<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 1998
or
[ ] Transition Report Pursuance to Section 13 or 15(d) of the Securities
Exchange act of 1934. For the transition period from
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to
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Commission File Number 0-23782
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.)
275 Century Circle, Suite 102, Louisville, Colorado 80027
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(Address of principal executive offices) (Zip Code)
(303) 664-0300
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(Registrant's telephone number, including area code)
4410 Arapahoe Avenue, Suite 200, Boulder, Colorado 80303
- --------------------------------------------------------------------------------
(Former Address)
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 July 30, 1998, Registrant had 2,139,894 shares of common stock, $.03 Par
Value, outstanding.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
Part I. Financial Information
Item I. Financial Statements
Balance Sheets as of June 30, 1998 (Unaudited)
and December 31, 1997 3
Statements of Operations for the Three Months
Ended June 30, 1998 and 1997
(Unaudited) 4
Statements of Operations for the Six Months
Ended June 30, 1998 and 1997
(Unaudited) 5
Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997
(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 14
</TABLE>
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, and is subject to the safe harbors created
by those sections. These forward-looking statements are subject to significant
risks and uncertainties, including those identified in the section of this Form
10-Q entitled "Factors That May Affect Future Operating Results," which may
cause actual results to differ materially from those discussed in such
forward-looking statements. The forward-looking statements within this Form 10-Q
are identified by words such as "believes," "anticipates," "expects," "intends,"
"may," "will" and other similar expressions. However, these words are not the
exclusive means of identifying such statements. In addition, any statements
which refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. The Company undertakes
no obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
occurring subsequent to the filing of this Form 10-Q with the Securities and
Exchange Commission ("SEC"). Readers are urged to carefully review and consider
the various disclosures made by the Company in this report and in the Company's
other reports filed with the SEC that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
2
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RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS (Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
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(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 698,849 $ 590,022
Accounts receivable (net) 94,307 21,710
Inventory 203,944 143,554
Prepaid expenses and other 690,904 480,320
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Total Current Assets 1,688,004 1,235,606
Property and equipment, net of accumulated depreciation 6,762,914 6,886,872
Covenant not to compete 14,994 25,000
Goodwill 544,812 570,150
Restricted cash 323,245 314,078
Other assets 853,165 845,977
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TOTAL ASSETS $ 10,187,134 $ 9,877,683
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,683,880 $ 1,182,789
Notes payable, current portion 611,710 115,135
Unearned income 436,770 142,503
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Total Current Liabilities 2,732,360 1,440,427
Lease obligation payable 3,924,987 3,909,696
Notes payable, net of current portion 871,959 918,277
Other 35,725 35,525
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Total Liabilities 7,565,031 6,303,925
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Stockholders' Equity:
Common stock, $.03 par value, 50,000,000 shares authorized, 2,139,894 and
2,051,679 shares issued and outstanding at June 30, 1998 and
December 31, 1997, respectively 64,196 61,550
Additional paid-in capital 9,428,477 9,372,500
Accumulated earnings (deficit) (6,870,570) (5,860,292)
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Total Stockholders' Equity 2,622,103 3,573,758
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,187,134 $ 9,877,683
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30
--------------------------
1998 1997
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<S> <C> <C>
REVENUE:
Sales $ 5,152,757 $ 4,870,723
Faire operating costs 1,743,549 1,807,224
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Gross Profit 3,409,208 3,063,499
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OPERATING EXPENSES:
Salaries 1,216,104 1,258,342
Depreciation and amortization 142,022 73,929
Advertising 645,911 681,496
Other operating expenses 728,363 696,966
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Total Operating Expenses 2,732,400 2,710,733
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Net Operating (Loss) Income 676,808 352,766
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Other Income (Expenses):
Interest income 16,253 16,004
Interest (expense) (217,406) (104,735)
