SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 2002
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number: 000-24452
RMS TITANIC, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-2753162
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(State or other jurisdiction of (IRS Employer Identification No.
incorporation or organization)
3340 Peachtree Road, Suite 1225, Atlanta, GA 30326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 842-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
--- ---
The number of shares outstanding of the registrant's common stock on
June 26, 2002 was 18,550,047.
PAGE
NUMBER
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PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements of RMS Titanic, Inc. and subsidiary
(collectively, the "Company"), included herein were prepared, without audit,
pursuant to rules and regulations of the Securities and Exchange Commission.
Because certain information and notes normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America were condensed or omitted pursuant to such rules and
regulations, these financial statements should be read in conjunction with the
financial statements and notes thereto included in the audited financial
statements of the Company as included in the Company's Form 10-K for the year
ended February 28, 2002.
1
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
=========================================================================================================
MAY 31, FEBRUARY 28,
2002 2002
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(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,121,000 $ 146,000
Accounts receivable 63,000 40,000
Prepaid and Refundable income taxes 2,261,000 2,261,000
Prepaid expenses and other current assets 26,000 70,000
Net assets of discontinued operations -- 1,221,000
Note receivable 1,264,000 --
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TOTAL CURRENT ASSETS 4,735,000 3,738,000
Artifacts owned, at cost 4,494,000 4,495,000
Salvor's lien 1,000 1,000
Property and Equipment, net of accumulated depreciation
of $1,281,000 and $1,209,000, respectively 473,000 544,000
Other Assets 42,000 61,000
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TOTAL ASSETS $ 9,745,000 $ 8,839,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 560,000 $ 709,000
Deferred revenue 2,085,000 788,000
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TOTAL CURRENT LIABILITIES 2,645,000 1,497,000
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Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value; authorized 30,000,000 shares,
issued and outstanding 18,550,047 and 18,550,047 shares,
respectively 2,000 2,000
Additional paid-in capital 16,615,000 16,615,000
Accumulated comprehensive income -- (31,000)
Accumulated deficit (9,517,000) (9,244,000)
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STOCKHOLDERS' EQUITY 7,100,000 7,342,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,745,000 $ 8,839,000
============ ============
See Notes to Consolidated Financial Statements
2
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
==========================================================================================
THREE-MONTH PERIOD ENDED MAY 31, 2002 2001
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(UNAUDITED) (UNAUDITED)
Revenue:
Exhibitions and related merchandise sales $ 499,000 $ 555,000
Licensing fees -- 25,000
Merchandise and other 40,000 10,000
Sale of coal 26,000 22,000
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Total revenue 565,000 612,000
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Expenses:
Cost of coal sold 9,000 2,000
Cost of merchandise sold 23,000 50,000
General and administrative 748,000 602,000
Depreciation and amortization 72,000 139,000
Expedition costs -- 34,000
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Total expenses 852,000 827,000
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Income (loss) from continuing operations (287,000) (215,000)
Interest income 14,000 3,000
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Income (loss) from continuing operations
before provision for income taxes (273,000) (212,000)
Provision for income taxes -- --
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Net income (loss) from continuing operations $ (273,000) $ (212,000)
Net income (loss) from discontinued operations 31,000 (111,000)
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Net income (loss) (242,000) (323,000)
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Net income (loss) for basic and diluted common shares:
From continuing operations $ (.01) $ (.01)
From discontinued operations -- (.01)
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Weighted-average number of common shares outstanding 18,550,047 16,947,928
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See Notes to Consolidated Financial Statements
3
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
==================================================================================================================
THREE-MONTH PERIOD ENDED MAY 31, 2002 2001
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(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ (242,000) $ (323,000)
Less: income (loss) from discontinued operations 31,000 (111,000)
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Net income (loss) from continuing operations (273,000) (212,000)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 72,000 134,000
Reduction in artifacts 3,000 3,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (23,000) (55,000)
Decrease in prepaid and refundable income taxes -- 26,000
Decrease in prepaid expenses and other current assets 31,000 (140,000)
Decrease(increase) in other assets 18,000 (2,000)
Increase in accounts payable and accrued liabilities (148,000) (112,000)
Increase (decrease) in deferred revenue 1,296,000 337,000
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TOTAL ADJUSTMENTS 1,249,000 193,000
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 976,000 (19,000)
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Cash flows used in investing activities:
Purchases of property and equipment (1,000) --
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NET CASH USED IN INVESTING ACTIVITIES (1,000) --
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Net (decrease) increase in cash 975,000 (19,000)
Cash and cash equivalents at beginning of period 146,000 610,000
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Cash and cash equivalents at end of period $ 1,121,000 $ 591,000
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the three-month period for income taxes $ -- $ --
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Common stock issued to acquire assets $ -- $ 819,000
Artifacts acquired in conversion of intangible assets $ -- 555,000
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See Notes to Consolidated Financial Statements
4
RMS TITANIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
Note 1 - RMS Titanic, Inc. formed a wholly owned foreign subsidiary, Danepath
Ltd, ("Danepath") during June 2000. The Danepath subsidiary was sold
in April to Argosy International, Ltd. for consideration of $1.5
million. The principal asset of this subsidiary was ownership of the
research and recovery vessel, SV Explorer.
