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U.S. SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_______ to _______
Commission File No. 000-24452
RMS TITANIC, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Florida 59-2753162
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3340 Peachtree Rd, NE, Suite 1225, Atlanta, GA 30326
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Address of principal executive offices
Issuer's telephone number, including area code: (404) 842-2600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.0001 per share
Check whether the issuer (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 ]
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of June 3, 2003, was: $2,481,008.
The number of shares outstanding of each of the registrant's classes of
common stock, as of June 3, 2003 were:
NUMBER OF SHARES
TITLE OF EACH CLASS OUTSTANDING
Common Stock, par value $.0001
per share 18,675,047
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information contained herein, this Annual Report on Form
10-K contains forward-looking statements within the meaning of the Private
Securities Reform Act of 1995 that involves certain risks and uncertainties. The
Company's actual results or outcomes may differ materially from those
anticipated. 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 the Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, such information should not be
regarded as a representation by the Company that the objectives and plans of the
Company will be achieved. The Company does not have any obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
ITEM 1. BUSINESS
BACKGROUND
On May 4, 1993, RMS Titanic, Inc. acquired all the assets and assumed all the
liabilities of TITANIC Ventures Limited Partnership ("TVLP"), a Connecticut
limited partnership (the "Acquisition"). References to the "Company" in this
Report relate to TVLP prior to the Acquisition and the combined entities of TVLP
and RMS Titanic, Inc. after the Acquisition.
The Company was formed in 1987 for the purposes of exploring the wreck and
surrounding oceanic areas of the TITANIC, which sank in 1912, and lies more than
12,500 feet below the surface of the Atlantic Ocean. This location is
approximately 400 miles off the southern coast of Newfoundland. The Company has
obtained oceanic material and scientific data available in various forms that
include still and moving photography and artifacts from the wreck site; and is
utilizing this data and artifacts for historical verification, scientific
education and public awareness. All these activities are directed toward
producing income for the Company resulting in touring exhibitions, television
programs, and the sale of still photographs.
In August 1987, the Company contracted with the Institute of France for the
Research and Exploration of the Sea ("IFREMER"), which is owned by the French
Government, to conduct an expedition and dive to the wreck of the TITANIC. Using
state-of-the-art technology from IFREMER (the world's largest oceanographic
institute), approximately sixty days of research and recovery operations were
performed at the TITANIC wreck site in 1987 through the use of a manned
submersible NAUTILE. Approximately 1,800 objects were recovered during the
course of the thirty-two dives in that expedition.
The recovered objects were conserved and preserved by Electricite de France
("EDF"), the French government-owned utility. In addition to the recovery of
historic objects, the Company's 1987 expedition also produced approximately 140
hours of videotape footage and an estimated 7,000 still photographs from the
wreck site. These artifacts from the 1987 expedition were subsequently granted
to the Company by the government of France.
In June 1993, the Company successfully completed its second expedition to the
TITANIC wreck site, during which it recovered approximately 800 artifacts and
produced approximately 105 hours of videotape footage during the course of
fifteen dives. In July 1994, the Company recovered over 1,000 objects and
produced approximately 125 hours of videotape footage during its third
expedition to the TITANIC wreck site. In August 1996, the Company recovered
numerous objects and produced approximately 125 hours of videotape footage
during its fourth expedition to the TITANIC wreck site. Present management is
reviewing recovery details of the 1996 expedition.
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With the Company's cooperation, Discovery Communications, Inc. produced three
hours of television programming based upon the Company's activities and
scientific studies undertaken during the 1996 expedition. Two hours of this
programming, presented in "TITANIC: Anatomy of A Disaster," was the highest
rated program in the history of The Discovery Channel when it aired in April
1997. In addition to obtaining videotape footage for the television productions,
a substantial portion of the 1996 expedition was devoted to the recovery of a
section of the TITANIC hull, measuring approximately 26 feet by 20 feet and
weighing approximately 20 tons, from the debris field surrounding the wreck.
Although the Company raised the "Big Piece" to within approximately 200 feet of
the surface of the ocean, efforts to recover it were unsuccessful because of
stormy weather conditions and severe ocean turbulence.
In August 1998, the Company recovered numerous objects and produced
approximately 350 hours of videotape footage during its fifth expedition to the
TITANIC wreck site. This expedition, again undertaken in cooperation with
Discovery Communications, Inc., produced five hours of television programming
about the expedition, including the first-ever live broadcast from the TITANIC
wreck site and a one hour Dateline NBC special broadcast. Among the highlights
of the 1998 expedition was the successful recovery of the "Big Piece" and
extensive mapping of the TITANIC and portions of the wreck site through the
capture of thousands of high-resolution color digital photographs.
The Company's 1987, 1993, 1994, 1996, and 1998 TITANIC expeditions were
completed by charter agreements with IFREMER. The objects recovered from those
expeditions were ultimately transported to a privately-owned conservation
laboratory in France for restoration and preservation processes in preparation
for exhibition, except for several objects conserved by EDF that were recovered
in 1987 and the "Big Piece", which went through its conservation process in the
United States.
During the summer of 2000, the Company conducted its most recent expedition
("Expedition 2000") to the TITANIC wreck site in the North Atlantic. During this
expedition, the Company utilized the services of the P.P. Shirshov Institute of
Oceanology of Moscow, Russia, which provided the research vessel "AKADEMIK
MSTISLAV KELDYSH" and two manned submersibles- the "MIR-1" and "MIR-2. The
expedition resulted in a total of twenty-eight dives over a four week period
that resulted in the recovery of more than 900 objects from the wreck site and
the discovery of a new debris field. Among the artifacts recovered in this
expedition were the ship's wheel and stand, whistle control timer from the
navigation bridge, the main telegraph base and the docking bridge telephone.
Among personal items recovered were binoculars, a pair of opera glasses,
sixty-five intact perfume ampoules, a camera, bowler hat, first class demitasse
and dinner plate. A base for a cherub, likely from the Grand Staircase, as well
as gilded wood from a balustrade were also recovered. The nine leather bags
provided more than one hundred additional objects. Some medicinal items were
recovered that included a cobalt blue bottle that reads: BROMOSELTZER EMERSON
DRUG CO. BALTIMORE MARYLAND. For the first time, two toilets, a wok, an intact
deck light, circulating fans, thermometers, four eggcups, and a metal megaphone
were recovered. These items will further provide a clearer picture of the
workings of the TITANIC at that time period, and will further enhance exhibition
presentations. This expedition was conducted during the months of July and
August 2000.
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 to be utilized in the expedition
to the TITANIC wreck site during that summer. 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. On April 2, 2002,
the Company sold its Danepath subsidiary to Argosy International Ltd., an
affiliated party. In January 2003, in order to avoid a costly international
foreclosure process, the Company entered into a settlement of the outstanding
obligation from Argosy from this Danepath transaction that included acquiring
the vessel, SV EXPLORER, and related marine equipment in its new wholly owned
United Kingdom subsidiary - Seatron Limited
In May 2001, the Company acquired ownership of the RMS CARPATHIA that was sunk
in 1918 off the coast of the United Kingdom. This ship rescued the survivors of
the TITANIC. This shipwreck will play a role in the Company's future business
plan.
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SALVAGE RIGHTS
Pursuant to the judgment entered in the United States District Court for the
Eastern District of Virginia ("District Court") on June 7, 1994, the Company was
declared salvor-in-possession of the wreck and wreck site of the TITANIC, the
sole and exclusive owner of any items recovered from the TITANIC and, so long as
the Company is salvor-in-possession, the sole and exclusive owner of all items
recovered from the TITANIC in the future. The District Court's judgment
includes, without limitation, the contents, cargo, hull, machinery, engine,
tackle, apparel, and appurtenances of the TITANIC, and provides that all
potential claimants are barred and precluded from filing claims so long as the
Company is salvor-in-possession. No other entity has the right to salvage the
TITANIC while the Company is salvor-in-possession. To maintain
salvor-in-possession status, the Company, among other things must maintain a
reasonable presence at the wreck through periodic expeditions and continue
salvage efforts and the preservation of artifacts during the period between
salvage expeditions.
In February 1996, a third-party instituted a motion in the District Court
seeking rescission of the June 7, 1994 order awarding salvor-in-possession
status to the Company. By an order dated May 10, 1996, the motion was denied.
The Court also modified its June 1994 order to require the Company to file more
frequent reports about its activities. In August 1996, the Court amended the May
1996 order to include an award to the Company of exclusive rights to photograph
and video the TITANIC within the award of salvor-in-possession status, and
enjoined third parties from entering the wreck site for purposes of obtaining
photography or video footage or for other purposes.
An unrelated entity announced the intention of conducting a photographic
expedition, known as Operation TITANIC, to the TITANIC wreck site during August
1998, when the Company intended to conduct its 1998 expedition. The Company
commenced legal proceedings and obtained an injunction prohibiting such
photographic expedition during August 1998 or at any other time so long as the
Company is salvor-in-possession of the wreck and wreck site of the TITANIC.
Notwithstanding such injunction, the Operation TITANIC photographic expedition
occurred in September 1998. In March 1999, the District Court's granting of an
injunction prohibiting the photographic expedition was reversed by the United
States Court of Appeals for the Fourth Circuit (the "Fourth Circuit"). The
Company appealed the reversal of the District Court's determination to the
United States Supreme Court. The Supreme Court declined to review this matter in
October 1999. As a result, the Company has not enjoyed exclusive photographic
and video rights to the TITANIC since that time. The loss of exclusive
photographic rights could continue to have a materially adverse affect upon the
Company's ability to generate revenues from ancillary activities, such as
television productions, or passenger cruises accompanying research and recovery
expeditions There was not a television or video contract for the Company's last
TITANIC expedition in 2000.
