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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1997
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or
[ ] Transition Report Pursuance to Section 13 or 15(d) of the Securities
Exchange act of 1934.
For the transition period from to
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Commission File Number 0-23782
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RENAISSANCE ENTERTAINMENT CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 84-1094630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
4410 Arapahoe Avenue, Suite 200, Boulder, Colorado 80303
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(Address of principal executive offices) (Zip Code)
(303) 444-8273
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 14, 1997, Registrant had 9,636,262 shares of common stock, $.03
Par Value, outstanding.
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INDEX
Page
Number
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Part I. Financial Information
Item I. Financial Statements
Balance Sheets as of June 30, 1997 (Unaudited)
and December 31, 1996 3
Statements of Operations for the Three Months
Ended June 30, 1997 and 1996
(Unaudited) 4
Statements of Operations for the Six Months
Ended June 30, 1997 and 1996
(Unaudited) 5
Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996
(Unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information 15
2
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RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
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<S> <C> <C>
Current Assets:
Cash and equivalents $ 784,582 $ 374,289
Stock subscription receivable 133,749 -
Accounts receivable (net) 126,607 99,551
Note receivable, current portion
Inventory 231,792 184,695
Prepaid expenses and other 715,966 139,167
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Total Current Assets 1,858,947 931,451
Property and equipment, net of accumulated depreciation 7,097,158 7,176,755
Note receivable, net of current portion
Covenant not to compete 35,000 45,000
Goodwill 595,488 620,826
Restricted cash 915,177 890,116
Other assets 239,675 208,201
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TOTAL ASSETS $ 10,741,445 $ 9,872,349
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,094,735 $ 1,068,028
Notes payable, current portion 1,365,338 1,209,119
Unearned income 284,430 160,588
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Total Current Liabilities 2,744,503 2,437,735
Notes payable, net of current portion, unrelated parties 2,931,174 2,341,987
Notes Payable, related parties 250,000
Other 35,376 37,175
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Total Liabilities 5,961,053 4,816,897
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Stockholders' Equity:
Common stock, $.03 par value, 50,000,000
shares authorized, 9,636,262 and 9,233,772 shares
issued and outstanding at June 30, 1997 and
December 31, 1996, respectively 289,088 277,013
Additional paid-in capital 9,038,098 8,071,634
Accumulated earnings (deficit) (4,546,794) (3,293,195)
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Total Stockholders' Equity 4,780,392 5,055,452
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Total Liabilities and Stockholders' Equity $ 10,741,445 $ 9,872,349
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30
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1997 1996
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REVENUE:
Sales $ 4,870,723 $ 5,316,083
Faire operating costs 1,807,224 2,147,219
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Gross Profit 3,063,499 3,168,864
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OPERATING EXPENSES:
Salaries 1,258,342 1,472,431
Depreciation and amortization 73,929 160,677
Goodwill writedown 380,000
Advertising 681,496 875,601
Other operating expenses 696,966 1,570,959
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Total Operating Expenses 2,710,733 4,459,668
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Net Operating (Loss) Income 352,766 (1,290,804)
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Other Income (Expenses):
Interest income 16,004 16,725
Interest (expense) (104,735) (81,933)
Other income (expense) 310,726 51,248
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Total Other Income (Expenses) 221,995 (13,960)
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Net Income (Loss) before (Provision)
Credit for Income Taxes 574,761 (1,304,764)
(Provision) Credit for Income Taxes - -
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Net Income (Loss) to Common Stockholders $ 574,761 $(1,304,764)
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Net Income (Loss) per Common Share $ .06 $ (.16)
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Weighted Average Number of Common
Shares Outstanding 9,962,418 7,992,378
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The accompanying notes are an integral part of the financial statements.