Note 2 - The accompanying consolidated financial information as of May 31, 2002
and 2001 is unaudited and, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments
considered necessary for a fair presentation have been included.
Operating results for any interim period are not necessarily
indicative of the results for any other interim period or for an
entire year.
Note 3 - Basic earnings (loss) per common share ("EPS") is computed as net
earnings (loss) divided by the weighted-average number of common
shares outstanding for the period. Diluted EPS representing 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 is not
presented for the three month periods ended May 31, 2002 and 2001
since there was no dilutive effect of potential common shares or the
dilutive effect is not material.
Note 4 - In May 2002, the Company modified its agreement with Clear Channel
Entertainment Exhibits Inc., formerly known as SFX Entertainment, for
exclusive worldwide license to exhibit the Company's Titanic
Artifacts. An extension to the existing license agreement was granted
until December 31, 2003.
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ITEM 2. 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
FOR THE THREE MONTHS ENDED MAY 31, 2002 VERSUS THE THREE MONTHS ENDED MAY 31,
2001
During the first quarter of the Company's 2003 fiscal year, the Company's total
revenues decreased from $612,000 to $565,000, or approximately 9%, as compared
to the corresponding first quarter period in the 2002 fiscal year. This revenue
decrease is principally attributable to the Company having lower exhibition and
related merchandise sales of $499,000 during the quarter ended May 31, 2002 as
compared to $555,000 in the prior year period. Other revenues from licensing
fees, merchandise, and the sale of coal increased to $66,000 in the current
period from $57,000 in the prior year's period. The Company earned revenues of
$26,000 from the sale of coal during the first three months of its 2003 fiscal
year, as compared to $22,000 in the same period of its 2002 fiscal year. The
sale of merchandise increased from $10,000 in the quarter ended May 31, 2001 to
$40,000 in the quarter ended May 31, 2002.
The cost of goods sold for merchandise and other during the first quarter of the
Company's 2003 fiscal year decreased to $23,000 from $50,000 in the prior year's
first quarter principally due to lower catalog sales. The cost of coal during
the first quarter of the Company's 2003 fiscal year increased to $9,000 from
$2,000 in the prior year's period due to both the increase in sales and the
increase in costs associated with the products in which the coal is being sold.
The Company's general and administrative expenses increased to $748,000 from
$602,000, or approximately 20% during the first quarter of its 2003 fiscal year
as compared to the same quarter period of its 2002 fiscal year. This increase
was primarily attributable to higher legal expenses because of the several new
legal matters the Company is involved with since last year.
Depreciation decreased to $72,000, or approximately 10%, for the first three
months of the Company's 2003 fiscal year as compared to $80,000 for the prior
period. This decrease is primarily attributed to the lower depreciable asset
base of the Company as compared to the year ago period. The Company did not have
any amortization expense for the current quarter as compared to $59,000 in the
year prior year. That amortization expense was incurred for certain intangibles
that the Company was amortizing over a three-year period. In May 2001, the
Company exchanged these intangibles for the ownership rights to the RMS
Carpathia, the rescue ship of Titanic passengers.
The Company also incurred $34,000 in expedition costs for a Pacific Ocean survey
operation in the first three months of the Company's 2002 fiscal year while
there was no similar cost in this year's three month period.
