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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 August 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
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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
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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
September 30, 2002 was 18,675,047.
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 8
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
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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 SHEET
=========================================================================================================
AUGUST 31, FEBRUARY 28,
2002 2002
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 493,000 $ 146,000
Accounts receivable 77,000 40,000
Prepaid and Refundable income taxes 2,261,000 2,261,000
Prepaid expenses and other current assets 139,000 70,000
Net assets of discontinued operations 1,221,000
Note receivable 1,288,000 --
------------ ------------
TOTAL CURRENT ASSETS 4,148,000 3,738,000
Artifacts owned, at cost 4,490,000 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 401,000 544,000
Other Assets 45,000 61,000
------------ ------------
TOTAL ASSETS $ 9,084,000 $ 8,839,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 923,000 $ 709,000
Deferred revenue 1,636,000 788,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,559,000 1,497,000
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value; authorized 30,000,000 shares, issued and
outstanding 18,675,047 and 18,550,047 shares,
respectively 2,000 2,000
Additional paid-in capital 16,650,000 16,615,000
Accumulated comprehensive income -- (31,000)
Accumulated deficit (10,128,000) (9,244,000)
------------ ------------
STOCKHOLDERS' EQUITY 6,525,000 7,342,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,084,000 $ 8,839,000
============ ============
See Notes to Consolidated Financial Statements
2
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
======================================================================================================================
THREE-MONTH THREE-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Revenue:
Exhibitions and related
merchandise sales $ 534,000 $ 865,000 $ 1,032,000 $ 1,420,000
Licensing fees -- 2,000 -- 27,000
Merchandise and other 41,000 31,000 82,000 41,000
Sale of coal 20,000 25,000 46,000 47,000
- ----------------------------------------------------------------------------------------------------------------------
Total revenue 595,000 923,000 1,160,000 1,535,000
- ----------------------------------------------------------------------------------------------------------------------
Expenses:
Cost of coal sold 6,000 3,000 5,000 5,000
Cost of merchandise sold 23,000 25,000 56,000 74,000
Expedition expense -- 2,000 -- 38,000
General and administrative 1,136,000 870,000 1,884,000 1,473,000
Depreciation and amortization 72,000 80,000 143,000 218,000
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 1,237,000 980,000 2,088,000 1,808,000
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from
continuing operations (642,000) (58,000) (928,000) (273,000)
Interest income 31,000 1,000 44,000 5,000
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
Operations before provision
for income taxes (611,000) (57,000) (884,000) (268,000)
Provision for income taxes -- -- -- --
Net income(loss) from continuing
operations $ (611,000) $ (57,000) $ (884,000) $ (268,000)
Net income (loss) from
discontinued operations -- 146,000 -- 34,000
- -----------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ (611,000) $ 89,000 $ (884,000) $ (234,000)
Basic income (loss) for
basic and diluted common shares:
From continuing operations $ (.03) $ .00 $ (.05) $ (.01)
From discontinued operations $ -- $ .01 $ -- $ --
Weighted-average number
of common shares outstanding 18,562,547 18,675,047 18,556,297 17,524,515
See Notes to Consolidated Financial Statements
3
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
==================================================================================================================
SIX-MONTH PERIOD ENDED AUGUST 31, 2002 2001
----------- -----------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ (884,000) $ (234,000)
Less: income from discontinued operations -- 34,000
----------- -----------
Net income (loss) from continuing operations (884,000) (268,000)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 143,000 218,000
Reduction in artifacts 7,000 105,000
Issuance of stock for services 35,000 344,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (37,000) (440,000)
Decrease in prepaid and refundable income taxes 111,000 132,000
(Increase) decrease in prepaid expenses
and other current assets (105,000) 15,000
Decrease(increase) in other assets 16,000 (321,000)
Increase in accounts payable and accrued liabilities 215,000 (235,000)
Increase (decrease) in deferred revenue 847,000 (77,000)
----------- -----------
TOTAL ADJUSTMENTS 1,232,000 (264,000)
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 348,000 (532,000)
----------- -----------
Cash flows used in investing activities:
Purchases of property and equipment (1,000) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,000) --
----------- -----------
Net (decrease) increase in cash 347,000 (532,000)
Cash and cash equivalents at beginning of period 146,000 611,000
----------- -----------
Cash and cash equivalents at end of period $ 493,000 $ 79,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six-month period for income taxes $ -- $ -
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Common stock issued to acquire assets $ -- $ 819,000
Artifacts acquired in conversion of intangible assets $ -- $ 555,000
=========== ===========
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 2001. 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 August
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 and six month periods
ended August 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 commenced negotiations with SFX to
modify its licensing agreement for an exclusive worldwide license
to exhibit the Company's Titanic Artifacts. An extension to renew
the existing agreement has been granted until December 31, 2003.
