal year.

         In addition to the charter agreement with IFREMER, the Company also
entered into agreements with unrelated third parties for the chartering of
equipment and crews in connection with the Summer of 1998 Expedition in an
aggregate amount of $2,195,000. The Company's audio-visual licensee for the
Summer of 1998 Expedition, in addition to the $1,150,000 payment to IFREMER
discussed above, also agreed to pay all of such other charter costs on the
Company's behalf.

         The Company's capital commitments during its 1999 fiscal year includes
compensation to the Company's principal executive officer and lease payments for
its principal offices.

         Pursuant to its agreement with Resource Plus and Event International
("EMI") for the exhibition of the Company's artifacts in Boston, Massachusetts,
the Company agreed to pay EMI the sum of $300,000 to provide certain services,
including de-installation, shipping and installation of the exhibition in its
next venue (St. Paul, Minnesota). As a result of EMI's alleged breach of the
agreement, the Company terminated EMI's obligations and corresponding rights
with respect to the de-installation, shipping and installation of the
exhibition. EMI has demanded that the Company pay $100,000 to EMI with respect
to these matters, and in addition thereto, the sum of approximately $175,000 in
connection with claimed cost overruns incurred in connection with the Boston
exhibition. The Company has rejected such demands.

         The Company's near term operating needs will be financed principally
from the distribution of revenues to the Company under its agreements for
exhibitions in St. Paul, Minnesota; Atlantic City, New Jersey; its touring
exhibition in Japan; and its exhibition tour agreement with a subsidiary of SFX
Entertainment, Inc, pursuant to which the Company will be paid a minimum of $8.5
million annually for the grant of exhibition rights for an initial one-year
period commencing September 14, 1999, subject to options granted to the licensee
to extend the term for up to four (4) additional one year periods in
consideration of additional minimum annual payments to the Company of $8.5
million.

         Substantially all of the Company's cash flow derives from the Company's
operating activities. None of the Company's cash flow during the 1999 fiscal
year derived from financing activities, with approximately $1,624,000 used in
investing activities.

         In view of the Company's recent purchase of new computers and the
limited impact that Year 2000 issue has upon the Company's business activities
or competitive conditions, management of the Company does not believe that Year
2000 issue will have a material adverse affect upon the Company.

         Except for historical information contained herein, this Annual Report
on Form 10-K contains


                                       24
<PAGE>   25
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995 which involve certain risks and uncertainties including, without
limitation, the Company's needs, as discussed above, to obtain additional
financing in order to achieve its objectives and plans. The Company's actual
results or outcomes may differ materially from those anticipated. Important
facts that the Company believes might cause such differences are discussed in
the cautionary statements accompanying the forward-looking statements as well as
in the risk factors discussed below. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements contained in this Report
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation of the Company or any
other such person that the objectives and plans of the Company will be achieved.

         The Company's future business and operating results depend in
significant part upon the continued contributions of George Tulloch, the
Company's President. The Company does not maintain a key person life insurance
policy on Mr. Tulloch. The Company's future business and operating results also
depends in significant part upon its ability to attract and retain qualified
additional management and support personnel for its operations.

         In order to protect its salvor-in-possession status and to prevent
third-parties from salvaging the Titanic wreck and wreck site, or interfering
with the Company's rights and ability to salvage the wreck and wreck site, the
Company may have to commence judicial proceedings against third-parties. Such
proceedings could be expensive and time-consuming. Additionally, the Company, in
order to maintain its salvor-in-possession status, needs to, among other things,
maintain a reasonable presence at the wreck through periodic expeditions. The
Company will be required to incur the costs for future expeditions so as to
maintain its salvor-in-possession status. The Company's ability to undertake
future expeditions may be dependent upon the availability of financing from the
grant of licenses to produce television programming and/or the grant of
expedition sponsorship rights. No assurances can be given that such financing
will be available on satisfactory terms.

         The amount spent by consumers on discretionary items, such as
entertainment activities and the purchase of merchandise, is dependent upon
consumers' levels of discretionary income, which may be adversely affected by
general or local economic conditions. A decrease in consumer spending on such
activities could have a material adverse effect on the Company's revenues from
exhibition activities and merchandising efforts.

         The Company's sales of coal recovered from the Titanic wreck site and
other merchandise through its web site increased significantly during the period
of the initial theatre release of the motion picture "Titanic" in December 1997
without the Company incurring any significant marketing expenses. This coal is
the only object recovered from the Titanic that the Company is offering or will
offer for sale to the general public. Through the date of this report,
approximately 125,000 units of the Company's Titanic coal have been sold since
the commencement of such sales in the fall 1996, which represents approximately
one-half of the total units of coal available for sale. A substantial portion of
the remaining Titanic coal supply is different in size than that which the
Company has marketed to date, and the Company's pricing and commercial
presentation of the coal is likely to change. No assurances can be


                                       25
<PAGE>   26
given that different price points or different presentations of the coal will be
attractive to consumers. Additionally, in the event that the Company does not
recover any additional Titanic coal, and the existing supply of coal is
exhausted in the future, the volume of the Company's merchandise sales may be
materially adversely affected in the absence of the introduction and marketing
of additional products, such as replicas of artifacts.

         To the extent that the Company has transactions outside of the United
States, the Company could be affected by nationalizations or unstable
governments or legal systems or intergovernmental disputes. These economic and
political uncertainties may affect the Company's results of operations,
especially to the extent that these matters affect the Company's exhibition
plans in Europe and Japan.

         In connection with its activities outside of the United States, the
Company is exposed to the risk of currency fluctuations between the United
States dollar and certain foreign currency. If the value of the United States
dollar increases in relation to the foreign currency, the Company's potential
revenues from exhibition and merchandising activities outside of the United
States will be adversely affected. During the third quarter of the 1999 fiscal
year, there were no significant fluctuations in the exchange rates with respect
to foreign currencies in which the Company transacts business. Although the
Company's financial arrangements with IFREMER and its exhibition organizers in
Germany, Zurich and Japan and other entities have been based in whole or in part
upon foreign currencies, the Company has sought and will continue to seek to
base its financial commitments and understandings upon the United States dollar
in its material business transactions so as to minimize the adverse potential
effect of currency fluctuations.

ITEM 8.  FINANCIAL STATEMENTS
                                                           Page
                                                           ----

Independent Auditor's Report                               F-1

Balance Sheet at February 28, 1998 and 1999                F-2

Statement of Income for the years ended
February 28, 1997, 1998 and 1999                           F-3

Statement of Stockholders' Equity for the years ended
February 28, 1997, 1998 and 1999                           F-4

Statement of Cash Flows for the years ended
February 28, 1997, 1998 and 1999                           F-5


Notes to Financial Statements                              F-6 - F-20





                                       26
<PAGE>   27
                                    PART III

         The information for this part is incorporated by reference from the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A or
definitive information statement to be filed pursuant to Regulation 14C.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K

         The following documents are filed as part of this Report on Form 10-K:

     (a) Financial Statements. The following financial statements of the
         Company are included in this Annual Report:

Independent Auditor's Report                                          F-1

Balance Sheet at February 28, 1998 and 1999                           F-2

Statement of Income for the years ended
February 28, 1997, 1998 and 1999                                      F-3

Statement of Stockholders' Equity for the years ended
February 28, 1997, 1998 and 1999                                      F-4

Statement of Cash Flows for the years ended
February 28, 1997, 1998 and 1999                                      F-5


Notes to Financial Statements                                         F-6 - F-20

   (b)   Financial Statement Schedules.  None.
   (c)   Exhibits.