4
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RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
June 30
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1997 1996
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REVENUE:
Sales $ 4,885,596 $ 5,306,079
Faire operating costs 1,830,543 2,119,918
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Gross Profit 3,055,053 3,186,161
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OPERATING EXPENSES:
Salaries 2,019,519 2,189,322
Depreciation and amortization 343,570 266,233
Goodwill Writedown 380,000
Advertising 693,991 892,634
Other operating expenses 1,398,753 2,216,164
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Total Operating Expenses 4,455,833 5,944,353
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Net Operating (Loss) Income (1,400,780) (2,758,192)
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Other Income (Expenses):
Interest income 30,715 30,455
Interest (expense) (196,167) (118,795)
Other income (expense) 312,634 (197,384)
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Total Other Income (Expenses) 147,182 (285,724)
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Net Income (Loss) before (Provision)
Credit for Income Taxes (1,253,598) (3,043,916)
(Provision) Credit for Income Taxes - 239,273
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Net Income (Loss) to Common Stockholders $(1,253,598) $(2,804,643)
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Net Income (Loss) per Common Share $ (.13) $ (.34)
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Weighted Average Number of Common
Shares Outstanding 9,531,581 8,186,540
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The accompanying notes are an integral part of the financial statements.
5
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RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS
Six Months ended
June 30,
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1997 1996
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Cash Flows from Operating Activities:
Net income (Loss) $(1,253,598) $ (2,804,643)
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Adjustments to reconcile net income (Loss)
to net cash provided by operating
activities:
Depreciation and amortization 343,570 589,294
Gain (loss) on disposal of assets 1,363 23,488
(Increase) decrease in:
Stock subscription receivable 133,749
Inventory (47,097) (131,255)
Receivables (27,056) (270,128)
Prepaid expenses and other (608,273) (308,319)
Increase (decrease) in:
Accounts payable and accrued expenses 26,707 1,660,419
Unearned revenue and other 122,043 119,615
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Total adjustments (54,994) 1,683,114
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Net Cash Provided by Operating
Activities (1,308,592) (1,121,529)
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Cash Flows from Investing Activities:
Investment in restricted cash (25,061) (13,923)
Acquisition of property and equipment (229,999) (2,430,241)
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Net Cash (Used in) Investing Activities (255,060) (2,444,164)
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Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 978,539 533,430
Proceeds from notes payable 1,350,000 2,717,628
Principal payments on notes payable (354,594) (72,320)
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Net Cash Provided by Financing Activities 1,973,945 3,178,738
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Net Increase (Decrease) in Cash 410,293 (386,955)
Cash, beginning of period 374,289 732,553
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Cash, end of period $ 784,582 $ 345,598
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Interest paid $ 196,167 $ 117,886
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Income tax paid $ - $ -
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The accompanying notes are an integral part of the financial statements.
6
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RENAISSANCE ENTERTAINMENT CORPORATION AND
CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
1. UNAUDITED STATEMENTS
The balance sheet as of June 30, 1997, the statements of operations and the
statements of cash flows for the three month and six month periods ended
June 30, 1997 and 1996, have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in financial position at June 30, 1997
and for all periods presented, have been made.
These statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 filed with the
Securities and Exchange Commission.
2. CALCULATION OF EARNINGS (LOSS) PER SHARE
The earnings (Loss) per share is calculated by dividing the net income
(loss) to common stockholders by the weighted average number of common
shares outstanding.
3. CHANGE IN ACCOUNTING ESTIMATE
The Company standardized the depreciable lives used for buildings from a
range of between 7 to 30 years in 1996 to 15 years for temporary buildings
and 30 years for permanent buildings in 1997. The effect of this change on
net income of the current period (six months ended June 30, 1997) was an
increase of approximately $195,300 over the amount that would have been
reported. The effect of this change on earnings per share of the current
period (six months ended June 30, 1997) was a reduction in the loss per
share of approximately $.02 per share from the amount that would have been
reported.
4. SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company negotiated a sale and leaseback
of its Wisconsin faire site. This transaction is expected to close during
November, 1997. See the following discussion in Management's Discussion
and Analysis of Financial Condition and Results of Operations.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements, including the footnotes for the fiscal period
ended December 31, 1996. On June 21, 1996, the Company changed its fiscal year
end from March 31 to December 31.
The Company operates five Renaissance Faires in the United States and is engaged
in a strategy to develop and acquire additional Renaissance Faires nationwide.
