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 November 30, 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.
----------------
(Exact name of registrant as specified in its charter)
Florida 59-2753162
------- ----------
(State or other jurisdiction of (IRS Employer Identification No.
incorporation or organization)
3340 Peechtree Road, NE, Suite 1225, 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 X No
--- ---
The number of shares outstanding of the registrant's common stock on
January 18, 2001 was 16,887,128.
<PAGE>
PAGE
NUMBER
------
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 and August 31, 2000.
3
<PAGE>
RMS TITANIC, INC. AND SUBSIDIARIES
BALANCE SHEET
================================================================================
NOVEMBER 30, FEBRUARY 29,
2000 2000
--------------------------------------------------------------------------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 483,000 $ 3,065,000
Accounts receivable 122,000 371,000
Prepaid and Refundable income tax 382,000 1,163,000
Prepaid expenses and
other current assets 66,000 50,000
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,053,000 4,649,000
Artifacts Recovered, at cost 11,200,000 9,175,000
Deferred Income Tax Asset, net 300,000 634,000
Property and Equipment, net
of accumulated depreciation
of $855,000 and $622,000,
respectively 1,644,000 866,000
Other Assets 786,000 48,000
--------------------------------------------------------------------------------
TOTAL ASSETS $ 14,983,000 $ 15,372,000
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued liabilities $ 829,000 $ 2,886,000
Deferred income taxes payable 110,000 79,000
Deferred revenue 932,000 604,000
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,871,000 3,569,000
--------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value;
authorized 30,000,000 shares,
issued and
outstanding 16,887,128 shares 2,000 2,000
Additional paid-in capital 15,140,000 14,240,000
Accumulated deficit (2,030,000) (2,439,000)
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 13,112,000 11,803,000
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,983,000 $ 15,372,000
================================================================================
See Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
=================================================================================================================
THREE-MONTH THREE-MONTH NINE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Exhibitions and related
merchandise sales $ 791,000 $ 1,881,000 $ 5,046,000 $ 4,379,000
Licensing fees 83,000 (12,000) 87,000 5,000
Merchandise and other 2,000 10,000 15,000 210,000
Sale of coal 10,000 3,000 45,000 25,000
------------------------------------------------------------------------------------------------------------------
Total revenue 886,000 1,882,000 5,193,000 4,619,000
------------------------------------------------------------------------------------------------------------------
Expenses:
Cost of coal sold 1,000 - 5,000 3,000
Cost of merchandise sold - 7,000 8,000 12,000
General and administrative 709,000 660,000 3,360,000 1,926,000
Depreciation and amortization 160,000 95,000 437,000 245,000
Expedition costs 170,000 - 689,000 -
------------------------------------------------------------------------------------------------------------------
Total expenses 1,040,000 762,000 4,499,000 2,186,000
------------------------------------------------------------------------------------------------------------------
Income from operations (154,000) 1,120,000 694,000 2,433,000
Interest income 5,000 36,000 73,000 66,000
------------------------------------------------------------------------------------------------------------------
Income before provision
for income taxes (149,000) 1,156,000 767,000 2,499,000
Provision for income taxes - 683,000 358,000 1,186,000
------------------------------------------------------------------------------------------------------------------
Net income (Loss) $ ( 149,000) $ 473,000 $ 409,000 $ 1,313,000
==================================================================================================================
Basic and diluted income
(loss) per common share $ (.01) $ .03 $ .02 $ .08
==================================================================================================================
Weighted-average number
of shares outstanding 16,887,128 16,187,128 16,786,764 16,187,128
==================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------------
NINE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, NOVEMBER 30,
2000 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 409,000 $ 1,313,000
------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 437,000 246,000
Non-cash exhibition revenue (375,000)
Deferred income tax 365,000
Reduction in artifacts recovered 3,000
Changes in operating assets and liabilities:
Decrease in accounts receivable 249,000 1,074,000
Decrease in prepaid and refundable income taxes 781,000 263,000
Increase in prepaid expenses and other current assets (16,000) (1,008,000)
Increase in other assets (42,000) (61,000)
Increase (decrease) in accounts payable
and accrued liabilities (2,057,000) 190,000
Increase in income taxes payable 1,084,000
Increase in deferred revenue 328,000 229,000
------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 45,000 1,645,000
------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 454,000 2,958,000
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Artifact recovery costs (2,025,000)
Purchases of property and equipment (1,011,000) (36,000)
------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (3,036,000) (36,000)
------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from loan payable 250,000
Payment on loan payable (250,000) -
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease )in cash and cash equivalents (2,582,000) 2,922,000
Cash and cash equivalents at beginning of period 3,065,000 720,000
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 483,000 $ 3,642,000
=========================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Non-cash 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 November 30, 2000 and its results of operations and its
cash flows for the three and nine months ended November 30, 2000 and
1999. Results of operations for the three and nine month periods ended
November 30, 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 nine months
ended November 30, 2000 and 1999 since the effect of potential common
shares is either anti-dilutive or not material.
