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, 2000
[ ] 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
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 Peechtree Road, NE, Suite 1225, Atlanta, GA 30326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 842-2600
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's common stock on
October 16, 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 8
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements of RMS Titanic, Inc. and
subsidiaries (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 and the
financial statements and notes thereto included in the unaudited financial
statements included in the Company's Form 10-Q for the period ended May 31,
2000.
3
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RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
================================================================================
AUGUST 31, FEBRUARY 29,
2000 2000
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(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 46,000 $ 3,065,000
Accounts receivable 32,000 371,000
Prepaid and Refundable income tax 1,093,000 1,163,000
Prepaid expenses and
other current assets 100,000 50,000
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TOTAL CURRENT ASSETS 1,271,000 4,649,000
Artifacts Recovered, at cost 11,184,000 9,175,000
Deferred Income Tax Asset, net 300,000 634,000
Property and Equipment, net
of accumulated depreciation
of $777,000 and $622,000,
respectively 1,576,000 866,000
Other Assets 834,000 48,000
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TOTAL ASSETS $ 15,165,000 $ 15,372,000
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued liabilities $ 1,161,000 $ 2,886,000
Deferred income taxes payable 110,000 79,000
Loan payable 250,000 --
Deferred revenue 383,000 604,000
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TOTAL CURRENT LIABILITIES 1,904,000 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 (1,881,000) (2,439,000)
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STOCKHOLDERS' EQUITY 13,261,000 11,803,000
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 15,165,000 $ 15,372,000
================================================================================
See Notes to Consolidated Financial Statements
4
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<TABLE>
<CAPTION>
RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
============================================================================================================
THREE-MONTH THREE-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue:
Exhibitions and related
merchandise sales $ 2,127,000 $ 1,369,000 $ 4,255,000 $ 2,498,000
Licensing fees 1,000 5,000 4,000 16,000
Merchandise and other 10,000 37,000 13,000 201,000
Sale of coal 11,000 13,000 35,000 22,000
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Total revenue 2,149,000 1,424,000 4,307,000 2,737,000
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Expenses:
Cost of coal sold 2,000 1,000 4,000 2,000
Cost of merchandise sold 8,000 3,000 8,000 5,000
General and administrative 1,230,000 706,000 2,651,000 1,267,000
Depreciation and amortization 159,000 68,000 277,000 151,000
Expedition costs 418,000 - 519,000 --
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Total expenses 1,817,000 778,000 3,459,000 1,425,000
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Income from operations 332,000 646,000 848,000 1,312,000
Interest income 38,000 16,000 68,000 30,000
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Income before provision
for income taxes 370,000 662,000 916,000 1,342,000
Provision for income taxes 134,000 249,000 358,000 503,000
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Net income $ 236,000 $ 413,000 $ 558,000 $ 839,000
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Basic and diluted income
per common share $ .01 $ .03 $ .03 $ .05
==============================================================================================================
Weighted-average number
of shares outstanding 16,887,128 16,187,128 16,737,128 16,187,128
==============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
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<TABLE>
<CAPTION>
RMS TITANIC, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
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SIX-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 558,000 $ 840,000
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Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 277,000 151,000
Noncash exhibition revenue (375,000)
Deferred income taxes 365,000
Changes in operating assets and liabilities:
Decrease in accounts receivable 339,000 573,000
Decrease in refundable withholding tax 70,000 429,000
Increase in prepaid expenses
and other current assets (50,000) (134,000)
Increase in other assets (8,000) (61,000)
Decrease in accounts payable
and accrued liabilities (1,725,000) (185,000)
Increase (decrease) in income taxes payable 126,000
Decrease in deferred revenue (221,000) --
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TOTAL ADJUSTMENTS (953,000) 524,000
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NET CASH PROVIDED BY
(USED IN)OPERATING ACTIVITIES (395,000) 1,364,000
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Cash flows from investing activities:
Artifact recovery costs (2,009,000) 2,000
Purchases of property and equipment (865,000) (36,000)
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CASH USED IN INVESTING ACTIVITIES (2,874,000) (34,000)
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Cash flows from financing activity:
Proceeds from loan payable 250,000 --
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Net increase (decrease) in cash and cash equivalents (3,019,000) 1,330,000
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 $ 46,000 $ 2,050,000
====================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ -- $ 422,000
====================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND
INVESTING ACTIVITIES:
Noncash purchases of property and equipment $ -- $ 375,000
Common stock issued to acquire intangible assets $ 900,000 $ --
====================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - The accompanying consolidated financial statements contain all
adjustments necessary to present fairly the financial position of the
Company as of August 31, 2000 and its results of operations and its
cash flows for the three and six months periods ended August 31, 2000
and 1999. Results of operations for the three and six month periods
ended August 31, 2000 are not necessarily indicative of the results
that may be expected for the year ending February 28, 2001.