Other income (expense) 8,351 310,726
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Total Other Income (Expenses) (192,802) 221,995
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Net Income (Loss) before (Provision)
Credit for Income Taxes 484,006 574,761
(Provision) Credit for Income Taxes -- --
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Net Income (Loss) to Common Stockholders' $ 484,006 $ 574,761
----------- -----------
----------- -----------
Net Income (Loss) per Common Share $ .23 $ .29
----------- -----------
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Weighted Average Number of Common Shares Outstanding
2,104,181 1,992,484
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----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------
1998 1997
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<S> <C> <C>
REVENUE:
Sales $ 5,201,869 $ 4,885,596
Faire operating costs 1,738,559 1,830,543
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Gross Profit 3,463,310 3,055,053
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OPERATING EXPENSES:
Salaries 1,936,178 2,019,519
Depreciation and amortization 283,164 343,570
Advertising 659,714 693,991
Other operating expenses 1,354,167 1,398,753
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Total Operating Expenses 4,233,223 4,455,833
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Net Operating (Loss) Income (769,913) (1,400,780)
----------- -----------
Other Income (Expenses):
Interest income 34,801 30,715
Interest (expense) (362,398) (196,167)
Other income (expense) 87,233 312,634
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Total Other Income (Expenses) (240,364) 147,182
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Net Income (Loss) before (Provision)
Credit for Income Taxes (1,010,277) (1,253,598)
(Provision) Credit for Income Taxes -- --
----------- -----------
Net Income (Loss) to Common Stockholders' $(1,010,277) $(1,253,598)
----------- -----------
----------- -----------
Net Income (Loss) per Common Share $ (.48) $ (.66)
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----------- -----------
Weighted Average Number of Common Shares Outstanding 2,085,954 1,906,316
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</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months ended
June 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (Loss) $(1,010,277) $(1,253,598)
----------- -----------
Adjustments to reconcile net income (Loss)
to net cash provided by operating
activities:
Depreciation and amortization 283,164 343,570
Gain (loss) on disposal of assets (4,794) 1,363
(Increase) decrease in:
Stock Subscription Receivable 133,749
Accounts Receivable (72,597) (27,056)
Inventory (60,390) (47,097)
Prepaid expenses and other (217,940) (608,273)
Increase (decrease) in:
Accounts payable and accrued expenses 501,091 26,707
Unearned revenue and other 294,467 122,043
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Total adjustments 723,001 (54,994)
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Net Cash Provided by Operating Activities (287,276) (1,308,592)
----------- -----------
Cash Flows from Investing Activities:
Investment in restricted cash (9,167) (25,061)
Acquisition of property and equipment (118,901) (229,999)
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Net Cash (Used in) Investing Activities (128,068) (255,060)
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Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 58,623 978,539
Proceeds from notes payable 508,683 1,350,000
Principal payments on notes payable (43,135) (354,594)
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Net Cash Provided by Financing Activities 524,171 1,973,945
----------- -----------
Net Increase (Decrease) in Cash 108,827 410,293
Cash, beginning of period 590,022 374,289
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Cash, end of period $ 698,849 $ 784,582
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----------- -----------
Interest paid $ 362,398 $ 196,167
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</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND
CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
1. Unaudited Statements
The balance sheet as of June 30, 1998, the statements of operations and
the statements of cash flows for the three month and six month periods
ended June 30, 1998 and 1997, 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, 1998 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, 1997, 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. Short-Term Notes; Subsequent Event
During the first four months of fiscal 1998, the Company raised
$498,000 of short-term capital to fund operating capital requirements
for the first six months of the fiscal year. These funds were provided
by Charles S. Leavell ($100,000), Chairman of the Board of Directors,
two directors and two officers of the Company (an aggregate of
$198,000) and three other investors. The loans bear interest at 6% per
quarter and are secured by substantially all of the Company's assets
other than its real estate. The investors also were granted a five-year
warrant to purchase one share of common stock for each $2.50 loaned to
the Company at an exercise price of $1.50 per share.