The Company's newest Faire opened on May 4, 1996 in Fredericksburg, Virginia, a
project which was designed and constructed by the Company. On February 5, 1996,
the Company acquired Creative Faires, Ltd., the owner and operator of the New
York Renaissance Faire. With its five faires currently drawing close to 750,000
visitors annually, the Company believes that it is the largest operator of
Renaissance Faires and Renaissance entertainment events in the United States.
The Renaissance Faire is a re-creation of a Renaissance village, a fantasy
experience transporting the visitor back into sixteenth century England.
Although the Company was profitable in its fiscal year ended March 31, 1995, it
incurred a net loss of ($1,273,671) in the fiscal year ended March 31, 1996, and
a net loss of ($1,851,725) for the nine months ended December 31, 1996. In
addition, the Company expects to incur a net loss for the fiscal year ending
December 31, 1997. The New York and Virginia Faires operated at a loss during
1996. In addition, the Virginia Faire, which ran from April 26, 1997 through
June 8, 1997, operated at a loss in 1997. The Company believes both of these
Faire's results were adversely affected in 1996 and the Virginia Faire in 1997
by unusually inclement weather in their respective areas. It is typical for a
new faire such as the Virginia Faire to operate at a loss for two or more years
until it is able to build a sufficient customer base and awareness of the faire.
Due to the fact that the New York Faire was acquired in 1996, the Company had
limited ability to affect the operations of this Faire during the 1996 faire
season. The Company has hired a new manager for this Faire and has introduced
several new entertainment acts and implemented additional promotional efforts
for this faire's 1997 season, which began on July 26, 1997 and will end on
September 14, 1997.
The owner of the site for the Company's Northern California Faire is seeking to
develop this site for commercial construction purposes, although the owner's
efforts to do so are currently being blocked by pending litigation in which the
use of the site for such purposes is being challenged. An extension of the
lease for this site for the 1997 faire season has been obtained. While the
Company is investigating new sites for the Northern California Faire, there can
be no assurance that the Company will be able to secure a new site for this
Faire for the 1998 or following faire seasons.
The Company is also considering relocation of its Southern California Faire. On
November 4, 1996, the Company entered into a non-binding letter of intent with
the owner of a site in Pomona, California, which contemplated that the Company
would commence operation of the Southern California Faire at that site starting
in 1998. Subsequent to the signing of the letter of intent, the owner of the
current site for the Southern California Faire indicated that it was willing to
enter into a long-term lease for the current site. The ability to enter into a
long-term lease for this site increases its value to the Company, as the Company
could construct structures on the site and significantly reduce setup costs for
the faire. As of the date of this report, the Company has not decided if it
should enter into a long-term lease for the current site or relocate the Faire
to the proposed site in Pomona. The Company estimates that the cost of the
construction and relocation to the new site would be approximately $2,000,000.
8
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The Company had a working capital deficit ($1,506,284) and ($885,556) as of
December 31, 1996 and June 30, 1997, respectively. During the first five months
of fiscal 1997, the Company obtained $1,350,000 of additional working capital.
While the Company believes that it has adequate working capital to fund
anticipated operations for fiscal 1997, it believes it must obtain additional
working capital for future fiscal periods. See "Liquidity and Capital
Resources."
PROSPECTIVE INFORMATION
This report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs and assumptions made by the
Company's management as well as information currently available to management.
When used in this document, the words "anticipate," "believe," "estimate,"
"expect," and similar expressions, are intended to identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1996
Revenues decreased $445,360 or 8% from $5,316,083 in 1996 to $4,870,723 in
1997. This decrease was primarily the result of a decrease in revenues for the
Virginia Faire of approximately $175,000 and a decrease in revenues for the
Southern California Faire of approximately $260,000. The decreased revenues for
the Virginia Faire were due to unusually inclement weather - six of the seven
faire weekends had substantial rain which severely impacted attendance. The
decreased revenues for the Southern California Faire were due to being open one
less weekend in 1997 than in 1996. Although revenues were down in Virginia, the
operating loss was reduced by approximately $190,000, from a loss of
approximately $460,000 for the 1996 period to a loss of approximately $270,000
for the 1997 period, through expense control.