Note 5 - On September 14, 2002, the Board of Directors of the Corporation
unanimously adopted a Corporate Resolution providing that (1) the
Company has completed the salvage service that it intends to
perform on the wreck of the TITANIC; (2) the Company shall
voluntarily surrender its status as salvor-in-possession of the
wreck of the TITANIC; (3) the Company shall proceed to move the
United States District Court for the Eastern District of
Virginia, Norfolk Division, (the "District Court") for the entry
of a full and final salvage award pursuant to the ruling of the
United States Court of Appeals for the Fourth Circuit; and (4)
should the United States Supreme Court grant the Company's
pending Petition for Certiorari and ultimately modify or reverse
the ruling of the Court of Appeals, the Company shall proceed to
perfect its ownership interest in the items recovered from the
TITANIC in accordance with the direction of the Supreme Court. On
October 1, 2002, the District Court issued an order for a hearing
regarding the Company's salvor-in-possession status and its
relinquishment. On October 7, 2002, the United States Supreme
Court denied the Company's Petition for Certiorari
Note 6 - During the quarter ended August 31, 2002, the Company settled
litigation with Westgate Entertainment Corporation and Wayland &
Chase Engineering NV for the payment by the Company of $388,000
over a thirty month period and the exchange of releases,
restrictive covenants, and other considerations.
Note 7 - During the quarter ended August 31 2002, the Company issued
125,000 shares of common stock to a conservator for services
valued at $35,000 or $0.28 per share.
5
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 QUARTER ENDED AUGUST 31, 2002 VERSUS THE QUARTER ENDED AUGUST 31, 2001
FOR THE SIX MONTHS ENDED AUGUST 31, 2002 VERSUS THE SIX MONTHS ENDED AUGUST 31,
2001
During the second quarter and the first six months of its 2003 fiscal year (the
"2003 fiscal year"), the Company's revenues decreased approximately 35% from
$923,000 to $595,000 and 24% from $1,535,000 to $1,160,000, respectively, as
compared to the second quarter and the first six months of its 2002 fiscal year
(the "2002 fiscal year"). These changes were principally attributable to
decreases in exhibition and related merchandise sales of approximately 38%
during the second quarter and 27% during first six months of the 2003 fiscal
year, as compared to the corresponding periods of the 2002 fiscal year. The
present level of these revenues reflect the current licensing agreement in
effect that has lower guaranteed payments with a revenue sharing provision.
Merchandise and other revenue increased approximately 32% from $31,000 to
$41,000, during the second quarter of the 2003 fiscal year as compared to the
second quarter of the 2001 fiscal year, and increased 100%, to $82,000 from
$41,000 during the first six months of the 2003 fiscal year as compared to the
first six months of the 2002 fiscal year. This increase is attributed to higher
sales this fiscal year of Titanic catalogues that are available at the exhibits.
The Company's sale of coal decreased to $20,000 from $25,000, or approximately
20% during the second quarter of the 2003 fiscal year as compared to the second
quarter of the 2002 fiscal year, and 3% from $47,000 to $46,000,during the first
six months of the 2003 fiscal year as compared to the first six months of the
2002 fiscal year. This decrease is attributed to lower exhibit sales during the
current fiscal year for these products.
The Company's general and administrative expenses increased to $1,136,000 from
$870,000, or approximately 31% during the second quarter of the 2003 fiscal year
as compared to the second quarter of the 2002 fiscal year, and to $1,884,000
from $1,473,000, or approximately 28% during the first six months of the 2003
fiscal year as compared to the first six months of the 2002 fiscal year. A
litigation settlement for $388,000 was the primary cause of this increase as
compared to the corresponding year ago period. Legal and professional fees were
reduced 49% to $149,000 and 2% to $369,000, respectively, over the comparable
year ago periods for the quarter and six months periods ended August 31, 2002.
