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, 2003
[ ] 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
July 10, 2003 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
Item 4. Controls and Procedures 8
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
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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-Q for the year
ended February 28, 2003.
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RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
=========================================================================================================
MAY 31, FEBRUARY 28,
2003 2003
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(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,655,000 $ 1,945,000
Accounts receivable 81,000 128,000
Prepaid and Refundable income taxes 457,000 511,000
Prepaid expenses and other current assets 264,000 307,000
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TOTAL CURRENT ASSETS 2,457,000 2,891,000
Artifacts owned, at cost 4,484,000 4,484,000
Salvor's lien 1,000 1,000
Property and Equipment, net of accumulated depreciation
of $1,592,000 and $1,501,000, respectively 894,000 979,000
Other Assets 54,000 44,000
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TOTAL ASSETS $ 7,890,000 $ 8,399,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,193,000 $ 1,114,000
Deferred revenue 420,000 735,000
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TOTAL CURRENT LIABILITIES 1,613,000 1,849,000
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Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value; authorized 30,000,000 shares, issued and
outstanding 18,675,047 and 18,675,047 shares,
respectively 2,000 2,000
Additional paid-in capital 16,650,000 16,650,000
Accumulated deficit (10,375,000) (10,102,000)
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STOCKHOLDERS' EQUITY 6,277,000 6,550,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,890,000 $ 8,399,000
============ ============
See Notes to Consolidated Financial Statements
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RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
==========================================================================================
THREE-MONTH PERIOD ENDED MAY 31, 2003 2002
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(UNAUDITED) (UNAUDITED)
Revenue:
Exhibitions and related merchandise sales $ 793,000 $ 499,000
Licensing fees -- --
Merchandise and other 30,000 40,000
Sale of coal 13,000 26,000
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Total revenue 836,000 565,000
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Expenses:
Cost of coal sold 9,000 9,000
Cost of merchandise sold 50,000 23,000
General and administrative 963,000 748,000
Depreciation and amortization 91,000 72,000
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Total expenses 1,113,000 852,000
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Income (loss) from continuing operations (277,000) (287,000)
Interest income 4,000 14,000
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Income (loss) from continuing operations
before provision for income taxes (273,000) (273,000)
Provision for income taxes - -
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Net income (loss) from continuing operations $ (273,000) $ (273,000)
Net income (loss) from discontinued operations -- 31,000
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Net income (loss) (273,000) (242,000)
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Net income (loss) for basic and diluted common shares:
From continuing operations $ (.01) $ (.01)
From discontinued operations -- --
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Weighted-average number of common shares outstanding 18,675,047 18,550,047
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See Notes to Consolidated Financial Statements
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RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
==================================================================================================================
THREE-MONTH PERIOD ENDED MAY 31, 2003 2002
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(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ (273,000) $ (273,000)
Less: income (loss) from discontinued operations -- 31,000
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Net income (loss) from continuing operations (273,000) (242,000)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 91,000 72,000
Reduction in artifacts -- 1,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 47,000 (23,000)
Decrease in prepaid and refundable income taxes 54,000 --
Decrease in prepaid expenses and other current assets 42,000 33,000
Decrease (increase) in other assets (10,000) 18,000
Increase (decrease) in accounts payable
and accrued liabilities 80,000 (148,000)
Increase (decrease) in deferred revenue (315,000) 1,296,000
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TOTAL ADJUSTMENTS (11,000) 1,249,000
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (284,000) 976,000
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Cash flows used in investing activities:
Purchases of property and equipment ( 6,000) (1,000)
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NET CASH USED IN INVESTING ACTIVITIES ( 6,000) ( 1,000)
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Net (decrease) increase in cash (290,000) 975,000
Cash and cash equivalents at beginning of period 1,945,000 146,000
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Cash and cash equivalents at end of period $ 1,655,000 $ 1,121,000
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the three-month period for income taxes $ - $ -
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See Notes to Consolidated Financial Statements
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RMS TITANIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - The accompanying consolidated financial information as of May 31, 2003
and 2002 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 2 - 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, 2003 and 2002
since there was no dilutive effect of potential common shares or the
dilutive effect is not material.
Note 3 - On September 7, 2000, Mr. G. Michael Harris, a former officer and
director of the Company filed suit in the Circuit Court of the Sixth
Judicial Circuit in and for Pinellas County, Florida, Civil Division.
In that suit, Mr. Harris alleged that the Company breached an
employment agreement entered into between him and the Company, that he
was damaged by the breach, that he was wrongfully terminated and had
been defamed. The Company denied the validity and enforceability of
the employment agreement. Moreover, the Company filed a counter-suit
against Mr. Harris and others, to recover monies that the Company
believed were misappropriated. On April 23, 2003, after a jury trial,
a verdict was rendered that affirmed the unenforceability of any of
Mr. Harris' employment agreements and further found that $70,000 of
Company monies were misappropriated by Mr. Harris and others. These
matters are subject to appeal.
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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, 2003 VERSUS THE THREE MONTHS ENDED MAY 31,
2002
During the first quarter of the Company's 2004 fiscal year, the Company's total
revenues as compared to the corresponding first quarter period in the 2003
fiscal year increased from $565,000 to $836,000, or approximately 48%. This
revenue increase is principally attributable to the Company having higher
exhibition and related merchandise sales of $793,000 during the quarter ended
May 31, 2003 as compared to $499,000 in the prior year period. This increase is
attributed to license agreement overage payments earned during the recent
period. The Company obtained revenues of $13,000 from the sale of coal during
the first three months of its 2004 fiscal year, as compared to $26,000 in the
same period of its 2003 fiscal year. This decrease is the result of lower coal
sales at the exhibition venues opened during the most recent quarter. The sale
of merchandise and other decreased from $40,000 in the quarter ended May 31,
2002 to $30,000 in the quarter ended May 31, 2003 for the same reason.