Operating expenses (year-round operating costs and corporate overhead) decreased
$1,748,935 or 39%, from $4,459,668 in 1996 to $2,710,733 in 1997. The primary
cause of this decrease was the inclusion in the second quarter of 1996 of six
months of operating expense for the then newly acquired New York Faire. This
unusual occurrence was the consequence of the exclusion from the quarter ended
March 31, 1996 of the first calendar quarter results of that faire due to the
use of the pooling of interest method of acquisition and the previous year end
of March 31. Also, 1996 results included $380,000 of goodwill writedown and
unusual expenses of a one time nature of approximately $400,000 applicable to
the initial start-up of the Virginia Faire. Additionally, in 1996 the $349,000
rent for the Northern California Faire site was paid and expensed in the second
quarter, whereas the rent for this site will be paid and expensed in the third
quarter of 1997.
Of the operating expenses, salaries decreased 15%, from $1,472,431 in 1996 to
$1,258,431 in 1997 for the reasons stated above. Advertising expense decreased
$194,105, or 22%, from $875,601 in 1996 to $681,496 in 1997. This decrease was
due to spending more in 1996 for advertising the first year of the Virginia
Faire as well as the utilization of more cost efficient methods of advertising
in 1997.
Depreciation and amortization decreased 54%, from $160,677 in 1996 to $73,929 in
1997. This decrease is primarily the result of the Company standardizing the
depreciable lives used for buildings from a range of
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between 7 to 30 years in 1996 to 15 years for temporary buildings and 30 years
for permanent buildings in 1997.
Other operating expenses (all other general and administrative expenses of the
Company) decreased $873,993 or 56%, from $1,570,959 in 1996 to $696,966 in 1997.
Included in this decrease is the $400,000 of one-time expenses discussed above,
incurred in 1996 in connection with the initial start-up of the Virginia Faire.
The balance of the decrease is due to management's implementation of a variety
of cost saving measures.
As a result of the foregoing, net operating income (before interest charges and
other income) increased $1,643,570 from a loss of ($1,290,804) for the 1996
period to an income of $352,766 for the 1997 period.
A 28% increase in interest expense from $81,933 in 1996 to $104,735 in 1997
resulted from an increase in the Company's borrowing levels throughout the 1997
period as compared to the 1996 period.
Other income increased $259,478, from $51,248 in 1996 to $310,726 in 1997. The
primary cause of this increase was the reversal in the second quarter of
$309,694 of expense which had been accrued in 1996 for expenses expected to have
been incurred in 1997 to evaluate a new site for the Northern California Faire.
During the second quarter it became apparent that this site would not be
available and that these costs would not be incurred. Subsequent developments
also have increased the possibility that the current site for the Northern
California faire will be available for the 1998 faire season. Since the Company
is not able to determine at this time if it will be required to incur similar
site evaluation expenses for another new site or, if it is required to incur
such expenses, the amount thereof, it was determined that this accrual should be
reversed.
Combining net operating income with other income/expense resulted in a
$1,879,525 increase in net income before taxes, from a loss of ($1,304,764) for
the 1996 period to an income of $574,761 for the 1997 period.
Net income to common stockholders also increased $1,879,525, from a loss of
($1,304,764) for the 1996 period to income of $574,761 for the 1997 period.
Finally, net income per common share increased from a loss of ($.16) for the
1996 period to an income of $.06 for the 1997 period, based on 7,992,378
weighted average shares outstanding during the 1996 period and 9,962,418
weighted average shares outstanding during the 1997 period.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996
Revenues decreased $420,483 or 8% from $5,306,079 in 1996 to $4,885,596 in
1997. This decrease was for the reasons described above in the three months
comparison, as the Company has minimal revenues in the first three months of the
year.
Operating expenses (year-round operating costs and corporate overhead) decreased
$1,488,520 or 25%, from $5,944,353 in 1996 to $4,455,833 in 1997. The primary
causes of this decrease were the $380,000 of goodwill writedown and unusual
expenses of a one time nature of approximately $400,000 applicable to the
initial start-up of the Virginia Faire included in 1996 results. Additionally,
in 1996 the $349,000 rent for the Northern California Faire site was paid and
expensed in the second quarter, whereas the rent for this site will be paid and
expensed in the third quarter of 1997.
