AMENDMENT NO.1
TO
SCHEDULE 14A
Information Required in Proxy Statement
(Rule.14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant {X}
Filed by a Party other than the Registrant { }
Check the appropriate box:
{X} Preliminary Proxy Statement
{ } Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
{ } Definitive Proxy Statement
{ } Definitive Additional Materials
{ } Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
RMS TITANIC, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box)
{X} No fee required
{ } Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule-0-11: 1
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
{ } Fee paid previously with preliminary materials.
{ } Check box if any part of the fee is offset as provided by Exchange Act
Rule-0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: -0-
2) Form, Schedule or Registration No.:
3) Filing Party: Registrant
4) Date Filed: February 10, 2003
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RMS TITANIC, INC.
3340 Peachtree Road
Atlanta, Georgia 30326
February __, 2003
Dear Fellow Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
RMS Titanic, Inc. (the "Company"), which will be held at the Marriott Courtyard,
3332 Peachtree Road, NE, Atlanta, Georgia at ________ on __________, February
[ ], 2003.
At the meeting the shareholders will vote to ratify the resolution of the
Board of Directors for the Company to relinquish the salvor-in-possession status
over the RMS TITANIC conferred upon the Company by Court Order of June 7, 1994,
and proceed to seek a final salvage award. For the reasons set forth in the
proxy statement, your Board of Directors recommends a vote for the company to
relinquish its salvor-in-possession status over the RMS TITANIC. If the Company
obtains an affirmative vote from the shareholders to relinquish its
salvor-in-possession status then the Company will proceed to seek a final
salvage award.
We hope that you will be able to attend the meeting. However, whether or
not you plan to attend in person, please complete, sign, date and return the
enclosed proxy card(s) promptly to ensure that your shares will be represented.
Sincerely yours,
/s/
----------------
Arnie Geller
President
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RMS TITANIC, INC.
3340 Peachtree Road
Suite 1225
Atlanta, Georgia 30326
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY [ ], 2003
The Special Meeting of Shareholders of RMS TITANIC, INC. (the "Company")
will be held at the Marriott Courtyard, 3332 Peachtree Road, Atlanta, Georgia at
________ on __________, February [ ], 2003, for the following purposes:
1. To ratify the resolution of the Board of Directors for the Company to
relinquish its salvor-in-possession status over the RMS TITANIC
conferred upon the Company by Court Order of June 7, 1994, and proceed
to seek a final salvage award.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed December 17, 2002 as the record date for
the determination of shareholders entitled to vote at the Special Meeting or any
adjournments of the meeting.
By Resolution of the Board of Directors,
/s/
Gerald Couture
Corporate Secretary
February __, 2003
The matters enumerated above are discussed more fully in the accompanying
Proxy Statement. If you do not expect to be present at the meeting and wish your
shares of Common Stock to be voted, please sign, date and mail the enclosed
proxy card in the enclosed pre-addressed envelope as promptly as possible. No
postage is required if mailed in the United States.
YOUR VOTE IS IMPORTANT! PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN YOUR
PROXY IN THE ENCLOSED ENVELOPE. IF YOU ARE ABLE TO ATTEND THE MEETING AND WISH
TO VOTE YOUR SHARES IN PERSON, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS
VOTED.
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RMS TITANIC, INC.
PROXY STATEMENT
MEETING AND PROXY SOLICITATION INFORMATION
QUESTIONS AND ANSWERS
Q: Why did you send me this proxy statement?
A: We sent you this proxy statement and the enclosed proxy card because the
Board is soliciting your proxy to vote your shares at the Meeting. This
proxy statement summarizes information that we are required to provide to
you under the rules of the Securities and Exchange Commission (the "SEC")
and is designed to assist you in voting.
Q: When is the Meeting and where will it be held?
A: The Meeting will be held on Wednesday, February [ ], 2003 at ________,
Eastern Time at the Marriott Courtyard, 3332 Peachtree Road NW, Atlanta,
Georgia.
Q: What may I vote on?
A: To ratify and approve the resolution of the Board of Directors for the
Company to relinquish its salvor-in-possession status over the RMS TITANIC
conferred upon the Company by Court Order of June 7, 1994, and proceed to
seek a final salvage award.
Q: How does the Company's Board recommend I vote on the proposal?
A: The Board recommends a vote FOR the proposal.
Q: Who is entitled to vote?
A: Only those who owned Company stock at the close of business on December 17,
2002 (the "Record Date") are entitled to vote at the Meeting.
Q: How do I vote?
A: You may vote your shares either in person or by proxy. Whether you plan to
attend the meeting and vote in person or not, we urge you to complete the
enclosed proxy card and return it promptly in the enclosed envelope. If you
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return your signed proxy card but do not mark the boxes showing how you
wish to vote, your shares will be voted FOR the proposal. You have the
right to revoke your proxy at any time before the meeting by either:
(1) notifying the Company's corporate secretary;
(2) voting in person; or
(3) returning a later-dated proxy card.
Q: How many shares can vote?
A: We currently believe that as of the Record Date, the Company will have
outstanding approximately 18,550,847 shares of common stock, par value
$.0001 per share (the "Common Stock") entitled to one vote per share.
Q: What is a "quorum"?
A: A "quorum" is a majority of the Company's issued and outstanding capital
stock. Stockholders may be present at the meeting or represented by duly
executed proxies. There must be a quorum for the Meeting to be held and the
proposal must receive more than fifty percent of the outstanding shares
entitled vote for it to be adopted. If you submit a properly executed proxy
card, even if you abstain from voting, then you will be considered part of
the quorum. However, abstentions are not counted in the tally of votes FOR
or AGAINST a proposal. A WITHHELD vote is the same as an abstention. If a
broker, bank, custodian, nominee or other record holder of Common Stock
indicates on a proxy that it does not have discretionary authority to vote
certain shares on a particular matter, the shares held by that record
holder (referred to as "broker non-votes") will also be counted as present
and considered part of a quorum but will not be counted in the tally of
votes FOR or AGAINST a proposal.
Q: How will voting on any other business be conducted?
A: Although we do not know of any business to be considered at the Meeting
other than the proposal described in this proxy statement, if any other
business is properly presented at the Meeting, your signed proxy card gives
authority to Arnie Geller and Gerald Couture, or either of them, to vote on
such matters in their discretion.
Q: Who will pay for this proxy solicitation?
A: The Company will pay all the costs of soliciting these proxies. In addition
to mailing proxy solicitation material, our directors and employees may
also solicit proxies in person, by telephone or by other electronic means
of communication. We will also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses for forwarding proxy and solicitation materials to our
stockholders.
Q: If I need further assistance, whom should I contact?
A: Please contact Gerald Couture, Corporate Secretary, RMS Titanic, Inc., 3340
Peachtree Road, Suite 1225, Atlanta, Georgia 30326 or by phone at (404)
842-2600.
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RMS TITANIC, INC.
SPECIAL MEETING OF SHAREHOLDERS
February [ ], 2003
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by the Board of Directors of RMS Titanic,
Inc. (the "Company") for use at the Special Meeting of Shareholders, which will
be held at _________ Eastern Standard Time on _________, February [ ], 2003, at
the Marriott Courtyard, 3332 Peachtree Road NE, Atlanta, Georgia, and at any
adjournment thereof.
The Board of Directors is aware that the sole item of business to be
considered at the Special Meeting is to ratify the resolution of the Board of
Directors for the Company to relinquish its salvor-in-possession status over the
RMS TITANIC conferred upon the Company by Court Order of June 7, 1994, and
proceed to seek a final salvage award. The Board of Directors knows of no
matters to be presented for action at the Special Meeting other than that
mentioned above. However, if any other matters properly come before the Special
Meeting, the persons named in the proxy will vote on such other matters in
accordance with their best judgment.
The giving of a proxy does not preclude a shareholder from voting in person
at the Special Meeting. The proxy is revocable before its exercise by delivering
either written notice of such revocation or a later-dated proxy to the Secretary
of the Company at its executive office at any time prior to voting of the shares
represented by the earlier proxy. In addition, shareholders attending the
Special Meeting may revoke their proxies by voting at the Special Meeting. All
returned proxies that are properly signed and dated will be voted as the
shareholder directs.
Only shareholders of record at the close of business on December 17, 2002
are entitled to vote at the Special Meeting or any adjournment thereof. As of
said date, 18,550,847 shares of the Company's common stock, $0.0001 par value
per share (the "Common Stock"), were outstanding and entitled to one vote per
share on all matters submitted to shareholders. A list of shareholders will be
available for inspection for at least ten days prior to the Special Meeting at
the principal executive offices of the Company, 3340 Peachtree Road NE, Suite
1225, Atlanta, Georgia 30326 and at the Special Meeting.
The holders of a majority of the common stock outstanding and entitled to
vote on the record date will constitute a quorum for the Special Meeting.
The ratification and approval relinquishing the Company's salvage rights
shall require a majority of all outstanding shares entitled to vote.
This proxy solicitation material is being mailed on or about February __,
2003 to shareholders as of the record date with a copy of the Company's Form
10-K of February 28, 2002 and Form 10-Q for the period ended November 30, 2002,
which includes financial statements for the respective periods.
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Proxies will be voted at the Special Meeting, or any adjournment thereof,
at which a quorum is present, in accordance with the directions on the proxy
card. The holders of a majority of the Common Stock outstanding and entitled to
vote on the record date who are present either in person or represented by proxy
will constitute a quorum for the Special Meeting.
If an executed proxy card is returned and the shareholder has voted
"abstain" on any matter, the shares represented by such proxy will be considered
present at the meeting for purposes of determining a quorum and for purposes of
calculating the vote, but will not be considered to have been voted in favor of
such matter. If an executed proxy is returned by a broker holding shares in
street name which indicates that the broker does not have discretionary
authority as to certain shares to vote on one or more matters, such shares will
be considered present at the meeting for purposes of determining a quorum, but
will not be considered to be represented at the meeting for purposes of
calculating the vote with respect to such matters.
All of the expense of preparing, printing and mailing this Proxy Statement,
including the reimbursement of brokerage firms and others for their expenses in
forwarding proxies and this Proxy Statement to the beneficial owners of the
Company's common stock, will be borne by the Company.
The executive offices of the Company are located at 3340 Peachtree Road,
Suite 1225, Atlanta, Georgia 30326 and the Company's telephone number is (404)
842-2600.
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PROPOSAL
RATIFICATION AND APPROVAL FOR THE COMPANY TO RELINQUISH ITS
SALVOR-IN-POSSESSION STATUS OVER THE RMS TITANIC, CONFERRED UPON THE
COMPANY BY COURT ORDER OF JUNE 7, 1994, AND TO PROCEED TO SEEK A FINAL
SALVAGE AWARD
The United States District Court , Eastern District of Virginia (the
"District Court") for raised some concern regarding whether the Board of
Director's resolution elinquishing its status as salvor-in-possession over the
RMS Titanic required shareholder ratification and approval. In order to resolve
the question as to whether the relinquishment of the salvor-in-possession status
constitutes a disposition under Section 607.1202 of the Florida General
Statutes, the Company volunteered to submit the proposed Board of Director's
action to the shareholders in compliance with Section 607.1202. Said section
reads as follows:
607.1202 Sale of assets other than in regular course of business
(1.) A corporation may sell, lease, exchange, or otherwise dispose of
all, or substantially all, of its property (with or without the
goodwill), otherwise than in the usual and regular course of business,
on the terms and conditions and for the consideration determined by
the corporation's board of directors, if the board of directors
proposes and its shareholders of record approve the proposed
transaction.
(2.) For a transaction to be authorized:
(a) The board of directors must recommend the proposed
transaction to the shareholders of record unless the board of
directors determines that it should make no recommendation
because of conflict of interest or other special circumstances
and communicates the basis for its determination to the
shareholders of record with the submission of the proposed
transaction; and
(b) The shareholders entitled to vote must approve the
transaction As provided in subsection (5).
...
(4.) The corporation shall notify each shareholder of record, whether
or not entitle to vote, of the proposed shareholders' meeting in
accordance with Section 607.0705. The notice shall also state that the
purpose, or one of the purposes, of the meeting is to consider the
sale, lease, exchange, or other disposition of all, or substantially
all, the property of the corporation, regardless of whether or not the
meeting is an annual or a special meeting, and shall contain or be
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accompanied by a description of the transaction. Furthermore, the
notice shall contain a clear and concise statement that, if the
transaction is effected, shareholders dissenting therefrom are or may
be entitled, if they comply with the provisions of this act regarding
the rights of dissenting shareholders, to be paid the fair value of
their shares and such notice shall be accompanied by a copy of
Sections 607.1301,607.1302 and 607.1320.