3.1      Articles of Incorporation, as amended.(1)

4.1      First Amendment to By-Laws of the Registrant.(2)

9.1      Voting Trust Agreement among Titanic Ventures Limited Partnership,
         George Tulloch, Allan H. Carlin, Arnie Geller, G. Michael Harris, Kurt
         Hothorn, Cheryl Hothorn, Westgate Entertainment Corp., Anne A. Hill,
         Diane Carlin, Shirley A. Hill, James A. Hill, and D. Michael Harris(3)

10.1     Lease Agreement between the Company and 17 Battery Place North

                                       27
<PAGE>   28
         Associates.(4)

10.2     Agreement dated April 15, 1996 between the Company and CRE-CO Finanz
         GmbH.(5)

10.3     Pledge Agreement dated April 15, 1996 between the Company and CRE-CO
         Finanz GmbH.(5)

10.4     Bailment Agreement dated April 15, 1996 between the Company and CRE-CO
         Finanz GmbH.(5)

10.5     1996 Charter Agreement with IFREMER.(6)

10.6     Agreement dated August 8, 1996 between the Company and the City of
         Memphis.(6)

10.7     Agreement dated July 22, 1996 between Discovery Communications, Inc.,
         Ellipse Programme and the Company (omitted and filed separately as
         confidential information).(6)

10.8     Agreement dated May 23, 1997 between the Company and RMS Foundation,
         Inc.(7)

10.9     Amendment to Agreement dated April 15, 1997 between the Company and
         CRE-CO Finanz GmbH.(8)

10.10    Agreement between the registrant and Resource Plus and Event
         Management International None dated April 24, 1998(9)

10.11    Agreement between the registrant and Titanic Exhibition Japan Inc.
         dated May 17, 1998(9)

10.12    Agreement between the registrant and CRE-CO Finanz dated April 15,
         1998(9)

10.13    1998 Charter Agreement with IFREMER.(10)

10.14    1998 Charter Agreement with Oceaneering International, Inc.(10)

10.15    Agreement dated July 15, 1998 between Discovery Communications
         and the Company.

10.16    1998 Charter Agreement with Aqua Plus.(10)

10.17    1998 Charter Agreement with Les Abeilles International, Travocean
         and the Company.(10)

10.18    Amendment to Agreement dated August 4, 1998 between the Company and
         CRE-CO Finanz GmbH.(10)

10.19    Agreement dated September 25, 1998 between the Company and Media Rare,
         Inc.(11)

10.20    Promissory Note dated January 5, 1999 executed by George Tulloch in
         favor of the registrant.

10.21    Pledge Agreement dated January 5, 1999 between George Tulloch and the
         registrant.

   -----------------------

(1)      Filed as an exhibit to Registrant's Registration Statement on Form 8-A.

(2)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended May 31, 1995.

(3)      Filed as exhibit 7.2 to Form 13D filed on September 2, 1997.

(4)      Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
         year ended February 28, 1994.

(5)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended May 31, 1996.


                                       28
<PAGE>   29

(6)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended August 31, 1996.

(7)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended November 30, 1996.

(8)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended May 31, 1997.

(9)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended May 31, 1998.


(10)     Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended August 31, 1998.


(11)     Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended November 30, 1998.




                                       29
<PAGE>   30
                                   SIGNATURES
                                   ----------

         Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                      RMS TITANIC, INC.




June 14, 1999                         By: /s/ George H. Tulloch
                                         ---------------------------------------
                                       George H. Tulloch, President and
                                       Principal Executive Officer and Principal
                                       Accounting Officer





                                       30
<PAGE>   31
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the date indicated:


/s/ George Tulloch                                     June 14, 1999
-----------------------------
George Tulloch, Director


/s/ Allan H. Carlin                                    June 14, 1999
-----------------------------
Allan H. Carlin, Director



-----------------------------
Arnie Geller, Director



-----------------------------
G. Michael Harris, Director


/s/ Kurt Hothorn                                       June 14, 1999
-----------------------------
Kurt Hothorn, Director


/s/ Paul-Henri Nargeolet                               June 22, 1999
-----------------------------
Paul-Henri Nargeolet






                                       31
<PAGE>   32
                                                               RMS TITANIC, INC.


                                                   INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------








<TABLE>
<S>                                                                                                       <C>
INDEPENDENT AUDITOR'S REPORT                                                                                 F-1


FINANCIAL STATEMENTS:

   Balance Sheet at February 28, 1998 and 1999                                                               F-2

   Statement of Income for the Years Ended February 28, 1997,
    1998 and 1999                                                                                            F-3

   Statement of Stockholders' Equity for the Years Ended February 28, 1997,
    1998 and 1999                                                                                            F-4

   Statement of Cash Flows for the Years Ended February 28, 1997,
    1998 and 1999                                                                                            F-5

   Notes to Financial Statements                                                                          F-6 - F-20
</TABLE>
<PAGE>   33
INDEPENDENT AUDITOR'S REPORT




To the Board of Directors
RMS Titanic, Inc.


We have audited the accompanying balance sheets of RMS Titanic, Inc. as of
February 28, 1998 and 1999, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended February
28, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RMS Titanic, Inc. as of
February 28, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended February 28, 1999, in conformity
with generally accepted accounting principles.




GOLDSTEIN GOLUB KESSLER LLP
New York, New York

June 4, 1999


                                                                             F-1
<PAGE>   34
                                                               RMS TITANIC, INC.

                                                                   BALANCE SHEET
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
FEBRUARY 28,                                                                 1998                1999
--------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                 <C>
ASSETS

Current Assets:
  Cash and cash equivalents                                             $  1,000,269        $    719,929
  Accounts receivable                                                        640,760           1,645,373
  Refundable withholding tax (Note 11)                                        45,848             429,022
  Prepaid expenses and other current assets (Note 10)                            -               179,024
--------------------------------------------------------------------------------------------------------

      TOTAL CURRENT ASSETS                                                 1,686,877           2,973,348

Artifacts Recovered, at cost (Notes 4 and 12)                              7,700,340           9,181,340

Deferred Income Tax Asset, net of valuation allowance of
 $503,000 in 1998 (Note 5)                                                       -               509,000

Property and Equipment, net of accumulated depreciation
 of $73,207 and $319,013, respectively (Notes 3 and 11)                      652,599           1,207,331

Other Assets                                                                  38,880              38,694

--------------------------------------------------------------------------------------------------------
      TOTAL ASSETS                                                      $ 10,078,696        $ 13,909,713
========================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued liabilities (Notes 2 and 4)              $  2,483,200        $  1,909,926
  Income taxes payable                                                       143,960                 -
  Deferred revenue (Note 11)                                                  14,943             500,000

--------------------------------------------------------------------------------------------------------
      TOTAL CURRENT LIABILITIES                                            2,642,103           2,409,926
--------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Notes 2, 8 and 9)

Stockholders' Equity (Notes 2, 6 and 7):
  Common stock - $.0001 par value; authorized 30,000,000 shares,
   issued and outstanding 16,187,128 shares                                    1,619               1,619
  Additional paid-in capital                                              13,915,748          13,915,748
  Accumulated deficit                                                     (6,480,774)         (2,417,580)
--------------------------------------------------------------------------------------------------------
      STOCKHOLDERS' EQUITY                                                 7,436,593          11,499,787
--------------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $ 10,078,696        $ 13,909,713
========================================================================================================
</TABLE>


                                               See Notes to Financial Statements


                                                                             F-2
<PAGE>   35
                                                               RMS TITANIC, INC.

                                                             STATEMENT OF INCOME
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,                                                1997                1998                1999
----------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                 <C>                 <C>
Revenue (Notes 11 and 12):
  Exhibitions and related merchandise sales                       $    116,019        $  4,151,912        $  5,459,913
  Licensing fees                                                       860,000             114,708           3,495,290
  Sponsorship fees                                                     150,000                 -                   -
  Merchandise and other                                                 26,391             244,676             680,081
  Sale of coal                                                          94,154             146,974             221,557

----------------------------------------------------------------------------------------------------------------------
Total revenue                                                        1,246,564           4,658,270           9,856,841
----------------------------------------------------------------------------------------------------------------------

Expenses:
  Cost of coal sold                                                      8,010              14,000              19,000
  Cost of merchandise sold                                                 -                   -                45,816
  General and administrative (Note 9)                                1,071,460           1,176,373           1,733,395
  Depreciation and amortization (Note 3)                                 8,703              23,171             245,806
  Expedition costs attributable to licensing fees (Note 12)                -                   -             1,845,000
  Impairment loss on exhibitry equipment (Note 3)                          -                   -               150,000

----------------------------------------------------------------------------------------------------------------------
Total expenses                                                       1,088,173           1,213,544           4,039,017
----------------------------------------------------------------------------------------------------------------------

Income from operations                                                 158,391           3,444,726           5,817,824

Other income (expense):
  Interest income                                                          -                11,131              51,702
  Interest expense and financing costs                                    (857)             (5,750)                -
  Other income (expense) (Note 10)                                         -                67,330               5,000
----------------------------------------------------------------------------------------------------------------------

Income before provision for income taxes                               157,534           3,517,437           5,874,526

Provision for income taxes (Note 5)                                        -               150,000           1,811,332

----------------------------------------------------------------------------------------------------------------------
Net income                                                        $    157,534        $  3,367,437        $  4,063,194
======================================================================================================================
Earnings per common share                                         $        .01        $        .21        $        .25
======================================================================================================================
Weighted-average number of common shares outstanding                16,141,950          16,181,868          16,187,128
======================================================================================================================
</TABLE>

                                               See Notes to Financial Statements

                                                                             F-3
<PAGE>   36
                                                               RMS TITANIC, INC.