Note 2 - Basic EPS is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects 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. Diluted EPS is not presented for the three and six month
periods ended August 31, 2000 and 1999 since the dilutive effect of
potential common shares is not material.
Note 3 - In September 2000, the Company entered into an amendment to the
Exhibition Tour Agreement with SFX Family Entertainment, Inc.
(Successor thorough merger with Magicworks Entertainment, Inc.), a
indirect subsidiary of SFX Entertainment, Inc. (collectively "SFX"),
pursuant to which RMST granted SFX an exclusive worldwide license to
exhibit the Company's Titanic artifacts in consideration of the
payment to the Company of a minimum guaranteed $2,000,000. The Company
also obtains a percentage of gross receipts as defined in the
agreement. The license agreement has a term commencing September 15,
2000 and ending November 30, 2001. The Company received $1,250,000 in
September with a payment of $750,000 payable six months from the
renewal commencement date. Within this modified agreement are
provisions to pay the Company a percentage of revenues as compared to
the percentage of profit provision in the original agreement. In
addition, there are provisions for payment of additional sums for
South American exhibitions.
Note 4 - During the quarter ended August 31, 2000, the Company borrowed
$250,000 from a non-affiliated party. This obligation had an interest
rate of 12% per annum and was secured with the Company's pending
income tax refunds. The lender will also receive $25,000 worth of
restricted common stock as consideration for this loan. On September
30, 2000, this loan was repaid with interest.
Note 5 - On August 27, 2000. G Michael Harris, the Company's Executive Vice
President and Chief Operating Officer was terminated by the Company's
Board of Directors. On September 7, 2000, Mr. Harris filed suit in the
Circuit Court of the Sixth Judicial Circuit in and for Pinellas
County, Florida, Civil Division. In that suit, Mr. Harris alleges that
Titanic breached an employment agreement entered into between Mr.
Harris and the Company, and that Mr. Harris has been damaged by the
breach.
The Company has responded to this Complaint, denying the validity or
enforceability of the employment agreement and setting forth the
Company's position that it acted appropriately and within its rights.
Moreover, the Company has filed a counter-suit against Mr. Harris and
others, to recover monies and other corporate assets which the Company
believes were misappropriated. The outcome of these matters is
uncertain at the present time, and the effect they may have on the
Company's financial position and results of operations is not
currently determinable.
7
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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 QUARTER ENDED AUGUST 31, 2000 VERSUS THE QUARTER ENDED AUGUST 31, 1999
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 VERSUS THE SIX MONTHS ENDED AUGUST 31,
1999
During the second quarter and the first six months of its 2001 fiscal year (the
"2001 fiscal year"), the Company's revenues increased approximately 51% and 57%,
respectively, as compared to the second quarter and the first six months of its
2000 fiscal year (the "2000 fiscal year"). These changes were principally
attributable to increases in exhibition and related merchandise sales of
approximately 55% during the second quarter and 70% during first six months of
the 2001 fiscal year, as compared to the corresponding periods of the 2000
fiscal year, The Company conducted an expedition to the Titanic wreck site
during the summer of 2000. There was not an expedition to the Titanic wreck site
undertaken in the prior year.
In view of the logistical and operational difficulties in establishing
short-term exhibitions on satisfactory terms the Company continues to rely on a
license to SFX Entertainment, Inc. of worldwide rights to exhibit the Company's
Titanic artifacts for one year periods. The original license agreement commenced
on September 14, 1999. Presently, SFX elected to extend this license an
additional year with the Company for the minimum annual payment of $2,000,000.