(5.) Unless this act, the articles of incorporation, or the board of
directors (acting pursuant to subsection (3)) requires a greater vote
or a vote by voting groups, the transaction to be authorized shall be
approved by a majority of all the votes entitled to be cast on the
transaction.
Although ss. 607.1202 (1.) implies that "consideration" is required and
there is no definition as to what constitutes a "disposition" under said
section, the Board of Directors was also of the opinion that the shareholders of
the Company shall have an opportunity to vote for the approval or ratification
of the Board of Directors' resolution surrendering the Company's exclusive
salvage rights.
BACKGROUND
In 1987, the Company through its predecessor-in-interest, Titanic Ventures
Limited Partnership ("TVLP"), conducted the first salvage at the wreck site of
the RMS TITANIC, approximately 2 1/2 miles beneath the surface of the North
Atlantic Ocean. In 1992, the Company, through its predecessor-in-interest, TVLP,
appeared before the U.S. District Court for the Eastern District of Virginia
("District Court") to assert salvage and ownership rights to the RMS TITANIC and
its cargo. After having heard substantial evidence over several days, the
District Court authored and entered an Order on October 13, 1992, which provided
that:
the intervening plaintiff Titanic Ventures is the true, sole and exclusive
owner of any items salvaged from the wreck of the defendant vessel and is
entitled to all salvage rights; and it is further
ORDERED that . . . the U.S. Marshall is directed to deliver the artifacts
in his custody, per previous court order in this matter, to counsel for
Titanic Ventures.
Marex Titanic, Inc. and Titanic Ventures v. The Wrecked and Abandoned Vessel . .
..Civil Action No. 2:92cv618 (U.S. Dist. Ct., E.D.Va., Norf. Div.)(October 13,
1992). The 1992 Opinion and Order of the District Court was subsequently
reversed by the Court of Appeals on the grounds that the District Court
improperly vacated a voluntary dismissal filed by the plaintiff during the
District Court proceedings. Marex Titanic, Inc. v. The Wrecked and Abandoned
Vessel, 2 F.3d 544 (4th Cir. 1993).
With the dismissal of the 1992 case, the Company commenced an in rem action
against the RMS TITANIC seeking a salvage and/or finds award. After publication
of notice that the District Court would entertain claims against the wreck and
her cargo, a single claim was filed by Liverpool & London Steamship Protection
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and Indemnity Association, Ltd. ("Liverpool & London") based upon subrogation
rights it had obtained from the payment of certain passenger claims for personal
effects and cargo. On June 7, 1994, the District Court entered an Order, based
upon representations by Liverpool & London, the sole claimant, and the Company
that all matters and controversies between them had been compromised and
settled, dismissing the claim of Liverpool & London with prejudice.
After entry of that Order, the District Court entered another Order on June
7, 1994. This second June 7, 1994 Order contained the same operative language
regarding ownership as was contained in the 1992 Order authored by the District
Court, and stated, in pertinent part, as follows: the court FINDS AND ORDERS
that R.M.S. Titanic, Inc. is the salvor-in-possession of the wreck and wreck
site of the R.M.S. Titanic, . . . and that R.M.S. Titanic, Inc. is the true,
sole and exclusive owner of any items salvaged from the wreck of the defendant
vessel in the past and, so long as R.M.S. Titanic, Inc. remains
salvor-in-possession, items salvaged in the future. . . R.M.S. Titanic, Inc. v.
The Wrecked and Abandoned Vessel . . . Civil Action No. 2:93cv902 (U.S. Dist.
Ct., E.D.Va., Norf. Div.)(June 7, 1994). That Order was never appealed.
The Company encumbered artifacts, entered into contracts for the exhibition
of artifacts and sold coal recovered from the wreck site of the TITANIC, all
with the knowledge and approval of the District Court. At the same time, the
Company advised the District Court that its business plan was to exhibit the
artifacts, rather than sell them. In 1998, the District Court ruled, among other
things, that the Company was entitled to exclude third parties from visiting and
photographing the wreck site while it continued as salvor-in-possession.
In 1999, the Court of Appeals reversed the District Court ruling regarding
visitation and photography, while affirming jurisdiction. In so doing, and in
addressing other issues, the Court of Appeals reviewed the status and content of
the case, noting that:
in 1994, the District Court in the Eastern District of Virginia, exercising
constructive in rem jurisdiction over the wreck and wreck site of the
Titanic, awarded exclusive salvage rights as well as ownership of recovered
artifacts, to the Company, a Florida corporation.
R.M.S. Titanic, Inc. v. Haver, et al, 171 F. 3d 943, 951 (4th Cir. 1999).
The 1999 Opinion went on to review the procedural history in detail, to note
that the only claim that was filed in the District Court action was dismissed on
June 7, 1994, and to recognize that:
on the same day, the Court entered a separate order granting the Company
not only exclusive salvage rights over the wreck and the wreck site of the
Titanic, but also "true, sole and exclusive ownership of any items salvaged
from the wreck."
Id. at 952. The Court of Appeals went on in its 1999 Opinion to review in
detail the procedure followed by the District Court and then determined that:
[t]hese conclusions reached by the District Court about RMST's rights are
consistent with salvage law which is part of the jus gentium and we expect
that whether RMST had returned property from the Titanic to an admiralty
court in England or France or Canada, the court would, by applying the same
principles, have reached the same conclusions.
Id. at 966-67.
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In July 2000, after reviewing newspaper reports and letters received from
non-parties indicating that the Company planned to consider sale of the
artifacts in order to finance continued recovery at the wreck site, the District
Court, on its own initiative, issued an Order directing the Company not to sell
the artifacts it had recovered and forbidding the Company from cutting into the
wreck or detaching any part of the wreck. Because the District Court ostensibly
had the authority to control such disposition as an incident of the Court's
control over the Company's activities as salvor-in-possession (rather than any
lack of ownership by the Company), and because the Company had no plans to sell
artifacts at that time, no action was taken to appeal the Order. However, the
Company's business plan changed in 2001 and it began to consider alternatives to
exhibition. Pursuant to a prior order of the District Court, the Company filed a
Periodic Report on September 17, 2001 discussing such alternatives and appeared
before the District Court on September 24, 2001 to present that Periodic Report.
Following the September 24, 2001 hearing, the District Court issued an Order on
September 26, 2001, which Order was subsequently amended on October 19, 2001. In
these Orders, the District Court continued to enjoin the Company from
transferring title to individual artifacts recovered from the wreck of the
TITANIC. Moreover, the District Court enjoined the Company from selling, as a
group, all of the artifacts previously recovered from the wreck and all of the
artifacts recovered in the future from the wreck, without prior approval of the
Court. the Company, in turn, filed a timely appeal of the Orders with the United
States Court of Appeals for the Fourth Circuit ("Court of Appeals").
On April 12, 2002, the Court of Appeals affirmed the Orders of the District
Court. R.M.S. Titanic, Inc. v. The Wrecked and Abandoned Vessel, 286 F.3d 194
(4th Cir. 2002). In so ruling, the Court of Appeals reviewed and declared
ambiguous the June 7, 1994 Order of the District Court that had awarded
ownership to the Company of all items then salvaged from the wreck of the
TITANIC as well as all items to be salvaged in the future by the Company so long
as the Company remained salvor-in-possession of the TITANIC.
While the Company noted in its opening brief to the Court of Appeals that
it believed the June 7, 1994 order was entered pursuant to the law of finds, the
validity of the June 7, 1994 Order and its award of title to the artifacts was
not challenged by the Company (or either of the two friend-of-the-court briefs
filed by non-parties) and, thus, was not an issue raised on appeal. Indeed, for
nearly eight years, the Company relied upon the District Court's June 7, 1994
Order and its award of ownership of the artifacts to the Company. In many ways,
the District Court's June 7, 1994 Order and the Court of Appeals' subsequent
affirmation of that Order on March 25, 1999 were the pillars upon which the
Company was built and its daily business operations conducted. Relying upon the
June 7, 1994 Order of the District Court and its award of ownership, as well as
the Court of Appeals' March 25, 1999 affirmation of said Order and award, the
Company sold shares of company stock based upon representations of artifact
ownership made by the District Court and the Court of Appeals, committed
significant resources to fund expeditions to the wreck, encumbered the artifacts
recovered from the wreck and repeatedly entered into agreements to exhibit the
artifacts around the world. Such actions, available only to property owners,
provided the Company with the capital necessary to remain in business and to
continue to conduct recovery expeditions to the wreck of the TITANIC.
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However, acting on its own, the Court of Appeals reviewed the 1994 Order,
reinterpreted it to convey only possession, not title, and held that the Company
had no title to any artifacts that it had previously recovered from the wreck of
the TITANIC nor to any artifacts that it might recover in the future therefrom.
Rather, in the eyes of the Court of the Appeals, the Company holds only an
ongoing lien of an indeterminate amount in the artifacts it has recovered, a
lien that can only be satisfied through periodic salvage awards or a final
salvage award upon completion of salvage service by the Company. The Company, in
turn, filed a timely request for appeal ("Petition for Certiorari") with the
United States Supreme Court ("Supreme Court"), which request was denied on
October 7, 2002.
Having last conducted a salvage expedition to the wreck of the TITANIC in
July/August of 2000 and awaiting a ruling from the Supreme Court on its Petition
for Certiorari, the Company informed the District Court in a Periodic Report of
August 12, 2002 that the Company was in the process of re-evaluating its plans
to conduct further salvage of the wreck. Pursuant to those efforts, the
Company's Board of Directors met on September 14, 2002 to formally address the
issue. At that time, the Board of Directors adopted a Corporate Resolution
regarding the Company's involvement in further salvage of the wreck. As the
Company indicated to the District Court in a Supplemental Periodic Report of
September 24, 2002, pursuant to that Resolution, the Board of Directors resolved
that the Company has "complete[d] the salvage service it intends to perform" on
the wreck of the TITANIC. R.M.S. Titanic, Inc. v. The Wrecked and Abandoned
Vessel . . ., 286 F.3d 194, 208 (4th Cir. 2002). The Board of Directors further
resolved that the Company shall voluntarily surrender its status as
salvor-in-possession of the wreck of the TITANIC. The Board of Directors also
resolved that the Company shall proceed to move this Court for the entry of a
full and final salvage award pursuant to the ruling of the United States Court
of Appeals for the Fourth Circuit. (The Board of Directors also resolved that,
should the United States Supreme Court grant the Company's then-pending Petition
for Certiorari and ultimately modify or reverse the ruling of the Court of
Appeals, the Company would proceed to perfect its ownership interest in the
items recovered from the TITANIC in accordance with the direction of the Supreme
Court. However, since, as noted above, the Supreme Court denied the Company's
Petition, this resolution was rendered moot.)
On October 1, 2002, the District Court ordered the Company to appear before
it to discuss the Company's intent to relinquish the salvor-in-possession status
to the R.M.S. TITANIC conferred upon the Company by Court Order of June 7, 1994.
As the Court indicated in its Order it questioned whether, under Florida
corporate law, the Company could relinquish such status without shareholder
approval. On November 25, 2002, the Company appeared before the District Court
as ordered. At that time, the Company informed the Court that it intended to
hold a shareholder vote in February 2003, to determine whether the Company would
relinquish its salvor-in-possession status.
As a result of the April 12, 2002 ruling of the Court of Appeals regarding
ownership of the artifacts, the above-detailed restrictions on cutting into or
detaching any part of the wreck without prior Court approval, the cost of
continued salvage efforts and the pending international treaty involving the
TITANIC that proposes to make the wreck site of the TITANIC an underwater
maritime memorial no longer subject to commercial salvage by the Company or
anyone else, the Board of Directors believes that maintenance of
salvor-in-possession status is not economically prudent.
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THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION AND APPROVAL FOR THE COMPANY TO RELINQUISH ITS
SALVOR-IN-POSSESSION STATUS OVER THE RMS TITANIC, CONFERRED UPON THE
COMPANY BY COURT ORDER OF JUNE 7, 1994, AND TO PROCEED TO SEEK A FINAL
SALVAGE AWARD
o the April 12, 2002 ruling of the Court of Appeals that the Company
does not own any of the items that it has salvaged from the wreck of
the RMS TITANIC or any of the items that it might salvage from the
wreck in the future renders questionable the wisdom of undertaking the
substantial cost of future salvage and preservation as the Company can
neither guarantee its ability to sell the items it recovers nor
guarantee that its salvage award will be enhanced by such future
salvage;
o the District Court's restrictions on cutting into or detaching any
part of the wreck without prior Court approval renders questionable
the wisdom of undertaking the substantial cost of future salvage and
preservation as such restrictions greatly reduce the Company's
prospects for diversifying or enhancing a collection and exhibition of
artifacts in which it has no guaranteed ownership interest through
further salvage;
o because the wreck of the RMS TITANIC lies in international waters, the
Company can offer no assurances that a court of any foreign nation
will recognize , honor or enforce the District Court's June 7, 1994
Order giving the Company exclusive salvage rights if a third party
were to salvage the wreck of the RMS TITANIC;
o the fact that there is a pending international treaty that purports to
divest the Company of its salvage rights to the RMS TITANIC renders
questionable the wisdom of undertaking the substantial cost of future
salvage and preservation as the Company already has a representative
sample of the items available for salvage and is highly unlikely to
diversify or enhance its collection and exhibition of artifacts
through further salvage in the limited areas in which it is permitted
to salvage by the District Court.