On April 12, 2002, the Fourth Circuit affirmed two orders of the District Court
in which the Company is a party ("R.M.S. Titanic, Inc. v. The Wrecked and
Abandoned Vessel . . ."). These orders, dated September 26, 2001 and October 19,
2001, restricted the sale of artifacts recovered by the Company from the RMS
Titanic wreck site. In 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, and a salvor's lien, but not title, pending
determination of a salvage award. This opinion conflicts with previous rulings
that were rendered by both the Fourth Circuit in "R.M.S. Titanic, Inc. v. Haver,
et al" and the District Court all of which rulings the Company relied upon in
the conduct of its business. Furthermore, based on the June 7th 1994 Order of
the District Court, the Company believed it was the exclusive owner of the
artifacts. The Company petitioned the Supreme Court to hear its appeal of the
April 12, 2002 decision of the Fourth Circuit. However, the Company's Petition
for Certiorari was denied on October 7, 2002.
In its April 12, 2002 Opinion, the Fourth Circuit indicated that the Company, as
salvor, has a lien in the previously recovered artifacts and that it is
necessary for the District Court to determine the Company's salvage award and
satisfy the award with the proceeds from a sale of the artifacts. Should it
become apparent to the District Court that the proceeds of any sale would
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clearly be inadequate to pay the salvor its full reward, then the court might,
as a matter of discretion, award the salvor title to the property in lieu of the
proceeds of sale, thus saving the costs of sale. The salvor does not have a
direct right, however, to title in the property. As a result of the Fourth
Circuit's opinion, the Company does not own the artifacts under the jurisdiction
of the United States District Court for the Eastern District of Virginia,
Norfolk Division but instead has a salvor's lien and possession.
SALVAGE AWARD
The process to determine what award should be granted to the Company for its
efforts, undertaken in the salvage of artifacts from the TITANIC is left to the
discretion of the District Court. In this process of determining the appropriate
award, courts generally rely on the six factors set out in The Blackwall, 77.
U.S. (10 Wall.) 1,14 (1869) that includes: (1) the labor expended by salvors in
rendering the salvage service; (2) the promptitude, skill, and energy displayed
in rendering the service and saving the property; (3) the value of the property
employed by salvors in rendering the service, and the danger to which such
property was exposed; (4) the risk incurred by salvors in securing the property
from the impending peril; (5) the value of the property saved; and (6) the
degree of danger from which the property was rescued.
Although the method for obtaining a salvage award is established in the federal
court system, any amount awarded is subject to considerable latitude by the
judge presiding over the case. The Company in its salvor in possession
proceedings has been subject to the jurisdiction of the Federal Court in Norfolk
since 1994. During this period, representations have been made regarding keeping
the artifacts recovered from RMS TITANIC wreck site together for the benefit of
the viewing public.
What could be awarded the Company for its salvor efforts? The court will grant
an award based upon the Blackwall factors, in accordance with the Fourth
Circuit's opinion. Such an award may vary from a monetary award to complete
ownership of the artifacts. There could be a substantial variance in the value
of an award because a District Court judge has substantial discretion as to what
is an appropriate award when weighing and evaluating the Blackwall factors. It
is impossible for management to anticipate what value the court will determine
for an award. The Court and the Company are of a single mind that the artifact
collection should be kept together in the public interest. Management believes,
under these circumstances, it may be a prudent decision to donate the TITANIC
artifact collection to a nationally recognized museum in order to preserve
status quo of the collection and to preserve the business exhibition opportunity
for the Company. Such an undertaking will provide long-term benefit to the
shareholders.
PRESENT OPERATIONS
The TITANIC continues to captivate the thoughts and imagination of millions of
people throughout the world since 1912, when it struck an iceberg and sank in
the North Atlantic, causing the loss of more than 1,500 of the 2,228 lives on
board. The depth of this international interest in the TITANIC has been
continuous since sinking more than ninety years ago. The December 1997 release
of the highest grossing motion picture of all time, "TITANIC," as well as a
prodigious volume of works that have been published about all facets of its
story, the production of other feature length movies and plays about its tragic
voyage, and the broadcast of television programs about its 1985 discovery and
scientific examinations of the wreck approximately two and one-half miles below
the surface of the ocean attests to the public's continuing fascination with the
TITANIC. As the only enterprise that has recovered and conserved items from the
TITANIC, the Company is in a unique position to present exhibitions of TITANIC
artifacts for viewing by the public. Management intends to continue to present
exhibitions throughout the world as demand warrants. Management will also
continue to conduct these exhibitions in an enlightening and dignified manner
that embodies respect for those who lost their lives in the disaster.
The principal sources of revenue of the Company up to the present time have been
guaranteed payments and applicable overage payments for ticket sales of
admission to exhibitions, merchandising revenues, and sponsorship revenues.
Additional revenues include other merchandise and licensing income.
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RECENT DISTRICT COURT PROCEEDINGS
On April 14, 2003, the Company appeared before the District Court that has
jurisdiction over the Company's salvage case and its status as
salvor-in-possession of the wreck of the RMS TITANIC, to present its latest
Periodic Report of Salvor. At that time, the Company informed the Court that it
has begun initial discussions with the United States government regarding the
potential donation of the Company's salvor-in-possession status to the federal
government. As the Company indicated, such a donation, if accepted, would be
subject to approvals of both the shareholders and the District Court.
The Company further informed the Court that it has begun preliminary discussions
with the Mariners' Museum of Newport News, Virginia, regarding the potential
donation of the Company's TITANIC artifact collection to the Museum. As the
Company indicated, the donation of the artifact collection to the Museum would
involve a long-term agreement allowing the Company to retain rights to exhibit
the artifact collection. As the Company further indicated, the donation to the
Museum is subject to approvals of both the shareholders and the District Court.
While both, the potential donation of the Company's salvor-in-possession status
and the potential donation of the Company's artifact collection, are at an early
stage of development, the Company's Board of Directors endorsed both donation
initiatives. Prior to the April 14, 2003 hearing, the Board of Directors
unanimously agreed to revoke, rescind and void the Board's prior resolution
regarding the unilateral relinquishment of the Company's salvor-in-possession
status.
EXHIBITIONS
The Company has presented exhibitions in association with third parties
throughout the world and nearly twelve million people have attended these
exhibits. The Company plans to continue to present exhibitions of TITANIC
artifacts.
Agreement with Subsidiary of Clear Channel Communications, (formerly SFX
Entertainment, Inc.)
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
SFX was granted an exclusive worldwide license to exhibit TITANIC artifacts for
the payment of at least $8.5 million 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 between the Company and SFX Family Entertainment, Inc.,
successor to Magicworks Entertainment, Inc. Furthermore, the last agreement now
extends the license until December 31, 2003. Each amendment required a
guaranteed minimum annual payment of $2,000,000. For the two amendment periods
ended November 31, 2001 and January 3, 2003, the Company received payments of
$616,000 and $683,242, respectively, over the guaranteed minimum annual payments
pursuant to the revenue sharing provisions of the agreement. The most recent two
amendments were with Clear Channel Exhibitions, Inc. ("CCE"), formerly known as
SFX Family Entertainment, Inc.
From 1997 through the present time, exhibitions of objects recovered from the
TITANIC were presented in association with the Company in the following cities
and countries: Norfolk, Virginia from November 1996 until March 1997; Memphis,
Tennessee from April 1997 to September 1997; Hamburg, Germany from May 1997 to
September 1998; at the Queen Mary in Long Beach, California from May 1997 to
March 1999; in St. Petersburg, Florida from November 1997 to May 1998; in
Boston, Massachusetts from July 1998 through November 1998; in Zurich,
Switzerland from November 1998 through May 1999; in St. Paul, Minnesota from
January through May 1999; a tour of several cities in Japan from July 1998
through July 1999; Atlantic City, New Jersey from May until September 1999; Las
Vegas, Nevada from January 1999 through October 2000; Chicago, Illinois from
February through October 2000; Dallas, Texas from March through June 2000;
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Cincinnati, Ohio from November 2000 through March 2001; in Seattle, Washington
from March to October 2001; Kansas City, Missouri from April to September 2001;
Baltimore, Maryland from April 2001 to February 2002; Nashville, Tennessee from
May to September 2001; St. Louis, Missouri from December 2001 to April 2002; a
South American tour included Buenos Aires, Argentina from April to June 2001 and
Santiago, Chile from August to December 2001; in Phoenix, Arizona from December
2001 to June 2002; Norwalk, Connecticut from January to September 2002,
Cleveland, Ohio from March to September 2002; Houston, Texas from May 2002 to
January 2003; in Chicago, Illinois, a second time, from July 2002 to January
2003; Richmond, Virginia from October 2002 to January 2003; and Lafayette,
Louisiana from February to May, 2003.
Current Exhibitions
CCE is presenting TITANIC exhibits in association with the Company in Oklahoma
City, Oklahoma; Detroit, Michigan; Los Angeles, California; London, England and
Paris, France. An exhibition is also being presented in association with the
Maryland Science Center at the Children's Museum of Indianapolis, Indianapolis,
Indiana.
