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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, 2003
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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 2250, 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
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The number of shares outstanding of the registrant's common stock on
September 30, 2003 was 19,125,047.
PAGE
NUMBER
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PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
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, 2003.
1
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
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AUGUST 31, FEBRUARY 28,
2003 2003
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(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,996,000 $ 1,945,000
Accounts receivable 108,000 128,000
Prepaid and Refundable income taxes 221,000 511,000
Prepaid expenses and other current assets 293,000 307,000
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TOTAL CURRENT ASSETS 2,618,000 2,891,000
Artifacts owned, at cost 4,480,000 4,484,000
Salvor's lien 1,000 1,000
Property and Equipment, net of accumulated depreciation
of $1,650,000 and $1,501,000, respectively 841,000 979,000
Other Assets 67,000 44,000
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TOTAL ASSETS $ 8,007,000 $ 8,399,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,042,000 $ 1,114,000
Deferred revenue 658,000 735,000
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TOTAL CURRENT LIABILITIES 1,700,000 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 19,125,047 and 18,675,047 shares,
respectively 2,000 2,000
Additional paid-in capital 16,758,000 16,650,000
Accumulated deficit (10,453,000) (10,102,000)
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STOCKHOLDERS' EQUITY 6,307,000 6,550,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,007,000 $ 8,399,000
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See Notes to Consolidated Financial Statements
2
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
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THREE-MONTH THREE-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2003 2002 2003 2002
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Revenue:
Exhibitions and related merchandise sales $ 655,000 $ 534,000 $ 1,446,000 $ 1,032,000
Merchandise and other 58,000 41,000 89,000 82,000
Sale of coal 28,000 20,000 42,000 46,000
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Total revenue 741,000 595,000 1,577,000 1,160,000
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Expenses:
Cost of coal sold 5,000 6,000 14,000 5,000
Cost of merchandise sold 27,000 23,000 77,000 56,000
General and administrative 732,000 1,136,000 1,695,000 1,884,000
Depreciation and amortization 58,000 72,000 149,000 143,000
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Total expenses 822,000 1,237,000 1,935,000 2,088,000
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Loss from operations (81,000) (642,000) (358,000) (928,000)
Interest income 3,000 31,000 7,000 44,000
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Loss from operations
before provision
for income taxes (78,000) (611,000) (351,000) (884,000)
Provision for income taxes -- -- -- --
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Net Income (loss) $ (78,000) $ (611,000) $ (351,000) $ (884,000)
Basic and diluted Loss
Per common shares: $ .00 $ (.03) $ (.02) $ (.05)
Weighted-average number
of common shares outstanding 18,905,547 18,562,547 18,790,047 18,556,297
See Notes to Consolidated Financial Statements
3
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
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SIX-MONTH PERIOD ENDED AUGUST 31, 2003 2002
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(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ (351,000) $ (884,000)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 149,000 143,000
Reduction in artifacts 3,000 7,000
Issuance of stock for services 108,000 35,000
Changes in operating assets and liabilities:
Decrease in accounts receivable 20,000 (37,000)
Decrease in prepaid and
refundable income taxes 290,000 111,000
Decrease in prepaid expenses
and other current assets 14,000 (105,000)
Decrease(increase) in other assets (21,000) 16,000
Increase (decrease)in accounts payable and
accrued liabilities (73,000) 215,000
Increase (decrease) in deferred revenue (77,000) 847,000
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TOTAL ADJUSTMENTS 413,000 1,232,000
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 62,000 348,000
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Cash flows used in investing activities:
Purchases of property and equipment (11,000) (1,000)
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NET CASH USED IN INVESTING ACTIVITIES (11,000) ( 1,000)
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Net (decrease) increase in cash 51,000 347,000
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 $ 1,996,000 $ 493,000
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six-month period for income taxes $ -- $ --
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Common stock issued to acquire assets $ -- $ --
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See Notes to Consolidated Financial Statements
4
RMS TITANIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - The accompanying consolidated financial information as of August 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 loss per common share ("EPS") is computed as net 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, 2003 and 2002 since there was no dilutive
effect of potential common shares or the dilutive effect is not
material.