NO DISSENTING RIGHTS
Section 607.1302(4) provides that the Company is not subject to dissenting
rights. Section 607.1302 reads as follows:
607.1302. Right of shareholders to dissent
4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share
exchange or a proposed sale or exchange of property, to the holders of
shares of any class or series which, on the record date fixed to
determine the shareholders entitled to vote at the meeting of
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shareholders at which such action is to be acted upon or to consent to
any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system
security on an inter-dealer quotation system by the National
Association of Securities Dealers, Inc., or held of record by not
fewer than 2,000 shareholders.
The Company's shares are designated as a national market system security on
an inter-dealer quotation system by the National Association of Securities
Dealers, Inc. Therefore, no shareholder of the Company has any dissenting rights
under Section 607.1302.
THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION AND APPROVAL FOR THE COMPANY
TO RELINQUISH ITS SALVOR-IN-POSSESSION STATUS OVER THE RMS TITANIC,
CONFERRED UPON THE COMPANY BY COURT ORDER OF JUNE 7, 1994, AND TO PROCEED
TO SEEK A FINAL SALVAGE AWARD
14
MISCELLANEOUS
Other Matters
If any other matters properly come before the meeting, it is the intention
of the proxy holders, identified in the proxy card, to vote in their discretion
on such matters pursuant to the authority granted in the proxy and permitted
under applicable law. The Company does not have notice of any such matters.
Cost of Soliciting Proxies
The expenses of preparing and mailing the Notice of Special Meeting, the
Proxy Statement and the proxy card(s) will be paid by the Company. In addition
to the solicitation of proxies by mail, proxies may be solicited by directors,
officers and employees of the Company (who will receive no additional
compensation) by personal interviews, telephone, telegraph, and facsimile. It is
anticipated that banks, custodians, nominees and fiduciaries will forward proxy
soliciting material to beneficial owners of the Company's common stock and such
persons will be reimbursed by the Company for their expenses incurred in so
doing.
Annual Reports and Forms 10-K
The Company will provide to any stockholder, upon the written request of
any such person, an additional copy of the Company's Annual Report on Form 10-K,
including the financial statements and the schedules attached to the Company's
Annual Report, for its fiscal recent year ended February 28, 2002, as filed with
the SEC pursuant to Rule 13a-1 under the Securities Exchange Act of 1934. All
such requests should be directed to Gerald Couture, Secretary, RMS Titanic,
Inc., 3340 Peachtree Road, Suite 1225, Atlanta, Georgia 30326. No charge will be
made for copies of such reports , however a reasonable charge for the exhibits
will be made.
By Order of the Board of Directors,
/s/ Gerald Couture
---------------------
Gerald Couture,
Corporate Secretary
Atlanta, Georgia
February 10, 2003
15
RMS Titanic, Inc.
3340 Peachtree Road, Suite 1225
Atlanta, Georgia 30326
PROXY
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Arnie Geller or Gerald Couture or either of
them, as Proxies, each with the power to appoint his substitute, and hereby
authorizes them or their substitutes to represent and to vote, as designated
below, all the shares of common stock of RMS Titanic, Inc. held of record by the
undersigned on December 17, 2002, at the Special meeting of stockholders to be
held on February [ ], 2003 any adjournment thereof.
RATIFICATION AND APPROVAL FOR THE COMPANY TO RELINQUISH ITS
SALVOR-IN-POSSESSION STATUS OVER THE RMS TITANIC, CONFERRED UPON THE
COMPANY BY COURT ORDER OF JUNE 7, 1994, AND TO PROCEED TO SEEK A FINAL
SALVAGE AWARD
{ } FOR { } AGAINST { } ABSTAIN
(Continued and to be signed on other side)
(Continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE PROPOSAL.
{ } Please check if you plan to attend the meeting.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: ________________________, 2003
-----------------------------------
Signature
-----------------------------------
Print Name
----------------------------------- -----------------------------------
Signatures if held jointly
----------------------------------- -----------------------------------
Print Names
(PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.)
16
RMS TITANIC, INC.
FINANCIAL STATEMENTS
FEBRUARY 28, 2002
RMS TITANIC, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FOR THE LAST THREE FISCAL YEARS
Independent Auditors' Report F-1
Consolidated Financial Statements:
Consolidated Balance Sheets at February 28, 2001 and February 28, 2002 F-2
Consolidated Statements of Operations and Comprehensive Operations for the
Years Ended February 29, 2000, February 28, 2001 and February 28, 2002 F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
February 29, 2000, February 28, 2001 and February 28, 2002 F-4
Consolidated Statements of Cash Flows for the Years Ended
February 29, 2000, February 28, 2001 and February 28, 2002 F-5 - F-6
Notes to Financial Statements F-7 - F-23
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
RMS Titanic, Inc.
We have audited the accompanying consolidated balance sheets of RMS Titanic,
Inc. and Subsidiaries as of February 28, 2002 and February 28, 2001 and the
related statements of operations and comprehensive operations, stockholders'
equity, and cash flows for each of the three years in the period ended February
28, 2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RMS Titanic, Inc.
and Subsidiaries as of February 28, 2002 and February 28, 2001 and the results
of their operations and their cash flows for each of the three years in the
period ended February 28, 2002, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Kempisty & Company CPAs, P.C.
- ------------------------------
KEMPISTY & COMPANY
Certified Public Accountants, P. C.
New York, New York
September 12, 2002
F-1
RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
February 28, February 28,
2001 2002
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 610,000 $ 146,000
Accounts receivable 36,000 40,000
Prepaid and refundable taxes 585,000 2,261,000
Prepaid expenses and other current assets 153,000 70,000
Net assets of discontinued operations 470,000 1,221,000
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 1,884,000 3,738,000
Artifacts owned, at cost 11,282,000 4,495,000
Salvor's lien - 1,000
Deferred Income Tax Asset 303,000 -
Property and Equipment, net of accumulated depreciation
of $936,000 and $1,210,000, respectively 841,000 544,000
Other Assets 692,000 61,000
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $15,002,000 $8,839,000
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 938,000 $ 709,000
Deferred income tax liability 72,000 -
Deferred revenue 1,241,000 788,000
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,251,000 1,497,000
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value; authorized 30,000,000 shares,
issued and outstanding 16,947,128 and 18,550,047 shares, respectively 2,000 2,000
Additional paid-in capital 15,240,000 16,615,000
Accumulated other comprehensive operations (31,000) (31,000)
Accumulated deficit (2,460,000) (9,244,000)
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 12,751,000 7,342,000
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $15,002,000 $8,839,000
=======================================================================================================================
See Notes to Financial Statements
F-2
RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
February 29, February 28, February 28,
Year ended 2000 2001 2002
- -----------------------------------------------------------------------------------------------------------------
Revenue:
Exhibitions and related merchandise sales $ 6,136,000 $5,464,000 $ 2,354,000
Licensing fees 17,000 108,000 313,000
Merchandise and other 221,000 60,000 39,000
Sale of coal 59,000 67,000 62,000
- -----------------------------------------------------------------------------------------------------------------
Total revenue 6,433,000 5,699,000 2,768,000
- -----------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative 6,154,000 4,405,000 3,391,000
Depreciation and amortization 303,000 558,000 374,000
Expedition costs 11,000 763,000 32,000
Cost of merchandise sold 18,000 5,000 85,000
Cost of coal sold 6,000 8,000 6,000
Impairment loss on exhibitry equipment 75,000 - -
Impairment charge for artifacts recovered, net of taxes - - 6,148,000
- -----------------------------------------------------------------------------------------------------------------
Total expenses 6,567,000 5,739,000 10,036,000
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (134,000) (40,000) (7,268,000)
Other income:
Interest 113,000 76,000 8,000
Other - - -
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes (21,000) 36,000 (7,260,000)
Provision (benefit) for income taxes - - -
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) from Continuing Operations before
discontinued operations and extra-ordinary gain $ (21,000) $ 36,000 $(7,260,000)
=================================================================================================================
Discontinued operations:
Loss from operations of Danepath subsidiary disposed of: - (67,000) (168,000)
Gain on disposal of Danepath including provision in 2002 of
a $46,000 operating loss during phase out period. - - 644,000
=================================================================================================================
Net income (loss) $ (21,000) $(21,000) $(6,784,000)
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) for basic and diluted common shares from
Continuing operations $ - 0 - $ - 0 - $ (0.38)
Net income (loss) for basic and diluted common shares from
discontinued operations $ - 0 - $ - 0 - $ - 0 -
Earnings (loss) per common share, basic and diluted $ - 0 - $ - 0 - $ (0.38)
=================================================================================================================
Weighted-average number of common shares outstanding 16,187,128 16,732,991 18,058,573
=================================================================================================================
Net income (loss) $ (21,000) $(21,000) $(6,784,000)
- -----------------------------------------------------------------------------------------------------------------
Other Comprehensive Operations:
Foreign Currency Translations $ - 0 - $(31,000) $ - 0 -
- -----------------------------------------------------------------------------------------------------------------
Comprehensive net income (loss) $ (21,000) $(52,000) $(6,784,000)
=================================================================================================================
See Notes to Financial Statements
F-3
RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended February 29, 2000, February 28, 2001 and February 28, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common StockAdditional Other
Number Paid-in Comprehensive Accumulated Stockholders'
of Shares Amount Capital Operation Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as of March 1, 1999 16,187,128 $2,000 $13,916,000 - $(2,418,000) $11,500,000
Issuance of compensatory stock options - - 133,000 - - 133,000
Common stock to be issued in settlement
of litigation - - 191,000 - - 191,000
Net loss - - - - (21,000) (21,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 29, 2000 16,187,128 $2,000 $14,240,000 - $(2,439,000) $11,803,000
Common stock issued for acquisition of
intangibles 600,000 - 900,000 - - 900,000
Issuance of common stock in settlement
of litigation as of February 29, 2000 100,000 - - - - -
Issuance of common stock for services 60,000 - 100,000 - - 100,000
Foreign currency translation adjustment - - - $(31,000) - (31,000)
Net loss - - - - (21,000) (21,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 2001 16,947,128 $2,000 $15,240,000 $(31,000) $(2,460,000) $12,751,000
Common stock issued for acquisition
of ownership of RMS Carpathia 1,704,545 - 819,000 819,000
Return of common stock for sale
of intangibles (600,000)
Issuance of common stock for services 498,374 - 343,000 - - 343,000
Issuance of compensatory stock options 213,000 213,000
Net income (6,784,000) (6,784,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance as of February 28, 2002 18,550,047 $2,000 $16,615,000 $(31,000) $(9,244,000) $7,342,000
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
F-4
RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------
February 29, February 28, February 28,
Year ended 2000 2001 2002
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (21,000) $ (21,000) $ (6,841,000)
Deduct Loss from discontinued operation - - (168,000)
- -----------------------------------------------------------------------------------------------------------------------------
Income (Loss) from continuing operations $ (21,000) $ (21,000) $ (6,673,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Net gain on sale of business - - 644,000
Depreciation and amortization 303,000 599,000 374,000
Impairment loss on exhibitry equipment 75,000 - -
Amortization of deferred revenue 104,000 - -
Issuance of common stock for services - 100,000 -
Issuance of compensatory stock options 133,000 - 213,000
Net deferred income tax benefit (expense) (46,000) 324,000
Other (3,000) - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,274,000 335,000 (3,000)
(Increase) decrease in prepaid and refundable taxes (734,000) 578,000 (1,365,000)
Decrease (increase) in prepaid expenses and other current assets 129,000 (103,000) 365,000
Decrease (decrease) in other assets - (29,000) 6,749,000
Increase in deferred revenue - 637,000 (453,000)
Increase (decrease) in accounts payable and accrued liabilities 976,000 (1,948,000) (292,000)
- ------------------------------------------------------------------------------------------------------------------------------
Total adjustments 2,402,000 493,000 6,232,000
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,381,000 472,000 (441,000)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Artifact recovery costs - (2,107,000) -
Purchases of property and equipment (36,000) (776,000) (23,000)
- ------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (36,000) (2,883,000) (23,000)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from debt - 250,000 -
Repayment of debt - (250,000) -
- ------------------------------------------------------------------------------------------------------------------------------
Cash used in financing activities - - -
- ------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash - (31,000) -
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,345,000 (2,442,000) (464,000)
Cash and cash equivalents at beginning of year 720,000 3,065,000 610,000
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 3,065,000 $ 623,000 $ 146,000
==============================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes $ 1,207,000 $ - 0 - $ - 0 -
==============================================================================================================================
F-5
RMS TITANIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
- ------------------------------------------------------------------------------------------------------------------
February 29, February 28, February 28,
Year ended 2000 2001 2002
- ------------------------------------------------------------------------------------------------------------------
Supplemental schedule of non-cash financing and
investing activities:
Issuance of compensatory stock options $ 133,000 $ - 0 - $ 213,000
==================================================================================================================
Common stock to be issued in settlement litigation $ 191,000 $ - 0 - $ - 0 -
==================================================================================================================
Common stock issued for assets $ - 0 - $ 900,000 $ 819,000
==================================================================================================================
F-6
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RMS Titanic, Inc. initially conducted business as Titanic Ventures Limited
Partnership ("TVLP"). In 1993, RMS Titanic, Inc. acquired all of TVLP's assets
and assumed all of TVLP's liabilities. The transaction was accounted for as a
"reverse acquisition" with TVLP deemed to be the acquiring entity. RMS Titanic,
Inc. and TVLP are referred to as the "Company" as the context dictates.