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Of the operating expenses, salaries decreased 8%, from $2,189,322 in 1996 to
$2,019,519 in 1997, reflecting a reduction of personnel for the 1997 period as
compared to the 1996 period.
Advertising expense decreased $198,643, or 22%, from $892,634 in 1996 to
$693,991 in 1997. This decrease was due to spending more in 1996 for
advertising the first year of the Virginia Faire as well as the utilization of
more cost efficient methods of advertising in 1997.
Depreciation and amortization increased 29%, from $266,233 in 1996 to $343,570
in 1997. This increase is primarily the result of depreciation on the
approximately $4,000,000 invested in buildings and improvements to the Virginia
property. This increase would have been greater had the Company not
standardized the depreciable lives used for buildings from a range of between 7
to 30 years in 1996 to 15 years for temporary buildings and 30 years for
permanent buildings in 1997.
Other operating expenses (all other general and administrative expenses of the
Company) decreased $817,411 or 37%, from $2,216,164 in 1996 to $1,398,753 in
1997. Included in this decrease is the $400,000 of one-time expenses discussed
above, incurred in 1996 in connection with the initial start-up of the Virginia
Faire. The balance of the decrease is due to management's implementation of a
variety of cost saving measures.
As a result of the foregoing, net operating income (before interest charges and
other income) increased $1,357,412 from a loss of ($2,758,192) for the 1996
period to a loss of ($1,400,780) for the 1997 period.
A 65% increase in interest expense from $118,795 in 1996 to $196,167 in 1997
resulted from an increase in the Company's borrowing levels throughout the 1997
period as compared to the 1996 period.
Other income/expense increased $513,018, from other expense of ($197,384) in
1996 to other income of $312,634 in 1997. The primary source of the other
income in 1997 was the reversal of $309,694 of expense which had been accrued in
1996 for expenses expected to have been incurred in 1997 to evaluate a new site
for the Northern California Faire. During the second quarter it became apparent
that this site would not be available and that these costs would not be
incurred. Subsequent developments also have increased the possibility that the
current site for the Northern California faire will be available for the 1998
faire season. Since the Company is not able to determine at this time if it
will be required to incur similar site evaluation expenses for another new site
or, if it is required to incur such expenses, the amount thereof, it was
determined that this accrual should be reversed. The primary source of the
other expense in 1996 was the reversal of $200,000 of other income which had
been recorded in the quarter ended December 31, 1995. In late 1995, the State
of Virginia paid the Company $200,000 which upon initial evaluation was
considered income. Upon further review, it was determined that the more
appropriate treatment of this amount was as a reduction of fixed assets. The
appropriate adjustment in the last quarter of the fiscal year ended March 31,
1996 (which is the first quarter of the calendar year) resulted in the $200,000
charge to other expense.
Combining net operating income with other income/expense resulted in a
$1,790,318 increase in net income before taxes, from a loss of ($3,043,916) for
the 1996 period to a loss of ($1,253,598) for the 1997 period.
As a result of operating losses for the entire fiscal year ended March 31, 1996
(the Company's fiscal year previously ended March 31), a refund of taxes paid in
prior years was available in the 1996 period. This resulted in a credit to
Income Taxes of $239,273 for the six months period ended June 30, 1996.
Net income to common stockholders increased $1,551,045, from a loss of
($2,804,643) for the 1996 period to a loss of ($1,253,598) for the 1997 period.
Finally, net income per common share increased from a loss of ($.34) for the
1996 period to a loss of ($.13) for the 1997 period, based on 8,186,540 weighted
average
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shares outstanding during the 1996 period and 9,531,581 weighted average shares
outstanding during the 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit was narrowed during the six months ended
June 30, 1997, from $1,506,284 at December 31, 1996 to $885,556 at June 30,
1997. This improvement resulted from a number of cost reductions implemented by
management in order to reduce the Company's working capital requirements and the
issuance of $1,000,000 of convertible debentures during the first five months of
the year.