The significant reduction in legal expenses for the recent quarter reflects the
settlement of two litigation matters that involved the Company.
The Company's depreciation and amortization expenses decreased $8,000 or 10%
from $80,000 to $72,000, and $75,000, or 36% from $218,000 to $143,000 during
the second quarter and first six months of the 2003 fiscal year, respectively,
as compared to the corresponding periods of the 2002 fiscal year. These
decreases reflect the elimination of amortization expense during these periods
as a result of the acquisition of the Carpathia rights in exchange for
intangible assets relating to potential wreck sites that were being amortized.
Interest income increased to $31,000 and $44,000 during the second quarter and
six months, respectively, of the Company's 2003 fiscal year as compared to the
corresponding year ago periods, primarily as a result of the interest accrual on
the obligation from the sale of Danepath Ltd., the Company's former subsidiary,
which bears interest at 8% per annum.
The Company's loss from continuing operations increased substantially to
$611,000 from $57,000 during the second quarter of the 2003 fiscal year as
compared to the same period in fiscal year 2002. This significant increase is
6
attributed both to lower revenues coupled with higher expenses as noted above.
During the first six months of the 2003 fiscal year the Company experienced a
loss from continuing operations of $884,000, as compared to a loss of $268,000
in the corresponding period of the 2002 fiscal year. This higher loss is also
attributed to lower revenues obtained in the licensing of Titanic artifacts
during the current fiscal year and higher expenses incurred in the Company's
business that included the litigation settlement.
The net loss was $611,000 for the three months ended August 31, 2002 as compared
to a net income of $ 89,000 in the prior year period. In the year ago period
ended August 31, 2001 there was income from discontinued operations of $146,000.
During the first six months of the 2003 fiscal year the Company experienced a
loss from continuing operations of $884,000, as compared to a loss of $234,000
in the corresponding period of the 2002 fiscal year. Similarly, there was a
profit from discontinued operations of $34,000 for the six month period a year
ago. Basic income (loss) per common share for the three months and six months
ended August 31, 2002 were ($0.03) and ($0.05), respectively, and the weighted
average shares outstanding were 18,562,547 and 18,556,297, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided in operating activities was $348,000 for the six months ended
August 31, 2002 as compared to $532,000 used in operating activities in the same
prior year period ended August 31, 2001. This increase in cash provided in
operating activities for the current year is primarily attributed a decrease in
refundable taxes of $11,000, an increase in accounts payable and accrued
liabilities of $215,000 and an increase of $847,000 in deferred revenues.
For the six months ended August 31, 2002, cash used in investing activities was
$1,000 for furniture and there were no expenditures in the year ago period.
The Company's net working capital and stockholders' equity were $1,938,000 and
$6,498,000, respectively at August 31, 2002 as compared to $2,244,000 and
$7,342,000, respectively, at February 28, 2002. The Company's working capital
ratio was 1.9 at August 31, 2002.
On September 14, 2002, the Board of Directors of the Corporation unanimously
adopted a Corporate Resolution providing that (1) the Company has completed the
salvage service that it intends to perform on the wreck of the TITANIC; (2) the
Company shall voluntarily surrender its status as salvor-in-possession of the
wreck of the TITANIC; (3) the Company shall proceed to move the United States
District Court for the Eastern District of Virginia, Norfolk Division, (the
"District Court") for the entry of a full and final salvage award pursuant to
the ruling of the United States Court of Appeals for the Fourth Circuit; and (4)
should the United States Supreme Court grant the Company's pending Petition for
Certiorari and ultimately modify or reverse the ruling of the Court of Appeals,
the Company shall proceed to perfect its ownership interest in the items
recovered from the TITANIC in accordance with the direction of the Supreme
Court.