7
<PAGE>
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, 1997. 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. 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. 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, a
net loss of ($1,851,725) for the nine months ended December 31, 1996, a net loss
of ($2,567,097) for the fiscal year ended December 31, 1997, and a net loss of
($1,010,277) for the quarter ended June 30, 1998. In addition, the Company
expects to incur a net loss for the fiscal year ending December 31, 1998. The
Virginia Faire has operated at a loss since opening in 1996 and the New York
Faire operated at a loss during 1996 and 1997. It is typical for a new faire
such as the Virginia Faire to operate at a loss for several years until it is
able to build a significant 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 hired a new manager for this Faire and introduced several new
entertainment acts and implemented additional promotional efforts for this
faire's 1997 season. The operating loss for the New York Faire was reduced
substantially in 1997 compared to 1996. The New York Faire 1998 season runs from
August 1 to September 7.
The owner of the site for the Company's Northern California Faire is seeking to
develop this site for commercial construction purposes. An extension of the
lease for this site for the 1998 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 1999 or following faire seasons.
The Company is also negotiating with the owner of the Southern California
Faire site for a long-term lease for this site. The ability to enter into a
long-term lease for this site would increase its value to the Company, as the
Company could construct structures on the site and significantly reduce setup
costs for the faire.
The Company had a working capital deficit ($1,044,356) as of June 30, 1998.
During the first four months of fiscal 1998, the Company obtained $498,000 of
additional capital through short-term loans. While the Company believes that it
has adequate capital to fund anticipated operations for the balance of fiscal
1998, it believes it must obtain additional working capital for future fiscal
periods. See "Liquidity and Capital Resources."
8
<PAGE>
Results of Operations - Three Months Ended June 30, 1998, Compared to Three
Months Ended June 30, 1997
Revenues increased $282,034 or 6% from $4,870,723 in 1997 to $5,152,757 in 1998.
This increase was primarily the result of increased revenues for the Virginia
Faire of approximately $100,000 and increased revenues for the Southern
California Faire of approximately $170,000. The increased revenues for the
Virginia Faire were primarily due to increased attendance. The increased
revenues for the Southern California Faire were due to an increase in paid
attendance as well as being open one more weekend in 1998 than in 1997.
Operating expenses (year-round operating costs and corporate overhead) showed a
marginal increase of $21,667 or 1%, from $2,710,733 in 1997 to $2,732,400 in
1998.
Of the operating expenses, salaries decreased 3%, from $1,258,342 in 1997 to
$1,216,104 in 1998 reflecting a continuing reduction in personnel expense for
the 1998 period as compared to the 1997 period.
Advertising expense decreased $35,585, or 5%, from $681,496 in 1997 to $645,911
in 1998. This decrease was due to the continued utilization of more cost
efficient methods of advertising.
Depreciation and amortization increased 92%, from $73,929 in 1997 to $142,022 in
1998. This increase is primarily the result of the Company standardizing 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. In the second quarter of 1997 an adjustment to decrease depreciation
expense was made to effect the results of this standardization.
Other operating expenses (all other general and administrative expenses of the
Company) increased $31,397 or 5%, from $696,966 in 1997 to $728,363 in 1998.
As a result of the foregoing, net operating income (before interest charges and
other income) increased 92% from $352,766 for the 1997 period to $676,808 for
the 1998 period.
A 108% increase in interest expense from $104,735 in 1997 to $217,406 in 1998
resulted from the accounting treatment of the sale-leaseback of the Wisconsin
property effected in November, 1997. Due to the structuring of this transaction,
FASB 98 required that this transaction be treated as a financing arrangement
resulting in interest expense as opposed to operating lease payments. Excepting
the above mentioned item, the Company's borrowing level and associated interest
expense has decreased over the past one year period.
Other income decreased $302,375, from $310,726 in 1997 to $8,351 in 1998. The
primary cause of this decrease was the 1997 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 of 1997 it became apparent that this site would not be available and
that these costs would not be incurred and the current Northern California faire
site was secured for the 1998 season.