The cost of goods sold for merchandise and other during the first quarter of the
Company's 2004 fiscal year increased to $50,000 from $23,000 in the prior year's
first quarter principally due to costs associated with higher catalog sales. The
cost of coal during the first quarter of the Company's 2003 fiscal year remained
the same at $9,000 as the prior year's period, although sales were 50% lower due
costs associated with the products in which the coal is now being sold.
The Company's general and administrative expenses increased to $963,000 from
$748,000, or approximately 29% during the first quarter of its 2004 fiscal year
as compared to the same quarter period of its 2003 fiscal year. This increase
was primarily attributable to higher legal expense of $509,000 incurred that
included the two-week jury trial conducted during the recent quarter that
resulted in a favorable verdict for the Company. The Company continues to be
burdened with high legal expenses in its business and management expects legal
expenses to continue to be burdensome to the Company's future operating
performance.
Depreciation increased to $91,000, or approximately 26%, for the first three
months of the Company's 2004 fiscal year as compared to $72,000 for the prior
period. This increase is primarily attributed to the higher depreciable asset
base of the Company as compared to the year ago period, that now includes the SV
Explorer recently reacquired by the Company through its wholly owned Seatron
Limited subsidiary.
Interest income decreased to $4,000, or 71%, during the first three months of
the Company's 2004 fiscal year as compared to $14,000 in the first three months
of its 2003 fiscal year, primarily as a result of lower interest earned on its
bank balances and the absence of any note obligations due the Company.
A loss of $277,000 from operations was incurred in the three months ended May
31, 2003 as compared to a loss of $287,000 for the same period in 2002. The loss
for the recent quarter ended is attributed to higher expenses that offset the
increase in revenues but yielded a modest improvement in operating results over
the prior year period.
Net losses of $273,000 were realized for both the three months ended May 31,
2003 and 2002. In the current period there was no income from discontinued
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operations that benefited the prior year's results by $31,000. Basic income
(loss) per common share for both the three months ended May 31, 2003 and 2002
were ($0.01) and ($0.01) per share, respectively, and the weighted average
shares outstanding for these periods were 18,675,047 and 18,550,047,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $(284,000) for the
quarter ended May 31, 2003 as compared to $976,000 provided in the quarter ended
May 31, 2002. This decrease in cash provided by operating activities is
primarily attributed to decreases in current assets that totaled $133,000, an
adjustment for depreciation of $91,000, and a decrease of $80,000 in accounts
payables and accrued expenses, hat only slightly offset the net loss of
$273,000.
For the quarter ended May 31, 2003, cash used in investing activities was $6,000
and represented purchase of computer equipment. In the prior year period, the
Company expended $1,000 for office equipment. The Company did not engage in any
financing activities in either period.
The Company's net working capital and stockholders' equity were $844,000 and
$6,277,000, respectively at May 31, 2003 as compared to $1,042,000 and
$6,550,000, respectively, at February 28, 2003.
Management plans to undertake a recovery operation to the RMS CARPATHIA to
recover objects although no date has been set for this expedition. As the
Company owns this vessel, it is the intent of management to sell and/or exhibit
any items recovered.
Management expects that it may require additional outside funding to implement
its plan to conduct its own exhibitions beginning in 2004. Previously, the
Company relied upon third parties to conduct exhibitions under a licensing
arrangement. There can be no assurances that should outside financing be needed,
that the financial resources can be made available upon reasonable terms and as
timely as management may require for the proper conduct of these and other
future endeavors. If financing is required and not readily available, this
situation could be detrimental to the Company and its business.
The exhibition tour agreement with CCE is to expire on December 31, 2003.
Renewal of that agreement for another year is not anticipated, although an
extension until late Spring of 2004 is planned for certain venues but it is
uncertain at the present time what license payments would result from an
extension because they would likely be dependent upon overage payments of
exhibition revenues exceeding $10,000,000.
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 over the wreck. The Company may 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.
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, 2003, the Company did not incur any material losses because of
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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-Q. 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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our chief executive officer and chief financial officer have evaluated the
effectiveness of the registrant's disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934), as of
a date within 90 days of the filing date of this quarterly report (Evaluation
Date), that ensure that information relating to the registrant which is required
to be disclosed in this report is recorded, processed, summarized and reported,
within required time periods. They have concluded that as of the Evaluation
Date, the registrant's disclosure controls and procedures were adequate and
effective to ensure that material information relating to the registrant and its
consolidated subsidiary would be made known to them by others within those
entities, particularly during the period in which this quarterly report was
being prepared.
(b) Changes in Internal Controls
There were no significant changes in the registrant's internal controls or in
other factors that could significantly affect these controls subsequent to the
Evaluation Date, nor were there any significant deficiencies or material
weaknesses in these controls requiring corrective actions.
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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, 2003
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
EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350 UNDER SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(b) REPORTS ON FORM 8-K
None
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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 18, 2003 By: /s/ Gerald Couture
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Vice President, Finance
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