Exhibition Plan
A plan has been undertaken to have the Company conduct its own TITANIC
exhibitions beginning at the end of the present license agreement with CCE. This
plan would require the Company to expand to efficiently and effectively manage
exhibition projects beginning after that date. The intent is to continue the
TITANIC exhibits in both international and domestic venues. The Company's sole
control of all aspects of the TITANIC exhibitions would provide an opportunity
for that business to be expanded to other formidable presentations of similar
quality and substance.
MERCHANDISING
The Company has an ongoing arrangement with Events Management, Inc. (the gift
shop operator at all domestic Exhibits) and receives monthly payments for
certain items that are sold in the Exhibit gift shops, on their web-site and
marketed through other channels of distribution. These payments equal ten
percent of gross revenue received from sales to third parties and an amount
equal to five percent of the retail price on products bearing the Company's
logos or incorporating those proprietary rights. The Company participates in all
other income from gift shop sales through its contract with CCE. Certain items
such as coal recovered from the TITANIC wreck site are sold directly by the
Company to third parties including Events Management Inc. An exhibit catalog is
published by the Company and the profits from sales at exhibits are presently
shared equally between CCE, Events Management Inc., and the Company.
MARKETING
The Company has developed several retail products utilizing coal from the
TITANIC that have been incorporated into jewelry and necklaces. The Company
intends to continue developing such products to increase its merchandizing
revenues. The Company also intends to pursue the direct marketing of merchandise
and archive through its web site (http://www.rmsTITANIC.net) and through third
parties.
The marketing and promotion of TITANIC Exhibitions is handled and paid for by
CCE and other third parties involved with the presentation of exhibits.
EXPEDITIONS TO THE TITANIC
With the depth of the TITANIC wreck approximately two and one-half miles below
the surface of the ocean in the North Atlantic, the Company is dependent upon
chartering vessels outfitted with highly advanced deep sea technology in order
to conduct expeditions to the site. In its 1987, 1993, 1994, 1996, and 1998
expeditions, the Company entered into charter agreements with IFREMER, pursuant
to which IFREMER supplied the crew and equipment necessary to conduct research
7
and recovery efforts. In addition to utilization of the research vessel NADIR,
recovery efforts were undertaken through the manned submersible NAUTILE. Small,
hard-to-reach areas necessary for visual reconnaissance efforts were accessed by
a small robot, known as ROBIN, controlled by crewmen on board the NAUTILE. The
dive team had the capability of retrieving heavy objects, such as a lifeboat
davit weighing approximately 4,000 lbs. to fragile objects weighing but a few
ounces. Because of the immense pressure of approximately 6,000 pounds per square
inch at the wreck site, it is impossible for a dive team to reach such depths
and explore the wreck site through any means other than a submersible. The
NAUTILE and ROBIN were each equipped with video and still cameras that recorded
all recovery and exploration efforts. In connection with its 1987, 1993, 1994,
1996, 1998, and 2000 expeditions to the wreck site, the Company engaged maritime
scientists and other professional experts to assist in the exploration and
recovery efforts.
In its most recent recovery operation in Expedition 2000, the Company conducted
twenty-eight dives over a four-week period that recovered more than 900 items
from the wreck site, which included the discovery of a new debris field. Among
the artifacts recovered in this expedition, were: the ship's Wheel and Stand,
whistle control timer from the navigation bridge, the main telegraph base and
the docking bridge telephone. Personal items recovered included binoculars, a
pair of opera glasses, sixty-five intact perfume ampoules, a camera, bowler hat,
first class demitasse and dinner plate. A base for a bronze cherub likely from
the Grand Staircase was recovered as well as gilded wood from a balustrade. The
nine leather bags found provided more than one hundred items. Some medicinal
items were recovered that included a cobalt blue bottle that reads: BROMOSELTZER
EMERSON DRUG CO. BALTIMORE MARYLAND. For the first time, two toilets, a wok, an
intact deck light, circulating fans, thermometers, four eggcups, and a metal
megaphone were recovered.
The Company's ability to conduct expeditions to the TITANIC has been subject to
the availability of necessary research and recovery vessels and equipment for
chartering by the Company during the months between June and September, which is
the "open weather window" for such activities. Research and recovery efforts
with a manned submersible are presently limited to the availability and the
co-operation with: NAUTILE through charter arrangements with IFREMER and MIR I
and MIR II using charter arrangements with P.P. Shirshov Institute of
Oceanology. To the Company's knowledge, no other submersible with the capability
of reaching the depth of the TITANIC is presently commercially available or
acceptable to the Company for such chartering.
On September 14, 2002, the Board of Directors of the Corporation unanimously
adopted a Corporate Resolution providing that the Company has completed the
salvage service that it intends to perform on the wreck of the TITANIC; the
Company shall voluntarily surrender its status as salvor-in-possession of the
wreck of the TITANIC; the Company shall proceed to move the District Court for
the entry of a full and final salvage award pursuant to the ruling of the Fourth
Circuit.
Among the considerations that were reviewed prior to the decision of the Board
of Directors of the Company were the opinion of the Fourth Circuit 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. Subsequently, on
April 5, 2003 the Board of Director's rescinded the unilateral relinquishment of
the Company's salvor-in-possession status and instead endorsed an initiative to
explore donating the Salvor status to the United States Government. No
additional action has been taken on this matter since then.
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EXPEDITION TO THE CARPATHIA
The Company plans a recovery operation to the RMS CARPATHIA wreck location to
recover objects that the Company owns as a result of its purchase of ownership
rights for that vessel. At the present time, no definitive schedule has been set
for this endeavor.
RESTORATION AND CONSERVATION
Upon recovery from the TITANIC wreck site, artifacts are in varying states of
deterioration and fragility. Having been submerged in the depths of the ocean
for more than 90 years, objects have been subjected to the corrosive effects of
chlorides present in seawater. The restoration of many of the metal, leather,
and paper artifacts requires the application of sophisticated electrolysis and
other electrochemical techniques. Some of the artifacts recovered from the 1987
expedition were restored and conserved by the laboratories of Electricite de
France, the French government-owned utility. Except for un-restored artifacts
that are currently being exhibited, many of the artifacts recovered from the
1987,1993, 1994, 1996 and 1998 expeditions have undergone conservation processes
at LP3, a privately-owned conservation laboratory in Semur-en-Auxois, France.
Essentially all TITANIC artifacts that are not being exhibited as part of the
present Exhibition Tour Agreement are presently housed in the Company's
conservation and warehouse facility located in Atlanta, Georgia.
SCIENCE AND ARCHAEOLOGY
TITANIC was a great luxury liner that bequeathed to the world a classic story of
tragedy at sea. Today, this shipwreck is treated as an archaeological site,
historic structure, attraction for adventure tourism, ecological phenomenon,
international memorial, and as valuable property to be recovered and shared with
humanity. The Company as salvor-in-possession of the TITANIC shipwreck believes
that all of these purposes are legitimate and beneficial to society. The Company
also believes that the multiple values of TITANIC and its status as a
social-cultural icon demand the perspectives of many experts in scientific
interpretation and stewardship of the site.
The Company is in the best position to provide for archaeological survey,
scientific interpretation, and stewardship of the TITANIC shipwreck. The Company
possesses the largest collection of data, information, images, and cultural
materials associated with the shipwreck. The Company has developed a partnership
with the Center for Maritime & Underwater Resource Management, a nonprofit
corporation, for services in archaeology, scientific research, and resource
management.
The Company intends to present its collection of knowledge and cultural
materials of TITANIC to researchers, educators, and other audiences in the form
of a scientific report, associated interactive website, and other intellectual
products that advance the purposes of the Company. Revenues from the sale of
these intellectual products are expected to at least meet the total production
costs. The scientific report will integrate the results of all expeditions to
TITANIC wreck site since its discovery. In addition, the publication will
include the first comprehensive site plan of the TITANIC, which will assist
greatly in determining future products in research, materials conservation, and
education. The interactive website will virtually share with the world this
scientific knowledge as well as its entire collection of cultural materials.
9
COMPETITION
The entertainment and exhibition industries are intensely competitive. There can
be no assurances given the Company's limited capital resources that we will be
able to compete effectively. Many enterprises with which the Company will be
competing have substantially greater resources than the Company. Additionally,
following the success of the motion picture "TITANIC" in December 1997, a number
of entities have undertaken, or announced an intention to offer, exhibitions or
events with the theme of TITANIC or involving memorabilia related to its
sinking. Although the Company is the only entity that exhibits artifacts
recovered from the wreck site of the TITANIC, competition may be encountered
from these exhibitions or events for the consumer's interest in TITANIC or the
Company's TITANIC exhibitions. Management intends to compete with other entities
based upon the mass appeal of its planned exhibits to consumers of
entertainment, museum, scientific and educational offerings, and the quality and
value of the entertainment experience. The Company will emphasize the unique and
distinctive perspective of the TITANIC into its exhibits as salvor-in-possession
and as the only entity that has ownership rights to objects recovered from the
wreck site.
The success of the Company's merchandising efforts will depend largely upon the
consumer appeal of its merchandise and the success of its exhibitions.
Management believes that its merchandise will compete primarily because of its
unique character and quality.
EMPLOYEES
As of June 2, 2003, the Company had eight employees. The Company is not a party
to any collective bargaining agreement.
ENVIRONMENTAL MATTERS
The Company will be subject to environmental laws and regulation by federal,
state and local authorities in connection with its planned exhibition
activities. The Company does not anticipate that the costs to comply with such
laws and regulations will have any material effect on the Company's capital
expenditures, earnings, or competitive position.