                                               STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28, 1997, 1998 AND 1999
---------------------------------------------------------------------------------------------------------------------------
                                                    COMMON STOCK                 ADDITIONAL
                                                     NUMBER OF                    PAID-IN       ACCUMULATED    STOCKHOLDERS'
                                                      SHARES        AMOUNT        CAPITAL         DEFICIT          EQUITY
---------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>          <C>            <C>            <C>             <C>
Balance as of February 29, 1996                     16,137,128   $      1,614   $ 13,869,963   $(10,005,745)   $  3,865,832

Issuance of common stock:
  Other than cash (Notes 6 and 8)                       40,000              4         40,036            -            40,040

Net income for the year ended February 28, 1997            -              -              -          157,534         157,534
---------------------------------------------------------------------------------------------------------------------------

Balance as of February 28, 1997                     16,177,128          1,618     13,909,999     (9,848,211)      4,063,406

Issuance of common stock:
  Other than cash (Notes 6 and 8)                       10,000              1          5,749            -             5,750

Net income for the year ended February 28, 1998            -              -              -        3,367,437       3,367,437
---------------------------------------------------------------------------------------------------------------------------

Balance as of February 28, 1998                     16,187,128          1,619     13,915,748     (6,480,774)      7,436,593

Net income for the year ended February 28, 1999            -              -              -        4,063,194       4,063,194

---------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 1999                     16,187,128   $      1,619   $ 13,915,748   $ (2,417,580)   $ 11,499,787
===========================================================================================================================
</TABLE>


                                               See Notes to Financial Statements


                                                                             F-4
<PAGE>   37
                                                               RMS TITANIC, INC.

                                                         STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,                                                            1997           1998           1999
------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>            <C>
Cash flows from operating activities:
  Net income                                                                   $   157,534    $ 3,367,437    $ 4,063,194
------------------------------------------------------------------------------------------------------------------------
  Adjustments to reconcile net income to net cash provided by operating
   activities:
    Depreciation and amortization                                                    8,703         23,171        245,806
    Impairment loss on exhibitry equipment                                             -              -          150,000
    Rights granted in satisfaction of accrued liability                                -          (60,000)           -
    Financing fees                                                                     -            5,750            -
    Amortization of deferred revenue                                                   -       (1,465,057)       (14,943)
    Other                                                                              -          (87,500)       (76,500)
    Noncash settlement with exhibitor                                                  -         (559,414)           -
    Noncash exhibition revenue                                                         -              -         (750,000)
    Reduction in artifacts recovered                                                 8,010         14,000         19,000
    Reduction of deferred income tax valuation allowance                               -              -         (509,000)
    Changes in operating assets and liabilities:
      Increase in accounts receivable                                              (15,205)      (606,045)    (1,004,613)
      (Increase) decrease in refundable withholding tax                            (87,500)        41,652       (383,174)
      Decrease (increase) in prepaid expenses and other current assets               5,200          4,800       (179,024)
      (Increase) decrease in other assets                                              -             (269)           186
      Increase (decrease) in income taxes payable                                      -          143,960       (143,960)
      Increase in deferred revenue                                                 675,000        805,000        500,000
      Increase (decrease) in accounts payable and accrued liabilities              158,136       (595,248)      (573,274)
------------------------------------------------------------------------------------------------------------------------
        TOTAL ADJUSTMENTS                                                          752,344     (2,335,200)    (2,719,496)
------------------------------------------------------------------------------------------------------------------------
        NET CASH PROVIDED BY OPERATING ACTIVITIES                                  909,878      1,032,237      1,343,698
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Artifact recovery costs, net of $980,000 of related accounts payable
   in 1997                                                                        (820,000)           -       (1,500,000)
  Purchases of property and equipment                                               (2,085)        (9,292)      (124,038)
------------------------------------------------------------------------------------------------------------------------
        CASH USED IN INVESTING ACTIVITIES                                         (822,085)        (9,292)    (1,624,038)
------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activity - repayment of notes payable                    (25,742)      (128,530)           -
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                62,051        894,415       (280,340)
Cash and cash equivalents at beginning of year                                      43,803        105,854      1,000,269
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                       $   105,854    $ 1,000,269    $   719,929
========================================================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
    Interest                                                                   $       857            -              -
========================================================================================================================
    Income taxes                                                                       -      $     6,094    $ 2,354,652
========================================================================================================================

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITY:
  Property and equipment acquired in settlement of certain exhibition
   obligations                                                                         -      $   559,414    $   750,000
========================================================================================================================
  Noncash purchases of property and equipment                                          -      $    87,500    $    76,500
========================================================================================================================
</TABLE>

See Notes 2, 6 and 8 for information regarding noncash investing and financing
activities.

                                               See Notes to Financial Statements

                                                                             F-5
<PAGE>   38
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1. DESCRIPTION OF          RMS Titanic, Inc. initially conducted business as
   BUSINESS AND SUMMARY    Titanic Ventures Limited Partnership ("TVLP"). RMS
   OF SIGNIFICANT          Titanic, Inc. and TVLP are referred to as the
   ACCOUNTING POLICIES:    "Company" as the context dictates.

                           TVLP was formed on August 5, 1987 for the purposes of
                           exploring the wreck and surrounding oceanic area of
                           the vessel the RMS Titanic (the "Titanic"); obtaining
                           oceanic material and scientific data available
                           therefrom in various forms, including still and
                           moving photography and artifacts from the wreck site;
                           and utilizing such data and artifacts in
                           revenue-producing activities such as touring
                           exhibitions, television programs and the sale of
                           still photography. In addition, the Company earns
                           revenue from the sale of coal and Titanic-related
                           products (see Notes 11 and 12).

                           The Company commenced operations in August 1987 with
                           an expedition and dive to the wreck of the Titanic
                           from which the Company recovered over 1,800 objects,
                           including coins, currency and other items. The
                           Company completed a second expedition and dive to the
                           Titanic in June 1993, during which approximately 800
                           artifacts were recovered and videotape of such
                           expedition was produced. In July 1994, a third
                           expedition and dive to the Titanic was completed by
                           the Company, during which over 1,000 artifacts and
                           other items (coal used on the Titanic) were recovered
                           and videotape of such expedition was produced. In
                           July 1996, a fourth expedition and dive to the
                           Titanic was completed by the Company, during which
                           over 70 artifacts were recovered and videotape of
                           such expedition was produced. In August 1998, a fifth
                           expedition and dive to the Titanic was completed by
                           the Company, during which over 70 artifacts were
                           recovered, including a section of the hull. All the
                           items recovered as described above are collectively
                           referred to as the "Artifacts."

                           The Company was in the development stage through May
                           31, 1997 and for the years ended February 28, 1998
                           and 1999 is considered an operating company.

                           Pursuant to a judgment entered in the Federal
                           District Court for the Eastern District of Virginia
                           (the "Court") on June 7, 1994, as amended, the
                           Company was declared salvor-in-possession of the
                           Titanic, the sole and exclusive owner of any items
                           recovered from the Titanic and, so long as the
                           Company is salvor-in-possession, the sole and
                           exclusive owner of items recovered from the Titanic
                           in the future (see Note 8).

                           Artifacts recovered from the Titanic are carried at
                           the lower of cost of recovery or net realizable value
                           ("NRV"). The costs of recovery are the direct costs
                           of chartering of vessels and related crews and
                           equipment required to complete the dive operations.
                           Costs associated with the care, management and
                           preservation of recovered artifacts are expensed as
                           incurred. A majority of the Artifacts were located
                           outside the United States at February 28, 1998 and
                           1999.

                           To ascertain that the aggregate NRV of the Artifacts
                           exceeds the direct costs of recovery of such
                           Artifacts, the Company evaluates various evidential
                           matter. Such evidential matter includes documented
                           sales and offerings of Titanic-related memorabilia by
                           auction houses and private dealers, an appraisal of
                           certain artifacts, insurance coverage obtained in
                           connection with the potential theft, damage or
                           destruction of all or part of the Artifacts and other
                           evidential matter regarding the public interest in
                           the Titanic.


                                                                             F-6
<PAGE>   39
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                           Under an agreement with IFREMER, the Institute of
                           France for the Research and Exploration of the Sea,
                           which was the general contractor for the salvage
                           operations, the Company is restricted from selling
                           certain artifacts except to an entity that will make
                           them available for exhibition to the public, as
                           defined.

                           For purposes of the statement of cash flows, the
                           Company considers all highly liquid investments with
                           a maturity of three months or less to be cash
                           equivalents.

                           The Company maintains cash in bank accounts which, at
                           times, may exceed federally insured limits. The
                           Company has not experienced any losses on these
                           accounts.

                           Revenue from the licensing of the production and
                           exploitation of audio and visual recordings, which
                           are performed by third parties, related to the
                           Company's expeditions are recognized at the time that
                           the expedition and dive take place.

                           Revenue from the licensing of still photographs is
                           recognized at the time the rights were granted to the
                           licensee.

                           Revenue from exhibitions is recorded in the period
                           that the exhibition takes place. The amount recorded
                           represents the Company's share of the net revenue, as
                           defined, from the exhibition.

                           Revenue from the granting of sponsorship rights
                           related to the Company's expeditions and dives is
                           recognized at the completion of the expedition.