9
<PAGE>
Combining net operating income with other income/expense resulted in a $90,755
decrease in net income before taxes, from income of $574,761 for the 1997 period
to an income of $484,006 for the 1998 period.
Net income to common stockholders also decreased $90,755, from $574,761 for the
1997 period to $484,006 for the 1998 period. Finally, net income per common
share decreased from $.29 for the 1997 period to an income of $.23 for the 1998
period, based on 1,992,484 weighted average shares outstanding during the 1997
period and 2,104,181 weighted average shares outstanding during the 1998 period.
Results of Operations - Six Months Ended June 30, 1998 Compared to Six Months
Ended June 30, 1997
Revenues increased $316,273 or 6% from $4,885,596 in 1997 to $5,201,869 in 1998.
This increase was primarily the result of increased revenues for the Virginia
Faire of approximately $100,000 and increased revenues for the Southern
California Faire of approximately $170,000. The increased revenues for the
Virginia Faire were primarily due to increased attendance. The increased
revenues for the Southern California Faire were due to an increase in paid
attendance as well as being open one more weekend in 1998 than in 1997.
Operating expenses (year-round operating costs and corporate overhead) decreased
$222,610 or 5%, from $4,455,833 in 1997 to $4,233,223 in 1998.
Of the operating expenses, salaries decreased 4%, from $2,019,519 in 1997 to
$1,936,178 in 1998, reflecting a continuing reduction in personnel expense for
the 1998 period as compared to the 1997 period.
Advertising expense decreased $34,277, or 5%, from $693,991 in 1997 to $659,714
in 1998. This decrease was due to the continued utilization of more cost
efficient methods of advertising.
Depreciation and amortization decreased 18%, from $343,570 in 1997 to $283,164
in 1998. This decrease was primarily the result of the Company standardizing 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 $44,586 or 3%, from $1,398,753 in 1997 to $1,354,167 in 1998.
This decrease is due to management's continuing implementation of a variety of
cost saving measures.
As a result of the foregoing, net operating income (before interest charges and
other income) increased $630,867 from a loss of ($1,400,780) for the 1997 period
to a loss of ($769,913) for the 1998 period.
An 85% increase in interest expense from $196,167 in 1997 to $362,398 in 1998
resulted from the accounting treatment of the sale-leaseback of the Wisconsin
property effected in November, 1997. Due to the structuring of this
transaction, FASB 98 required that this transaction be treated as a financing
arrangement resulting in interest expense as opposed to operating lease
payments.
10
<PAGE>
Excepting the above mentioned item, the company's borrowing level and
associated interest expense has decreased over the past one year period.
Other income decreased $225,401, from $312,634 in 1997 to $87,233 in 1998. The
primary cause of this decrease was the 1997 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 of 1997 it became apparent that this site would not be available and
that these costs would not be incurred and the current Northern California faire
site was secured for the 1998 season.
Combining net operating income with other income/expense resulted in a $243,321
increase in net income before taxes, from a loss of ($1,253,598) for the 1997
period to a loss of ($1,010,277) for the 1998 period.
Net income to common stockholders increased $243,321, from a loss of
($1,253,598) for the 1997 period to a loss of ($1,010,277) for the 1998 period.
Finally, net income per common share increased from a loss of ($.66) for the
1997 period to a loss of ($.48) for the 1998 period, based on 1,906,316 weighted
average shares outstanding during the 1997 period and 2,085,954 weighted average
shares outstanding during the 1998 period.
Liquidity and Capital Resources
The Company's working capital deficit widened during the six months ended June
30, 1998, from $204,821 at December 31, 1997 to $1,044,356 at June 30, 1998. 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. During
the first four months of fiscal 1998, the Company raised $498,000 of short-term
capital. These funds were provided by Charles S. Leavell ($100,000), Chairman of
the Board of Directors, two directors and two officers of the Company (an
aggregate of $198,000) and three other investors. The loans bear interest at 6%
per quarter and are secured by substantially all of the Company's assets other
than its real estate. The investors also were granted a five-year warrant to
purchase one share of common stock for each $2.50 loaned to the Company at an
exercise price of $1.50 per share. While the Company believes it has adequate
capital to fund anticipated operations for the balance of fiscal 1998, it
believes it must obtain additional working capital for future periods.