In June 2000, the Company established a wholly owned United Kingdom subsidiary,
Danepath Ltd. for the purpose of purchasing the research vessel, RRS Challenger,
a 178 foot- 1050 ton ship that was utilized in the expedition to the TITANIC
wreck site during the summer of 2000. This vessel was acquired on June 30, 2000
from the Natural Environment Research Council, a British governmental agency.
The name of the vessel was changed to the "SV EXPLORER".
In May 2001, the Company acquired the ownership rights to the shipwreck the RMS
Carpathia (the "Carpathia"). The Carpathia was the vessel that rescued the
survivors from the Titanic. The value that was assigned to this asset
($1,374,000) is the un-amortized value of other intangible assets purchased by
the Company in April 2000 from this same entity ($555,000), plus the fair market
value of 1,104,545 newly issued shares of common stock ($819,000).
On April 2, 2002, the Company entered into a Purchase Agreement for the sale of
the common stock, representing 100% ownership, of its Danepath Ltd. subsidiary
to Argosy International Ltd. The purchase price, as amended by Agreement on June
1, 2002, was $1.5 million. Danepath's principal asset is the research and
recovery vessel "SV Explorer". Under the terms of the Purchase Agreements the
Company received $100,000 upon execution and an obligation of $1.4 million,
bearing interest at 8% per annum that will be paid within six months. This
obligation is collateralized with both a first mortgage on the vessel "SV
Explorer", the principal asset owned by Danepath, and all the common stock of
the Company owned by Argosy International, Ltd. On March 6, 2002, in a separate
agreement, the Company sold to Argosy International, for minimal consideration,
its 100% ownership interest in White Star Marine Recovery, Ltd. That sale
terminated its obligation under an agreement with Argosy International for the
consulting services of Graham Jessop. At the time of this sale, White Star
Marine Recovery had no assets other than this consulting contract.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All inter-company accounts and
transactions have been eliminated.
The Company was formed in 1987 for the purposes of exploring the wreck and
surrounding oceanic area of the vessel the RMS Titanic (the "Titanic");
obtaining oceanic material and scientific data available there-from in various
forms, including still and moving photography and artifacts ("Artifacts") from
the wreck site; and utilizing such data and Artifacts in revenue-producing
activities such as touring exhibitions, television programs and the sale of
still photography. The Company also earns revenue from the sale of coal and
Titanic-related products.
The Company was declared salvor-in-possession of the Titanic, so long as the
Company is salvor-in-possession, pursuant to a judgment entered in the Federal
District Court for the Eastern District of Virginia. On April 12, 2002, the
United States Court of Appeals for the Fourth Circuit (the "Fourth Circuit")
affirmed two orders of the United States District Court for the Eastern District
of Virginia, Norfolk Division. R.M.S. Titanic, Inc. v. The Wrecked and Abandoned
F-7
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Vessel ., 2002 U.S. App. LEXIS 6799 (4th Cir. 2002). Dated September 26, 2001
and October 19, 2001, these orders restricted the sale of artifacts recovered by
the Company from the RMS Titanic wreck site. In rendering its opinion, the
Fourth Circuit reviewed and declared ambiguous the June 7, 1994 order of the
District Court that had awarded ownership to the Company of all items then
salvaged from the wreck of the Titanic as well as all items to be salvaged in
the future by the Company so long as the Company remained salvor-in-possession
of the Titanic. Having found the June 7, 1994 order ambiguous, the Fourth
Circuit reinterpreted the order to convey only possession, not title, pending
determination of a salvage award.
As a consequence of the Fourth Circuit's decision, the Company reviewed the
carrying cost of artifacts recovered from Titanic expeditions to determine
impairment of values. Up until the ruling by the Fourth Circuit, the Company was
carrying the value of the artifacts that it recovered from the Titanic wreck
site at the respective costs of the expeditions as the Company believed it was
the owner of all artifacts recovered. The Company had relied on ownership being
granted by the United States Federal District Court in a June 7, 1994 order. As
a consequence of this review and in compliance with the requirements of
Statement of Financial Accounting Standards ("SFAS") 142- impairment of
long-lived assets and SFAS 121-the valuation of non-goodwill intangibles, it was
determined that an impairment of realizable values had occurred because of the
Fourth Circuit's ruling that removed ownership of certain artifacts from the
Company that are under the jurisdiction of the United States District Court. The
District Court has jurisdiction of all artifacts that have been recovered from
the Titanic wreck site except for those 1800 artifacts recovered in the 1987
expedition. These 1987 artifacts were previously awarded to the Company by the
government of France in 1993. Furthermore, the Salvor's Lien that the Fourth
Circuit Court acknowledged the Company was entitled to under its
Salvor-in-Possession status could not be quantified other than for a de minimus
amount because of the uncertainty of the wide latitude given a United States
Federal Maritime Court to evaluate the Blackwall factors for a salvor's award
and the adjustment to such an award, if any, for revenues the Company has
derived from the exhibition of artifacts since 1994. Therefore an impairment
charge of an amount equal to the costs of recovery for all expeditions after
1987, net of tax benefit, was established less a re-classification of $1,000, a
de minimus amount, for the value of a salvor's lien.
Since August 1987, the Company has completed six expeditions to the wreck site
of the Titanic and has recovered approximately 6,000 artifacts, a section of the
Titanic's hull and coal used on the Titanic.
Artifacts recovered in the 1987 Titanic expedition are carried at the lower of
cost of recovery or net realizable value ("NRV"). The costs of recovery are the
direct costs of chartering of vessels and related crews and equipment required
to complete the dive operations for that expedition.
Costs associated with the care, management and preservation of recovered
Artifacts are expensed as incurred. A majority of the Artifacts are located
within the United States.
To ascertain that the aggregate NRV of the Artifacts exceeds the direct costs of
recovery of such Artifacts, the Company evaluates various evidential matter.
Such evidential matter includes documented sales and offerings of
Titanic-related memorabilia by auction houses and private dealers, an appraisal
of certain Artifacts, insurance coverage obtained in connection with the
potential theft, damage or destruction of all or part of the Artifacts and other
evidential matter regarding the public interest in the Titanic.
F-8
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Under the 1998 Charter Agreement with the Institute of France for the Research
and Exploitation of the Sea ("IFREMER"), the Company is contractually restricted
from selling certain Artifacts except to an entity that will make them available
for exhibition to the public, as defined.
At each balance sheet date, the Company evaluates the period of amortization of
intangible assets. The factors used in evaluating the period of amortization
include: (i) current operating results, (ii) projected future operating results,
and (ii) other material factors that affect the continuity of the business.
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with maturities of three months or less to be cash
equivalents.
The Company maintains cash in bank accounts that, at times, may exceed federally
insured limits. The Company has not experienced any losses on these accounts.
Revenue from the licensing of the production and exploitation of audio and
visual recordings by third parties, related to the Company's expeditions, is
recognized at the time that the expedition and dive take place.
Revenue from the licensing of still photographs and video is recognized at the
time the rights are granted to the licensee.
Revenue from the granting of sponsorship rights related to the Company's
expeditions and dives is recognized at the completion of the expedition.
Revenue sharing from the sale of Titanic-related products by third parties is
recognized when the item is sold.
Revenue from license agreements is recognized pro-rata over the life of the
agreements. Amounts received in excess of amounts earned are shown as deferred
revenue.
Coal recovered from the Titanic wreck site is sold by the Company. Revenue from
sales of such coal is recognized at the date of shipment to customers. Recovery
costs attributable to the coal are charged to operations as revenue from coal
sales are recognized.
Income tax expense includes income taxes currently payable and deferred taxes
arising from temporary differences between financial reporting and income tax
bases of assets and liabilities. They are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Depreciation of property and equipment is provided for by the straight-line
method over the estimated lives of the related assets.
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to account for its
stock-based compensation plans using the intrinsic value method prescribed by
F-9
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Accounting Procedures Bulletin ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and to present pro forma earnings (loss) and per share
information as though it had adopted SFAS No. 123. Under the provisions of APB
Opinion No. 25, compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Company's common stock at the date of
the grant over the amount an employee must pay to acquire the stock.
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 would occur from common shares
issuable through stock-based compensation, including stock options, restricted
stock awards, warrants and other, is not presented for the years ended February
29, 2000, February 28, 2001 and February 28, 2002 since there was no dilutive
effect of potential common shares or the dilutive effect is not material.
The Company does not believe that any recently issued, but not yet effective,
accounting standards will have a material effect on the Company's financial
position, results of operations or cash flows.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts in the financial statements. Actual results could differ
from those estimates.
All amounts in the accompanying financial statements have been rounded to the
nearest thousand dollar.
2. CORPORATE GOVERNANCE, DIRECTORS, OFFICERS AND OTHER MATTERS:
On November 26, 1999, two of the six members of the Company's Board of
Directors, Messrs. Geller and Harris, and others; acting via an action by
written consent of the holders of a majority of voting rights of the Company's
common stock, in lieu of a meeting; removed Messrs. Tulloch, Hothorn, Nargeolet,
and Carlin as Directors of the Company and subsequently Messrs Tulloch and
Carlin as Officers.
The removed officers and directors brought an action in the United States
District Court for Connecticut against Messrs. Geller and Harris and others
seeking to obtain a judicial reversal of their removal from office. Because of
the uncertainty as to the individuals who could conduct business on behalf of
the Company during the time from November 26, 1999 to the resolution of the
dispute, the Company's bank stopped honoring checks and froze all funds on
deposit. In addition, a creditor notified the Company that it would not tender a
$2,000,000 payment otherwise due and payable until the dispute among current and
former directors was resolved or settled.
The legal action was resolved on or about January 21, 2000 with a Settlement
Agreement whereby the Company agreed, among other things, to: (a) pay to Messrs.
Tulloch and Carlin an aggregate amount of $2,500,000 in three equal installments
to be completed within six months of the date of the settlement; (b) allow
Messrs. Tulloch and Carlin to submit documented requests for reimbursement of
previously un-reimbursed business expenses; (c) review/revise payment
information submitted to the Internal Revenue Service with respect to the nature
of payments previously made to Mr. Carlin; (d) give Messrs. Tulloch and Carlin
the authority to exercise previously issued options to acquire an aggregate of
1,000,000 shares of the Company's common stock and to cause the Company to file
a Registration Statement with respect to the options and underlying shares of
common stock; (e) indemnify the former officers and directors who participate in
the Settlement Agreement to the full extent of applicable law and to the extent
of officers' and directors' liability under the existing Company policy; and (f)
reimburse Messrs. Tulloch and Carlin for the costs of health insurance for a
period of 18 months.
F-10
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Messrs. Tulloch and Carlin agreed, among other things, to: (a) accept the
$2,500,000 as full monetary payment (with the exception of previously noted
un-reimbursed business expenses) for any claims against the Company, Messrs.
Geller and Harris and others in connection with this action and amounts
otherwise due them in connection with their roles as officers and directors of
the Company; (b) send appropriate letters to the Company's bank and
aforementioned creditor to "unfreeze" corporate funds and to allow operational
cash flow to resume; (c) enter into an 18-month standstill agreement which
precludes them from interfering in Company management without the prior approval
of the board of directors and shareholders; (d) discontinue their efforts to
have the Titanic determined to be a monument and to restrict the removal of
materials from the Titanic wreck site; (e) return all the Company's property in
their possession, including records and files, and provide a complete list of
Company Artifacts which are located anywhere in the world; (f) provide, for a
three-month period, cooperation in effecting a professional management transfer;
(g) return all monies held in Mr. Carlin's attorney trust account along with an
accounting of such; and (h) discontinue access to the Company's Internet site
and to sell back to the Company, at cost, another Web site utilizing the name
"Titanic."