Among the considerations that were reviewed prior to the decision of the Board
of Directors of the Company were the opinion of the United States Court of
Appeals for the Fourth Circuit ruling on April 12, 2002 that the Company does
not own any of the artifacts that it has recovered from the wreck of the
TITANIC, but, instead, holds only an inchoate lien in said artifacts; and that,
unless the Company intends to seek periodic awards, it cannot seek to enforce
its lien against the artifacts until it has completed all of the salvage service
that it intends to perform and its salvage award has been determined by the
District Court; and that the Company can only obtain title to the artifacts it
has recovered if, in the discretion of the District Court, the salvage award due
the Company cannot be satisfied by sale of the artifacts; and the District Court
has expressly forbidden the Company from cutting into the wreck or detaching any
part of the wreck since July 28, 2000; and further there is an international
convention pending that will designate the TITANIC an international maritime
memorial and restrict all future salvage of the wreck. At the present time the
Company as a representative sample of artifacts from the Titanic debris field
and furthermore, has more artifacts than are required for exhibitions. In
addition, the maintenance of the Company's salvor-in-possession status requires
periodic expeditions to the Titanic wreck site that would require substantial
further investment on behalf of the Company and uncertainties surround what the
District Court may decide is an appropriate financial return for the Company for
any future expenditures. Furthermore, obtaining a salvage award at this time
would be a prudent business decision to provide the Company's shareholders a
financial return on their investment.
7
On October 7, 2002, the United States Supreme Court denied the Company's
Petition for Certiorari, and consequently the Company will proceed to the
District Court for its salvage award. According to counsel for the Company the
length of time necessary to complete this process is uncertain and involves may
factors and considerations. A monetary award that may be granted for a salvage
lien is subject to, at the very least, the consideration by a maritime court of
the "Blackwall factors" which impart substantial uncertainty as to the amount
and appropriateness of the award to be granted. These Blackwall factors include:
(1) the labor expended by the salvors in rendering the salvage service. (2) the
promptitude, skill, and energy displayed in the rendering the service and saving
the property. (3) the value of the property employed by the salvor in rendering
the service, and the danger to which such property was exposed. (4) the risk
incurred by the salvor in securing the property from the impending peril. (5)
the value of the property saved. (6) the degree of danger from which the
property was rescued.
On October 1, 2002, the District Court issued an order for a hearing regarding
the Company's salvor-in-possession status and its relinquishment.
The present situation that the Company is confronted with involves a high degree
of risk and uncertainty. Management is further uncertain what financial outcome
could be achieved and if such an outcome would be financially rewarding to the
shareholders of the Company. It is apparent to management that future
expeditions to the wreck of the Titanic are an imprudent expenditure of Company
funds. The opportunity to recover additional artifacts may only provide a small
incremental increase in any value to shareholders as the Company has recovered
some 6000 artifacts to date and it is unknown what salvage award would be
appropriate for all the Company's salvage efforts on the Titanic wreck site.
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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During the quarter ended August 31, 2002, the Company settled
litigation with Westgate Entertainment Corporation and Wayland &
Chase Engineering NV for the payment by the Company of $388,000 over
a thirty month period and the exchange of releases, restrictive
covenants, and other considerations.
In the litigation initiated by Lawrence D'Addario, et al vs. Arnie
Geller, G. Michael Harris, Joe Marsh, Gerald Couture, Nick Cretan,
Doug Banker and the Company in the United States District Court for
the Eastern District of Virginia, Norfolk Division Case No.
8
2:02cv250, the Plaintiff has, on September 27, 2002, made a motion
for a preliminary injunction to prohibit the Company from
relinquishing its salvor-in-possession status. This motion is not, as
yet, set for a hearing and is not ripe due to jurisdictional
challenges and motions to dismiss which have been filed in the
Eastern District of Virginia.
On October 7, 2002, the United States Supreme Court denied the
Company's Petition for Certiorari.
There have been no other material changes 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
99.1 Certification of the Company's Chief Executive Officer
99.2 Certification of the Company's Chief Financial Officer
(b) REPORTS ON FORM 8-K
Form 8-K filed on July 16, 2002 regarding settlement of Westgate
Entertainment Corporation and Wayland & Chase Engineering litigation
settlement.
Form 8-K filed on September 24, 2002 regarding the resolution adopted
by the Board of Directors of the Company to voluntary end its
salvor-in-possession status among other items.
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: October 8, 2002 By: /s/ Arnie Geller
-------------------------------------------
Arnie Geller, President
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