Reviewing the change in financial position over the quarter, current assets,
largely comprised of cash and prepaid expenses, increased from $1,235,606 at
December 31, 1997 to $1,688,004 at June 30, 1998, an increase of $452,398 or
37%. Of these amounts, cash and cash equivalents increased from $590,022 at
December 31, 1997 to $698,849 at June 30, 1998. Prepaid expenses (expenses
incurred on behalf of the faires) increased from $480,320 at December 31, 1997
to $690,904 at June 30, 1998. These costs are expensed once the associated
Faires are operating. Accounts receivable increased from $21,710 at December 31,
1997 to $94,307 at June 30, 1998. Inventory increased 42% from $143,554 to
$203,944. Accounts receivable and inventory normally increase during the faire
operating season.
Current liabilities increased from $1,440,427 at December 31, 1997, to
$2,732,360 at June 30, 1998, an increase of $1,291,933 or 90%. This increase is
due to an increase during the six month period in accounts payable and accrued
expenses of $501,091 as a result of the Company's decision to defer
11
<PAGE>
payments of trade payables and to increased indebtedness during the six months
of $496,575 incurred to cover the Company's operating expenses prior to the
opening of the 1998 faire season. Unearned income, which consists primarily of
the sale of admission tickets to upcoming faires, and deposits received from
craft vendors for future faires, increased from $142,503 at December 31, 1997 to
$436,770 at June 30, 1998. Notes payable, current portion, increased from
$115,135 at December 31, 1997 to $611,710 at June 30, 1998. This increase
reflects the $498,000 in short-term capital borrowed during the first four
months of the year. The loans bear interest at 6% per quarter and are secured by
substantially all of the Company's assets other than its real estate. The
investors also were granted a five-year warrant to purchase one share of common
stock for each $2.50 loaned to the Company at an exercise price of $1.50 per
share. The term of these loans require repayment of principal and interest by
August 31, 1998.
Stockholders' Equity decreased from $3,573,758 at December 31, 1997 to
$2,622,103 at June 30, 1998, a decrease of $951,655 or 27%. This decrease
resulted from the net loss during the six months.
Although inflation can potentially have an effect on financial results,
during 1997 and the first six months of fiscal 1998 it caused no material
effect 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, 1998.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information contained in this report, prospective
investors should carefully consider the following factors in evaluating the
Company and its business.
Recent Losses. The Company has incurred substantial operating losses
since fiscal 1995. In addition, the Company expects to incur a net loss for
the fiscal year ending December 31, 1998. There is no assurance that the
Company will return to profitability in any subsequent period. The New York
and Virginia Faires each operated at a loss during 1996 and 1997. As of the
date of this report, the Virginia Faire has concluded and the New York Faire
has been open one weekend. Current results indicate that the Virginia Faire
operated at a significantly lower loss, approximately 35% less as compared to
the prior year. At this time it is not possible to determine the results for
the New York Faire. If the performance of these Faires does not continue to
improve, the Company's ability to achieve and sustain profitability in
subsequent periods will be adversely affected.
Need for Additional Capital. The Company had a working capital deficit
of ($1,044,356) as of June 30, 1998. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." While the Company believes
that it has adequate capital to fund anticipated operations for the balance of
fiscal 1998, it will need additional working capital to sustain operations after
that time. Additional capital may be sought through borrowings or from
additional equity financing. Such additional equity financing may result in
additional dilution to investors. In any case, there can be no assurance that
any additional capital can be satisfactorily obtained if and when required.