At February 29, 2000, accounts payable and accrued liabilities include a balance
of $1,608,000 payable to Messrs. Tulloch and Carlin under the terms of the
Settlement Agreement. At February 28, 2002, there were no amounts due under the
terms of the Settlement Agreement. During the year ended February 29, 2000,
$1,672,000 was charged to operations in connection with this Settlement
Agreement.
The Company has indemnified all defendants in the legal action brought by the
removed officers and directors from all legal fees and expenses and other costs
associated with the action.
The Company has not properly filed fully executed Form 10-Ks for each of the
years ended February 28, 1997 and 1998. As a result of the Company's principal
accounting officer and a majority of the board of directors declining to execute
the Company's Form 10-K for the year ended February 28, 1997, the Company filed,
as an exhibit to its Form 8-K, the form of Form 10-K that had been approved for
filing by Mr. Tulloch, the Company's principal executive officer and a director.
It is believed that the Company's principal accounting officer and certain of
its directors refused to execute the Form 10-K because they were uncertain as to
whether the Form 10-K reflected all necessary disclosures or contained
disclosures that were materially inaccurate or misleading or otherwise
inappropriate. Similarly, for the year ended February 28, 1998, the Company
filed, as an exhibit to its Form 8-K, the form of Form 10-K that had been
approved for filing by Mr. Tulloch.
F-11
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
February 28, February 28, Estimated
2001 2002 Useful Life
- -------------------------------------------------------------------------------------------------
Exhibitry equipment $1,378,000 $1,378,000 5 years
Office equipment 175,000 188,000 5 years
Furniture and fixtures 164,000 188,000 5 years
- -------------------------------------------------------------------------------------------------
1,717,000 1,754,000
Less accumulated depreciation 936,000 1,210,000
- -------------------------------------------------------------------------------------------------
$ 692,000 $ 544,000
=================================================================================================
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
February 28, February 28,
2001 2002
- --------------------------------------------------------------------------------
Amounts payable for professional and consulting fees 492,000 $ 413,000
Other miscellaneous liabilities 211,000 296,000
- --------------------------------------------------------------------------------
$938,000 $ 709,000
================================================================================
5. INCOME TAXES
The provision for income taxes consists of the following components:
February 29, February 28, February 28,
Year ended 2000 2001 2002
- -------------------------------------------------------------------------------------------------
Current:
Federal $ - $(257,000) $(2,720,000)
State and local $ 46,000 (35,000) (786,000)
- -------------------------------------------------------------------------------------------------
46,000 (292,000) (3,506,000)
- -------------------------------------------------------------------------------------------------
Less: Tax effect
of impairment charge 1,954,000
Deferred:
Federal (86,000) 257,000 1,230,000
State and local 40,000 35,000 322,000
- -------------------------------------------------------------------------------------------------
(46,000) 292,000 1,552,000
- -------------------------------------------------------------------------------------------------
Provision for income taxes $ -0- $ -0- $ -0-
- -------------------------------------------------------------------------------------------------
F-12
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The total provision for income taxes differs from that amount which would be
computed by applying the U.S. federal income tax rate to income before provision
for income taxes. The reasons for these differences are as follows:
February 29, February 28, February 28,
Year ended 2000 2001 2002
- -------------------------------------------------------------------------------------------------
Statutory federal income tax rate (34.0)% (34.0)% (34.0)%
Effect of federal graduated tax
rates -(293.6) (5.2) -
State income taxes, net of federal
benefit 327.6 6.0 (6.0)%
Net Operating Loss Carry-forward - - 21.0%
Impairment Charge - - - 19.0%
Other, net - 33.2 -
- --------------------------------------------------------------------------------------------------
Effective income tax rate -0-% -0-% -0-%
==================================================================================================
The net deferred income tax asset consists of the following:
February 28, February 28,
2001 2002
- --------------------------------------------------------------------------------
Net Operating loss carry-forward $1,552,000
Deferred tax asset - expenses not currently
deductible $303,000 294,000
Deferred tax liability - depreciation (72,000) -
Valuation allowance for doubtful tax assets (1,846,000)
- --------------------------------------------------------------------------------
Net deferred tax $231,000 $-0-
The net operating loss carry-forward of approximately $3,900,000 expires in
2022. A valuation allowance of 100% of the deferred income tax asset has been
provided at February 28, 2002 because of the uncertainties as to the amount of
taxable income that will be generated in the future years as a result of the
determination by the federal court of appeals that the Company does not own the
Titanic artifacts. During the years ended February 28, 1999 through February 28,
2001, the Company had no valuation allowance.
6. STOCKHOLDERS' EQUITY:
Prior to the acquisition of TVLP's assets, the Company initiated an exchange
agreement with the holders of certain Class B warrants in which the holders
would receive shares of the Company's common stock in exchange for certain Class
B warrants. Through February 28, 2002, the Company had received 20,700 Class B
warrants to be exchanged for 20,700 shares of common stock of the Company, of
which 16,500 shares still remain to be issued. There were 5,556 warrants
outstanding as of February 28, 2002.
During the year ended February 28, 2001, the Company issued 100,000 shares of
common stock to a third party as settlement of certain litigation.
During the year ended February 28, 2002, the Company issued 333,767 shares of
common stock as compensation.
F-13
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 was primarily responsible in assisting the Company in
exploiting the intangible assets acquired, the assets were being amortized over
the term of the individual's service agreement. The assets are included in other
assets in the accompanying balance sheet. Amortization expense for the year
ended February 28, 2001 and accumulated amortization at February 28, 2001
amounted to approximately $285,000. Amortization expense for the year ended
February 28, 2002 amounted to approximately $60,000. In May of 2001 these
intangibles were exchanged in a transaction for the ownership of the RMS
Carpathia as discussed below.
In May 2001, the Company acquired the rights to the shipwreck the RMS Carpathia
(the "Carpathia"). The Carpathia was the vessel that rescued the survivors from
the Titanic. The value that was assigned to this asset ($1,374,000) is the
un-amortized value of other intangible assets purchased by the Company in April
2000 from this same entity ($555,000), plus the fair market value of 1,104,545
newly issued shares of common stock ($819,000).
On April 2, 2002, the Company entered into a Purchase Agreement for the sale of
the common stock, representing 100% ownership, of its Danepath Ltd. subsidiary
to Argosy International Ltd. The purchase price, as amended by Agreement on June
1, 2002, was $1.5 million. Danepath's principal asset is the research and
recovery vessel "SV Explorer". Under the terms of the Purchase Agreements the
Company received $100,000 upon execution and an obligation of $1.4 million,
bearing interest at 8% per annum that will be paid within six months. This
obligation is collateralized with both a first mortgage on the vessel "SV
Explorer", the principal asset owned by Danepath, and all the common stock of
the Company owned by Argosy International, Ltd. On March 6, 2002, in a separate
agreement, the Company sold to Argosy International, for minimal consideration,
its 100% ownership interest in White Star Marine Recovery, Ltd. That sale
terminated its obligation under an agreement with Argosy International for the
consulting services of Graham Jessop. At the time of this sale, White Star
Marine Recovery had no assets other than this consulting contract.
F-14
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. STOCK OPTIONS:
Transactions relating to stock options are as follows:
Weighted-
Number of Average
Shares and Exercise
Options Price
Exercisable per Share
- -------------------------------------------------------------------------------------------------
Balance at March 1, 1999 830,000 $1.33
Expired (330,000) $1.46
Granted 500,000 $2.00
- -------------------------------------------------------------------------------------------------
Balance at February 29, 2000 1,000,000 $1.63
Canceled (500,000) $1.15
Granted 2,150,000 $1.79
- -------------------------------------------------------------------------------------------------
Balance at February 28, 2001 2,650,000 $1.60
Canceled -0- -0-
Granted 1,350,000 $0.48
- -------------------------------------------------------------------------------------------------
Balance at February 28, 2002 4,000,000 $1.22
=================================================================================================
In January 1999, the Company extended the expiration date from April 6, 1999 to
April 6, 2004 of an immediately exercisable option to purchase 500,000 shares of
the Company's common stock at a price of $1.25 per share. For financial
reporting purposes, this has been treated as a new option grant and the
cancellation of an existing option.
In July 1999, the Company granted to its President options to purchase 500,000
shares of common stock. The options are exercisable at $2.00 per share through
May 26, 2004. Compensation expense of $133,000 was charged to operations in
connection with these options.
During the year ended February 28, 2001, the Company granted to an employee
options, expiring March 31, 2003, to acquire: (a) 83,333 shares of the Company's
common stock at an exercise price of $3.00 per share; (b) 83,333 shares of the
Company's common stock at an exercise price of $4.00 per share; and (c) 83,334
shares of the Company's common stock at an exercise price of $5.00 per share.
In April 2000, the Company adopted an incentive stock option plan (the "Plan")
under which options to purchase 3,000,000 shares of common stock may be granted
to certain key employees, directors or consultants. The exercise price will be
based on the fair market value of such shares as determined by the board of
directors at the date of the grant of such options. As of February 28, 2002,
options to purchase 3,000,000 shares of common stock have been granted under the
Plan.
In April 2000, the Company granted an officer/director a stock option to
purchase 300,000 shares of the Company's common stock at a price of $1.625 per
share, which was the market value of the stock at the time of grant. The option
expires in 10 years.
F-15
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In June 2000, the Company granted an option to purchase 500,000 shares of the
Company's common stock at $1.75 per share to its President and Chief Executive
Officer. This option has a 10-year maturity.
In June 2000, the Company granted an option to purchase 500,000 shares of the
Company's common stock at $1.75 per share to an officer and director.
Subsequently, this option was cancelled.
In January 2001, options were issued to employees and directors to purchase
600,000 shares of common stock at $1.15 per share. The options expire in 10
years.
In May 2001, the Company granted an option to purchase 250,000 shares of the
Company's common stock at $0.88 per share to its Vice President and Director of
Operations. This option has a 5-year maturity.
In February 2002, the Company granted an option to purchase 500,000 shares of
the Company's common stock at $0.40 per share to its Vice President and Chief
Financial Officer. This option has a 10-year maturity.
In February 2002, the Company granted an option to purchase 500,000 shares of
the Company's common stock at $0.40 per share to its President and Chief
Executive Officer. This option has a 10-year maturity.
In February 2002, the Company reset the option strike price for 300,000
outstanding options owned by its directors to $0.40.
The following table summarizes the information about stock options outstanding
at February 28, 2002:
Options Outstanding and Exercisable
------------------------------------------------------
Weighted-
Average Weighted-
Remaining Average
Range of Number Contractual Exercise
Exercise Price Outstanding Life (Years) Price
- --------------------------------------------------------------------------------
$0.40 1,400,000 9.92 $0.40
$0.88 250,000 9.25 $0.88
$1.15 300,000 8.83 $1.15
$1.25 500,000 2.10 $1.25
$1.63 300,000 8.17 $1.63
$1.75 500,000 8.33 $1.75
$2.00 500,000 2.24 $2.00
$3.00 - $5.00 250,000 1.00 $4.00
- --------------------------------------------------------------------------------
$0.40 - $5.00 4,000,000 $1.28
================================================================================
F-16
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has elected, in accordance with the provisions of SFAS No. 123, to
apply the current accounting rules under APB Opinion No. 25 and related
interpretations in accounting for stock options and, accordingly, has presented
the disclosure-only information as required by SFAS No. 123. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at the grant date as prescribed by SFAS No. 123, the Company's net
income and income per common share for the years ended February 28 (29), 2000,
2001 and 2002 would approximate the pro forma amounts shown in the table below:
February 29, February 28, February 28,
Year ended 2000 2001 2002
- --------------------------------------------------------------------------------
Reported net income (loss) $(21,000) $ (21,000) $ (6,784,000)
================================================================================
Pro forma net income (loss) $(1,261,000) $(2,896,000) $ (6,784,000)
================================================================================
Reported net income (loss)
per common share $ - 0 - $ - 0 - $ (.38)
Pro forma net income (loss)
per common share $ (.08) $ (.17) $ (.38)
================================================================================
The fair value of options granted (which is amortized to expense over the option
vesting period in determining the pro forma impact) is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
- --------------------------------------------------------------------------------
February 29, February 28, February 28,
Year ended 2000 2001 2002
- --------------------------------------------------------------------------------
Expected life of options 5 years 9.07 years 9.07 years
================================================================================
Risk-free interest rate 5.75% 5.85% 4.75%
================================================================================
Expected volatility of RMS
Titanic, Inc. 113.3% 116.7% 100.0%
================================================================================
Expected dividend yield on
RMS Titanic, Inc. $ - 0 - $ - 0 - $ - 0 -
================================================================================
The weighted-average fair value of options granted during the years is as
follows:
February 29, February 28, February 28,
Year ended 2000 2001 2002
- --------------------------------------------------------------------------------
Fair value of each
option granted $ 1.87 $ 1.38 $ .16
Total number of
options granted 500,000 2,150,000 1,350,000
- --------------------------------------------------------------------------------
Total fair value of all
options granted $ 937,500 $ 2,962,000 $ 212,600
================================================================================
In accordance with SFAS No. 123, the weighted-average fair value of stock
options granted is based on a theoretical statistical model using the preceding
Black-Scholes assumptions. In actuality, because the Company's stock options do
not trade on a secondary exchange, employees can receive no value or derive any
benefit from holding stock options under these arrangements without an increase
in the market price of the Company. Such an increase in stock price would
benefit all stockholders commensurately.