                           Revenue from the sale of Titanic-related products is
                           recognized when the item is sold (see Note 11).

                           Coal recovered from the Titanic is being offered for
                           sale by the Company. Revenue from sales of such coal
                           is recognized at the date of shipment to customers.
                           Recovery costs attributable to the coal have been
                           charged to operations as revenue from coal sales have
                           been recognized.

                           The Company provides for income taxes in accordance
                           with Statement of Financial Accounting Standards
                           ("SFAS") No. 109, Accounting for Income Taxes. Under
                           this statement, deferred income tax assets and
                           liabilities are determined based on differences
                           between financial reporting and tax bases of assets
                           and liabilities and are measured using the enacted
                           tax rates and laws that will be in effect when the
                           differences are expected to reverse.

                           Depreciation of property and equipment is provided
                           for by the straight-line method over the estimated
                           lives of the related assets (see Note 3).

                           In October 1995, the Financial Accounting Standards
                           Board (the "FASB") issued SFAS No. 123, Accounting
                           for Stock-Based Compensation. SFAS No. 123
                           encourages, but does not require, companies to record
                           compensation cost for stock-based employee
                           compensation plans at fair value. The Company has
                           elected to continue to account for its stock-based
                           compensation plans using the intrinsic value method
                           prescribed by APB Opinion No. 25, Accounting for
                           Stock Issued to Employees, and for options granted in
                           fiscal years beginning after December 15, 1994 to
                           present pro forma earnings (loss) and per share
                           information as though it had adopted SFAS No. 123.
                           Under the provisions of


                                                                             F-7
<PAGE>   40
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                           APB Opinion No. 25, compensation cost for stock
                           options is measured as the excess, if any, of the
                           quoted market price of the Company's common stock at
                           the date of the grant over the amount an employee
                           must pay to acquire the stock.

                           In February 1997, the FASB issued SFAS No. 128,
                           Earnings per Share. SFAS No. 128 requires dual
                           presentation of basic earnings (loss) per share
                           ("EPS") and diluted EPS on the face of all statements
                           of earnings issued after December 15, 1997 for all
                           entities with complex capital structures. Basic EPS
                           is computed as net earnings divided by the
                           weighted-average number of common shares outstanding
                           for the period. Diluted EPS reflects the potential
                           dilution that could occur from common shares issuable
                           through stock-based compensation including stock
                           options, restricted stock awards, warrants and other
                           convertible securities. The adoption of SFAS No. 128
                           had no effect on the restatement of earnings
                           per common share for the year ended February 28,
                           1997. Diluted EPS is not presented for the years
                           ended February 28, 1997, 1998 and 1999 since the
                           dilutive effect of potential common shares is not
                           material.

                           The Company does not believe that any recently
                           issued, but not yet effective, accounting standards
                           will have a material effect on the Company's
                           financial position, results of operations or cash
                           flows.

                           The preparation of financial statements in conformity
                           with generally accepted accounting principles
                           requires management to make estimates and assumptions
                           that affect reported amounts in the financial
                           statements. Actual results could differ from those
                           estimates.


2. REVERSE ACQUISITION:    On May 4, 1993, TVLP sold all rights, title and
                           interest in its assets to First Response Medical,
                           Inc. ("FRM"), a public company, subject to FRM
                           assuming all of its liabilities. TVLP was issued
                           7,066,667 unregistered shares of common stock of FRM
                           as consideration for the sale. FRM also issued
                           400,000 shares of unregistered common stock to
                           unrelated parties as a finders' fee in connection
                           with the transaction. These shares, when added to the
                           2,266,666 shares of FRM unregistered common stock
                           issued to the former president of the Company,
                           represented approximately 90% of the total issued and
                           outstanding common shares of FRM after the
                           acquisition. Since TVLP owned a controlling interest
                           in FRM, the transaction was accounted for as a
                           "reverse acquisition" with TVLP deemed to be the
                           acquiring entity. FRM changed its name to RMS
                           Titanic, Inc. The historical financial statements of
                           TVLP prior to May 4, 1993 have been substituted for
                           the historical financial statements of FRM. There
                           were 973,373 shares of FRM outstanding on the date of
                           the acquisition.

                           The stockholder of the general partner of TVLP (who
                           is also the chairman of the board of directors of the
                           Company) has voting control over the shares of common
                           stock of RMS Titanic, Inc. held by TVLP. The control
                           of such shares has been challenged in a legal action
                           which commenced during September 1997, the result of
                           which may require the distribution of certain shares
                           to certain partners of TVLP. A change in control of
                           RMS Titanic, Inc. may occur in such instance.

                           Included in accounts payable and accrued liabilities
                           is $45,000 due to certain partners of TVLP.


                                                                             F-8
<PAGE>   41
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

3. PROPERTY AND            Property and equipment, at cost, consists of the
   EQUIPMENT:              following:

<TABLE>
<CAPTION>
                                                                                                  Estimated
                           February 28,                                   1998        1999       Useful Life
                           ---------------------------------------------------------------------------------
<S>                                                                     <C>        <C>           <C>
                           Exhibitry equipment                          $559,414   $1,435,961      5 years
                           Office equipment                               34,083       45,574      5 years
                           Furniture and fixtures                         44,809       44,809      5 years
                           Exhibitry equipment deposit                    87,500          -
                           ---------------------------------------------------------------------------------
                                                                         725,806    1,526,344
                           Less accumulated depreciation                  73,207      319,013
                           ---------------------------------------------------------------------------------
                                                                        $652,599   $1,207,331
                           =================================================================================
</TABLE>

                           During the year ended February 28, 1999, the Company
                           recorded an impairment loss of $150,000 attributable
                           to certain exhibitry equipment.

4. ACCOUNTS
   PAYABLE AND             Accounts payable and accrued liabilities consist of
   ACCRUED                 the following:
   LIABILITIES:

<TABLE>
<CAPTION>
                           February 28,                                                    1998             1999
                           ----------------------------------------------------------------------------------------
<S>                                                                                     <C>              <C>
                           Accrued compensation (see Note 9)                            $1,219,583       $1,195,683
                           Amounts payable for professional fees and consulting            323,030          366,278
                           Amounts payable to foreign vendors                              585,500         -
                           Other miscellaneous liabilities                                 355,087          347,965
                           ----------------------------------------------------------------------------------------
                                                                                        $2,483,200       $1,909,926
                           ========================================================================================
</TABLE>

                           The Company entered into an agreement with IFREMER
                           for the charter of equipment to conduct the Company's
                           fourth expedition to the Titanic wreck site in August
                           1996 ("Summer of 1996 Expedition"). Pursuant to the
                           agreement, the Company paid IFREMER the sum of
                           $820,000 (proceeds from the granting of licensing
                           rights to a third party) and was obligated to pay
                           an additional $980,000 to IFREMER, as defined,
                           due no later than September 1, 2000. The
                           artifacts recovered during the Summer of 1996
                           Expedition served as collateral for this obligation.
                           At February 28, 1998, the unpaid balance of $480,000
                           was included in amounts payable to foreign vendors.
                           As of February 28, 1999, the Company has made all
                           payments to IFREMER in accordance with the
                           agreement.


                                                                             F-9
<PAGE>   42
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

5. Income Taxes            The provision for income taxes consists of the
                           following components:

<TABLE>
<CAPTION>
                           Year ended February 28,      1998         1999
                           -------------------------------------------------
<S>                                                   <C>         <C>
                           Current:
                            Federal                   $  76,000   $1,761,084
                            State and local              74,000      559,248
                           -------------------------------------------------
                                                        150,000    2,320,332
                           -------------------------------------------------
                           Deferred:
                            Federal                          --    (386,000)
                            State and Local                  --    (123,000)
                           -------------------------------------------------
                                                             --    (509,000)
                           -------------------------------------------------
                                                      $ 150,000  $1,811,332
                           =================================================

                           The total provision for income taxes differs from
                           that amount which would be computed by applying the
                           U.S. federal income tax rate to income before
                           provision for income taxes. The reasons for these
                           differences are as follows:
</TABLE>

<TABLE>
<CAPTION>
                           Year ended February 28,                          1998      1999
                           -----------------------------------------------------------------
<S>                                                                        <C>       <C>
                           Statutory federal income tax rate                34.0 %    34.0 %
                           State income taxes, net of federal benefit        2.1       9.5
                           Use of net operating loss carryforwards         (31.6)      -
                           Valuation allowance of temporary differences      -        (8.7)
                           Foreign tax credits                               -        (2.0)
                           Other, net                                        (.2)     (2.0)
                           -----------------------------------------------------------------
                             EFFECTIVE INCOME TAX RATE                       4.3 %    30.8 %
                           =================================================================
</TABLE>

                           The deferred income tax asset consists of the
                           following:

<TABLE>
<CAPTION>
                           February 28,                          1998        1999
                           --------------------------------------------------------
<S>                                                           <C>         <C>
                           Expenses not currently deductible  $ 503,000   $ 509,000
                           --------------------------------------------------------
                           Gross deferred tax asset             503,000     509,000
                           Valuation allowance                  503,000         -
                           --------------------------------------------------------
                             NET DEFERRED TAX ASSET           $   - 0 -   $ 509,000
                           ========================================================
</TABLE>

                           A valuation allowance of 100% of the deferred income
                           tax asset has been provided at February 28, 1998 due
                           to the uncertainty of future realization of net
                           operating loss carryforwards. During the year ended
                           February 28, 1999, $503,000 of the valuation
                           allowance was reversed, due to the increased
                           earnings of the Company. Based on management's
                           assessment, it is more likely than not that all the
                           net deferred tax assets will be realized through
                           future taxable earnings.