ITEM 2. DESCRIPTION OF PROPERTY
The Company has its principal executive offices located at Tower Place, 3340
Peachtree Road N.E., Suite 1225, Atlanta, Georgia. This space of approximately
2,759 square feet is used for management, administration, and marketing for its
operations. The lease commenced on April 18, 2000 and is for a five-year term
and requires base lease payments of $64,836 annually.
The Company has a thirty-eight month lease obligation commencing November 1,
2001 for approximately 10,080 square feet of space at an undisclosed location
for security purposes in Atlanta, Georgia. This facility is used for
conservation, restoration, and storage of TITANIC artifacts. The monthly rents
are $5,460 through October 31, 2002; and thereafter $6,090 through October 21,
2003 and finally $6,720 through December 31, 2004.
ITEM 3. LEGAL PROCEEDINGS
The United States Department of State and the National Oceanic and Atmospheric
Administration of the United States Department of Commerce ("NOAA") are working
together to implement an International 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 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
10
TITANIC. The Agreement, as drafted, does not recognize the existing rights of
the Company in the TITANIC, that has been re-affirmed in the District Court and
affirmed by the Court of Appeals of the Fourth Circuit, and provides that the
Agreement becomes effective 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, 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 that have already been recovered,
but management does not know what effect, if any, this Agreement will have on
future Company operations.
On May 10, 2001, the Company received a subpoena duces tecum from the Securities
and Exchange Commission requesting 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
has complied with the subpoena.
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 alleged
that the Company breached an employment agreement entered into between him and
the Company, that he was damaged by the breach, that he was wrongfully
terminated and had been defamed. The Company denied the validity and
enforceability of the employment agreement. Moreover, the Company filed a
counter-suit against Mr. Harris and others, to recover monies that the Company
believed were misappropriated. On April 23, 2003, after a jury trial, a verdict
was rendered that affirmed the unenforceability of any of Mr. Harris' employment
agreements and further found that $70,000 of Company monies were misappropriated
by Mr. Harris and others. These matters are subject to appeal.
On January 27, 2000, the Company was served with a lawsuit by Oceaneering
International, Inc. for monies purportedly owed under a June 27, 2000 contract
for maritime services for the Company's Expedition 2000. The Company filed an
answer that included a setoff for damages. 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 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 claimed 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. In July
2002, the matter was settled between the parties whereby the Company agreed to
pay $388,000 over a thirty-month period, releases were exchanged and certain
restrictive covenants were agreed upon, among other considerations.
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 in which the Company is a
party ("R.M.S. Titanic, Inc. v. The Wrecked and Abandoned Vessel . . ."). These
11
orders, dated September 26, 2001 and October 19, 2001, restricted the sale of
artifacts recovered by the Company from the RMS TITANIC wreck site. In 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 in "R.M.S.
Titanic, Inc. v. Haver, et al" and the District Court all of which rulings the
Company relied upon in the conduct of its business. Furthermore, based on a June
7th 1994 order of the District Court, the Company believed it was the exclusive
owner of the artifacts. The Company petitioned the United States Supreme Court
to hear its appeal of the April 12, 2002 decision of the Fourth Circuit.
However, the Company's Petition for Certiorari was denied on October 7, 2002.
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. 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 by Joe Marsh, as a principal shareholder of the Company. Subsequently, Mr.
Banker and Mr. Cretan, both directors of the Company, were dismissed from this
proceeding for lack of any personal jurisdiction. The Company has an obligation
to pay for the defense expenses of its officers and directors under
indemnification agreements. 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 intends to vigorously defend itself and its officers and directors
in this matter.
ITEM 4. SUBMISSION OF MATTERS OF VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. PRICE RANGE OF SECURITIES
(a) MARKET INFORMATION. The Company's Common Stock is traded on the
over-the-counter market on a limited and sporadic basis. The following
table sets forth the range of high and low bid quotations of the
Company's Common Stock for the periods set forth below, as reported by
OTC Bulletin Board of NASDAQ Trading & Market Services. Such
quotations represent inter-dealer quotations, without adjustment for
retail markets, markdowns or commissions, and do not necessarily
represent actual transactions.
(b) FISCAL PERIOD COMMON STOCK
HIGH LOW
BID BID
2003
--------
1st Quarter 0.35 0.15
2nd Quarter 0.29 0.19
3rd Quarter 0.29 0.09
4th Quarter 0.14 0.05
12
2002
--------
1st Quarter 1.20 0.42
2nd Quarter 0.85 0.65
3rd Quarter 0.80 0.39
4th Quarter 0.55 0.34
2001
--------
1st Quarter 2.83 1.03
2nd Quarter 3.13 1.39
3rd Quarter 1.75 0.56
4th Quarter 1.44 0.41
(b) HOLDERS. The number of holders of record of the Company's Common Stock
as of May 30, 2003 was 1895.
(c) DIVIDENDS. The Company has not paid or declared any dividends upon its
common stock since its inception, and intends to reinvest earnings, if
any, in the Company to obtain growth. Accordingly, the Company does
not contemplate or anticipate paying any dividends upon its common
stock in the future.
ITEM 6. SELECTED FINANCIAL INFORMATION
The selected financial data set forth below is qualified by reference to, and
should be read in conjunction with, the Financial Statements and Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K. The selected financial data
have been derived from the Company's Financial Statements that have been audited
by independent certified public accountants. The financial statements as of
February 28, 2003, February 28, 2002, and February 28, 2001 and for each of the
three years in the period ended February 28, 2003 is included elsewhere in this
Form 10-K.
YEAR ENDED FEBRUARY 28(29)
1999 2000 2001 2002 2003
- -------------------------------------------------------------------------------------------------------
Statement of Operations Data:
(In thousands, except per share
and weighted average shares)
Revenues:
Continuing operations $ 9,857 6,433 5,699 2,768 2,861
Discontinued operations -- -- 14 504 --
Net income (loss):
Continuing operations $ 4,063 (21) 36 (7,260) (827)
Discontinued operations -- -- (88) (168) --
Gain on sale 644
Income (loss) per share:
Continuing operations $ .25 -- -- (.38) (.04)
Discontinued operations -- -- -- -- --
Weighted average number of
common shares
outstanding 16,187,128 16,187,128 16,732,991 18,058,573 18,615,294
13
FEBRUARY 28(29), 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------------------------------
Balance Sheet Data:
(In thousands)
Total Assets $ 13,910 15,372 15,002 8,839 8,399
Long Term Obligations -- -- -- -- --
Total Liabilities $ 2,410 3,569 2,251 1,497 1,849
Shareholders' Equity $ 11,500 11,803 12,751 7,342 6,550
Selected Quarterly Financial Information (unaudited)
(in thousands, except per share data)
Period ended 5/31/02 8/31/02 11/30/02 2/28/03
- ---------------------------------------------------------------------------------------------------------
Revenues: $ 565 $ 595 $ 525 $1,176
Expenses: 852 1,237 1,075 822
Net income/(loss): (242) (611) (549) 575
Net income/(loss) per share: (.01) (.03) (.03) .03
Period ended 5/31/01 8/31/01 11/30/01 2/28/02
- ---------------------------------------------------------------------------------------------------------
Revenues:
Continuing operations $ 612 $ 923 $ 780 $ 453
Discontinued operations - 438 66 -
----------------------------------------------
612 1,361 846 453
Expenses:
Continuing operations 827 937 845 7,427
Discontinued operations 111 337 145 79
----------------------------------------------
938 1,274 990 7,506
Net income/(loss):
Continuing operations (213) (12) (65) (6,224)
Discontinued operations (118) 101 (79) (72)
----------------------------------------------
(323) 89 (143) (6,296)
Net income/(loss) per share:
Continuing operations (.01) .00 .00 (.35)
Discontinued operations (.01) .00 (.01) .00
---------------------------------------------
(.02) .00 (.01) (.35)
The Company has declared no cash dividends. Basic income (loss) per common share
("EPS") is computed as net income (loss) divided by the weighted average number
of common shares outstanding for the period. Diluted EPS is not presented since
there was no effect of potential common shares or the dilution effect of such
potential common shares is not material.
ITEM 7. 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.
14
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2003 AS COMPARED
TO YEAR ENDED FEBRUARY 28, 2002
During its fiscal year ended February 28, 2003 ("2003 fiscal year"), Company's
revenues increased to $2,861,000 from $2,768,000 in the fiscal year ended
February 28, 2002 ("2002 fiscal year"). This increase of approximately 3% as
compared to the prior fiscal year is primarily a result of a increase of
$292,000 in the Company's exhibition and related merchandise sales, smaller
increases in merchandise and coal sales during its 2003 fiscal year as compared
to 2002 fiscal year that more than offset a decline in licensing fees.
The Company's revenue from the sale of coal increased from $62,000 to $94,000 or
approximately 52% during the 2003 fiscal year as compared to the 2002 fiscal
year as the Company has incorporated coal into jewelry items that have been well
received by patrons at the TITANIC exhibits.
The Company's cost of coal sold which now includes other related costs for the
jewelry items increased approximately 483% from $6,000 to $35,000 during the
2003 fiscal year as compared to the 2002 fiscal year as a result of an increase
in the cost of components.
