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, 2000
[ ] 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)
401 Corbett Street, Clearwater, Florida 33756
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (727) 443-1912
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 X No
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The number of shares outstanding of the registrant's common stock on
July 10, 2000 was 16,887,128.
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PAGE
NUMBER
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PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements of RMS Titanic, Inc. and subsidiary
(collectively, the "Company"), included herein were prepared, without audit,
pursuant to rules and regulations of the Securities and Exchange Commission.
Because certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles 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 29, 2000.
2
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<TABLE>
<CAPTION>
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
=========================================================================================================
MAY 31, FEBRUARY 29,
2000 2000
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(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,615,000 $ 3,065,000
Accounts receivable 85,000 371,000
Prepaid and Refundable income taxes 1,163,000 1,163,000
Prepaid expenses and other current assets 36,000 50,000
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TOTAL CURRENT ASSETS 3,899,000 4,649,000
Artifacts Recovered, at cost 9,173,000 9,175,000
Deferred Income Tax Asset 634,000 634,000
Property and Equipment, net of accumulated depreciation
of $700,000 and $622,000, respectively 823,000 866,000
Other Assets 1,035,000 48,000
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TOTAL ASSETS $ 15,564,000 $ 15,372,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,951,000 $ 2,886,000
Deferred income tax liability 79,000 79,000
Deferred revenue 509,000 604,000
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TOTAL CURRENT LIABILITIES 2,539,000 3,569,000
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Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value;
authorized 30,000,000 shares, issued and
outstanding 16,887,128 and 16,187,128 shares,
respectively 2,000 2,000
Additional paid-in capital 15,140,000 14,240,000
Accumulated deficit (2,117,000) (2,439,000)
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STOCKHOLDERS' EQUITY 13,025,000 11,803,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,564,000 $ 15,372,000
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</TABLE>
See Notes to Consolidated Financial Statements
3
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<TABLE>
<CAPTION>
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
==========================================================================================
THREE-MONTH PERIOD ENDED MAY 31, 2000 1999
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<S> <C> <C>
Revenue:
Exhibitions and related merchandise sales $ 2,128,000 $ 1,128,000
Licensing fees 3,000 11,000
Merchandise and other 3,000 163,000
Sale of coal 24,000 10,000
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Total revenue 2,158,000 1,312,000
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Expenses:
Cost of coal sold 2,000 1,000
Cost of merchandise sold - 2,000
General and administrative 1,421,000 561,000
Depreciation and amortization 118,000 82,000
Expedition costs 101,000 -
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Total expenses 1,642,000 646,000
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Income from operations 516,000 666,000
Interest income 30,000 14,000
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Income before provision for income taxes 546,000 680,000
Provision for income taxes 224,000 253,000
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Net income $ 322,000 $ 427,000
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Basic income per common share $ .02 $ .03
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Weighted-average number of common shares outstanding 16,587,128 16,187,128
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</TABLE>
See Notes to Consolidated Financial Statements
4
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<TABLE>
<CAPTION>
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
==================================================================================================================
THREE-MONTH PERIOD ENDED MAY 31, 2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 322,000 $ 427,000
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Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 118,000 83,000
Reduction in artifacts recovered 2,000 1,000
Noncash exhibition revenue - (225,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 132,000 396,000
Decrease in prepaid and refundable income taxes 154,000 429,000
Decrease (increase) in prepaid expenses and other current assets 14,000 (77,000)
Increase in other assets (15,000) (4,000)
Decrease in accounts payable and accrued liabilities (935,000) (8,000)
Increase in income taxes payable - 121,000
Decrease in deferred revenue ( 95,000) (500,000)
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TOTAL ADJUSTMENTS (625,000) 216,000
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (303,000) 643,000
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Cash flows used in investing activities:
Purchases of property and equipment (35,000) (30,000)
Costs related to planned expedition (112,000) -
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NET CASH USED BY INVESTING ACTIVITIES (147,000) (30,000)
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Net (decrease) increase in cash (450,000) 613,000
Cash and cash equivalents at beginning of period 3,065,000 720,000
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Cash and cash equivalents at end of period $ 2,615,000 $ 1,333,000
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the three-month period for income taxes $ - $ 349,000
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SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Common stock issued to acquire intangible assets $ 900,000 $ -
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</TABLE>
See Notes to Consolidated Financial Statements
5
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RMS TITANIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 -
In April 2000 RMS Titanic, Inc. formed a wholly owned foreign
subsidiary, Whitestar Marine Recovery, Ltd. ("Whitestar"). The
consolidated financial statements include the accounts of RMS Titanic,
Inc. and Whitestar. All material inter-company balances and
transactions have been eliminated in consolidation.