Possible Suspension of Northern California Faire. Historically, the
Company operates its Northern California Faire during the Fall of each year at a
site in Novato, California. While the
12
<PAGE>
Company has a lease for this site for 1998, this will be the last year the
Faire will operate at this location. Further, in order to obtain a lease at
the current site for the 1998 season it was necessary to begin the faire four
weeks earlier in 1998 than in 1997. The Company is currently investigating
two potential new sites for the Faire for the 1999 season. There is no
assurance that the Company will be successful in locating a new site for the
Northern California Faire. The Company estimates that it could be required to
spend from $500,000 to $1,000,000 for construction of structures prior to the
opening of the Faire at a new site. Should the chosen site require
development of an infrastructure, water, electricity, etc., the cost to the
Company could increase substantially.
Possible Relocation of Southern California Faire. Since April 1994, the
Company has operated its Southern California Faire in Devore, California. The
Company is currently negotiating with the owners of the Devore property
regarding both short and long-term use of this property. The owners have
indicated that the site would be available in 1999. The Company believes that it
either needs to obtain a long-term lease for the current faire site or relocate
the faire to another site for which a long-term lease would be available. This
would allow the Company to construct permanent structures on the site and
significantly reduce setup cost for this faire. As of the date of this report,
the Company has not entered into a long-term lease for the current faire site
and there can be no assurance that it will be able to do so.
Competition. The Company faces significant competition from numerous
organizations throughout the country which offer Renaissance Faires and other
entertainment events, including amusement parks, theme parks, local and county
fairs and festivals, some of which possess significantly greater resources than
the Company and in many cases greater expertise and industry contacts. The
Company estimates that there are currently 20 major Renaissance Faires produced
each year. In addition, the Company estimates that there are 100 minor
Renaissance Faire events held throughout the United States each year, ranging in
duration from one day to two weekends.
Lack of Trademark Protection. Because of the large number of existing
Renaissance Faires, the Company is not able to rely upon trademark or service
mark protection for the name "Renaissance Faire." As a result, there is no
protection against others using the name "Renaissance Faire" for the production
of entertainment events similar to those produced by the Company. The Company's
own Faires could be negatively impacted by association with substandard
productions.
Public Liability and Insurance. As a producer of a public entertainment
event, the Company has exposure for claims of personal injury and property
damage suffered by visitors to the Faires. To date, the Company has experienced
only minimal claims which it has been able to resolve without litigation. The
Company maintains comprehensive liability insurance which it considers to be
adequate against this risk; however, there can be no assurance that a
catastrophic event or claim which could result in damage or liability in excess
of this coverage will not occur.
Dependence Upon Vendors. A substantial portion of the Company's
revenues generated at each Faire are derived from arrangements that the Company
has with vendors who construct elaborate booths at the Faires and sell a variety
of food, crafts and souvenirs. This arrangement consists of either a fixed
rental paid by the vendors to the Company or a percent of revenues. In either
case, the success of a Faire is dependent upon the Company's ability to attract
responsible vendors who sell high quality goods.
Seasonality. The Company's Renaissance Faires are located in
traditionally seasonal areas which attract the greatest number of visitors
during the warm weather months in the spring,
13
<PAGE>
summer and early fall. Unless the Company acquires or develops additional Faire
sites in areas which are counter-seasonal to the present sites located in
temperate climates, the Company's revenues and income will be highly
concentrated in the six months ended September 30th of each year.
Dependence Upon Weather. Each Renaissance Faire operated by the Company
is scheduled for a finite period, typically consecutive weekends during a seven
to nine-week period, which are determined substantially in advance in order to
facilitate advertising and other promotional efforts. The success of each Faire
is directly dependent upon public attendance, which is directly affected by
weather conditions. While each of the Company's faires, other than the Northern
and Southern California faires, are open, rain or shine, poor weather, or even
the forecast of poor weather, can result in substantial declines in attendance
and, as a result, loss of revenues. The Northern and Southern California faires
are closed if it is raining. Further, as the Renaissance Faires are outdoor
events, they are vulnerable to severe weather conditions that can cause damage
to the Faire's infrastructure and buildings, as well as injuries to patrons and
employees. Risks associated with the weather are beyond anyone's control but
have a direct and material impact upon the relative success or failure of a
given Faire.