F-17
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. LITIGATION:
The United States Department of State and the National Oceanic and Atmospheric
Administration of the United States Department of Commerce (the "NOAA") are
working together to implement an International Agreement (the "Agreement") with
entities in the United Kingdom, France and Canada that would diminish and/or
divest the Company of its salvor-in-possession rights to the Titanic which had
been awarded by the Federal District Court for the Eastern District of Virginia
(the "District Court"). The Company has raised numerous objections to the United
States Department of State regarding the actions of the United States to
participate in efforts to reach an agreement governing salvage activities of the
Titanic. The Agreement, as drafted, does not recognize the existing rights of
the Company in the Titanic that have been reaffirmed in the District Court and
affirmed by the Court of Appeals of the Fourth Circuit and provides that the
Agreement enters into force when any two of the party states sign it. The United
States Department of Justice has represented that the United States believed it
had complied with the RMS Titanic Memorial Act in the development of the
international guidelines to implement the Agreement, but would solicit comments
from the public at large regarding the draft international guidelines and the
NOAA will consider the comments, and then publish the final international
guidelines. On April 3, 2000, the Company filed a motion for declaratory
judgment asking that the District Court declare unconstitutional and
inappropriate the efforts of the United States to reach an international
agreement with the other parties and that it be precluded from seeking to
implement such an agreement. On September 15, 2000, in a decision by the Court
it was ruled that the Company's motion was not ripe for consideration at the
present time, and 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 expects, that whatever the outcome of this matter, there will be no
impact on artifacts it already owns.
The Company was a defendant in an action brought by Suarez Corporation
Industries ("SCI") in the United States District Court for the Southern District
of New York. Between October 1995 and March 1997, the Company and SCI entered
into various agreements providing for the exploitation of artifacts and other
merchandise and arranging for a cruise and ancillary events including the
financing and sharing of the division of contractual defined profits all with
respect to the 1996 expedition of the Titanic by the Company. SCI brought
various claims that included co-salvor status and breach of contract. On
February 8, 2001, the Company, as defendant, was granted a judgment in its favor
as the lawsuit was not timely filed and was time-barred from consideration.
Suarez did not appeal this judgment within the prescribed time.
On September 7, 2000, Mr. G. Michael Harris, a former officer and director of
the Company, filed suit in the Circuit Court of the Sixth Judicial Circuit in
and for Pinellas County, Florida, Civil Division. In that suit, Mr. Harris has
alleged that the Company breached an employment agreement entered into between
him and the Company, and that he 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
F-18
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
appropriately and within its rights. Moreover, the Company has filed a
counter-suit against Mr. Harris and others to recover $84,000 of monies that the
Company believes were misappropriated and a complaint has been made to the
appropriate law enforcement authorities in Pinellas County, Florida. The Company
is continuing the investigation of Mr. Harris' conduct during his tenure with
the Company. 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.
On January 16, 2001, the Securities and Exchange Commission (the "Commission")
authorized its staff to conduct a formal order of investigation. The Commission
has requested various documents relating to, among other things, the change in
control of the Company that occurred during November 1999; any solicitations
that may have been made without a written proxy statement or a filing; the
purchase of the Company's common stock by certain shareholders; the accuracy of
the Company's financial statements; information about the Company's accounting
procedures and controls; documents about its subsidiaries; and other information
about consulting agreements, communications with certain individuals, employment
of its officers, and other Company matters. The Company is cooperating with the
investigation and has produced documents requested by the Commission. The
Company is unable to predict the outcome of this matter.
On January 27, 2001, the Company was served with a lawsuit by Oceaneering
International, Inc. ("Oceaneering") for monies purportedly owed under a June 27,
2000 contract for maritime services in association with the Company's 2000
expedition. The Company filed an answer that included a setoff for damages that
it sustained and continues to sustain as a result of Oceaneering's acts and
omissions. On May 8, 2002, this case was dismissed with prejudice with each
party paying its own legal expenses and executing a confidentiality agreement.
The Company did not pay any additional consideration for this settlement.
On May 3, 2001, the Company was served with a lawsuit in Superior Court in the
State of California which later was removed to the United States District Court
for the Central District of California by Westgate Entertainment Corporation, a
California corporation, and its wholly owned subsidiary, Weyland & Chase
Engineering, NV, a Netherlands Antilles corporation. The complaint claims that
on January 18, 2000, the plaintiffs entered into oral five year, "pay or play"
contracts of $200,000 per year for Westgate Entertainment and $100,000 per year
for Weyland & Chase. Westgate Entertainment further claims the Company agreed to
pay or provide other additional considerations. The Central District Court
entered an order denying the Company's motion for summary judgment. Thereafter,
in March of 2002, the Central District Court denied the Company's right to
appeal its interlocutory order denying the Company's motion for summary
judgment. The trial is scheduled in the District Court for the summer of 2002.
The eventual outcome of this matter is uncertain at the present time.
On April 12, 2002, the United States Court of Appeals for the Fourth Circuit
(the "Fourth Circuit") affirmed two orders of the United States District Court
for the Eastern District of Virginia, Norfolk Division. R.M.S. Titanic, Inc. v.
The Wrecked and Abandoned Vessel . . ., 2002 U.S. App. LEXIS 6799 (4th Cir.
2002). Dated September 26, 2001 and October 19, 2001, these orders restricted
F-19
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the sale of artifacts recovered by the Company from the RMS Titanic wreck site.
In rendering its opinion, the Fourth Circuit reviewed and declared ambiguous the
June 7, 1994 order of the District Court that had awarded ownership to the
Company of all items then salvaged from the wreck of the Titanic as well as all
items to be salvaged in the future by the Company so long as the Company
remained salvor-in-possession of the Titanic. Having found the June 7, 1994
order ambiguous, the Fourth Circuit reinterpreted the order to convey only
possession, not title, pending determination of a salvage award. This opinion
conflicts with previous rulings that were rendered by both the Fourth Circuit,
R.M.S. Titanic, Inc. v. Haver, et al, 171 F.3d 943 (4th Cir. 1999) and the
District Court, all of which the Company had relied upon in the conduct of its
business. Furthermore, based on a June 7, 1994 Order of the District Court, the
Company believed it was the exclusive owner of the artifacts. The Company
intends to petition the United States Supreme Court to hear its appeal of the
April 12, 2002 decision of the Fourth Circuit.
On April 25, 2002, the Company was served with notice of litigation initiated by
Lawrence D'Addario, et al v. Arnie Geller, G. Michael Harris, Joe Marsh, Gerald
Couture, Nick Cretan, Doug Banker and the Company in the United States District
Court for the Eastern District of Virginia, Norfolk Division Case No. 2:02cv250.
The suit alleges fraud, self-dealing, mismanagement, diversion and waste of
corporate assets by the individuals in their capacity as directors and/or
officers of the Company and for Joe Marsh, as a principal shareholder of the
Company. The Company intends to vigorously defend itself and its officers and
directors in this matter. No determination can be made at this time as to the
likely outcome of this matter or what the consequences could be for the Company.
The Company is involved in various claims and other legal actions arising in the
ordinary course of business. Management is of the opinion that the ultimate
outcome of these matters would not have a material adverse impact on the
financial position of the Company or the results of its operations.
9. COMMITMENTS AND CONTINGENCIES:
Compensation amounting to $120,000 was charged to operations during the year
ended February 28, 1999, pursuant to a certain employment-related arrangement
with an individual who was the former President and former Chairman of the Board
of Directors of the Company and $430,000 for the year ended February 29, 2000
for that individual and another individual who was a former officer and
director. Additionally, accounts payable and accrued liabilities include amounts
payable to these individuals in the aggregate amount of $-0- and approximately
$1,196,000 at February 28, 2001 and February 29, 2000, respectively, in
connection with these arrangements.
During the year ended February 28, 2002, the Company entered into agreements for
the services of two individuals for an annual aggregate amount of $600,750. Each
individual, at his option, may elect to receive his compensation in shares of
the Company's common stock. For this purpose, the common stock will be valued at
50% of its closing bid price as of the date of the election.
On February 2, 2002, the Company executed a revised employment agreement with
its President and Chief Executive Officer. The employment agreement is for a
five-year term and provides for annual base salaries of $330,750 per year, with
annual 5% increases.
F-20
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On February 2, 2002, the Company executed a revised employment agreement with
its Vice President and Chief Financial Officer. The employment agreement is for
a four-year term and provides for annual base salaries of $270,000 per year,
with annual 5% increases.
On May 6, 2001, the Company entered into a three-year employment agreement with
an individual as Vice President and Director of Operations, providing for a
salary of $130,000, $143,000, and $157,850 respectively, for each year of the
three-year term. In addition, this individual received options to purchase
250,000 share of common stock at an exercise price of $.88 per share. Subsequent
to year-end, on March 22, 2002, this individual resigned his position and became
a consultant to the Company.
The Company has non-cancelable operating leases for office space. The leases are
subject to escalation for the Company's pro rata share of increases in real
estate taxes and operating costs. During the fiscal year ended February 28,
2002, the Company entered into another non-cancelable operating lease for office
space and vacated one of its previously used offices. Subsequent to year-end,
the Company entered into an agreement to lease certain office and warehouse
space through December 31, 2004.
Future minimum lease payments for leases in effect as of February 28, 2002 and
entered into subsequent to that date are as follows:
Year ending February 28(29),
2003 $ 195,000
2004 150,000
2005 144,000
2006 7,000
2007 -0-
- ----------------------------------------------------------------
$496,000
================================================================
Rent expense charged to operations amounted to $84,000, $147,000 and $167,000
for the years ended, February 29, 2000, February 28, 2001, and February 28, 2002
respectively.
On January 27, 2001, the Company entered into an agreement with International
Institute of Oceanographic Exploration, LLC ("IIOE"), a British Virgin Islands
company, to search, identify, and salvage shipwrecks located in certain
territorial waters in the Pacific Ocean. The President of the Company holds an
equity interest in IIOE. IIOE has an agreement with a foreign governmental
agency to conduct marine survey operations that includes searching for and
recovering shipwrecks and their contents. The Company agreed to finance a marine
survey operation with its personnel up to a maximum of $250,000. The Company is
entitled to recover its cash outlay prior to any distribution of proceeds by
IIOE from these ventures, and then is entitled to receive 22% of the contents
recovered from the shipwrecks salvaged. As of February 28, 2002, the Company had
expended approximately $157,000 toward this agreement. Due to the uncertainty
regarding the recoverability of the amounts expended on this project, the
Company has charged "expedition costs" in the accompanying statement of
operations for the full amount expended. The agreement has a term of eighteen
months.
During the year ended February 28, 2001, the Company borrowed $250,000 from a
nonaffiliated 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.
F-21
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. OTHER RELATED PARTY TRANSACTIONS:
Included in prepaid expenses and other current assets at February 29, 2000 were
loans to the Company's former president in the aggregate amount of $73,000. Such
amount was discharged as a result of the settlement agreement discussed in Note
2.
Included in accounts payable and accrued liabilities at February 28, 2001 and
February 28, 2002 is $25,000 due to certain partners of TVLP.
11. EXHIBITIONS:
During the three-year period ended February 28, 2002 and subsequent to year-end,
the Company has presented, through licensing arrangements exhibitions of
Titanic's Artifacts and other Titanic memorabilia.