Note 3 - On August 15, 2003, the Company executed a fifth amendment to the
exhibition tour agreement with Clear Channel Entertainment Exhibits,
Inc. whereby it licenses Titanic Artifacts. Clear Channel was provided
with a " 2004 Extension Period" that expires April 25, 2004. This
agreement also permits the Company to acquire all exhibitry in the
present Clear Channel exhibits for $600,000.
Note 4 - 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. The verdict was subject to
appeal. During the quarter ended August 31, 2003, the Company settled
this litigation by agreeing to certain payments and an exchange of
releases. Upon the advice of counsel, this settlement is less than the
expected legal costs and expenses of continuing litigation.
Note 5 - During the quarter ended August 31 2003, the Company issued 450,000
shares of common stock- 200,000 shares issued to two directors for
their continuing services and 250,000 shares as consideration for
termination of a consulting agreement. The value of these shares was
$108,000 or $0.24 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, 2003 VERSUS THE QUARTER ENDED AUGUST 31, 2002
FOR THE SIX MONTHS ENDED AUGUST 31, 2003 VERSUS THE SIX MONTHS ENDED AUGUST 31,
2002
During the second quarter and the first six months of its 2004 fiscal year (the
"2004 fiscal year"), the Company's revenues increased approximately 25% from
$595,000 to $741,000 and 36% from $1,160,000 to $1,577,000, respectively, as
compared to the second quarter and the first six months of its 2003 fiscal year
(the "2003 fiscal year"). These changes were principally attributable to
increases in exhibition and related merchandise sales of approximately 21%
during the second quarter and 40% during first six months of the 2004 fiscal
year, as compared to the corresponding periods of the 2003 fiscal year. These
revenue increased reflect the current licensing agreement that has a guaranteed
payment and a revenue sharing provision over a shorter license period.
Merchandise and other revenue increased approximately 41% from $41,000 to
$58,000, during the second quarter of the 2004 fiscal year as compared to the
second quarter of the 2003 fiscal year, and increased 9%, to $89,000 from
$82,000 during the first six months of the 2004 fiscal year as compared to the
first six months of the 2003 fiscal year. This increase is attributed to
royalties and related merchandise sales at the current exhibits.
The Company's sale of coal increased to $28,000 from $20,000, or approximately
40% during the second quarter of the 2004 fiscal year as compared to the second
quarter of the 2003 fiscal year, and decrease 9% from $46,000 to $42,000,during
the first six months of the 2004 fiscal year as compared to the first six months
of the 2003 fiscal year. This increase during the current quarter reflects
higher exhibit sales while the decrease for the six month period is attributed
to lower exhibit sales during the prior quarter.
The Company's general and administrative expenses decreased to $732,000 from
$1,136,000, or approximately 36% during the second quarter of the 2004 fiscal
year as compared to the second quarter of the 2003 fiscal year, and to
$1,695,000 from $1,884,000, or approximately 10% during the first six months of
the 2004 fiscal year as compared to the first six months of the 2003 fiscal
year. For the second quarter of the 2004 fiscal year, one-time settlement costs
of separate litigation matters was lower than the second quarter of the 2003
fiscal year. For the first six months of the 2004 fiscal year as compared to the
first six months of the 2003 fiscal year, there was a substantial reduction in
legal expenses of $294,000 although this was offset by higher personnel expenses
as the Company is expanding its staff to conduct its own exhibitions in the very
near future.
The Company's depreciation and amortization expenses decreased $14,000 or 21%
from $72,000 to $58,000, and increased $6,000, or 4%, from $143,000 to $149,000
during the second quarter and first six months of the 2004 fiscal year,
respectively, as compared to the corresponding periods of the 2003 fiscal year.
The decrease reflects the reduction in the depreciation taken on exhibitry
assets that are completing their depreciable lives. The slight increase for the
six month period is attributed to depreciation of the marine vessel that was not
a company asset in the prior year.