6. STOCKHOLDERS' EQUITY:   Prior to the acquisition, FRM initiated an exchange
                           agreement with the holders of certain Class B
                           warrants in which the holders would receive shares of
                           common stock of FRM in exchange for certain Class B
                           warrants. As of February 28, 1998 and 1999, the
                           Company had received 20,700 Class B warrants to be
                           exchanged for 20,700 shares of common stock of the
                           Company,

                                                                            F-10
<PAGE>   43
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                           of which 17,500 shares still remain to be issued.
                           There are 5,666 warrants outstanding as of February
                           28, 1999.

                           The following common shares were issued to LS Capital
                           Corporation ("LS Capital") to satisfy certain
                           obligations based upon a negotiated settlement of
                           certain litigation (see Note 8):

<TABLE>
<CAPTION>
                                                                           Additional              Price
                              Year Ended                  Common Stock      Paid-in                 per
                           February 28, 1997    Date      Shares   Amount    Capital      Total     Share
                           -------------------------------------------------------------------------------
<S>                                            <C>        <C>      <C>      <C>          <C>       <C>
                           Settlement of
                            lawsuit            1/15/97    40,000     $4      $40,036     $40,040   $1.0010
                           ===============================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                                      Additional                 Price
                                    Year Ended                       Common Stock      Paid-in                    per
                              February 28, 1998         Date       Shares   Amount     Capital       Total       Share
------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>      <C>        <C>         <C>           <C>
                              Settlement of
                               lawsuit                 7/18/97       5,000      -      $  2,250    $  2,250       $.45

                              Settlement of
                               lawsuit                10/30/97       5,000     $1         3,499       3,500        .70

------------------------------------------------------------------------------------------------------------------------
                                                                    10,000     $1      $  5,749    $  5,750
========================================================================================================================
</TABLE>

   7. STOCK OPTIONS: Transactions relating to stock options are as follows:

<TABLE>
<CAPTION>
                                                                                     Weighted-                Weighted-
                                                                                      Average                  Average
                                                                                     Exercise     Options     Exercise
                                                                         Number        Price       Exer-        Price
                                                                       of Shares     per Share    cisable     per Share
------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>          <C>         <C>
                              Balance at February 28(29), 1996
                               and 1997                                  580,000       $1.47       580,000       $1.47

                              Granted - April 1997                       250,000       $1.00       250,000       $1.00

------------------------------------------------------------------------------------------------------------------------
                                    BALANCE AT FEBRUARY 28, 1998
                                                                         830,000       $1.33       830,000       $1.33

                              Canceled - January 1999                   <500,000>      $1.25      <500,000>      $1.25

                              Granted - January 1999                     500,000       $1.25       500,000       $1.25

------------------------------------------------------------------------------------------------------------------------
                                    BALANCE AT FEBRUARY 28, 1999

                                                                         830,000       $1.47       830,000       $1.33
========================================================================================================================
</TABLE>

In January 1999, the Company extended the expiration date from April 6, 1999 to
April 6, 2004 of an immediately exercisable option to purchase 500,000 shares of
the Company's common stock at a price of $1.25 per share.  For financial
reporting purposes, this has been treated as a new option grant and the
cancelation of an existing option.

                                                                            F-11
<PAGE>   44
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              The following table summarizes the information
                              about stock options outstanding at February 28,
                              1999:

<TABLE>
<CAPTION>
                                                                         Options Outstanding and Exercisable
                                                                                           Weighted-
                                                                                            Average           Weighted-
                                                                                           Remaining           Average
                                  Range of                             Number             Contractual         Exercise
                              Exercise Price                         Outstanding         Life (Years)           Price
------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                                    <C>                 <C>                 <C>
                                $ .50                                  50,000               .13                $ .50
                                $ .75                                  50,000               .13                $ .75
                                $1.00                                  50,000               .13                $1.00
                                $1.25                                 550,000              4.65                $1.25
                                $1.50                                  50,000               .13                $1.50
                                $2.88                                  80,000               .21                $2.88
------------------------------------------------------------------------------------------------------------------------
                                $.50 - $2.88                          830,000                                  $1.33
========================================================================================================================
</TABLE>

                              The Company has elected, in accordance with the
                              provisions of SFAS No. 123, to apply the current
                              accounting rules under APB Opinion No. 25 and
                              related interpretations in accounting for stock
                              options and, accordingly, has presented the
                              disclosure-only information as required by SFAS
                              No. 123. If the Company had elected to recognize
                              compensation cost based on the fair value of the
                              options granted at the grant date as prescribed by
                              SFAS No. 123, the Company's net income and income
                              per common share for the years ended February 28,
                              1998 and 1999 would approximate the pro forma
                              amounts shown in the table below.

<TABLE>
<CAPTION>
                              Year ended February 28,                                         1998                1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                 <C>
                              Reported net income                                       $3,367,437          $4,063,194
=======================================================================================================================

                              Pro forma net income                                      $3,336,837          $4,018,308
=======================================================================================================================

                              Reported net income per common share                      $      .21          $      .25
=======================================================================================================================

                              Pro forma net income per common share                     $      .21          $      .25
=======================================================================================================================
</TABLE>

                              The fair value of options granted (which is
                              amortized to expense over the option vesting
                              period in determining the pro forma impact) is
                              estimated on the date of grant using the
                              Black-Scholes option-pricing model with the
                              following weighted-average assumptions:


<TABLE>
<CAPTION>
                              Year ended February 28, 1998                                                    1998        1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                                                                            <C>         <C>
                              Expected life of options                                                         2 yrs.     5 yrs.
===================================================================================================================================

                              Risk-free interest rate                                                           6.45%      4.60%
===================================================================================================================================

                              Expected volatility of RMS Titanic, Inc.                                         117.5%     113.3%
===================================================================================================================================

                              Expected dividend yield on RMS Titanic, Inc.                                          -          -
===================================================================================================================================
</TABLE>

                                                                            F-12
<PAGE>   45
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              The weighted-average fair value of options granted
                              during the years ended February 28, 1998 and 1999
                              is as follows:

<TABLE>
<CAPTION>
                              Year Ended February 28,                                                         1998         1999
                              -----------------------------------------------------------------------------------------------------
<S>                                                                                                         <C>           <C>
                              Fair value of each option granted                                             $   .245      $    .90

                              Total number of options granted                                                250,000       500,000

-----------------------------------------------------------------------------------------------------------------------------------
                                    TOTAL FAIR VALUE OF ALL OPTIONS GRANTED                                 $ 61,250      $450,000
===================================================================================================================================
</TABLE>

                              In accordance with SFAS No. 123, the
                              weighted-average fair value of stock options
                              granted is based on a theoretical statistical
                              model using the preceding Black-Scholes
                              assumptions. In actuality, because the Company's
                              stock options do not trade on a secondary
                              exchange, employees can receive no value or derive
                              any benefit from holding stock options under these
                              arrangements without an increase in the market
                              price of the Company. Such an increase in stock
                              price would benefit all stockholders
                              commensurately.

                              During the year ended February 28, 1999, 250,000
                              stock options granted during April 1997 became the
                              subject of a litigation (see Note 8).