Licensing and Other Governmental Regulation. For each Faire operated by
the Company, it is necessary for the Company to apply for and obtain permits and
other licenses from local governmental authorities controlling the conduct of
the Faire, service of alcoholic beverages, service of food, health and
sanitation and other matters at the Faire sites. Each governmental jurisdiction
has its own regulatory requirements which can impose unforeseeable delays or
impediments in preparing for a Faire production. While the Company has been able
to obtain all necessary permits and licenses in the past, there can be no
assurance that future changes in governmental regulation or the adoption of more
stringent requirements may not have a material adverse impact upon the Company's
future operations.
Faire Sites. The Company's Northern and Southern California Faire sites
have been held pursuant to short-term leases. The Bristol Renaissance Faire and
the New York Faire are also operated on leased sites. It is expected that future
Faires that may be developed by the Company, if any, will also be presented on
leased sites. The terms and conditions of each lease will vary from location and
to a large extent are beyond the control of the Company. Further, there can be
no assurance that the Company will be able to continue to lease existing Faire
sites on terms acceptable to the Company, or be successful in obtaining other
sites on favorable locations. The Company's dependence upon leasing Faire sites
creates a substantial risk of fluctuation in the Company's operations from year
to year.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 25, 1998, a former employee of the Company commenced
an action against the Company (on all allegations) and Kevin Patterson, a
previous Vice-President of the Company, (on the final four allegations), in
Superior Court of the State of California in and for the county of Marin
alleging breach of contract, breach of implied covenant of good faith and fair
dealing, promissory
14
<PAGE>
estoppel, negligent representation, age discrimation, physical disability
discrimination and negligent infliction of emotional distress. At the date of
this writing, the employee has withdrawn the action pending mediation.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders of the Company was
held on July 28, 1998. At that meeting, the following four directors,
constituting all members of the Board of Directors, were elected.
<TABLE>
<CAPTION>
Votes Cast Votes Cast
Name For Against Abstentions
<S> <C> <C> <C>
Charles S. Leavell 1,842,100 0 31,457
Sanford L. Schwartz 1,740,633 0 133,014
Robert Geller 1,841,900 0 31,747
Charles Weber 1,841,900 0 31,747
</TABLE>
Shareholders also approved a proposal to increase the
number of shares reserved for issuance under the Company's 1993 Incentive
Stock Plan: the number voting for the increase were 595,108, against 209,504,
abstentions were 4,037 and broker non votes were 1,064,907.
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, 1998.
Exhibit 27. Financial Data Schedule
15
<PAGE>
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: August 11, 1998 /s/ Charles S. Leavell
------------------- ---------------------------------------
Charles S. Leavell, Chief Executive and
Chief Financial Officer
/s/ Sue E. Brophy
------------------------------------
Sue E. Brophy, Chief Accounting Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 698,849
<SECURITIES> 0
<RECEIVABLES> 97,257
<ALLOWANCES> 2,950
<INVENTORY> 203,944
<CURRENT-ASSETS> 1,688,004
<PP&E> 9,548,520
<DEPRECIATION> 2,785,606
<TOTAL-ASSETS> 10,187,134
<CURRENT-LIABILITIES> 2,732,360
<BONDS> 5,408,656
0
0
<COMMON> 9,492,673
<OTHER-SE> (6,870,570)
<TOTAL-LIABILITY-AND-EQUITY> 10,187,134
<SALES> 5,201,869
<TOTAL-REVENUES> 5,201,869
<CGS> 538,080
<TOTAL-COSTS> 1,738,559
<OTHER-EXPENSES> 4,233,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362,398
<INCOME-PRETAX> (1,010,277)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,010,277)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,010,277)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)
</TABLE>