The Company's loss from operations decreased substantially to $81,000 from
$642,000 during the second quarter of the 2004 fiscal year as compared to the
same period in fiscal year 2003. This significant decrease is attributed both to
higher revenues coupled with lower expenses as discussed above. During the first
six months of the 2004 fiscal year the Company experienced a reduction of 62% in
the loss from operations to $358,000, from a loss of $928,000 in the
corresponding period of the 2003 fiscal year. This lower loss is also attributed
6
to management efforts to increase revenues obtained in the licensing of Titanic
artifacts during the current fiscal year and a lowering of expenses,
particularly legal expenses incurred in the Company's business. Litigation
settlements have been made to avoid the high costs of continuing litigation.
Interest income decreased to $3,000 and $7,000 during the second quarter and six
months, respectively, of the Company's 2004 fiscal year as compared to $31,000
and $44,000 in the corresponding year ago periods, primarily as a result of the
elimination of the interest accrual on a prior year note payable from the sale
of Danepath Ltd., the Company's former subsidiary.
The net loss was $78,000 for the three months ended August 31, 2003 as compared
to a net loss of $ 611,000 in the prior year period. During the first six months
of the 2003 fiscal year the Company experienced a loss of $351,000, as compared
to a loss of $884,000 in the corresponding period of the 2002 fiscal year. Basic
income (loss) per common share for the three months and six months ended August
31, 2003 were $0.00 and ($0.02), respectively, and the weighted average shares
outstanding were 18,905,547 and 18,790,047, respectively.
With the transition to conducting its own exhibitions, management expects to
eventually become profitable. It is difficult to predict when this would be
realized because of litigation the Company is presently undergoing but once that
matter is resolved, then management expects to be able to devote itself to the
profitable operation of its business.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided in operating activities was $62,000 for the six months ended
August 31, 2003 as compared to $348,000 used in operating activities in the same
prior year period ended August 31, 2002. This decrease in cash provided in
operating activities for the current year is primarily attributed to lower
liabilities, including accounts payable and accrued expenses together with
deferred revenues.
For the six months ended August 31, 2003, cash used in investing activities was
$11,000 for furniture and equipment as compared to $1,000 in the year ago
period.
Net cash for the six months ended August 31, 2003 increased $51,000 as compared
to $347,000 for the prior year's six month period. Cash at August 31, 2003 was
$1,996,000 as compared to $493,000 at August 31, 2002.
The Company's net working capital and stockholders' equity were $918,000 and
$6,307,000, respectively at August 31, 2003 as compared to $1,042,000 and
$6,550,000, respectively, at February 28, 2003. The Company's working capital
ratio was 1.5 at August 31, 2003.
Management continues to plan 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 license period with CCE was continued to April 25,
2004 with the signing of the fifth amendment that was executed on August 15,
2003. This extension would require overage payments to continue from the present
license period once they exceed $10,000,000. These overage payments will be made
7
thirty days in arrears once $10,000,000 in revenues is exceeded. It is uncertain
at the present time what license payments would result from this extension.
Overage license payment approximately $600,000 in prior years. In addition, the
Company negotiated to purchase all Titanic exhibitry owned by CCE for $600,000
over two years.
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
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.
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. The verdict was subject to
appeal. During the quarter ended August 31, 2003, the Company settled
this litigation by agreeing to certain payments and an exchange of
releases. Upon the advice of counsel, this settlement is less than the
expected legal costs and expenses of continuing litigation.
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, a trial date has
been set for the week of January 12, 2004. Presently, the parties are
undergoing discovery in this matter.
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, 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 10.49 Fifth Amendment to Exhibition Tour Agreement, dated August 15,
2003 between the Company and Clear Channel Entertainment
Exhibits, Inc.
EXHIBIT 10.50 Form of Lease amendment dated August 8, 2003 between the Company
and Tower Place, LP.
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.
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 14, 2003 By: /s/ Gerald Couture
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Vice President