  8.  LITIGATION:             The Company is a named defendant in a lawsuit
                              commenced in the United States District Court for
                              the Southern District of New York (the "New York
                              Court") on or about December 16, 1997 (Lindsay v.
                              The Wrecked and Abandoned Vessel RMS Titanic, et
                              al., in rem, and RMS Titanic, Inc. et al., No. 97
                              Civ. 9248). The plaintiff therein alleges, inter
                              alia, that he rendered certain services to the
                              Company in connection with its 1996 expedition to
                              the Titanic wreck site and in particular
                              connection with the alleged production of film,
                              video and still images of the Titanic illuminated
                              by certain light towers. The relief sought
                              includes an accounting and a judgment declaring
                              the plaintiff a co-salvor of the 1996 expedition
                              and awarding him, in specie, the underwater, film,
                              video and still photographs allegedly obtained by
                              plaintiff from the use of the light towers. The
                              plaintiff also seeks an award of compensatory
                              damages of up to approximately $500,000 and
                              punitive damages in excess of $2,000,000 based
                              upon claims of breach of contract, copy
                              infringement, fraudulent misrepresentation, money
                              lent, quantum meruit and conversion. Management of
                              the Company has filed an answer denying the
                              essential allegations of the complaint, and has
                              asserted counterclaims seeking compensatory and
                              punitive damages against the plaintiff based upon,
                              among other things, claims that the plaintiff has
                              wrongfully removed and retained property owned by
                              the Company and has infringed upon the Company's
                              copyright to the images obtained with the light
                              towers. The Company filed a motion to dismiss the
                              complaint and/or transfer it to the Eastern
                              District of Virginia. By order dated September 1,
                              1998, the New York Court granted the Company's
                              motion to dismiss the plaintiff's claim for an
                              accounting, and otherwise denied the Company's
                              motion to dismiss and/or transfer the action. This
                              action is now in the stage of discovery
                              proceedings, with a motion instituted by the
                              Company to dismiss plaintiff's claim for copyright
                              infringement, as alleged in an amended complaint,
                              presently

                                                                            F-13
<PAGE>   46
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              pending before the Court. The Company intends to
                              defend itself vigorously against the plaintiff's
                              claims and to pursue its counterclaims.

                              The Company is a named defendant in a lawsuit
                              commenced in the Arizona Superior Court, Maricopa
                              County (North American Capital Consultants, Inc.
                              v. RMS Titanic, Inc. et al.) On March 3, 1999,
                              the Company removed the action to the United
                              States District Court for the District of Arizona
                              (No. CIV 99-0401-PHX-SMM). The complaint alleges
                              that the Company breached a contractual
                              obligation to deliver to the plaintiff, a
                              financial public relations firm, 250,000 options
                              exercisable, at various prices per share, into
                              freely-trading common stock of the Company, and
                              further claims that the actions of the Company,
                              in allegedly promising to deliver such options,
                              constituted negligent misrepresentation, fraud,
                              and breach of fiduciary duty, and that the
                              plaintiff is entitled to recover damages on a
                              quantum meruit basis. The complaint seeks an
                              order requiring the Company to deliver the
                              options, damages in the amount of $250,000 and
                              unspecified punitive damages, attorneys' fees and
                              costs. The Company has filed an answer denying
                              the essential allegations of the complaint, and
                              has asserted a counterclaim alleging the
                              plaintiff's breach of its contractual obligations
                              to the Company and is seeking damages of
                              approximately $36,000 plus attorneys' fees and
                              costs. This action was in the discovery stage of
                              proceedings; however, the parties have commenced
                              settlement discussions, which it is contemplated
                              will result in modifications to certain
                              provisions of the option agreement. Management
                              believes that the modifications to the option
                              agreement will not have a material effect
                              on the financial position of the Company (see
                              Note 7). If the action is not resolved through
                              settlement, the Company intends to defend
                              vigorously against the plaintiff's claims and to
                              pursue its counterclaim.

                              The Company is a named defendant in a lawsuit
                              commenced in the United States District Court for
                              the Eastern District of Virginia on or about May
                              4, 1998 (Haver v. RMS Titanic, Inc., Civil Action
                              No. 2:98cv507). The plaintiff therein seeks a
                              declaratory judgment permitting him to participate
                              in a photographic expedition to the wreck of the
                              Titanic known as Operation Titanic. This action
                              does not challenge the Company's
                              salvor-in-possession status. On or about May 4,
                              1998, the Company instituted a motion for a
                              preliminary injunction in the United States
                              District Court for the Eastern District of
                              Virginia against various unrelated parties
                              involved in Operation Titanic, seeking an order
                              enjoining such parties from conducting their
                              proposed photographic expedition (R.M.S. Titanic,
                              Inc. v. The Wrecked and Abandoned Vessel, etc.
                              believed to be the RMS Titanic, in rem, Civil
                              Action No. 2:93cv902). The United States District
                              Court for the Eastern District of Virginia has
                              previously held, in August 1996, that RMS Titanic,
                              Inc. had the right to exclude others from taking
                              photographs of the wreck and to control entry into
                              the wreck site. The Court's ruling to that effect
                              also states that the Company has the right to
                              exclude others from the wreck site regardless of
                              whether the Company is at the wreck site while
                              other groups attempt to visit the site. Pursuant
                              to stipulation, the action commenced by the
                              plaintiff and the Company's motion for a
                              preliminary injunction have been consolidated. By
                              Order dated June 23, 1998, the Court granted the
                              Company's motion for a preliminary injunction
                              enjoining certain parties from visiting the wreck
                              site to view and photograph the wreck. Certain of
                              the enjoined parties have appealed the Order to
                              the U.S. Court of Appeals for the Fourth Circuit.
                              In March 1999, the U.S. Court of Appeals for the
                              Fourth Circuit issued an opinion affirming the
                              Company's status as salvor-in-possession of the
                              wreck of the Titanic, and reversing that portion
                              of the District Court's ruling that the

                                                                            F-14
<PAGE>   47
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              Company could exclude others from viewing and
                              photographing the wreck and wreck site. The
                              Company is considering appealing the decision of
                              the U.S. Court of Appeals to the United States
                              Supreme Court.

                              During the year ended February 28, 1997, a lawsuit
                              in which the Company was a named defendant that
                              commenced in the Supreme Court of the State of New
                              York, County of New York, on or about September
                              22, 1994 (Glenville Properties Incorporated
                              ("Glenville") v. RMS Titanic, Inc. et al.,
                              94/127087) was settled. Pursuant to the terms of a
                              settlement agreement, the Company agreed to pay LS
                              Capital, an affiliate of Glenville, $154,272,
                              representing the outstanding note payable
                              principal balance of $126,050 and accrued interest
                              of $28,222, in 12 equal installments commencing on
                              January 15, 1997, subject to acceleration if the
                              Company achieves certain revenue levels
                              ("Threshold Amounts"), during such 12-month
                              period, as defined (see Note 4). The Company also
                              agreed to place 15,000 shares of its common stock
                              in escrow, with such shares to be either issued in
                              5,000 share increments to LS Capital in the event
                              such Threshold Amounts are not achieved at the end
                              of the Company's quarterly periods, or to be
                              canceled in the event such Threshold Amounts are
                              achieved. Additionally, affiliates of LS Capital
                              have agreed to release the Company from
                              liabilities aggregating approximately $40,000 and
                              the Company has agreed to issue 40,000
                              unregistered shares of its common stock to LS
                              Capital during the year ended February 28, 1997.

                              The Company did not meet the Threshold Amounts
                              during the six- and nine-month periods ended
                              August 31, and November 30, 1997, respectively,
                              and as such issued 10,000 shares to LS Capital
                              relating to this settlement during the year ended
                              February 28, 1998.


  9.  COMMITMENTS AND         Compensation amounting to approximately $120,000
      CONTINGENCIES:          was charged to operations during each of the years
                              ended February 28, 1997, 1998 and 1999, pursuant
                              to certain employment-related arrangements with
                              the chairman of the board of directors and a
                              former president of the Company. Additionally,
                              accounts payable and accrued liabilities include
                              amounts payable to these individuals in the
                              aggregate amount of $1,219,583 and $1,195,683 at
                              February 28, 1998 and 1999, respectively, in
                              connection with these arrangements.

                              The Company has agreed to a noncancelable
                              operating lease for its office which is expected
                              to expire 5 years from the effective date. The
                              lease is expected to be subject to escalation for
                              (i) the Company's pro rata share of increases in
                              real estate taxes, and (ii) increases in a certain
                              index. The approximate future minimum annual
                              rental commitment is expected to be approximately
                              $86,000.



                                                                            F-15
<PAGE>   48
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              Rent expense charged to operations amounted to
                              approximately $70,000, $75,000 and $88,000 for the
                              years ended February 28, 1997, 1998 and 1999,
                              respectively.

                              The Company's Form 10-Ks for the years ended
                              February 28, 1997 and 1998 have not been filed as
                              of June 1999. The Form 10-Ks for the years ended
                              February 28, 1997 and 1998 that were approved by
                              management to be filed were filed in Form 8-Ks on
                              July 3, 1997 and June 16, 1998, respectively as a
                              result of certain corporate governance issues
                              which existed at those times.


10.   OTHER RELATED           A limited partner of TVLP, Taurus International
      PARTY                   ("Taurus"), has provided services to  TVLP as an
      TRANSACTIONS:           agent of TVLP in France. These services have
                              included securing legal representation, insurance
                              coverage, storage facilities and other
                              relationships required to maintain the Artifacts
                              while preservation work has been performed in
                              France by Electricite de France. Accounts payable
                              to Taurus amounted to $37,600 as of February 28,
                              1997. The amount was forgiven by Taurus during
                              the year ended February 28, 1998 and is included
                              in other income in the Company's statement of
                              income for the year ended February 28, 1998.