Interest income increased to $14,000, or 282%, during the first three months of
the Company's 2003 fiscal year as compared to the first three months of its 2002
fiscal year, primarily as a result of the interest accrual on the obligation
from the sale of Danepath Ltd., the Company' subsidiary, which bears interest at
8% per annum.
A loss of $273,000 from continuing operations was incurred in the three months
ended May 31, 2002 as compared to a loss from operations of $212,000 for the
three months ended May 31, 2001. This increase in loss is attributed to both a
decrease in income from exhibition licensing and an increase in general and
administrative expenses.
6
The net loss was $242,000 for the three months ended May 31, 2002 as compared to
a loss of $ 323,000 in the prior year period. In the current period there was
income from discontinued operations of $31,000 as compared to a loss of $111,000
in the prior year period. Basic income (loss) per common share for the three
months ended May 31, 2002 and May 31, 2001 were ($0.01) and ($0.02),
respectively, per share and the weighted average shares outstanding were
18,550,047 and 16,587,128, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $976,000 for the quarter
ended May 31, 2002 as compared to $19,000 used in the quarter ended May 31,
2001. This increase in cash provided by operating activities is primarily
attributed to the increase of $1,296,000 in deferred revenues which offset the
loss of $273,000, as adjusted for depreciation of $71,000, and a decrease of
$148,000 in accounts payables and accrued expenses.
For the quarter ended May 31, 2002, cash used in investing activities was
$1,000 and represented purchase of office equipment. In the prior year period,
the Company incurred no similar expenditures. The Company did not engage in any
financing activities in either period.
The Company's net working capital and stockholders' equity were $2,059,000 and
$7,100,000, respectively at May 31, 2002 as compared to $2,241,000 and
$7,342,000, respectively, at February 28, 2002.
Management's present plan is to obtain a salvor's award from the Federal
District Court in Norfolk, Virginia where it maintains salvor-in-possession
status. The recent decision of April 12, 2002 by the Fourth Circuit Appellate
Court stating that the Company does not own the artifacts recovered from the
Titanic wreck site but has only a salvor's lien on those artifacts has
necessitated this action. It is uncertain in what amount an award may eventually
be granted. The Company has been advised that the process of obtaining an award
from the District Court could take as long as a year. The Company, as owner of
the RMS Carpathia, plans to undertake a recovery operation to that wreck site
later this year. The Company has sufficient funds for the cost of this
undertaking.
Management expects that it will be able to execute its present plan without any
outside funding providing that no unforeseen adversities arise in any of its
litigations. No assurances can be given that it will be successful in any of its
endeavors should the various lawsuits in which the Company is involved have
detrimental consequences.
During May 2002, the exhibition tour agreement with Clear Channel
Entertainment-Exhibits, formerly SFX Entertainment, was amended. An extension of
this agreement was granted by the Company providing for exhibitions to December
31, 2003.
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
various sources. No assurances can be given that such financing will be
available on satisfactory terms.
7
The Company from time to time, conducts business activities outside of the
United States, and thereby 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 quarter
ended May 31, 2002, the Company did not incur any losses because of changes in
the exchange rates with respect to foreign currencies. Although the Company's
financial arrangements with foreign parties may be based upon foreign
currencies, the Company has sought and will continue to seek to base its
financial commitments and understandings upon the United States Dollar so as to
minimize the adverse potential effect of currency fluctuations.
Except for historical information contained herein, this Quarterly Report on
Form 10-Q contains 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 in the
Company's Annual Report on Form 10-K. 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.
8
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There has been no material change in the legal proceedings discussed
in the Company's Annual Report on Form 10-K for the year ended
February 28, 2002
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
(b) REPORTS ON FORM 8-K
Form 8-K filed on April 17, 2002 regarding sale of Danepath Ltd.
Form 8-K filed on April 30, 2002 regarding the Fourth Circuit Appellate
Court decision of the appeal of District Court decisions.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
RMS TITANIC, INC.
(Registrant)
Dated: July 9, 2002 By: /s/ Arnie Geller
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Arnie Geller, President &
Chief Executive Officer
By: /s/ Gerald Couture
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Gerald Couture, Vice President &
Chief Financial Officer
10