The accompanying consolidated financial statements contain all
adjustments necessary to present fairly the financial position of RMS
Titanic, Inc. and subsidiary (collectively, the "Company") as of May
31, 2000 and their results of operations and their cash flows for the
three month periods ended May 31, 2000 and 1999. Results of operations
for the three month period ended May 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending
February 28, 2001.
Note 2 -
Basic earnings per common share ("EPS") is computed as net earnings
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, 2000 and 1999 since the dilutive
effect of potential common shares is not material.
Note 3 -
In April 2000, the Company acquired certain intangible assets in
exchange for 600,000 shares of its common stock valued at $900,000
after giving effect to certain restrictions placed on such common
stock. Concurrently, the Company entered into an agreement for the
services of an individual to January 3, 2003. Since the individual
will be primarily responsible in assisting the Company in exploiting
the intangible assets acquired, the assets are being amortized over
the term of the individual's service agreement. Options to purchase
83,333 shares of the Company's common stock at $3.00 per share, 83,333
shares of the Company's common stock at $4.00 per share and 83,334
shares of the Company's common stock at $5.00 per share were granted
to the individual.
Note 4 -
In June 2000, 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 July 19, 2000.
Note 5 -
On June 29, 2000, the Company finalized employment agreements with two
members of senior management, its President and Chief Executive
Officer and its Executive Vice President and Chief Operating Officer.
Both employment agreements are for a five year term and provide for
annual base salaries of $300,000 per year. In addition, each executive
has been granted an option to purchase 500,000 shares of the Company's
common stock at $1.75 per share. These options have a ten year
maturity.
6
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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, 2000 VERSUS THE THREE MONTHS ENDED MAY 31,
1999
During the first quarter of the Company's 2001 fiscal year, the Company's total
revenues increased from $1,312,000 to $2,158,000, or approximately 64%, as
compared to the corresponding first quarter period in the year 2000 fiscal year.
This revenue increase is principally attributable to the Company having higher
exhibition and related merchandise sales of $2,128,000 during the quarter ended
May 31, 2000 as compared to $1,128,000 in the prior year period. Other revenues
from licensing fees, merchandise, and the sale of coal decreased from $184,000
in the prior year's period to $30,000 in the current period. The Company earned
revenues of $24,000 from the sale of coal during the first three months of its
2001 fiscal year, as compared to $10,000 in the same period of its 2000 fiscal
year. Similarly, the sale of merchandise declined from $163,000 in the first
quarter ended May 31, 1999 to $3,000 in the same quarter ended May 31, 2000.
The Company's general and administrative expenses increased to $1,396,000 from
$561,000, or approximately 149% during the first quarter of its 2001 fiscal year
as compared to the same quarter period of its 2000 fiscal year. This increase
was primarily attributable to higher legal and professional expenses related to
litigation encompassing the change in management and continuing legal expenses
for maintaining the Company's status as salvor-in-possession.
Depreciation and amortization increased to $118,000, or 44%, for the first three
months of the Company's 2001 fiscal year as compared to $82,000 for the prior
period.
The Company incurred $126,000 in expedition costs for the first three months of
the Company's 2001 fiscal year as the Company prepares for this summer's
expedition to the Titanic wreck site. There was no comparable cost in the year
ago period.
Interest income increased to $30,000, or 114%, during the first three months of
the Company's 2001 fiscal year as compared to the first three months of its 2000
fiscal year, primarily as a result interest on the higher cash balances being
maintained.
Income before provision for income taxes was $546,000 for the three months ended
May 31, 2000 as compared to $680,000 in the prior period. This decrease of 20%
is attributed to higher expenses than the prior year period.