General and administrative expenses of the Company decreased $582,000, or
approximately 17%, from $3,391,000 in 2002 fiscal year to $2,809,000 in the 2003
fiscal year. Legal expenses continue to be incurred at a high level and amounted
to $833,000 during the 2003 fiscal year as compared to $810,000 during the prior
year. Consulting expenses were reduced during the current year and amounted to
$194, 000 during the 2003 fiscal year as compared to $420,000 in the prior year.
There was also a reduction of $225,000 in compensation paid to personnel during
fiscal year ended 2003 over the prior fiscal year, There were also other reduced
administrative expenses during the current year although not as material.
The Company's depreciation and amortization expenses decreased to $293,000 from
$374,000, or 22%, during the 2003 fiscal year as compared to the 2002 fiscal
year. This decrease is primarily attributed to the reduction in amortization of
certain intangibles related to prospective salvage opportunities for twelve
shipwrecks that the Company acquired in early 2000 for $900,000 and which were
exchanged in May 2001 for the ownership rights to the "RMS CARPATHIA".
During the 2003 fiscal year, the Company incurred a write down of a note
receivable relating to the Danepath transaction in the net amount of $296,000.
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., an affiliated party who owns 1,704,545 shares of
the Company. The purchase price, as amended by Agreement on June 1, 2002, was
for $1.5 million. Danepath's principal asset was 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 was to be paid within six months. This obligation
was collateralized with 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. Subsequently, the note receivable was not paid at
its maturity on October 2, 2002. To avoid a costly international foreclosure
process, the Company entered into a Settlement Agreement whereby the Company
received a cancellation fee from Argosy for $250,000 in the form of a note with
a one-year maturity, cancellation of a vendor payable of $240,000, and
acquisition by deed in lieu of foreclosure of the marine vessel, "SV EXPLORER"
and related marine equipment for consideration of $750,000 in its new wholly
owned United Kingdom subsidiary- Seatron Limited. The ownership of the vessel is
subject to a mortgage with the Company for all monies advanced to this
subsidiary. With this settlement agreement, the Company released Argosy of the
original purchase debt obligation for $1.4 million.
Also during the 2003 fiscal year, the Company settled two lawsuits for a total
charge of $413,000. One of these lawsuits included a one-time charge of $388,000
that includes payments over a thirty-month period and the other required a
one-time payment of approximately $25,000. There were not similar charges during
the 2002 fiscal year, although the Company incurred an impairment charge for
15
artifacts recovered, net of taxes, of $6,148,000 because 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 result, an impairment charge was recorded to reflect this
judicial decision. Total expenses for the fiscal year 2003 decreased to
$3,986,000 from $10,036,000, or 60%, primarily as a result of the reduction in
impairment charges.
The Company's loss from operations decreased to $1,125,000 in the fiscal year
2003 as compared to $7,268,000 in the fiscal year 2002, a decrease of
approximately 85%. Interest income for the 2003 fiscal year amounted to $298,000
as compared to $8,000 in the prior fiscal year. This increase is attributed to
interest derived from the Company's tax refunds received in the final quarter of
the fiscal year.
The Company's loss from continuing operation before provision for income taxes
was $827,000 in fiscal year 2003 and as compared to a loss from continuing
operation of $7,260,000 in the 2002 fiscal year. There was no provision for
income taxes in either fiscal year. Consequently, the net loss from continuing
operations before discontinued operations and an extra-ordinary gain was
$827,000 for the 2003 fiscal year whereas there was a net loss from continuing
operations before discontinued operations and an extra-ordinary gain of
$7,260,000 for the prior fiscal year.
The loss from operations was $827,000 for the 2003 fiscal year as compared to a
loss of $6,784,000 in the prior fiscal year of which included a loss from
operation of discontinued business in the amount of $168,000 and a gain on
disposal of a subsidiary of $644,000.
Basic and diluted earnings per common share were $(.04) and $(.38),
respectively, for the 2003 and 2002 fiscal years. The weighted average common
shares outstanding were 18,615,294 and 18,058,573 for the 2003 and 2002 fiscal
years, respectively.
YEAR ENDED FEBRUARY 28, 2002 AS COMPARED TO YEAR ENDED FEBRUARY 28, 2001
During its fiscal year ended February 28, 2002 (the "2002 fiscal year"), the
Company's revenues decreased to $2,768,000 as compared to $5,699,000 in the
fiscal year ended February 28, 2001 (the "2001 fiscal year"). This decrease of
$2,931,000, or 51%, primarily reflects lower licensing fee income in the 2002
fiscal year. In the 2001 year, licensing fee income benefited from the higher
guaranteed annual payment on the first year of the Exhibition Tour Agreement
with SFX.
Exhibition revenue and related sales were $2,354,000 in the 2002 fiscal year as
compared to $5,464,000 in the 2001 fiscal year for a decrease of $3,110,000, or
57%. This decrease in revenues was principally attributable to lower payments
under the Exhibition Tour Agreement with SFX. SFX declined to renew the
agreement on essentially similar terms during 2001 and consequently a revised
agreement was negotiated which resulted in lower annual guaranteed payments.
The Company's merchandise and other revenues, that included the sale of
merchandise, books and royalty payments, increased to $414,000 from $235,000 in
the prior fiscal year. This increase of $179,000, or 76% is primarily attributed
to the contribution of catalog income from the sale of catalogs at each
exhibition venue during the 2002 fiscal year. There was not any catalog sales in
the 2001 fiscal year. The sale of coal recovered from the TITANIC was $62,000 in
the current fiscal year compared to $67,000 in the prior year. In addition, the
Company received an insurance payment of $95,000 during fiscal year ended
February 28, 2002 for the loss of artifacts in a theft that occurred in
Nashville, Tennessee on January 28, 2001 of 10 coins and nine bank notes that
were recovered from the TITANIC wreck site in 1987.
16
Cost of goods sold were $91,000 for the 2002 fiscal year as compared to $13,000
in the 2002 fiscal year. This increase of $78,000 is primarily attributed to the
costs associated with the catalogs sold during the 2002 fiscal year. There were
no catalogs sales in the prior year's period.
Expenses for expedition costs were only $32,000 for the 2002 fiscal year as
compared to $763,000 in the 2001 fiscal year. During the 2001 fiscal year the
Company undertook the summer of 2000 expedition to the TITANIC wreck site. There
was not a similar expedition conducted during the 2002 fiscal year although a
survey was undertaken in early 2002 in Papua New Guinea territorial waters.
General and administrative expenses were $3,391,000 for the 2002 fiscal year as
compared to $4,405,000 in the 2001 fiscal year. This decrease of $1,014,000, or
23%, is primarily attributed to reductions in consulting expenses, accounting
fees, and legal expenses over the prior year.
Depreciation and amortization expense for the 2002 fiscal year was $374,000 as
compared to $558,000 in the 2001 fiscal year. This decrease of $184,000, or 33%,
is primarily attributed to the reduction of amortization expenses during the
year for intangibles acquired in the 2001 fiscal year that were sold as part of
the CARPATHIA acquisition transaction.
As a result of The United States Court of Appeals for the Fourth Circuit finding
the June 7, 1994 Order ambiguous, the Fourth Circuit reinterpreted the order to
convey only possession, not title, pending determination of a salvage award and
further held that the Company currently has 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. In light of the requirements of SFAS
121-impairment of long-lived assets and SFAS 142-the valuation of non-goodwill
intangibles, the value of a salvor lien that may be granted to the Company is at
present undeterminable and uncertain and cannot be reliably estimated,
management elected to establish an impairment charge of $8.1 million to costs of
artifacts recovered in expeditions that occurred after 1987. This loss was
reduced by expected tax benefits of $2.1 million. The artifacts recovered in the
1987 expedition that the Company was granted by the Government of France remains
a Company asset and is valued at $3.2 million, the cost of their recovery.
There was a loss from continuing operations of $7,268,000 for the 2002 fiscal
year as compared to a loss from operations of $40,000 in the 2001 fiscal year.
The substantial decrease in income from operations is primarily attributed to
the write down of the valuation of artifacts recovered that is attributed to the
recent Fourth Circuit Appellate Court decision. This loss is also attributed to
the lower revenues for fiscal year 2002 while the Company incurred higher
proportionate direct and general and administrative expenses although there were
overall reductions in those expenses.
During the 2002 fiscal year, the Company earned interest income of $8,000 as
compared to $76,000 in the prior year. The Company maintained higher cash
balances during the 2001 fiscal year at higher interest rates.
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, an affiliated party. The purchase price, as amended
by Agreement on June 1, 2002, was $1.5 million. Danepath's principal asset was
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 payable within six months. This
obligation was 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. For the fiscal year 2002, the Danepath subsidiary
had an operating loss of $168,000. The Company realized a gain of $644,000 on
the sale of Danepath for the 2002 fiscal year.
Income (loss) after income taxes for continuing operations was ($7,260,000) for
the 2002 fiscal year as compared to $36,000 in the 2001 fiscal year. For
discontinued operations, the Company had a loss of $168,000 for the 2002 fiscal
year, but realized a gain of $644,000 on the sale of this business. Basic and
17
diluted earnings per common share were $(0.38) and $ -0- for the 2002 and 2001
fiscal years, respectively. The loss per common share for the discontinued
operation was not material. The weighted average common shares outstanding were
18,058,573 and 16,732,991 for the 2002 and 2001 fiscal years, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided in operating activities was $2,526,000 for the fiscal year
2003 as compared to cash used of $441,000 in the 2002 fiscal year. This increase
in cash provided by operating activities for this fiscal year is primarily
attributed to the decreases in prepaid and refundable taxes of $ 1,750,000,
prepaid expenses and other assets of $983,000, and an increase in accounts
payable and accrued liabilities of $405,000 that offset the net loss $827,000.