The Company's working capital requirements are greatest during the period from
January 1 through April 30, when it is incurring start-up expenses for its first
faires of the faire season, the Southern California and Virginia Faires. The
Company has historically relied upon various revolving credit facilities to meet
its working capital requirements during this period. At December 31, 1996, the
Company had outstanding $1,000,000 in short-term bank lines of credit borrowings
which was the maximum amount available under the lines and did not therefore
have any unused credit available for the 1997 faire season. Subsequent to year
end, the Company entered into an agreement with the banks which requires the
Company to pay these lines from 1997 operations ($300,000 of which was paid in
the six month period ended June 30, 1997, leaving a balance of $700,000). Since
December 31, 1996, the Company has also raised $1,000,000 of working capital
through the issuance of convertible debentures, of which $250,000 was issued to
Charles S. Leavell, Chairman of the Board of Directors of the Company and the
balance to Mr. Leavell's father and an unrelated party, and also raised $350,000
of working capital from the sale of convertible notes to a number of private
investors. The debentures are secured by mortgages on the Company's Wisconsin
and Virginia Faire sites, and the notes are secured by a mortgage on the
Company's Wisconsin Faire site. The debentures are convertible into common
stock at the lesser of $4.50 per share or 70% of the fair market value of the
Company's common stock, and the notes are convertible into common stock at the
lesser of $1.75 per share or 50% of the fair market value for the Company's
common stock. The debenture holders were also granted warrants to purchase an
aggregate of 200,000 shares of the Company's common stock at the lesser of $3.00
per share or 70% of the fair market value of the Company's common stock.
Management believes that the Company should raise additional working capital in
order to more adequately fund its operations. During July 1997, the Company
entered into a letter of intent for the sale/leaseback of its Wisconsin and
Virginia Faire sites. Subsequently, the parties determined to limit the
transaction to a sale of the Wisconsin faire site for $4,000,000 and to lease
this property back to the Company for a period of 20 years with lease payments
scheduled to be $400,000 per year during each of the first two years, and
increasing to $543,333 per year in years 13 through 20. The Company would have
the right to reacquire the property during the term of the lease at an aggregate
price of $4,433,333 during the first three years, increasing to $4,900,000
during years 13 through 20. The sale/leaseback transaction further contemplates
a security deposit of $666,667, $333,333 of which is to be released in four
years and the balance released in eight years. The purchasers of the property
will be granted a six-year warrant representing the right to acquire an
aggregate of 766,667 shares of the Company's Common Stock at an exercise price
of $1 per share. The Company estimates that if the sale/leaseback transaction
is completed as contemplated, it will increase the Company's working capital by
approximately $1,600,000, which the Company believes would be adequate to fund
working capital requirements through at least the fiscal year ending December
31, 1998. Such funds would not, however, be adequate to fund the relocation of
the Company's Northern or Southern California Faires. Therefore, even if the
sale/leaseback transaction is closed as anticipated, additional capital may be
sought through borrowings or from additional equity financing. At this time,
the Company does not
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anticipate any additional borrowings from officers or directors of the Company.
The sale/leaseback transaction is scheduled to be completed prior to November
15, 1997. However, the letter of intent is non-binding and there can be no
assurance that the transaction will be completed.
Reviewing the change in financial position over the six months, current assets,
largely comprised of cash and prepaid expenses, increased from $931,451 at
December 31, 1996 to $1,858,947 at June 30, 1997, an increase of $927,496 or
100%. Of these amounts, cash and cash equivalents increased from $374,289 at
December 31, 1996 to $784,582 at June 30, 1997. Accounts receivable increased
from $99,551 at December 31, 1996 to $126,607 at June 30, 1997. Prepaid
expenses increased from $139,167 at December 31, 1996 to $715,966 at June 30,
1997. This is a normal condition, as these costs represent expenses incurred in
advance, on behalf of the Bristol and New York Faires, which are expensed
against operations once those Faires are operating.