In March 1999, the Company entered into an agreement with Magicworks
Entertainment, Inc., a direct subsidiary of PACE Entertainment, Inc. and an
indirect subsidiary of SFX Entertainment, Inc. (collectively "SFX"), in which
the Company granted SFX an exclusive worldwide license to exhibit the Company's
Titanic artifacts for a minimum payment of $8,500,000, annually. This license
agreement had an initial term of one year, commencing September 15, 1999, with
SFX having the option to extend the term for up to four additional one-year
periods. All obligations of Magicworks Entertainment, Inc. under this license
agreement were guaranteed by SFX Entertainment, Inc. The original agreement was
amended on September 18, 2000 by the Company and SFX Family Entertainment, Inc.,
successor to Magicworks Entertainment, Inc. Another amendment was agreed to on
May 7, 2001 which extended the agreement to December 31, 2002. The first
amendment required a minimum annual payment of $2,000,000 that was received
during fiscal year ended February 28, 2001. Upon execution of the second
amendment, an additional payment of $750,000 was received. Pursuant to the
license agreement, as amended, the Company will receive twenty percent of the
ticket, merchandise, and sponsorship and ancillary revenues over $10,000,000.
Furthermore, two additional extensions have been granted which now extends the
agreement to December 31, 2003. Each amendment required a guaranteed minimum
annual payment of $2,000,000. For the amendment period ended November 31, 2001,
the Company received payments of $616,000 over the guaranteed minimum annual
payments pursuant to the revenue sharing provisions of the agreement. Upon
execution of the fourth amendment in May 2002, the Company received a payment of
$750,000. The most recent amendment was with Clear Channel Entertainment
Exhibits, Inc. ("CCEE"), formerly known as SFX Family Entertainment, Inc.
12. SUBSEQUENT EVENTS:
On April 2, 2002, the Company entered into a Purchase Agreement for the sale of
the common stock, representing 100% ownership, of its Danepath Ltd. subsidiary
to Argosy International Ltd. The purchase price, as amended by Agreement on June
1, 2002, was $1.5 million. Danepath's principal asset is the research and
recovery vessel "SV Explorer". Under the terms of the Purchase Agreements the
Company received $100,000 upon execution and an obligation of $1.4 million,
bearing interest at 8% per annum that will be paid within six months. This
obligation is collateralized with both a first mortgage on the vessel "SV
Explorer", the principal asset owned by Danepath, and all the common stock of
the Company owned by Argosy International, Ltd. On March 6, 2002, in a separate
agreement, the Company sold to Argosy International, for minimal consideration,
its 100% ownership interest in White Star Marine Recovery, Ltd. That sale
terminated its obligation under an agreement with Argosy International for the
consulting services of Graham Jessop. At the time of this sale, White Star
Marine Recovery had no assets other than this consulting contract.
F-22
RMS TITANIC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On April 12, 2002, the United States Court of Appeals for the Fourth Circuit
(the "Fourth Circuit") affirmed two orders of the United States District Court
for the Eastern District of Virginia, Norfolk Division. R.M.S. Titanic, Inc. v.
The Wrecked and Abandoned Vessel, 2002 U.S. App. LEXIS 6799 (4th Cir. 2002).
Dated September 26, 2001 and October 19, 2001, these orders restricted the sale
of artifacts recovered by the Company from the RMS Titanic wreck site. In
rendering its opinion, the Fourth Circuit reviewed and declared ambiguous the
June 7, 1994 order of the District Court that had awarded ownership to the
Company of all items then salvaged from the wreck of the Titanic as well as all
items to be salvaged in the future by the Company so long as the Company
remained salvor-in-possession of the Titanic. Having found the June 7, 1994
order ambiguous, the Fourth Circuit reinterpreted the order to convey only
possession, not title, pending determination of a salvage award. This opinion
conflicts with previous rulings that were rendered by both the Fourth Circuit,
R.M.S. Titanic, Inc. v. Haver, et al, 171 F.3d 943 (4th Cir. 1999) and the
District Court all of which the Company had relied upon in the conduct of its
business. Furthermore, based on a June 7, 1994 Order of the District Court, the
Company believed it was the exclusive owner of the artifacts. The Company
intends to petition the United States Supreme Court to hear its appeal of the
April 12, 2002 decision of the Fourth Circuit.
On April 25, 2002, the Company was served with notice of litigation initiated by
Lawrence D'Addario, et al vs. Arnie Geller, G. Michael Harris, Joe Marsh, Gerald
Couture, Nick Cretan, Doug Banker and the Company in the United States District
Court for the Eastern District of Virginia, Norfolk Division Case No. 2:02cv250.
The suit alleges fraud, self-dealing, mismanagement, diversion and waste of
corporate assets by the individuals in their capacity as directors and/or
officers of the Company and for Joe Marsh, as a principal shareholder of the
Company. The Company intends to vigorously defend itself and its officers and
directors in this matter. No determination can be made at this time as to the
likely outcome of this matter or what the consequences could be for the Company.
F-23
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, 2002
[ ] 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 Peachtree Road, 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 No X
--- ---
The number of shares outstanding of the registrant's common stock on
January 13, 2003 was 18,550,847.
PAGE
NUMBER
------
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Controls and Procedures 9
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 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 12
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements of RMS Titanic, Inc. and subsidiary
(collectively, the "Company"), included herein were prepared, without audit,
pursuant to rules and regulations of the Securities and Exchange Commission.
Because certain information and notes normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America were condensed or omitted pursuant to such rules and
regulations, these financial statements should be read in conjunction with the
financial statements and notes thereto included in the audited financial
statements of the Company as included in the Company's Form 10-K for the year
ended February 28, 2002.
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
=========================================================================================================
NOVEMBER 30, FEBRUARY 28,
2002 2002
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 54,000 $ 146,000
Accounts receivable 86,000 40,000
Prepaid and Refundable income taxes 2,133,000 2,261,000
Prepaid expenses and other current assets 59,000 70,000
Net assets of discontinued operations 1,221,000
------------ ------------
TOTAL CURRENT ASSETS 2,332,000 3,738,000
Artifacts owned, at cost 4,486,000 4,495,000
Salvor's lien 1,000 1,000
Property and Equipment, net of accumulated depreciation
of $1,425,000 and $1,209,000, respectively 330,000 544,000
Other Receivable 1,000,000 --
Other Assets 45,000 61,000
------------ ------------
TOTAL ASSETS $ 8,194,000 $ 8,839,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,018,000 $ 709,000
Deferred revenue 1,200,000 788,000
------------ ------------
TOTAL CURRENT LIABILITIES 2,218,000 1,497,000
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value; authorized 30,000,000 shares,
issued and outstanding 18,675,047 and 18,550,047 shares,
respectively 2,000 2,000
Additional paid-in capital 16,650,000 16,615,000
Accumulated comprehensive income -- (31,000)
Accumulated deficit (10,676,000) (9,244,000)
------------ ------------
STOCKHOLDERS' EQUITY 5,976,000 7,342,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,194,000 $ 8,839,000
============ ============
See Notes to Consolidated Financial Statements
2
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(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,
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Revenue:
Exhibitions and related
merchandise sales $ 483,000 $ 693,000 $ 1,501,000 $ 2,076,000
Licensing fees -- -- -- 26,000
Merchandise and other 16,000 34,000 98,000 102,000
Sale of coal 26,000 2,000 71,000 49,000
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 525,000 729,000 1,670,000 2,253,000
- ---------------------------------------------------------------------------------------------------------------------------
Expenses:
Cost of coal sold 10,000 -- 24,000 5,000
Cost of merchandise sold 2,000 13,000 34,000 76,000
Expedition expense -- -- -- 38,000
General and administrative 628,000 657,000 2,512,000 2,130,000
Depreciation and amortization 72,000 80,000 215,000 298,000
Impairment charge on receivable 363,000 363,000
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 1,075,000 750,000 3,148,000 2,547,000
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from
continuing operations (550,000) (21,000) (1,478,000) (294,000)
Interest income 1,000 1,000 45,000 6,000
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes (549,000) (20,000) (1,433,000) (288,000)
Provision for income taxes -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) from continuing
Operations before discontinued
Operations (549,000) (20,000) (1,433,000) (288,000)
===========================================================================================================================
Discontinued Operations;
Loss from operations of Danepath
subsidiary disposed of: -- (129,000) -- (90,000)
===========================================================================================================================
Net Income (loss) $ (549,000) $ (149,000) $ (1,433,000) $ (378,000)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) for basic and
diluted common shares from
continuing operations: $ ( .03) $ -- $ (.08) $ (.02)
Net income (loss) for basic and
diluted common shares from
discontinued operations: $ -- $ .01 $ -- $ --
Earnings (loss) per common share,
basic and diluted: $ ( .03) $ .01 $ (.08) $ (.02)
===========================================================================================================================
Weighted-average number
of common shares outstanding 18,675,047 17,896,728 18,596,343 17,896,728
===========================================================================================================================
See Notes to Consolidated Financial Statements
3
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
==================================================================================================================
NINE-MONTH PERIOD ENDED NOVEMBER 30, 2002 2001
----------- -----------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ (1,433,000) $ (378,000)
Less: income from discontinued operations -- (90,000)
----------- -----------
Net income (loss) from continuing operations (1,433,000) (288,000)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 215,000 298,000
Reduction in artifacts 9,000 105,000
Issuance of stock for services 35,000 344,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (46,000) (138,000)
Decrease in prepaid and refundable income taxes 128,000 420,000
(Increase) decrease in prepaid expenses
and other current assets 11,000 7,000
Decrease(increase) in other assets 237,000 (255,000)
Increase in accounts payable and accrued liabilities 340,000 (290,000)
Increase (decrease) in deferred revenue 412,000 9,000
----------- -----------
TOTAL ADJUSTMENTS 1,342,000 500,000
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (91,000) 212,000
----------- -----------
Cash flows used in investing activities:
Purchases of property and equipment (1,000) (13,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,000) (13,000)
----------- -----------
Net (decrease) increase in cash (92,000) 199,000
Cash and cash equivalents at beginning of period 146,000 611,000
----------- -----------
Cash and cash equivalents at end of period $ 54,000 $ 810,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine-month period for income taxes $ -- $ --
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Common stock issued to acquire assets $ -- $ 819,000
Artifacts acquired in conversion of intangible assets $ -- $ 555,000
=========== ===========
See Notes to Consolidated Financial Statements
4
RMS TITANIC, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - RMS Titanic, Inc. formed a wholly owned foreign subsidiary,
Danepath Ltd, ("Danepath") during June 2001. The Danepath
subsidiary was sold in April to Argosy International, Ltd. for
consideration of $1.5 million. The principal asset of this
subsidiary was ownership of the research and recovery vessel, SV
Explorer.
Note 2 - The accompanying consolidated financial information as of
November 30, 2002 and 2001 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 3 - 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 and six month periods
ended November 30, 2002 and 2001 since there was no dilutive
effect of potential common shares or the dilutive effect is not
material.
Note 4 - In May 2002, 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 December 31, 2003.
Note 5 - On September 14, 2002, the Board of Directors of the Corporation
unanimously adopted a Corporate Resolution providing that (1) the
Company has completed the salvage service that it intends to
perform on the wreck of the TITANIC; (2) the Company shall
voluntarily surrender its status as salvor-in-possession of the
wreck of the TITANIC; (3) the Company shall proceed to move the
United States District Court for the Eastern District of
Virginia, Norfolk Division, (the "District Court") for the entry
of a full and final salvage award pursuant to the ruling of the
United States Court of Appeals for the Fourth Circuit; and (4)
should the United States Supreme Court grant the Company's
pending Petition for Certiorari and ultimately modify or reverse
the ruling of the Court of Appeals, the Company shall proceed to
perfect its ownership interest in the items recovered from the
TITANIC in accordance with the direction of the Supreme Court. On
October 7, 2002, the United States Supreme Court denied the
Company's Petition for Certiorari
Note 6 - During the quarter ended August 31, 2002, the Company settled
litigation with Westgate Entertainment Corporation and Wayland &
Chase Engineering NV for the payment by the Company of $388,000
over a thirty month period and the exchange of releases,
restrictive covenants, and other considerations.
Note 7 - During the quarter ended August 31 2002, the Company issued
125,000 shares of common stock to a conservator for services
valued at $35,000 or $0.28 per share.
Note 8 - The note receivable in the principal amount of $1,223,000 plus
accrued interest that was received in the sale of Danepath Ltd.
to Argosy International Ltd. was not paid at its maturity on
October 2, 2002. As a consequence the Company received a
cancellation fee in the form of a note with a one year maturity
and the sale of the vessel, the SV Explorer, and certain marine
equipment to a wholly owned UK subsidiary of the Company. As a
result of this transaction the Company recognized an impairment
charge of $363,000 for the quarter ended November 30, 2002.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information to assist in the understanding of
the Company's financial condition and results of operations, and should be read
in conjunction with the financial statements and related notes appearing
elsewhere herein.