                              Included in prepaid expenses and other current
                              assets are loans to the Company's president in
                              the aggregate amount of approximately $73,000.
                              Such amount is expected to be repaid, with
                              interest at 8% per annum, by February 29,
                              2000, and is fully  secured by accruals for past
                              compensation owed by the Company to its
                              President.


11.   EXHIBITIONS:            In October 1996, the Company entered into an
                              agreement with the National Maritime Center
                              ("Nauticus"), a political subdivision of the City
                              of Norfolk, Virginia, for an exhibition of
                              Titanic artifacts at Nauticus from November 27,
                              1996 through March 31, 1997. Pursuant to the
                              agreement, the Company received one-third of
                              revenue, as defined, from the sale of 150,000
                              tickets. In addition, the Company received 50% of
                              net profits, as defined, from the sale of
                              merchandise at the exhibition, and 50% of
                              sponsorship revenue, net of the difference, if
                              any, between the $500,000 expended by Nauticus
                              for the design, construction and marketing of the
                              exhibition and Nauticus' share of ticket revenue
                              and net profits, as defined, from the sale of
                              merchandise at the exhibition.

                              In August 1996, the Company entered into an
                              agreement with the City of Memphis, Tennessee, for
                              an exhibition of Titanic artifacts in Memphis,
                              Tennessee, from April 3, 1997 to September 30,
                              1997. Pursuant to the agreement, the Company
                              received exhibition revenue of $720,000 in
                              installments between September 1996 and August 1,
                              1997, and received 65% of the net profits, as
                              defined, derived from ticket, merchandise and
                              sponsorship revenue in excess of $5,000,000.

                              In April 1996, the Company entered into an
                              agreement with CRE-CO Finanz GmbH ("CRE-CO"), a
                              German company, for an exhibition of Titanic
                              artifacts in Europe from May 8, 1997 to November
                              8, 1997. The agreement, as amended, extended the
                              exhibition through May 10, 1998 and further
                              extended the exhibition through September 30,
                              1998. Pursuant to the agreement, as amended, the
                              Company received two-thirds of the net profits,
                              after recoupment of certain project expenses
                              through February 28, 1998, $2.00 per visitor from
                              March 1, 1998 to May 1, 1998, and two-thirds of
                              the net profits, after recoupment of


                                                                            F-16
<PAGE>   49
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              certain project expenses, from May 2, 1998 through
                              September 30, 1998, as defined. In addition, the
                              Company received a percentage of merchandise
                              revenue, as defined, for the period from March 1,
                              1998 to September 30, 1998. Additionally, the
                              Company received guaranteed exhibition fees
                              attributable to the initial term of the exhibition
                              of $460,000 as a nonrefundable advance against the
                              Company's share of net profits, as defined. At
                              February 28, 1999, refundable foreign withholding
                              taxes amounting to $429,022 are receivable in
                              connection with revenue earned from the
                              exhibition. Included in exhibition revenue for the
                              year ended February 28, 1998 is an amount
                              attributable to the transfer of ownership to the
                              Company from CRE-CO of certain exhibitry equipment
                              aggregating $559,414 in satisfaction of amounts
                              due the Company for its share of exhibition
                              revenue earned. During the year ended February 28,
                              1999, the Company recognized revenue aggregating
                              approximately $1,272,000.

                              In December 1996, the Company entered into an
                              agreement, as amended, with Florida International
                              Museum, Inc. for an exhibition of Titanic
                              artifacts in St. Petersburg, Florida, from
                              November 15, 1997 to May 15, 1998 and further
                              extended the exhibition to May 31, 1998. Pursuant
                              to the agreement, the Company received exhibition
                              revenue from attendance fees ranging from $.34 to
                              $3.10 per attendee, based upon the total number of
                              attendees during the exhibition term ("Attendance
                              Fee"), as defined. In addition, the Company
                              received 10% of gross revenue, as defined, from
                              the sale of merchandise at the exhibition ("Gift
                              Shop Fee"). The minimum combined Attendance Fee
                              and Gift Shop Fee payable to the Company under the
                              terms of the agreement was $300,000. During the
                              year ended February 28, 1999, the Company
                              recognized revenue aggregating $1,292,522.

                              In May 1997, the Company entered into an agreement
                              with the RMS Foundation, Inc. for artifacts,
                              expedition equipment, photographs and film footage
                              from the 1996 Titanic expedition to be exhibited
                              aboard the Queen Mary in Long Beach, California
                              (the "Queen Mary") from June 1, 1997 through
                              January 5, 1998 (the "Initial Term"). In January
                              1998, the agreement was amended and the exhibition
                              was extended through February 5, 1998 and was
                              further extended to September 7, 1998 in April
                              1998 (the "Extension Term"). The exhibition was
                              thereafter extended through March 21, 1999.
                              Pursuant to the Queen Mary exhibition agreement,
                              the Company received from the sale of up to
                              150,000 tickets, $2.00 per ticket during the
                              Initial Term and $2.50 per ticket during the
                              Extension Term, and $3.00 per ticket from the sale
                              of more than 150,000 tickets. In addition, the
                              Company will receive 50% of net profits, as
                              defined, from the sale of merchandise at the Queen
                              Mary exhibition, and 50% of any sponsorship
                              revenue. During the year ended February 28, 1999,
                              the Company recognized revenue aggregating
                              $454,862.

                              In April 1998, the Company entered into an
                              agreement with Resource Plus and Event Management
                              International ("EMI"), a division of the World
                              Trade Center Boston, for an exhibition of Titanic
                              artifacts in Boston, Massachusetts from July 1,
                              1998 through on or about November 15, 1998.
                              Pursuant to the agreement, the Company was to
                              receive two-thirds of the net profits, after
                              recoupment of certain project expenses, as
                              defined. The agreement further provided that the
                              ownership interest of certain exhibitry and
                              equipment aggregating $750,000 was transferred to
                              the Company as of August 31, 1998, in satisfaction
                              of the minimum exhibition fees due to the Company.
                              This exhibition closed on


                                                                            F-17
<PAGE>   50
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              November 29, 1998. The Company earned no
                              exhibition fees in excess of the minimum.

                              In May 1998, the Company entered into an
                              agreement with Titanic Exhibition Japan Inc.
                              ("TEJI") for the exhibition of approximately 200
                              Titanic artifacts in seven venues in Japan
                              commencing on  or about July 20, 1998 and ending
                              on or about July 1, 1999. Pursuant to the
                              exhibition agreement, TEJI has agreed to pay
                              $321,000 for the conservation and restoration of
                              such artifacts. In addition, TEJI will pay to the
                              Company the greater of $3.00 per attendee or 50%
                              of the profits, as defined, and that the Company
                              has the right to select and obtain legal title to
                              50% of the exhibitry utilized in the exhibition
                              at no additional cost to the Company. During the
                              year ended February 28, 1999, the Company
                              recognized revenue aggregating $819,793 under the
                              agreement.

                              In August 1998, the Company entered into an
                              agreement with CRE-CO and Freddy Burger
                              Management Group for the exhibition of Titanic
                              artifacts in Zurich, Switzerland from November
                              11, 1998 through May 9, 1999 and the acquisition
                              of related exhibitry equipment utilized in the
                              Company's exhibition in Hamburg, Germany.
                              Pursuant to the agreement, the Company is to be
                              paid a minimum of $600,000, in equal monthly
                              installments of $100,000 commencing November 30,
                              1998, with such payments to be credited against
                              the Company's rights to receive two-thirds of the
                              profits, if any, as defined, from ticket,
                              merchandise and sponsorship revenue in excess of
                              a budget of approximately $3,000,000. During the
                              year ended February 28, 1999, the Company
                              recognized revenue aggregating $400,000 pursuant
                              to the agreement.

                              In September 1998, the Company entered into an
                              agreement with Media Rare, Inc. for the
                              presentation in St. Paul, Minnesota, of the
                              objects and exhibitry contained in the Company's
                              Boston exhibition for a period of four months
                              commencing on January 1, 1999 and ending on April
                              30, 1999. Pursuant to this agreement, the Company
                              received, subsequent to February 28, 1999, the
                              minimum fee of $1,000,000. This minimum payment
                              represents a credit against the Company's share
                              of two-thirds of the net profits, as defined,
                              derived from ticket, merchandise and sponsorship
                              revenue in excess of certain project expenses of
                              approximately $2,000,000, as defined. Included in
                              the project expenses is a $300,000 payment to the
                              Company for the lease of its exhibitry for the
                              St. Paul exhibition. The Company's revenue for
                              the year ended February 28, 1999 includes
                              $650,000 from the exhibition, representing 50% of
                              the minimum guaranteed fee ($500,000) and 50% of
                              the exhibitry lease fee ($150,000). The
                              remaining portion of the minimum fee of $500,000
                              is included in deferred revenue in the
                              accompanying balance sheet at February 28, 1999

                              Total exhibition revenue from sources outside the
                              United States amounted to approximately $2,492,000
                              for the year ended February 28, 1999.