For the fiscal year 2003, cash used in investing activities included $727,000
for the purchase of a marine vessel and other property and equipment. In the
prior year cash used in investing activities was $23,000 for property and
equipment, primarily leasehold improvements.
The Company's net working capital and stockholders' equity were $1,042,000 and
$6,550,000, respectively, at February 28, 2003 as compared to a working capital
of $2,241,000 and stockholders' equity $7,342,000 at February 28, 2002. The
Company's current ratio was 1.6 at February 28, 2003 as compared to 2.5 at
February 28, 2002. Although the present working capital position has declined
from the prior year, the working capital liquidity has markedly improved with a
cash and cash equivalent balance of $1,945,000 at year-end. This cash balance is
attributed to tax refunds obtained from the utilization of its prior year
impairment charges and the resulting operating loss.
Management has plans to undertake a recovery operation to the RMS CARPATHIA to
recover objects. As the Company owns this vessel, it is the intent of management
to sell and/or exhibit those items recovered.
Management expects that it may require additional outside funding for its plan
to conduct its own exhibitions beginning in 2004. Previously, the Company relied
upon third parties to conduct exhibitions under a licensing arrangement. There
can be no assurances that should outside financing be needed, that the financial
resources can be made available upon reasonable terms and as timely as
management may require for the proper conduct of these and other future
endeavors. If financing is required and it is not available, this could be
detrimental to the Company and its business.
The Company may have sufficient working capital to meet its needs for the next
twelve months. The exhibition tour agreement with CCE is to expire on December
31, 2003. Renewal of that agreement for another year is not anticipated,
although an extension until late Spring of 2004 is anticipated for certain
venues but it is uncertain at the present time what license payments would
result from such extension because they would be dependent upon overage payments
of exhibition revenues exceeding $10,000,000 during the licensing period.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported therein. The estimates that
required management's most difficult, subjective or complex judgments are
described below.
Impairment of assets held for use
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
requires management to assess the recoverability of the carrying value of
long-lived assets when an event of impairment has occurred. Management must
exercise judgment in assessing whether an event of impairment has occurred. The
Company concluded an event of impairment occurred in the carrying values of its
Artifacts in the fourth quarter of the 2002 fiscal year and the company recorded
18
a pre-tax charge totaling $8.1 million. In this circumstance, a judicial ruling
prompted the determination that an assessment for impairment was required.
Management must also exercise judgment in the determination of expected future
cash flows against which to compare the carrying value of the assets being
evaluated. In this measurement, the carrying value far exceeded the expected
cash flows. Management then exercised judgment in determining the fair value of
the assets from which the impairment charge was measured.
In the event that facts and circumstances indicate that the carrying value of
long lived assets, including associated intangibles may be impaired, an
evaluation of recoverability is performed by comparing the estimated future
undiscounted cash flows associated with the asset to the assets carrying amount
to determine if a write down to market value or discounted cash flows is
required.
Probability of litigation outcomes
SFAS No. 5, "Accounting for Contingencies," requires management to make
judgments about future events that are inherently uncertain. In making its
determinations of likely outcomes of litigation matters, management considers
the evaluation of outside counsel knowledgeable about each matter, as well as
known outcomes in case law. See Item 3, "Legal Proceedings" for a detailed
discussion of the key litigation matters the Company faces.
SALVOR-IN-POSSESSION
In order to maintain its salvor-in-possession status as presently required by
the District Court and to prevent third-parties from salvaging the TITANIC wreck
and wreck site, or interfering with the Company's rights to salvage the wreck
and wreck site, the Company may have to commence judicial proceedings against
third-parties. Such proceedings could be expensive and time-consuming.
Additionally, the Company, in order to maintain its salvor-in-possession status,
needs to, among other things, maintain a reasonable presence at the wreck
through periodic expeditions. The Company is actively pursuing the donation of
its salvor status. Maintaining salvor status is entirely dependent upon a
mandate from the District Court in which the Company is subject to jurisdiction.
INTERNATIONAL CURRENCY RISKS
In connection with its activities outside of the United States, the Company is
exposed to the risk of currency fluctuations between the United States dollar
and certain foreign currency. If the value of the United States dollar increases
in relation to the foreign currency, the Company's potential revenues from
exhibition and merchandising activities outside of the United States will be
adversely affected. Although the Company's financial arrangements with its
foreign vendors and exhibition organizers have been based upon foreign
currencies, the Company has sought and will continue to seek to base its
financial commitments and understandings upon the United States Dollar in its
material business transactions so as to minimize the adverse potential effect of
currency fluctuations.
ITEM 8. FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets at February 28, 2002
and February 28,2003 F-2
Consolidated Statements of Operations and Comprehensive
Operations for the years ended
February 28, 2001, 2002 and 2003 F-3
19
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 2001, 2002 and 2003 F-4
Consolidated Statements of Cash Flows for the years ended
February 28, 2001, 2002 and 2003 F-5
Notes to Financial Statements F-7
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Securities
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer, as appropriate, to
allow timely decisions regarding required disclosure.
During the 90-day period prior to the date of this report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer concluded that the Company's
disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, and no corrective actions taken with
regard to significant deficiencies or material weaknesses in such controls,
subsequent to the date of our most recent evaluation of internal controls.
20
PART III
ITEM 10. MANAGEMENT
OFFICERS AND DIRECTORS
The directors, executive officers, and significant employees of the Company are:
Name Age Position
- --------------------------------------------------------------------------------
Arnie Geller 62 President, Chief Executive Officer, Director
Gerald Couture 57 Vice President, Secretary, Director and
Chief Financial Officer
Nick N. Cretan 68 Director
Doug Banker 51 Director
Arnie Geller serves as President and as a director of the Company from his
reappointment in November 1999 as an officer of the Company. Previously he
served as President from May 1993 to May 1995, and has served as a director of
the Company since May 26,1999. Prior to 1993, Mr. Geller had principally been
engaged in various executive capacities in the record industry for approximately
27 years. Mr. Geller was a self-employed corporate consultant prior to his
appointment as President of the Company. Mr. Geller is on the board of the
Titanic Foundation Inc., an unaffiliated non-profit entity.
Gerald Couture serves as Vice President- Finance, Chief Financial Officer and
director of the Company since April 2000. Mr. Couture is a partner and
principal, in Couture & Company, Inc., a private corporate financial consulting
firm formed in 1973. Over the last twenty-five years, Mr. Couture has, through
his consulting firm, been involved in public offerings, mergers and
acquisitions, venture capital investing, crisis management, reorganizations and
the financial management a number of growth enterprises. Mr. Couture is a
director and officer of Alpha Resources, Inc., a registered reporting entity.
Mr. Couture has a MBA from Temple University, Philadelphia, and a B.S. in
Chemical Engineering from the University of Massachusetts.
Nick Cretan has served as a Director of the Company since May 2000. Mr. Cretan
has more than thirty years of management experience including his present
position as Chief Operating Officer of the non-profit Maritime Association of
the Port of New York and New Jersey. He also serves as President of Friends of
the Statue of Liberty, Ellis Island Foundation, President of Friends of Gateway
National Parks Foundation and as Executive Director of the American Merchant
Marine Memorial Foundation. Previously he served as Deputy Director of the San
Francisco Marine Exchange and staff assistant at the National Federation of
Independent Business.
Doug Banker has served as a Director of the Company since August 2000. Mr.
Banker has more than twenty-five years experience in the entertainment industry
that includes providing management services to musicians and recording artists;
marketing, merchandising, licensing, and sales of music media products; the
development and management of concerts and similar events. Mr. Banker is
presently the manager and principal stockholder of Madhouse Management, Inc., a
nationally known firm that represents several prominent music artists.
Previously, he was a principal in Skillet Records LLC, an independent record
label business that provides national distribution for music artists. Mr. Banker
has also authored several commercially significant software programs and was
involved with the management of the enterprises created for their
commercialization. Mr. Banker is former president of the Board of the Motor City
Music Award Foundation in Detroit, Michigan.
21
No family relationship exists between or among any of the members of the board
of directors and executive officers of the Company. Except as disclosed above,
none of the nominees are directors of any other company having a class of equity
securities registered under or required to file periodic reports pursuant to the
Securities Exchange Act of 1934, as amended, or any company registered as an
investment company under the Investment Company Act of 1940, as amended.
The Board of Directors held seven meetings during the fiscal year ended February
28, 2003. At the present time, the Company has no nominating, executive, or
compensation committees. The full board presently functions as the audit
committee.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid to the executive
officers of the Company for the fiscal years ended, February 28, 2001, February
28, 2002 and February 28, 2003 in excess of $50,000.