Merchandise and other revenue decreased approximately 73% to $10,000, during the
second quarter of the 2001 fiscal year as compared to the second quarter of the
2000 fiscal year, and decreased approximately 94%, to $13,000 from $201,000
during the first six months of the 2001 fiscal year as compared to the first six
months of the 2000 fiscal year. These decreases were principally attributable to
the prior year's Web venture to spur such sales. No similar endeavor was
undertaken for the current fiscal year.
The Company's sale of coal decreased slightly to $11,000 from $13,000, or
approximately 15% during the second quarter of the 2001 fiscal year as compared
to the second quarter of the 2000 fiscal year, and increased from $22,000 to
$35,000, or approximately 59% during the first six months of the 2001 fiscal
year as compared to the first six months of the 2000 fiscal year. This increase
is largely attributed to the Internet effort the Company made during the recent
fiscal year. The cost of coal increased proportionately with the respectively
increases in sales.
During the second quarter of the 2001 fiscal year expedition expenses were
incurred in the amount of $418,000 and $519,000 for the six month period of this
2001 fiscal year in connection with the expedition to the wreck site of the
Titanic during the summer. No expedition occurred in the fiscal year 2000
period.
The Company's general and administrative expenses increased to $1,230,000 from
$706,000, or approximately 74% during the second quarter of the 2001 fiscal year
as compared to the second quarter of the 2000 fiscal year, and increased to
$2,651,000 from $1,267,000, or approximately 109% during the first six months of
the 2001 fiscal year as compared to the first six months of the 2000 fiscal
year. Legal and professional fees to defend various lawsuits, one of which was
related to the change in management, were $458,000 higher for the quarter ended
August 31, 2000 as compared to the prior year's quarter ended. Legal expenses
included indemnification for legal costs for parties named in the former
management's lawsuit. For the six months period ended August 31, 2000,
professional fees were $972,000 higher than the same year ago six month period
again for the same reasons.
The Company's depreciation and amortization expenses increased $91,000, or
approximately 134% and increased $126,000, or 83% during the second quarter and
first six months of the 2001 fiscal year, respectively, as compared to the
corresponding periods of the 2001 fiscal year. These increases reflect the
higher amortization expenses incurred during these periods to reflect the recent
acquisition of certain intangible assets relating to other wreck sites that the
Company will commence recovery operations as an element of its future business
strategy.
8
<PAGE>
The Company's income before provision for income taxes decreased approximately
46% and 29% during the second quarter and first six months of the 2001 fiscal
year, as compared to the corresponding periods of the 2000 fiscal year. These
increase are attributed to timing differences in the payment of income taxes due
to deferred revenue recognition.
The Company's net income was $236,000, or $0.01 per share, for the second
quarter ended in the 2001 fiscal year as compare to net income of $413,000, or
$0.03 per share, in the same quarter in fiscal year 2000. For the six month
period ended August 31, 2000 of fiscal year 2001 the Company had net income of
$558,000, or $.03 per share, as compared to a net income of $839,000, or $0.05
per share, in the previous fiscal year 2000 period.
LIQUIDITY AND CAPITAL RESOURCES
In September 2000, the Company entered into an amendment to the Exhibition Tour
Agreement with SFX Family Entertainment, Inc. (Successor by merger to Magicworks
Entertainment, Inc.), an indirect subsidiary of SFX Entertainment, Inc.
(collectively "SFX"), pursuant to which RMST granted SFX an exclusive worldwide
license to exhibit the Company's Titanic artifacts in consideration of a
$2,000,000 guaranteed payment. This license agreement has a term commencing
September 15, 2000 and ending November 30, 2001. The Company received $1,250,000
in September with a payment of $750,000 payable six months from the renewal
commencement date. Within this modified agreement are provisions to pay the
Company a percentage of revenues as compared to the percentage of profit
provision in the original agreement. In addition, there are provisions for
payment of additional sums for South American exhibitions.
The Company expects that the working capital it has will be sufficient to
provide for the execution of its business plan over the next twelve months. The
Company's business plan, includes another expedition to the wreck site of the
Titanic in the summer of 2001.
