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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 May 31, 2004.
[ ] 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 2250, Atlanta, GA 30326
- -------------------------------------------- -----
(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 9, 2004 was 19,275,047.
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-Q for the year
ended February 29, 2004.
1
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
=========================================================================================================
MAY 31, FEBRUARY 29,
2004 2004
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 340,000 $ 547,000
Accounts receivable 210,000 353,000
Prepaid and Refundable income taxes 221,000 221,000
Prepaid expenses and other current assets 175,000 141,000
------------ ------------
TOTAL CURRENT ASSETS 946,000 1,262,000
Artifacts owned, at cost 4,477,000 4,479,000
Salvor's lien 1,000 1,000
Property and Equipment, net of accumulated depreciation
of $1,783,000 and $1,754,000, respectively 1,324,000 747,000
Other Assets 812,000 764,000
------------ ------------
TOTAL ASSETS $ 7,560,000 $ 7,253,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,854,000 $ 1,249,000
Current maturities of long term liabilities 100,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 1,954,000 1,249,000
Long Term Liabilities:
Note payable (less current maturities) 400,000 --
------------ ------------
TOTAL LONG TERM LIABILITIES 400,000 --
TOTAL LIABILITIES 2,354,000 1,249,000
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 17,269,000 17,192,000
Accumulated deficit (12,062,000) (11,190,000)
------------ ------------
STOCKHOLDERS' EQUITY 5,206,000 6,004,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,560,000 $ 7,253,000
============ ============
See Notes to Consolidated Financial Statements
2
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
==========================================================================================
THREE-MONTH PERIOD ENDED MAY 31, 2004 2003
----------- -----------
(UNAUDITED) (UNAUDITED)
Revenue:
Exhibitions and related merchandise sales $ 355,000 $ 793,000
Licensing fees -- --
Merchandise and other 23,000 30,000
Sale of coal 13,000 13,000
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Total revenue 391,000 836,000
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Expenses:
Cost of coal sold 4,000 9,000
Cost of merchandise sold 12,000 50,000
Exhibition costs 274,000 --
General and administrative 945,000 963,000
Depreciation and amortization 28,000 91,000
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Total expenses 1,263,000 1,113,000
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Income (loss) from operations (872,000) (277,000)
Other income (expense)
Interest income 1,000 4,000
Interest expense (4,000) --
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Total other income (expense) (3,000) 4,000
Income (loss) from operations
before provision for income taxes (875,000) (273,000)
Provision for income taxes - -
----------- -----------
Net income (loss) (875,000) (273,000)
----------- -----------
Net income (loss) for basic and diluted common shares:
Net income (loss) per share $ (.05) $ (.02)
----------- -----------
Weighted-average number of common shares outstanding 19,240,047 18,550,047
=========== ===========
See Notes to Consolidated Financial Statements
3
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
==================================================================================================================
THREE-MONTH PERIOD ENDED MAY 31, 2004 2003
----------- -----------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ (875,000) $ (273,000)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 28,000 91,000
Reduction in artifacts 1,000 1,000
Issuance of common stock for services 77,000 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 142,000 47,000
Decrease in prepaid and refundable income taxes -- 54,000
Decrease in prepaid expenses and other current assets 155,000 42,000
Decrease(increase) in other assets (235,000) (10,000)
Increase (decrease)in accounts payable
and accrued liabilities 305,000 80,000
Increase (decrease) in deferred revenue 300,000 (315,000)
----------- -----------
TOTAL ADJUSTMENTS 773,000 (11,000)
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (102,000) (284,000)
----------- -----------
Cash flows used in investing activities:
Purchases of property and equipment (605,000) (6,000)
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NET CASH USED IN INVESTING ACTIVITIES (605,000) (6,000)
Cash flows provided from financing activities:
Proceeds from Note payable 500,000 --
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES 500,000 --
----------- -----------
Net (decrease) increase in cash (207,000) (290,000)
Cash and cash equivalents at beginning of period 547,000 1,945,000
----------- -----------
Cash and cash equivalents at end of period $ 340,000 $ 1,655,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the three-month period for income taxes $ - $ -
=========== ===========
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 May 31, 2004
and 2003 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, 2004 and 2003
since there was no dilutive effect of potential common shares or the
dilutive effect is not material.
Note 3 - On May 17, 2004, the Company appeared before the United States
District Court for the Eastern District of Virginia for a pre-trial
hearing to address issues in preparation for the Interim Salvage Award
trial that is scheduled to begin October 18, 2004. At that hearing,
the Company informed the court that the United States government has
declined the Company's proposal to transfer the Company's
salvor-in-possession status to the government. The Company confirmed
that it intends to retain its salvor-in-possession status in order to
preserve the wreck site of the Titanic, and intends to conduct another
expedition to the wreck site either this year or next year. As a
result of that hearing, on July 2, 2004, the Court rendered an opinion
and order that stated the Court will not recognize the 1993
Proces-Verbal under the principles of international comity, and that
the Company will not be permitted to present evidence at the October
18, 2004 hearing for the purpose of arguing that it should be awarded
title to the Titanic artifacts under the law of finds. In part, the
Court found that the law of finds does not apply to the Company
because it is the Salvor-in- possession of the Titanic wreck and wreck
site. On October 18, 2004, a trial is scheduled to commence to
determine the amount of the Company's interim salvage award.