RESULTS OF OPERATIONS
FOR THE QUARTER ENDED NOVEMBER 30, 2002 VERSUS THE QUARTER ENDED NOVEMBER 30,
2001
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2002 VERSUS THE NINE MONTHS ENDED
NOVEMBER 30, 2001
During the third quarter and the first nine months of its 2003 fiscal year (the
"2003 fiscal year"), the Company's revenues decreased approximately 28% from
$729,000 to $525,000 and 26% from $2,253,000 to $1,670,000, respectively, as
compared to the third quarter and the first nine months of its 2002 fiscal year
(the "2002 fiscal year"). These changes were principally attributable to
decreases in exhibition and related merchandise sales of approximately 30%
during the third quarter and 27% during first nine months of the 2003 fiscal
year, as compared to the corresponding periods of the 2002 fiscal year. The
present level of these revenues reflect the current licensing agreement in
effect that has lower guaranteed payments with a revenue sharing provision.
Merchandise and other revenue decreased approximately 53% from $34,000 to
$16,000, during the third quarter of the 2003 fiscal year as compared to the
third quarter of the 2002 fiscal year, and decreased 4%, to $98,000 from
$102,000 during the first nine months of the 2003 fiscal year as compared to the
first nine months of the 2002 fiscal year. This decrease is attributed to lower
sales this fiscal year of Titanic merchandise at the current year exhibits.
The Company's sale of coal increased to $26,000 from $2,000, or approximately
1300% during the third quarter of the 2003 fiscal year as compared to the third
quarter of the 2002 fiscal year, and 45% from $49,000 to $71,000,during the
first nine months of the 2003 fiscal year as compared to the first nine months
of the 2002 fiscal year. This increase is attributed to higher exhibit sales of
coal and coal related jewelry which has been introduced this fiscal year at the
exhibits.
The Company's general and administrative expenses decreased to $628,000 from
$657,000, or approximately 4% during the third quarter of the 2003 fiscal year
as compared to the third quarter of the 2002 fiscal year, and increased to
$2,512,000 from $2,130,000, or approximately 18% during the first nine months of
the 2003 fiscal year as compared to the first nine months of the 2002 fiscal
year. For the quarter, management continued to reduce operating expenses
although this trend is unlikely to continue in light of the heavy litigation
expense burden the Company is encountering. For the nine-months ended November
30, 2002, the litigation settlement for $388,000 was the primary cause of an
increase as compared to the corresponding year ago period. Legal and
professional fees were reduced 12% to $214,000 and 5% to $830,000, respectively,
over the comparable year ago periods for the quarter and nine months periods
ended November 30, 2002. A significant reduction in consulting fees occurred of
approximately $113,000 for the quarter ended November 30, 2002, but
unfortunately these were offset by an approximately $60,000 increase in legal
expenses for the recent quarter. Legal expenses continue to burden the Company.
The Company's depreciation and amortization expenses decreased $8,000 or 10%
from $80,000 to $72,000, and $83,000, or 28% from $298,000 to $215,000 during
the third quarter and first nine months of the 2003 fiscal year, respectively,
as compared to the corresponding periods of the 2002 fiscal year. These
decreases primarily reflect the elimination of amortization expense during these
periods as a result of the acquisition of the Carpathia rights in exchange for
the intangible assets of potential wreck sites that were being amortized.
6
The Company realized an impairment charge Of $363,000 relating to the obligation
in the sale of Danepath to Argosy International, Ltd. The charge reflects the
difference in the note obligation that was owed the Company from the purchase of
Danepath and the assets, namely the vessel, the SV Explorer, and the marine
equipment that was included in that sale transaction, and the cancellation note
of $250,000 that the Company will receive.
Interest income was $1,000 and $45,000 for the third quarter and nine months,
respectively, of the Company's 2003 fiscal year as compared to $1,000 and $6,000
for the corresponding year ago periods. This increase in interest income had
represented the obligation from the sale of Danepath Ltd., the Company's former
subsidiary, which bears interest at 8% per annum until the recent impairment
charge that was incurred to reflect the default on that obligation.
The Company's loss from continuing operations increased substantially to
$549,000 from $20,000 during the third quarter of the 2003 fiscal year as
compared to the same period in fiscal year 2002. This significant increase is
attributed both to lower revenues coupled with an impairment charge as noted
above. During the first nine months of the 2003 fiscal year the Company
experienced a loss from continuing operations of $1,478,000, as compared to a
loss of $294,000 in the corresponding period of the 2002 fiscal year. This
higher loss is also attributed to lower revenues obtained in the licensing of
Titanic artifacts during the current fiscal year, the settlement of litigation
and the recent impairment charge.
For the prior year periods, the Company incurred a loss from discontinued
operations of $129,000 and $90,000, respectively for the third quarter and the
first nine months of its 2002 fiscal year. These losses are attributed to the
Danepath operation that were sold in the Argosy transaction.
The net loss was $549,000 for the three months ended November 30, 2002 as
compared to a net loss of $ 149,000 in the prior year period. In the year ago
period ended November 30, 2001 there was a loss from discontinued operations of
$129,000. During the first nine months of the 2003 fiscal year the Company
experienced a net loss of $1,433,000, as compared to a loss of $378,000 in the
corresponding period of the 2002 fiscal year. Similarly, there was a loss from
discontinued operations of $90,000 for the nine-month period of a year ago.
Basic income (loss) per common share for the three months and nine months ended
November 30, 2002 were ($0.03) and ($0.08), respectively, and the weighted
average shares outstanding were 18,675,047 and 18,596,343, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $91,000 for the nine months ended
November 30, 2002 as compared to $212,000 cash provided in operating activities
in the same prior year period ended November 30, 2001. This decrease in cash
provided in operating activities for the current year is primarily attributed to
a decrease in other assets coupled with increases in accounts payable and
accrued liabilities and deferred revenues.
For the nine months ended November 30, 2002, cash used in investing activities
were $1,000 for furniture and equipment as compared to expenditures of $13,000
in the year ago period.
The Company's net working capital and stockholders' equity were $114,000 and
$5,976,000, respectively at November 30, 2002 as compared to $2,244,000 and
$7,342,000, respectively, at February 28, 2002. The Company's working capital
ratio was 1.1 at November 30, 2002.
The Company continues to develop plans for a recovery expedition to the
Carpathia. When the expedition schedule is completed, management will make an
announcement.
On September 14, 2002, the Board of Directors of the Corporation unanimously
adopted a Corporate Resolution providing that (1) the Company has completed the
salvage service that it intends to perform on the wreck of the TITANIC; (2) the
Company shall voluntarily surrender its status as salvor-in-possession of the
7
wreck of the TITANIC; (3) the Company shall proceed to move the United States
District Court for the Eastern District of Virginia, Norfolk Division, (the
"District Court") for the entry of a full and final salvage award pursuant to
the ruling of the United States Court of Appeals for the Fourth Circuit; and (4)
should the United States Supreme Court grant the Company's pending Petition for
Certiorari and ultimately modify or reverse the ruling of the Court of Appeals,
the Company shall proceed to perfect its ownership interest in the items
recovered from the TITANIC in accordance with the direction of the Supreme
Court.
Among the considerations that were reviewed prior to the decision of the Board
of Directors of the Company were the opinion of the United States Court of
Appeals for the Fourth Circuit ruling on April 12, 2002 that the Company does
not own any of the artifacts that it has recovered from the wreck of the
TITANIC, but, instead, holds only an inchoate lien in said artifacts; and that,
unless the Company intends to seek periodic awards, it cannot seek to enforce
its lien against the artifacts until it has completed all of the salvage service
that it intends to perform and its salvage award has been determined by the
District Court; and that the Company can only obtain title to the artifacts it
has recovered if, in the discretion of the District Court, the salvage award due
the Company cannot be satisfied by sale of the artifacts; and the District Court
has expressly forbidden the Company from cutting into the wreck or detaching any
part of the wreck since July 28, 2000; and further there is an international
convention pending that will designate the TITANIC an international maritime
memorial and restrict all future salvage of the wreck. At the present time the
Company has a representative sample of artifacts from the Titanic debris field
and furthermore, has more artifacts than are required for exhibitions. In
addition, the maintenance of the Company's salvor-in-possession status requires
periodic expeditions to the Titanic wreck site that would require substantial
further investment on behalf of the Company and uncertainties surround what the
District Court may decide is an appropriate financial return for the Company for
any future expenditures. Furthermore, obtaining a salvage award at this time
would be a prudent business decision to provide the Company's shareholders a
financial return on their investment.
On October 7, 2002, the United States Supreme Court denied the Company's
Petition for Certiorari, and consequently the Company will proceed to the
District Court for its salvage award. According to counsel for the Company the
length of time necessary to complete this process is uncertain and involves may
factors and considerations. A monetary award that may be granted for a salvage
lien is subject to, at the very least, the consideration by a maritime court of
the "Blackwall factors" which impart substantial uncertainty as to the amount
and appropriateness of the award to be granted. These Blackwall factors include:
(1) the labor expended by salvors in rendering the salvage service; (2) the
promptitude, skill, and energy displayed in the rendering the service and saving
the property; (3) the value of the property employed by the salvor in rendering
the service, and the danger to which such property was exposed; (4) the risk
incurred by the salvor in securing the property from the impending peril; (5)
the value of the property saved. (6) the degree of danger from which the
property was rescued.
The Company is presently confronted with substantial risks and uncertainties. A
determination has to be made with respect to the Company's salvor-in-possession
status before a salvage award can be granted. Management is uncertain what
financial outcome may be achieved for a salvage award.
Furthermore, the lawsuits in which the Company is now involved contribute to
uncertainties regarding the Company's future prospects. Should an adverse ruling
or verdict occur and if the Company is without additional sources of revenue,
the Company may be forced to utilize the protections afforded within the Federal
Bankruptcy Code. In addition, management has consulted with bankruptcy attorneys
to determine if a beneficial result can be achieved should the Company seek to
utilize a bankruptcy action. The Company has expended more than $550,000 this
year for the services of attorneys, and in the recent quarter ended November 30,
2002, legal expenses were more than $180,000, which is a higher expenditure rate
than in the recent past. Management expects greater legal expenditures will
occur over the next six months. An evaluation of the Company's legal situation
is ongoing. With the uncertainties confronting the Company in both seeking a
salvage award and its various litigations, a shareholder is cautioned to
recognize the substantial risks associated with the Company.
8
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.
Item 3. Controls and Procedures
Within 90 days prior to the date of filing of this report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and the Chief Financial Officer, of the design and operation
of our disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and the Chief Financial Officer concluded that our disclosure
controls and procedures are effective for gathering, analyzing and disclosing
the information that we are required to disclose in the reports we file under
the Securities Exchange Act of 1934, within the time periods specified in the
SEC's rules and forms. Our Chief Executive Officer and the Chief Financial
Officer also concluded that our disclosure controls and procedures are effective
in timely alerting them to material information relating to our company required
to be included in our periodic SEC filings. In connection with the new rules, we
are in the process of further reviewing and documenting our disclosure controls
and procedures, including our internal controls and procedures for financial
reporting, and may from time to time make changes designed to enhance their
effectiveness and to ensure that our systems evolve with our business. There
have been no significant changes in our internal controls or in other factors
that could significantly affect internal controls subsequent to the date of this
evaluation.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On October 7, 2002, the United States Supreme Court denied the
Company's Petition for Certiorari.
In the litigation initiated by G. Michael Harris, vs. the Company, a
trial has been now scheduled to begin April 14, 2003.
There have been no other material changes in the legal proceedings
discussed in the Company's Annual Report on Form 10-K for the year
ended February 28, 2002.
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
10.42 Form of Settlement Agreement between Argosy International Ltd and the
Company.
10.43 Form of Stock Pledge Agreement between Argosy International Ltd and the
Company.
10.44 Form of Promissory Note of Argosy International Ltd.
Exhibit 99.1 is the certification of the CEO and the CFO as required under
Section 906 of the Sarbanes-Oxley Act of 2002 (Corporate Fraud Bill), which was
signed into law on July 30, 2002 by President George Bush.
b) REPORTS ON FORM 8-K
Form 8-K filed on September 24, 2002 regarding the resolution adopted
by the Board of Directors of the Company to voluntarily end its
salvor-in-possession status among other items.
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Form 8-K filed on November 4, 2002 regarding shareholder support for
the resolution adopted by the Board of Directors of the Company to
voluntarily end its salvor-in-possession status.
Form 8-K filed on November 25, 2002 indicating that the relinquishment
of the Company's salvor-in-possession status over the wreck of the
Titanic will be put to a vote of shareholders.
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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: January 21, 2003 By: /s/ Arnie Geller
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Arnie Geller, President
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