For its recently completed expedition that included twenty-eight dives over a
four week period, the Company recovered more than 800 items from the wreck site,
which included the discovery of a new debris field. Among the artifacts
recovered in this expedition, were: the ship's Wheel and Stand, whistle control
timer from the navigation bridge, the main telegraph base and the docking bride
telephone. Among personal items recovered there included binoculars, a pair of
opera glasses, sixty-five intact perfume ampoules belonging to passenger Mr.
Adolphe Saalfeld, a camera, bowler hat, first class demitasse and dinner plate.
A base for a cherub likely from the Grand Staircase was recovered as well as
gilded wood from a balustrade. Of the nine leather bags found, they provided
more than one hundred items. Some medicinal items were recovered that included a
cobalt blue bottle that reads: BROMOSELTZER EMERSON DRUG CO. BALTIMORE MARYLAND.
For the first time, two toilets, a wok, an intact deck light, circulating fans,
thermometers, four eggcups, and a metal megaphone were recovered. These items
will further provide a clearer picture of the workings of the Titanic at that
time period, and will further enhance future exhibition presentations.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 27, 2000, G Michael Harris, the Company's Executive Vice President and
Chief Operating Officer was terminated by the Company's Board of Directors. On
September 7, 2000, Mr. Harris filed suit in the Circuit Court of the Sixth
Judicial Circuit in and for Pinellas County, Florida, Civil Division. In that
suit, Mr. Harris alleges that Titanic breached an employment agreement entered
into between Mr. Harris and the Company, and that Mr. Harris has been damaged by
the breach.
The Company has responded to this Complaint, denying the validity or
enforceability of the employment agreement and setting forth the Company's
position that it acted appropriately and within its rights. Moreover, the
Company has filed a counter-suit against Mr. Harris and others, to recover
monies and other corporate assets which the Company believes were
misappropriated. The outcome of these matters is uncertain at the present time,
and the effect they may have on the Company's financial position and results of
operations is not currently determinable.
A hearing was held on September 8, 2000, in the United States District Court for
the Eastern District of Virginia, Norfolk Division, with Judge Clarke presiding
at which management of the Company presented a periodic report of the results of
its most recent expedition to the wreck site of the Titanic. This presentation
is routinely required for the Company to maintain its Salvor-in-Possession
rights to the Titanic. Also at that hearing in the Court were legal
representatives for the Secretary of State, Secretary of Commerce and the
National Oceanic and Atmospheric Administration of the United States Department
of Commerce to defend a declaratory judgment action that the Company undertook,
as Plaintiff, to protect its Salvor-in-Possession Rights from the attempt of the
U.S. to enter into an international agreement with three other countries to
implement a regulatory licensing scheme for the Titanic. Subsequently, on
September 15, 2000, Judge Clarke ruled that the Company's suit was not ripe for
consideration and that the dismissal of this lawsuit was granted. This action
was initially prompted by the efforts of the defendants to implement an
international agreement that could interfere with the Company's exclusive
salvage rights of the RMS Titanic, which were granted by the court on June 7,
1994. Although the dismissal of the declaratory judgment action was granted,
Judge Clarke ruled that the Company may renew its motion when and if an
international Agreement is agreed to and signed by the parties to the Agreement,
final guidelines are drafted, and Congress passes implementing legislation. The
Court also held that any guidelines established by NOAA would not be binding
unless implementing legislation was adopted by Congress. The Company does not
intend to appeal this decision.
There have been no other material changes in any other 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.
10
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ITEM 5. OTHER INFORMATION.
On August 13, 2000, Mr. Doug Banker was appointed to the Board of Directors of
the Company.
On September 12, 2000, Mr. G. Michael Harris was removed as a member of the
Board of Directors of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Amendment to Exhibition and Tour Agreement dated September 18, 2000.
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K filed September 6, 2000 relating to the termination
for cause the employment of G. Michael Harris, its former Executive Vice
President and Chief Operating Officer.
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)
/s/ Arnie Geller
October 13, 2000 ----------------------------
By: Arnie Geller, President