Note 4 - The United States Department of State and the National Oceanic and
Atmospheric Administration of the United States Department of Commerce
("NOAA") are working together to implement an International Treaty
with the British, French and Canadian governments which standing alone
will not have any affect on the Company's salvor-in-possession rights
to the Titanic. In November 2003, Britain signed the Treaty. In June
2004 the United States signed the Treaty. The Company's
salvor-in-possession rights are administered by the Federal District
Court as authorized by the Constitution. The Treaty becomes effective
in the United States when Congress passes implementing legislation.
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 THREE MONTHS ENDED MAY 31, 2004 VERSUS THE THREE MONTHS ENDED MAY 31,
2003
During the first quarter of the Company's 2005 fiscal year, the Company's total
revenues as compared to the corresponding first quarter period in the 2004
fiscal year decreased from $836,000 to $391,000, or approximately 53%. This
revenue decrease is principally attributable to the Company's transition from
being a licensor of the use of the Titanic artifacts for exhibition and sharing
in those revenues at a twenty percentage participation, to that of managing and
operating its own Titanic exhibition business where earnings participation with
museum venues will be 50% or higher. This transition has strongly impacted this
period's operating results, and to a lesser extent, the results for the
forthcoming quarter ending August 31, 2004. Exhibition and related merchandise
sales of $355,000 during the quarter ended May 31, 2004 were less than the
$793,000 in the prior year period as a consequence of the phase-out of the
licensee during the period and the commencement of two exhibitions in Omaha and
Salt Lake City. The Company obtained revenues of $13,000 from the sale of coal
for both the first three months of its 2005 and 2004 fiscal years. Coal sales at
the exhibition venues remained at the same level during these respective periods
although the sale of merchandise and other decreased from $30,000 in the quarter
ended May 31, 2003 to $23,000 in the quarter ended May 31, 2004. This was the
consequence of the specific venue locations in each respective period.
The cost of goods sold for merchandise and other during the first quarter of the
Company's 2005 fiscal year decreased to $12,000 from $50,000 in the prior year's
first quarter principally due to significantly lower costs associated with these
sales. The cost of coal during the first quarter of the Company's 2005 fiscal
year was $4,000 as compared to $9,000 in the prior year's period. Although sales
were the same during both periods, the costs associated with selling coal and
its components were lower during the recent quarter ended May 31, 2004.
With the Company conducting its own Titanic exhibitions, exhibition costs
associated with commencing the Omaha and Salt Lake City exhibitions, that
includes installation expenses, and marketing and promotion were $274,000 during
the first quarter for fiscal year 2005. There were no exhibition costs incurred
in the prior year's quarter as a consequence of this transition noted herein.
The Company's general and administrative expenses decreased to $945,000 from
$963,000, or approximately 2% during the first quarter of its 2005 fiscal year
as compared to the same quarter period of its 2004 fiscal year. This slight
decrease was accompanied by a major decrease in legal expenses but increases in
personnel, conservation, other professional fees, and freight and storage costs
as compared to the same quarter in its 2004 fiscal year. Legal expenses in the
first quarter of the 2005 fiscal year declined to $139,000 from $509,000, or
73%, as compared to the prior year period. The 2004 fiscal year quarter included
significant but non-recurring legal expenses incurred in the two-week jury trial
that resulted in a favorable verdict for the Company. Personnel costs for the
first quarter of 2005 fiscal year increased to $346,000 from $262,000, or 32% as
the Company continues to staff for the administration and management of its
exhibition business. Increases in other professional fees, including exhibition
consultants, investor relations, and accounting fees were $100,000 in this
quarter as compared to $10,000 in the year ago quarter. Freight and storage
expenses relating to exhibitions for the recent quarter were $91,000 as the
Company acquired and was responsible for the relocation of three Titanic
exhibition sets and the storage of two additional sets. There were no similar
costs incurred in the first quarter of fiscal year 2004.
6
Depreciation decreased to $28,000, or approximately 69%, for the first three
months of the Company's 2005 fiscal year as compared to $91,000 for the prior
period. This decrease is primarily attributed to the lower depreciable asset
base of the Company as exhibitry that the Company constructed several years ago
has come to an end of their useful lives. The recent acquisition of exhibitry
from ClearChannel Entertainment for $600,000 will increase the depreciation
expense in future periods.
The Company experienced a loss of $878,000 from operations in the three month
period ended May 31, 2004 as compared to a loss of $277,000 for the same period
in 2003. The loss for the recent quarter ended is attributed to higher expenses
that included exhibition costs, while obtaining lower levels of revenues as the
Company transitions to the direct management and operation of its exhibition
business.