Long-Term
Compensation
---------------------
Common
Name Other Shares
and Year Annual Subject to
Principal Ended February Compen- Options
Position 28th Salary sation Granted
- -----------------------------------------------------------------------------------------------------
Current Officers:
Arnie Geller(1) (2)
President and Chief
Executive Officer 2003 $331,659 $37,961 -0-
2002 358,463 48,101 500,000
2001 292,220 22,759 875,000
Gerald Couture(3)(4)
Vice President Finance
Chief Financial Officer 2003 $272,467 $51,849 -0-
2002 225,687 113,059 600,000
2001 100,769 5,905 375,000
Former Officers:
G. Michael Harris (5)
Former Vice President and
Chief Operating Officer 2003 -0- -0- -0-
2002 -0- -0- -0-
2001 $ 325,000 $ 710 -0-
Dik Barton (6)
Vice President and
Director of Operations 2003 -0- -0- -0-
2002 $134,361 $ 3,619 -0-
2001 79,073 -0- -0-
22
1. Mr. Geller was appointed President and Chief Executive Officer of the
Company on November 26, 1999. Mr. Geller was elected a director on August
9, 1999. An employment agreement between the Company and Mr. Geller was
executed on February 2, 2002 that provides for an annual base salary of
$330,000 with 5% per year increases. At Mr. Geller's option, he 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. Mr. Geller has been granted stock
options as an officer and director to purchase 1.375 million shares of the
Company's common stock at price ranging from $0.40 to $1.75 per share that
were closing prices of the stock at the respective times of issuance. All
of these options expire in ten years.
2. Includes in other compensation, medical payments including medical
insurance of $24,180 and a car allowance of $12,000 for the current fiscal
year.
3. On April 25, 2000, the Company engaged Mr. Couture as Vice President and
its Chief Financial Officer pursuant to a one-year employment agreement.
After that employment agreement expired Mr. Couture continued to serve as
an officer of the Company with his compensation dependent upon the services
he performed. On February 2, 2002, Mr. Couture and the Company executed a
new employment agreement for a term of four years at an annual base salary
of $270,000 with 5% per year increases. At Mr. Couture's option, he 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. Mr. Couture had previously been
granted 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 closing price of the
stock on April 24, 2000. Mr. Couture received an option to purchase 600,000
shares at a price of $.40 per share that was the closing price of the
Company's common stock on February 1, 2002 as part of an employment
agreement. In addition on February 2, 2002, Mr. Couture's option to acquire
75,000 shares of common stock was reset to an exercise price of $0.40 that
was the closing price of the common stock on February 1, 2002. All of these
options expire in ten years.
4. Includes in other compensation, medical payments including medical
insurance of $20,099, a car allowance of $7,500, an office allowance of
$12,000, and payments to his consulting firm for the professional services
of others of $10,750 for the current fiscal year.
5. Mr. Harris was appointed Executive Vice President and Chief Operating
Officer of the Company on November 26, 1999. Mr. Harris was elected a
director on August 9, 1999. Mr. Harris' employment was terminated on August
27, 2000 and he was removed from the Board of Directors on September 12,
2000. During the year, Mr. Harris was issued a stock option which was
cancelled at the time of his termination. See "LEGAL PROCEEDINGS."
6. On May 6, 2001 Mr. Barton previously a consultant to the Company became a
Vice President and Director of Operations for the Company with the
execution of a three year employment agreement at a annual salary of
$130,000 for the first year, $143,000 for the second year and $157,000 for
the final year. As part of his compensation, Mr. Barton was issued options
to purchase 250,000 shares of the Company's common stock at an exercise
price of $0.88 per share, the common stock price at the time of the grant.
This stock option had a five-year term but expired by its terms during June
2002. On March 22, 2002, Mr. Barton resigned as an officer of the Company
and became a consultant to the Company. Mr. Barton resigned as a consultant
during June 2002.
Option Exercises and Holdings
No executive officer of the Company exercised any stock options during the
fiscal year ended February 28, 2003.
23
Compensation of Directors
The Company presently compensates all directors by issuing 25,000 shares of
common stock for appointment as a director and subsequently, options to purchase
common stock of the Company for each year of service. On January 27, 2000, each
director was granted an option to purchase 75,000 shares of the common stock of
the Company at an exercise price of $1.15 that was the closing price of the
Company's common stock as of January 26, 2001. The purpose of this grant of
options and shares of common stock was to align the interests of the directors
with that of the Company's shareholders. On February 2, 2002 the strike price
for these options were reset to $0.40 the closing price of the Company's common
stock as of February 1, 2002. During fiscal year 2003, the two independent
directors were granted 100,000 shares of common stock each, having a fair market
value of $24,000, for their continued services on behalf of the Company with the
issuance of this common stock deferred until the second quarter of fiscal year
2004. During fiscal year 2002, each of the two independent directors received
cash compensation for meeting attendance of $2,100.
ITEM. 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table enumerates, as of June 3, 2003, the name, address, and
ownership, both by numerical holding and percentage of interest, of each
beneficial owner or more than five percent (5%) of the Company's outstanding
Common Stock, the directors of the Company, individually, and its directors and
executive officers as a group.
Amount
Name and Address of Beneficially Common Stock
Beneficial Owner Class Owned Percentage
- ------------------------------------------------------------------------------------------
Joe Marsh (1) Common 2,833,768 15.3
605 Southside Drive
Akron, Ohio 44317
William S. Gasparrini Common 2,328,937 12.6
23 Oak Street
Greenwich, CT 06831
Argosy International , Ltd. Common 1,704,545 9.2
PO Box 260
Providenciales
Turks & Caicos, B.W.I.
Arnie Geller (2)
c/o RMS Titanic, Inc. Common 1,475,000 8.0
3340 Peachtree Road, N.E, Suite 1225.
Atlanta, GA 30326
Nick Cretan (3) Common 25,000 --
Suite 913
17 Battery Place
New York, NY 10004
Gerald Couture (4) Common 358,764 1.9
901 Chestnut Street, Suite A
Clearwater, FL 33756
Doug Banker (5) Common 25,000 --
6508 Crane Road
Ypsilanti, MI 48197
All Officers and Directors as a Group Common 1,883,764 10.1
(4 persons)
24
(1) Includes Mr. Marsh's latest Form 13D filing.
(2) Common stock held as tenancy by the entireties with his wife. Excludes
options to purchase 1,375,000 shares of common stock.
(3) Excludes options to purchase 75,000 shares of common stock.
(4) Excludes options to purchase 975,000 shares of common stock.
(5) Excludes options to purchase 75,000 shares of common stock.
Other than as set forth above, the Company is not aware of any other
stockholders who beneficially own, individually or as a group, 5% or more of the
outstanding shares of Common Stock.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's outstanding shares of Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports that they
file.
At the present time all officers and directors are current in their Forms 3 and
4 filings for the fiscal year ended February 28, 2003. The Company is aware of
one beneficial owner who owns of more than 10% of the Company's Common Stock who
has not filed a report as required by Section 16 of the Securities Exchange Act
of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 1, 2002, an extension was granted to Clear Channel Entertainment
Exhibits, Inc., a Delaware corporation formerly known as SFX Family
Entertainment, Inc. pursuant to which, among other things, the Company licensed
the worldwide rights to exhibit the Company's TITANIC artifacts for the period
commencing on January 6, 2003 until December 31, 2003.
A consulting firm in which the Company's Chief Financial Officer is a principal,
has rendered services to the Company for the time of other professionals.
Payment for these services amounted to $10,750, $7,415, and $5,905 for fiscal
years 2003, 2002, and 2001, respectively.
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., an affiliated party who owns 1,704,545 shares of
the Company. The purchase price, as amended by Agreement on June 1, 2002, was
for $1.5 million. Danepath's principal asset was 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 was to be paid within six months. This obligation
was collateralized with 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. Subsequently, the note receivable was not paid at
its maturity on October 2, 2002. In order to avoid a costly international
foreclosure process, the Company entered in a Settlement Agreement whereby the
Company received a cancellation fee for $250,000 from Argosy in the form of a
note with a one-year maturity, cancellation of a $240,000 vendor payable, and
acquired by deed in lieu of foreclosure the marine vessel, "SV EXPLORER" and
related marine equipment for consideration of $750,000 in its new wholly owned
United Kingdom subsidiary - Seatron Limited. The ownership of the vessel is
subject to a mortgage with the Company for all monies advanced to this
subsidiary. With this settlement agreement, the Company released Argosy of the
original purchase debt obligation for $1.4 million.
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
The following documents are filed as part of this Report on Form 10-K:
(a) Financial Statements. The following financial statements of the Company are
included in this Annual Report:
Independent Auditors' Report F-1
Consolidated Balance Sheets at February 28, 2002
and February 28, 2003 F-2
Consolidated Statements of Operations
and Comprehensive Operations for the years ended
February 28, 2001, 2002 and 2003 F-3
Consolidated Statements of Stockholders' Equity
for the years ended February 28, 2001, 2002 and 2003 F-4
Consolidated Statements of Cash Flows for the years ended
February 28, 2001, 2002 and 2003 F-5
Notes to Financial Statements F-7
(b) Reports on Form 8-K
None.
(c) Exhibits.
3.1 Articles of Incorporation, as amended.
4.1 First Amendment to By-Laws of the Registrant.
4.2 Second Amendment to By-Laws of the Registrant.
9.1 Voting Trust Agreement among Titanic Ventures Limited Partnership,
George Tulloch, Allan H. Carlin, Arnie Geller, G. Michael Harris, Kurt
Hothorn, Cheryl Hothorn, Westgate Entertainment Corp., Anne A. Hill,
Diane Carlin, Shirley A. Hill, James A. Hill, and D. Michael Harris.
10.1.1 Lease Agreement between the Company and 17 Battery Place North
Associates.
10.1.2 Lease Agreement between the Company and Tower Park Place
10.2 Agreement dated April 15, 1996 between the Company and CRE-CO Finanz
GmbH.