Note 3 - 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 the Company granted SFX an exclusive worldwide license to
exhibit the Company's Titanic artifacts in consideration of the
payment to the Company of a $2,000,000 minimum guarantee payment. The
Company also obtains a percentage of gross receipts above $10,000,000.
This license agreement has a term commencing September 15, 2000 and
ending November 30, 2001. The Company received $1,250,000 in September
and will receive a payment of $750,000 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.
7
<PAGE>
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 consolidated financial statements and
related notes appearing elsewhere herein.
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED NOVEMBER 30, 2000 VERSUS THE QUARTER ENDED NOVEMBER 30,
1999
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2000 VERSUS THE NINE MONTHS ENDED
NOVEMBER 30, 1999
During the third quarter of our 2001 fiscal year ending November 30, 2000,
revenues were $886,000 as compared to $1,882,000 in the same year ago quarter
end. This decrease of $996,000 or 53% resulted from the reduction in revenue
from our contract with SFX. The revised contract provides for both a minimum
licensing payment against a percentage of the gross receipts from the exhibition
of our Titanic artifacts at venues throughout the United States and foreign
locations. There was no additional revenue attributed to this revised
arrangement during the third quarter ended November 30, 2000.
For the nine months ended November 30, 2000 revenues were $5,193,000 as compared
to $4,619,000, for the same period a year ago. This increase of $574,000, or
12.4% was principally attributable to increases in exhibition and related
merchandise sales as compared to the corresponding periods of the 2000 fiscal
year.
As its on-going strategy and in view of the logistical and operational
difficulties in establishing short-term exhibitions on satisfactory terms, the
Company continues to rely on a license with SFX Entertainment, Inc. of worldwide
rights to exhibit the Company's Titanic artifacts. The original license
agreement commenced on September 14, 1999. SFX and the Company re-negotiated the
license an additional year for the annual payment of $2,000,000. This new
arrangement includes a percentage of gross receipts provision which is
anticipated to provide an additional revenue opportunity for the company in the
latter half of each license year period.
Other revenues, including license fees, merchandise and the sale of coal, were
$95,000 and $147,000, respectively, for the quarter ended and nine month ended
November 30, 2000. These revenues were higher this recent quarter as compared to
year ago, but trailed in the comparable nine-month period.
The Company's sale of coal increased slightly to $10,000 from $3,000 compared to
the third quarter of the 2000 fiscal year, and increased from $25,000 to $45,000
during the first nine months of the 2001 fiscal year as compared to the first
nine months of the 2000 fiscal year. This increase is 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.
The Company conducted an expedition to the Titanic wreck site during the summer
of 2000. As a result, the Company incurred costs, relating to its expedition
activities of $170,000 and $689,000 during the current quarter period and nine
month period of this fiscal year 2001, respectively. There was no expedition to
the Titanic wreck site during the fiscal year 2000 period.
The Company's general and administrative expenses increased to $709,000 from
$660,000, or approximately 7%, during the third quarter of the 2001 fiscal year
as compared to the third quarter of the 2000 fiscal year, and increased to
$3,360,000 from $1,926,000, or approximately 74% during the first nine months of
the 2001 fiscal year as compared to the nine months of the 2000 fiscal year.