Interest income decreased to $1,000, or 75%, during the first three months of
the Company's 2005 fiscal year as compared to $4,000 in the first three months
of its 2004 fiscal year, primarily as a result of lower interest earned on its
bank balances and lower cash balances being maintained. Interest expense was
$4,000 for the first three months of the Company's 2005 fiscal year as the
Company incurred a debt obligation as it supplemented it working capital. There
were outstanding note obligations during the prior year's fiscal quarter, so the
Company did not incur any interest expense in that period.
Net losses of $875,000 and $273,000 were realized for the three months ended May
31, 2004 and 2003, respectively. In both periods, there was no provision for
income taxes. Basic income (loss) per common share for both the three months
ended May 31, 2004 and 2003 were ($0.05) and ($0.02) per share, respectively,
and the weighted average shares outstanding were 19,240,047 and 18,550,047,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $102,000 for the quarter ended May 31,
2004 as compared to $284,000 in the quarter ended May 31, 2003. This decrease in
cash used in operating activities as compared to the prior years period is
primarily attributed to decreases in account receivables and prepaid expenses
and increases in accounts payable and deferred revenues more than offset the
increase in other assets.
For the quarter ended May 31, 2004, cash used in investing activities was
$605,000 and represented the purchase of exhibitry and equipment. In the prior
year period, the Company expended $6,000 for office and computer equipment.
For the quarter ended May 31, 2004, cash provided by financing activities was
$500,000 through a debt obligation provided by two shareholders to supplement
the working capital needs of the Company as it undergoes its transition to the
direct management and administration of its exhibition business. In the prior
year period, the Company did not have any financing activities.
The Company's net working capital deficit and stockholders' equity were
$1,008,000 and $5,206,000, respectively at May 31, 2004 as compared to a net
working capital of $13,000 and stockholders' equity of $6,550,000 at February
29, 2004. The Company's working capital has decreased as its makes the business
transition into direct exhibition.
The Company plans to undertake survey work on the RMS CARPATHIA in July 2004,
weather permitting, to gather more data necessary for planning a large scale
recovery expedition.
The Company plans to conduct other non-Titanic related exhibitions. A medical
specimen exhibition called "Bodies Revealed", scheduled to open in England in
August 2004, will be the Company's first such exhibition. Management believes
that this venture has the potential for substantial revenues. Dr. Roy Glover,
Professor Emeritus of Anatomy and Cell Biology, University of Michigan, has
7
joined the Company as Chief Medical Director and spokesman for the Bodies
Revealed exhibition. Dr. Glover has been an educator for over thirty years and
directed the University's medical preservation laboratory.
At the present time, the Company does not have sufficient working capital to
meet its needs for the next twelve months. The exhibition tour agreement with
CCE expired on May 29, 2004 with the closing of the Tampa exhibition. Management
expects that it needs additional outside funding to implement its plan to
conduct its own exhibitions that began in May 2004. Previously, the Company
relied upon third parties to conduct exhibitions under a licensing arrangement.
There can be no assurances that this outside financing can be made available
upon reasonable terms, or as timely as management may require for the proper
conduct of these and other future endeavors. If the required financing is not
available, it could seriously impact the Company and its business.
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-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.
8
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 17, 2004, the Company appeared before the United States
District Court for the Eastern District of Virginia for a pre-trial
hearing to address issues in preparation for the Interim Salvage Award
trial that is scheduled to begin October 18, 2004. At that hearing,
the Company informed the court that the United States government has
declined the Company's proposal to transfer the Company's
salvor-in-possession status to the government. The Company confirmed
that it intends to retain its salvor-in-possession status in order to
preserve the wreck site of the Titanic, and intends to conduct another
expedition to the wreck site either this year or next year. As a
result of that hearing, on July 2, 2004, the Court rendered an opinion
and order that stated the Court will not recognize the 1993
Proces-Verbal under the principles of international comity, and that
the Company will not be permitted to present evidence at the October
18, 2004 hearing for the purpose of arguing that it should be awarded
title to the Titanic artifacts under the law of finds. In part, the
Court found that the law of finds does not apply to the Company
because it is the Salvor-in- possession of the Titanic wreck and wreck
site. On October 18, 2004, a trial is scheduled to commence to
determine the amount of the Company's interim salvage award.
The United States Department of State and the National Oceanic and
Atmospheric Administration of the United States Department of Commerce
("NOAA") are working together to implement an International Treaty
with the British, French and Canadian governments which standing alone
will not have any affect on the Company's salvor-in-possession rights
to the Titanic. In November 2003, Britain signed the Treaty. In June
2004 the United States signed the Treaty. The Company's
salvor-in-possession rights are administered by the Federal District
Court as authorized by the Constitution. The Treaty becomes effective
in the United States when Congress passes implementing legislation.
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 29, 2004.
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
10.55 Promissory note between Company and Shareholders, dated
May 2, 2004.
99.1 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350 UNDER SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002 and 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: July 15, 2004 By: /s/ Arnie Geller
----------------------------------
Arnie Geller, President & CEO