10.13 1998 Charter Agreement with IFREMER.
10.14 1998 Charter Agreement with Oceaneering International, Inc.
26
10.20 Promissory Note dated January 5, 1999 executed by George Tulloch in
favor of the registrant.
10.21 Pledge Agreement dated January 5, 1999 between George Tulloch and the
registrant.
10.22.1 Exhibition Tour Agreement dated March 31, 1999 between the Company and
Magicworks Entertainment Inc. is incorporated by reference to the
Company's report on Form 10-Q for the fiscal quarter ended May 31, 1999.
10.22.2 Agreement dated April 18, 2000 by and among Whitestar Marine Recover,
Ltd., Argosy International, Ltd. Graham Jessop and the Company.
10.22.3 Agreement dated April 18, 2000 by and among the Company, Argosy
International, Inc. and Graham Jessop.
10.22.4 Agreement dated May 7, 2001 by and among the Company, Argosy
International, Inc. and Graham Jessop.
10.23 Lease dated March 27, 2000 for offices in Atlanta, Georgia.
10.23.1 Employment Agreement dated April 25, 2000 between the Company and Gerald
Couture.
10.23.2 Stock Option Agreement dated April 25, 2000 between the Company and
Gerald Couture.
10.23.3 Employment Agreement dated June 29, 2000 between the Company and Arnie
Geller is incorporated by reference to the Company's report on Form 10-Q
for the fiscal quarter ended August 31, 2000.
10.23.4 Stock Option Agreement dated June 29, 2000 between the Company and Arnie
Geller is incorporated by reference to the Company's report on Form 10-Q
for the fiscal quarter ended August 31, 2000.
10.23.5 Employment Agreement dated June 29, 2000 between the Company and G.
Michael Harris is incorporated by reference to the Company's report on
Form 10-Q for the fiscal quarter ended August 31, 2000.
10.23.6 Stock Option Agreement dated June 29, 2000 between the Company and G.
Michael Harris is incorporated by reference to the Company's report on
Form 10-Q for the fiscal quarter ended August 31, 2000.
10.23.7 Employment Agreement dated May 6, 2001 between the Company and Dik
Barton.
10.23.8 Employment Agreement dated February 2, 2002 between the Company and
Arnie Geller.
10.23.9 Employment Agreement dated February 2, 2002 between the Company and
Gerald Couture.
10.24 The Company's 2000 Stock Option Plan and form of stock option.
10.30 Amendment to Exhibition Tour Agreement, dated September 18, 2000,
between the Company and SFX Family Entertainment Inc.
10.31 Second Amendment to Exhibition Tour Agreement, dated May 7, 2001 between
the Company and SFX Family Entertainment Inc.
10.32 Third Amendment to Exhibition Tour Agreement, dated March 7, 2002
between the Company and SFX Family Entertainment Inc.
27
10.33 Fourth Amendment to Exhibition Tour Agreement, dated May 1, 2002 between
the Company and Clear Channel Entertainment Exhibits, Inc.
10.34 Form of lease dated October 16, 2001 for offices and warehouse in
Atlanta, Georgia.
10.35 Agreement dated April 2, 2002, between the Company, Argosy International
Ltd, Danepath Ltd and Graham Jessop.
10.36 Stock Pledge Agreement dated April 2, 2002, between the Company and
Argosy International, Ltd.
10.37 Deed of Covenant from Danepath Ltd. to the Company.
10.38 Letter Modification Agreement dated April 4, 2002, between the Company,
Argosy International Ltd., Danepath Ltd. and Graham Jessop.
10.39 United States Court of Appeals R.M.S. Titanic, Inc. v. The Wrecked and
Abandoned Vessel. Opinion No. 01-2227
10.40 Motion for Stay of Mandate as filed on April 22, 2002.
10.41 Letter Modification Agreement dated June 1, 2002, between the Company,
Argosy International Ltd, Danepath Ltd and Graham Jessop.
10.42 Form of Settlement Agreement between Argosy International Ltd and the
Company is incorporated by reference to the Company's report on Form
10-Q for the fiscal quarter ended November 30, 2002.
10.43 Form of Stock Pledge Agreement between Argosy International Ltd and the
Company is incorporated by reference to the Company's report on Form
10-Q for the fiscal quarter ended November 30, 2002.
10.44 Form of Promissory Note of Argosy International Ltd is incorporated by
reference to the Company's report on Form 10-Q for the fiscal quarter
ended November 30, 2002.
10.45 Form of Settlement Agreement and Mutual General Release of all Claims
Known and Unknown (*1).
10.46 Form of Stipulation and [Proposed] Order for Dismissal of Action and
Retention of Jurisdiction (*1).
10.47 Form of Judgment pursuant to Stipulation for Entry of Judgment in the
Event of Default (*1).
10.48 Form of Stipulation for Entry of Judgment in the Event of Default (*1).
99.1 Certifications of the Company's CEO and CFO.
99.2 Additional Exhibits
Subsidiaries of RMS TITANIC
(*1) -- incorporated herein as referenced to an 8-K filing of July 16, 2002.
28
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RMS TITANIC, INC.
June 12, 2003 By: /s/ Arnie Geller
--------------------------------
Arnie Geller, President and Chief
Executive Officer
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and as of the date indicated:
/s/ Arnie Geller June 12, 2003
- -----------------------------
Arnie Geller, President,
Chief Executive Officer, Director
/s/ Gerald Couture June 12, 2003
- -----------------------------
Gerald Couture, Vice President, Chief
Financial Officer, Secretary,
Director
/s/ Nick Cretan June 12, 2003
- -----------------------------
Nick Cretan, Director
/s/ Doug Banker June 12, 2003
- -----------------------------
Doug Banker, Director
29
RMS TITANIC, INC.
FINANCIAL STATEMENTS
FEBRUARY 28, 2003
RMS TITANIC, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------
Independent Auditors' Report F-1
Consolidated Financial Statements:
Consolidated Balance Sheets at February 28, 2002 and February 28, 2003 F-2
Consolidated Statements of Operations and Comprehensive Operations for the
Years Ended February 28, 2001, February 28, 2002 and February 28, 2003 F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
February 28, 2001, February 28, 2002 and February 28, 2003 F-4
Consolidated Statements of Cash Flows for the Years Ended
February 28, 2001, February 28, 2002 and February 28, 2003 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 Subsidiary as of February 28, 2003 and February 28, 2002, 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, 2003. 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 Subsidiary as of February 28, 2003 and February 28, 2002, and the results of
their operations and their cash flows for each of the three years in the period
ended February 28, 2003, in conformity with accounting principles generally
accepted in the United States of America.
Kempisty & Company
Certified Public Accountants, P. C.
New York, New York
June 9, 2003
F-1
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------------
February 28, February 28,
- ---------------------------------------------------------------------------------------------------------------------------------
2002 2003
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 146,000 $ 1,945,000
Accounts receivable 40,000 128,000
Prepaid and refundable taxes 2,261,000 511,000
Prepaid expenses and other current assets 70,000 307,000
Net assets of discontinued operations 1,221,000 -
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Total current assets 3,738,000 2,891,000
Artifacts owned, at cost 4,495,000 4,484,000
Salvor's lien 1,000 1,000
Property and Equipment, net of accumulated depreciation
of $1,210,000 and $1,501,000, respectively 544,000 979,000
Other Assets 61,000 44,000
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Total Assets $8,839,000 $8,399,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 709,000 $ 1,114,000
Deferred revenue 788,000 735,000
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Total current liabilities 1,497,000 1,849,000
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Commitments and Contingencies
Stockholders' Equity:
Common stock - $.0001 par value; authorized 30,000,000 shares,
issued and outstanding 18,550,047 and 18,675,047 shares, respectively 2,000 2,000
Additional paid-in capital 16,615,000 16,650,000
Accumulated other comprehensive loss (31,000) -
Accumulated deficit (9,244,000) (10,102,000)
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Stockholders' equity 7,342,000 6,550,000
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Total Liabilities and Stockholders' Equity $8,839,000 $8,399,000
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See Notes to Financial Statements
F-2
RMS TITANIC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
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February 28, February 28, February 28,
Year ended 2001 2002 2003
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Revenue:
Exhibitions and related merchandise sales $ 5,464,000 $ 2,354,000 $ 2,646,000
Licensing fees 108,000 313,000 -
Merchandise and other 60,000 39,000 121,000
Sale of coal 67,000 62,000 94,000
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Total revenue 5,699,000 2,768,000 2,861,000
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Expenses:
General and administrative 4,405,000 3,391,000 2,809,000
Depreciation and amortization 558,000 374,000 293,000
Expedition costs 763,000 32,000 -
Cost of merchandise sold 5,000 85,000 140,000
Cost of coal sold 8,000 6,000 35,000
Write down of note receivable - - 296,000
Expenses for settlement of litigation - - 413,000
Impairment charge for artifacts recovered, net of taxes - 6,148,000 -
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Total expenses 5,739,000 10,036,000 3,986,000
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Income (loss) from continuing operations (40,000) (7,268,000) (1,125,000)
Other income:
Interest 76,000 8,000 298,000
Other - - -
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Income (loss) before provision for income taxes 36,000 (7,260,000) (827,000)
Provision (benefit) for income taxes - - -
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Net income (loss) from Continuing Operations $36,000 $ (7,260,000) $ (827,000)
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Discontinued operations:
Loss from operations of Danepath subsidiary disposed of: (88,000) (168,000)