Net income was $322,000 for the three months ended May 31, 2000 as compared to
$427,000 in the prior year period. This decrease in net income of 25% over that
of the prior year's period and is attributed to higher general and
administrative expenses incurred in the current period. Basic income per common
share for the three months ended May 31, 2000 was $0.02 as compared to $.03 for
the prior year period. The weighted average shares outstanding were 16,587,128
and 16,187,128, respectively for the three months ended May 31, 2000 and May 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash (used in) provided by operating activities was ($303,000) for the
quarter ended May 31, 2000 as compared to $643,000 in the quarter ended May 31,
1999. This decrease in cash provided by operating activities is primarily
attributed to the reduction in accounts payable and accrued liabilities of
$935,000 during the quarter (including cash payments of $837,000 for the
7
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settlement of litigation related to the change in management of the Company and
lower net income, offset by collections of accounts receivable.
For the quarter ended May 31, 2000, cash used in investing activities was
$147,000 and represented purchase of property and equipment and advance payments
related to the Company's planned expedition to the Titanic wreck site. There was
no cash financing activities during the quarter ended May 31, 2000.
The Company's net working capital and stockholders' equity were $1,360,000 and
$13,025,000, respectively at May 31, 2000 as compared to $1,080,000 and
$11,803,000 respectively, at February 29, 2000 The Company's current ratio was
1.54 at May 31, 2000 as compared to 1.30 at February 29, 2000.
Management plans to continue with the exploration of the Titanic and recover
additional artifacts for presentation to the public through exhibitions. An
expedition is planned for this summer to recover artifacts for future tours.
With this business strategy, management believes it is focusing on the key
elements necessary for the Company to be both profitable and successful over the
long-term.
Management expects that it will be able to arrange for the financial resources,
including licensing arrangements, to properly execute its strategic plan,
although no assurances can be given that it will be successful in such
endeavors. The Company has sufficient working capital to meet its planned needs
for the next twelve months without any additional funding.
A modification of the current exhibition tour agreement with a subsidiary of SFX
Entertainment, Inc. is being negotiated. An extension to July 19, 2000 for
renewal of this agreement has been granted by the Company.
In order to protect its salvor-in-possession status and to prevent third-parties
from salvaging the Titanic wreck and wreck site, or interfering with the
Company's rights and ability to salvage the wreck and wreck site, the Company
may have to commence judicial proceedings against third-parties. Such
proceedings could be expensive and time-consuming. Additionally, the Company, in
order to maintain its salvor-in-possession status, needs to, among other things,
maintain a reasonable presence at the wreck through periodic expeditions. The
Company will be required to incur the costs for future expeditions so as to
maintain its salvor-in-possession status. The Company's ability to undertake
future expeditions may be dependent upon the availability of financing from the
grant of licenses to produce television programming and/or the grant of
expedition sponsorship rights. No assurances can be given that such financing
will be available on satisfactory terms.
On June 29, 2000, the Company finalized employment agreements with two members
of senior management, its President and Chief Executive Officer, Mr. Arnie
Geller, and its Executive Vice President and Chief Operating Officer, Mr. G.
Michael Harris. Both employment agreements are for a five year term and provide
for annual base salaries of $300,000 per year. In addition, each executive has
been granted an option to purchase 500,000 shares of the Company's common stock
at $1.75 per share. These options have a ten year maturity.
In connection with its activities outside of the United States, the Company 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, 2000, there were no
significant fluctuations in the exchange rates with respect to foreign
currencies in which the Company transacts business. 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 in its
material business transactions so as to minimize the adverse potential effect of
currency fluctuations.
8
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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.
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 29, 2000.
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
10.1 Employment Agreement dated June 29, 2000 between the Company and Arnie
Geller.
10.2 Stock Option Agreement dated June 29, 2000 between the Company and Arnie
Geller.
10.3 Employment Agreement dated June 29, 2000 between the Company and G. Michael
Harris.
10.4 Stock Option Agreement dated June 29, 2000 between the Company and G.
Michael Harris.
(b) REPORTS ON FORM 8-K
None.
9
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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 17, 2000
By: /s/ Gerald Couture
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Vice President, Chief Financial Officer