Legal and professional fees, included in general and administrative expenses, to
maintain its salvor--in-possession rights, and to defend various lawsuits, one
of which was related to the change in management, were $147,000 and $ 795,000,
respectively, for the quarter and nine month periods ended November 30, 2000.
These costs were $24,000 and $514,000 higher than the same prior year respective
periods. These legal expenses included indemnification for legal costs for
parties named in the former management's lawsuit.
8
<PAGE>
The Company's depreciation and amortization expenses were $160,000 for the third
quarter of the 2001 fiscal year, an increase of approximately 68% over the prior
year. For the nine-month period depreciation and amortization amounted to
$437,000, a 78% increase as compared to the corresponding nine month period of
the 2001 fiscal year. These increases reflect the higher amortization expenses
incurred during these periods for the acquisition of certain intangible assets
relating to other research and recovery opportunities. As its future business
strategy, the Company will seek to further utilize its extensive deep-water
recovery expertise.
For the quarter ended November 30, 2000, the Company experienced a loss of
$154,000 from operations, as compared to a profit of $1,120,000 in the year ago
quarter. This loss is attributed to lower revenues and higher expenses during
the current period as compared to that of a year ago. For the nine-month period
ended November 30, 2000, income from operations was $694,000 as compared to
$2,433,000 in the year ago period. Similarly, lower revenues and higher expenses
contributed to this reduction in operating profit.
Interest income was $5,000 and $73,000, respectively for the quarter and nine
month periods ended November 30, 2000. In the prior year, interest income was
$36,000 and $66,000, respectively, for those period. In the recent quarter, the
lower interest in related to lower interest income attributed to the lower
average balances the Company maintains in its interest bearing banking accounts.
The Company's net loss was $149,000, or ($0.01) per share, for the third quarter
ended in the 2001 fiscal year as compared to net income of $473,000, or $0.03
per share, in the same quarter in fiscal year 2000. For the nine month period
ended November 30, 2000 of fiscal year 2001 the Company had net income of
$409,000, or $.02 per share, as compared to a net income of $1,313,000, or $0.08
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 the Company granted SFX an exclusive
worldwide license to exhibit the Company's Titanic artifacts in consideration of
a $2,000,000 minimum guaranteed payment. The Company also obtains a percentage
of gross receipts above $10,000,000. This license agreement has a term
commencing September 15, 2000 and ending November 31, 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.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On September 7, 2000, G. Michael Harris, the Company's former Executive Vice
President and Chief Operating Officer filed suit in the Circuit Court of the
Sixth Judicial Circuit in and for Pinellas County, Florida, Civil Division. In
that suit, Mr. Harris claims that his employment agreement dated June 29, 2000,
provided for an annual salary of $300,000 per year for a five year period and a
minimum annual bonus, stock options and various fringe benefits. In that action,
Mr. Harris, seeks to obtain payments due him under his five year employment
agreement. The Company has clear and convincing evidence of improprieties that
Mr. Harris engaged in while an officer of the Company and thereby justified his
termination. The Company intends to vigorously defend itself in this litigation,
and further intends to recover unauthorized disbursements of monies by Mr.
Harris while he was an officer of the Company and its fiduciary. There has been
no trial date scheduled for this matter. The parties are presently in the
discovery phase of this litigation. The outcome of these matters is uncertain at
this time.
A hearing was held on September 8, 2000, in the United States District Court for
the Easter District of Virginia, Norfolk Division, with Judge Clarke presiding
at which management of the Company presented 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 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 an action
that the Company undertook, as Plaintiff, to protect its Salvor-in-Possession
Rights. Subsequently, on September 15, 2000, Judge Clarke ruled that the
Company's claims regarding this issue were not ripe for consideration and that
the dismissal of this lawsuit was granted. This action initially prompted by the
efforts of the defendants to implement the R.M.S. Titanic Maritime Memorial Act
of 1986 which could interfere with the Company's exclusive salvage rights of the
RMS Titanic, which was granted by the court on June 7, 1994. Although the
dismissal 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 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
<PAGE>
ITEM 5. OTHER INFORMATION.
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
None
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K filed September 6, 2000 relating to the announcement
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
----------------
Dated: January 19, 2001 By: Arnie Geller