Current liabilities increased from $2,437,735 at December 31, 1996 to $2,744,503
at June 30, 1997, an increase of $306,768 or 13%. This increase is due to
increased indebtedness incurred to cover the Company's operating expenses during
the first six months. The current portion of notes payable increased from
$1,209,119 at December 31, 1996 to $1,365,338 at June 30, 1997, primarily as
the result of the issuance of $350,000 of secured notes as described above. This
additional debt was partially offset by payment of $300,000 during the first
six months on the Company's bank lines of credit. Of the $1,365,338, $700,000
was due to short-term borrowings on the bank lines of credit, which are to be
repaid from operations prior to September 30, 1997, under the terms of an
agreement with the banks. Unearned income, which consists of the sale of
admission tickets to upcoming faires and deposits received from craft vendors
for future faires, increased from $160,588 at December 31, 1996 to $284,430 at
June 30, 1997.
Total assets increased from $9,872,349 at December 31, 1996 to $10,741,445 at
June 30, 1997, an increase of $869,096 or 9%. Of this amount, the increase in
current assets of $927,496 was partially offset by moderate decreases in the
other non-current asset categories. Property, plant and equipment (net of
depreciation) decreased by $79,597 or 1% from $7,176,755 at December 31, 1996 to
$7,097,158 at June 30, 1997 as a result of depreciation of assets for the
period. Goodwill, which arose from the purchase of the two California Faires
and is being amortized over 15 years, decreased from $620,826 at December 31,
1996 to $595,488 at June 30, 1997 as the result of normal amortization. Other
miscellaneous assets (organizational costs and vendor deposits) increased from
$253,201 at December 31, 1996 to $274,675 at June 30, 1997.
Total liabilities increased from $4,816,897 at December 31, 1996 to $5,961,053
at June 30, 1997, an increase of $1,144,156 or 24%. Total liabilities at June
30, 1997 include $2,7444,503 in current liabilities (discussed above), plus
$3,216,550 from the long-term portion of the following bank loans: an $800,000
mortgage on the Bristol Faire property, a $1,500,000 mortgage on the Virginia
Faire property, and a $250,000 loan for construction of vendor booths in
Virginia.
Stockholders' Equity decreased from $5,055,452 at December 31, 1996 to
$4,780,392 at June 30, 1997, a decrease of $275,060 or 5%. This decrease
resulted from the net loss of ($1,253,598), partially offset by additional
contributed capital received as the result of the exercise of 140,292 Class A
Warrants at $2.00 per share, the exercise of 68,000 Class B Warrants at $2.625
per share, and the exercise of 111,716 employee stock options at prices ranging
from $1.125 to $3.50 per share. As of June 30, 1997, the Company had
outstanding 9,636,262 shares of common stock, 1,673,564 Class A Warrants
representing the right to purchase common stock at $2.00 per share, and
1,981,966 Class B warrants representing the right to purchase common stock at
$2.625 per share.
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Although inflation can potentially have an effect on financial results, during
1996 and the first six months of fiscal 1997 it caused no material affect on the
Company's operations, since the change in prices charged by the Company and by
Company's vendors has not been significant.
The Company has no significant commitment for capital expenses during the fiscal
year ending December 31, 1997.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On June 5, 1997, a former employee of the Company commenced an action
against the Company, Charles S. Leavell, Chairman of the Board of Directors of
the Company, Howard C. Hamburg, a Vice-President of the Company, and Duke & Co.,
Inc., in Superior Court of the State of California in and for the county of
Marin alleging breach of implied contract of employment, breach of the covenant
of good faith and fair dealing, promissory estoppel, negligent
misrepresentation, unlawful discrimination based on age and intentional and
negligent infliction of emotional distress. The Complaint seeks damages,
including punitive damages, in an unspecified amount.
Item 2. CHANGES IN SECURITIES
None. See Item 2 of the Company's 10-Q report for the quarter ended
March 31, 1997, which included information on private placements of the
Company's securities which occurred during the quarter ended June 30, 1997.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company was not required to file a report on Form 8-K during the
quarter ended June 30, 1997.
Exhibit 27. Financial Data Schedule -- filed with the Form 10-Q
report for the quarter ended June 30, 1997, previously filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RENAISSANCE ENTERTAINMENT CORPORATION
Dated: October 28, 1997 /S/ James R. Mcdonald
------------------- --------------------------------------------
James R. McDonald, Chief Financial Officer
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