                              In March 1999, the Company entered into an
                              agreement with Magicworks Entertainment, Inc., a
                              direct subsidiary of PACE Entertainment, Inc. and
                              an indirect subsidiary of SFX Entertainment, Inc.
                              (collectively "SFX"), pursuant to which the
                              Company granted SFX an exclusive worldwide license
                              to exhibit the Company's Titanic artifacts in
                              consideration of the payment to the Company of a
                              minimum of $8,500,000 annually. The license
                              agreement has an initial term of one year,
                              commencing September 14, 1999, with SFX having the
                              option to extend the term for up to four
                              additional one-year periods. Such $8,500,000
                              payment is payable as follows: $500,000 upon the
                              effective date of the license agreement, and
                              payments of $2,000,000 each on a quarterly basis
                              commencing


                                                                            F-18
<PAGE>   51
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              September 15, 1999. The license agreement became
                              effective in May 1999. All obligations of SFX
                              under the license agreement have been guaranteed
                              by SFX Entertainment, Inc.

                              Pursuant to the license agreement, the Company
                              will receive 65% and SFX will receive 35% of net
                              ticket, merchandise and sponsorship revenue, after
                              deduction of mutually agreed-upon project
                              expenses. The $8,500,000 annual guaranteed minimum
                              payment to be made to the Company will be credited
                              against its share of net revenue in excess of
                              project expenses. The Company has the right to
                              terminate the license agreement effective as of
                              September 14, 2001, or annually thereafter, upon
                              the occurrence of certain conditions, including
                              the merger or sale of majority control of the
                              Company or substantially all of its assets. If the
                              Company terminates the license agreement, SFX will
                              have the right to continue one major exhibition,
                              containing no more than 200 of the Company's
                              Titanic artifacts and involving an investment by
                              SFX in excess of $2,000,000, until no later than
                              September 14, 2004 in consideration of the payment
                              to the Company of a minimum of $2,250,000
                              annually. Upon recoupment of the project expenses,
                              the Company has the right to select and obtain
                              legal title to, without the payment of additional
                              consideration, 65% of the exhibitry built for the
                              exhibitions presented during the term of the
                              agreement.

                              In addition, the license agreement provides that
                              the Company shall receive twenty (20%) percent of
                              the profits, if any, from a current Titanic
                              themed exhibition in Orlando, Florida presented
                              by SFX and third parties. Under the license
                              agreement, SFX does not have the right to include
                              any of the Company's Titanic artifacts in the
                              Orlando exhibition. A member of the Board of
                              Directors is a related party to this exhibition.

                              The Company commenced an exhibition on May 29,
                              1999 of approximately 200 of its Titanic
                              artifacts in Atlantic City at the Tropicana Hotel
                              ("Tropicana"). This exhibition, which includes a
                              section of Titanic's hull recovered during the
                              1998 Titanic expedition, is scheduled to conclude
                              on September 7, 1999. Pursuant to the exhibition
                              agreement entered into in April 1999, Tropicana
                              is responsible for payment of all costs and
                              expenses related to the presentation, operation
                              and marketing of the exhibition, with the
                              exception of the Company's contribution of
                              approximately $100,000 of the installation costs
                              of the exhibition. The exhibition agreement
                              provides that the Company will receive all ticket
                              and merchandising revenue from the exhibition,
                              without recoupment by Tropicana of any of its
                              costs for presenting, operating and marketing the
                              exhibition. It was further agreed that
                              sponsorship revenue, less commissions, will be
                              divided equally between the Company and
                              Tropicana.

                              Merchandising operations at the Atlantic City
                              exhibition are conducted through an unaffiliated
                              third party, Titanic Merchandising, Inc. ("TMI").
                              Pursuant to the Company's agreement with TMI, the
                              Company receives 30% of the gross revenue derived
                              from the sale of merchandise at the retail shop
                              established within the exhibition premises.


12.   LICENSING AND           The Company conducted its fifth expedition to the
      SPONSORSHIP             Titanic wreck site in August 1998 (the "Summer of
      FEES:                   1998 Expedition"). The Company and an unrelated
                              television production company entered into an
                              agreement whereby the Company granted certain
                              rights to the production company for the
                              production and exploitation of audio and visual
                              recordings with respect to the Summer of 1998
                              Expedition. In consideration of the granting of
                              such rights, the television production company,
                              among other things, agreed to pay the cost for
                              chartering equipment and crew necessary for the
                              Summer of 1998 Expedition, including, but not
                              limited to, $1,150,000 of the costs for chartering
                              IFREMER's equipment and crew and an aggregate of
                              $2,195,000 of additional equipment and crew from
                              other unrelated third parties on behalf of the
                              Company. Of this $2,195,000, the


                                                                            F-19
<PAGE>   52
                                                               RMS TITANIC, INC.

                                                   NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                              Company has charged to operations $1,845,000
                              during the year ended February 28, 1999,
                              representing costs attributable to the licensing
                              agreements. The Company has retained the rights
                              for commercial exploitation of recordings made at
                              the Titanic wreck site in a print format and
                              electronic media format, and certain royalty and
                              other rights with respect to the marketing and
                              sale of home videos based upon the Summer of 1998
                              Expedition.


                                                                            F-20
<PAGE>   53
                                    EXHIBITS


                                RMS TITANIC, INC.

                                    FORM 10-K

                   FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999


3.1      Articles of Incorporation, as amended.(1)

4.1      First Amendment to By-Laws of the Registrant.(2)

9.1      Voting Trust Agreement among Titanic Ventures Limited Partnership,
         George Tulloch, Allan H. Carlin, Arnie Geller, G. Michael Harris, Kurt
         Hothorn, Cheryl Hothorn, Westgate Entertainment Corp., Anne A. Hill,
         Diane Carlin, Shirley A. Hill, James A. Hill, and D. Michael Harris(3)

10.1     Lease Agreement between the Company and 17 Battery Place North
         Associates.(4)

10.2     Agreement dated April 15, 1996 between the Company and CRE-CO Finanz
         GmbH.(5)

10.3     Pledge Agreement dated April 15, 1996 between the Company and CRE-CO
         Finanz GmbH.(5)

10.4     Bailment Agreement dated April 15, 1996 between the Company and CRE-CO
         Finanz GmbH.(5)

10.5     1996 Charter Agreement with IFREMER.(6)

10.6     Agreement dated August 8, 1996 between the Company and the City of
         Memphis.(6)

10.7     Agreement dated July 22, 1996 between Discovery Communications, Inc.,
         Ellipse Programme and the Company (omitted and filed separately as
         confidential information).(6)

10.8     Agreement dated May 23, 1997 between the Company and RMS Foundation,
         Inc.(7)

10.9     Amendment to Agreement dated April 15, 1996 between the Company and
         CRE-CO Finanz GmbH.(8)

10.10    Agreement between the registrant and Resource Plus and Event
         Management International None dated April 24, 1998(9)

10.11    Agreement between the registrant and Titanic Exhibition Japan Inc.
         dated May 17, 1998(9)

10.12    Agreement between the registrant and CRE-CO Finanz dated April 15,
         1998(9)

10.13    1998 Charter Agreement with IFREMER.(10)

10.14    1998 Charter Agreement with Oceaneering International, Inc.(10)

10.15    Agreement dated July 15, 1998 between Discovery Communications
         and the Company.

10.16    1998 Charter Agreement with Aqua Plus.(10)

10.17    1998 Charter Agreement with Les Abeilles International, Travocean
         and the Company.(10)

10.18    Amendment to Agreement dated August 4, 1998 between the Company and
         CRE-CO Finanz GmbH.(10)

10.19    Agreement dated September 25, 1998 between the Company and Media Rare,
         Inc.(11)

10.20    Promissory Note dated January 5, 1999 executed by George Tulloch in
         favor of the registrant.

10.21    Pledge Agreement dated January 5, 1999 between George Tulloch and the
         registrant.

-----------------------

(1)      Filed as an exhibit to Registrant's Registration Statement on Form 8-A.

(2)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended May 31, 1995.

                                       32
<PAGE>   54
(3)      Filed as exhibit 7.2 to Form 13D filed on September 2, 1997.

(4)      Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
         year ended February 28, 1994.

(5)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended May 31, 1996.

(6)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended August 31, 1996.

(7)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended November 30, 1996.

(8)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended May 31, 1997

(9)      Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended May 31, 1998.


(10)     Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended August 31, 1998.


(11)     Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
         the quarter ended November 30, 1998.


                                       33