<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 September 30, 1998
------------------
or
[ ] Transition Report Pursuance to Section 13 or 15(d) of the Securities
Exchange act of 1934.
For the transition period from ________________ to ________________
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.)
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
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(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 November 10, 1998, Registrant had 2,139,894 shares of common stock,
$.03 Par Value, outstanding.
<PAGE>
INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997 . . . . . . . . . . . . . . . 3
Statements of Operations for the Three Months
Ended September 30, 1998 and 1997
(Unaudited) . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations for the Nine Months
Ended September 30, 1998 and 1997
(Unaudited) . . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows for the Nine Months
Ended September 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 . . . . . . . . . . . . . . . . . . . . . . 15
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
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 1,702,558 $ 590,022
Accounts receivable (net) 49,651 21,710
Inventory 136,700 143,554
Prepaid expenses and other 396,297 480,320
----------- -----------
Total Current Assets 2,285,206 1,235,606
Property and equipment, net of accumulated depreciation 6,704,887 6,886,872
Covenant not to compete 9,995 25,000
Goodwill 532,143 570,150
Restricted cash 327,799 314,078
Other assets 897,997 845,977
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TOTAL ASSETS $10,758,027 $ 9,877,683
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 921,640 $ 1,182,789
Notes payable, current portion 114,585 115,135
Unearned income 129,862 142,503
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Total Current Liabilities 1,166,087 1,440,427
Lease obligation payable 3,934,140 3,909,696
Notes payable, net of current portion 841,241 918,277
Other 51,561 35,525
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Total Liabilities 5,993,029 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 September 30, 1998 and
December 31, 1997, respectively 64,196 61,550
Additional paid-in capital 9,428,477 9,372,500
Accumulated earnings (deficit) (4,727,675) (5,860,292)
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Total Stockholders' Equity 4,764,998 3,573,758
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,758,027 $ 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>
Three Months Ended
September 30
------------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUE:
Sales $9,350,396 $8,208,373
Faire operating costs 2,629,512 2,437,836
---------- ----------
Gross Profit 6,720,884 5,770,537
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OPERATING EXPENSES:
Salaries 1,703,400 1,888,412
Depreciation and amortization 148,045 186,162
Advertising 1,111,784 1,296,333
Other operating expenses 1,495,732 1,426,498
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Total Operating Expenses 4,458,961 4,797,405
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Net Operating (Loss) Income 2,261,923 973,132
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Other Income (Expenses):
Interest income 23,243 13,548
Interest (expense) (149,971) (99,108)
Other income (expense) 7,700 (53,699)
---------- ----------
Total Other Income (Expenses) (119,028) (139,259)
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Net Income (Loss) before (Provision)
Credit for Income Taxes 2,142,895 833,873
(Provision) Credit for Income Taxes -- --
---------- ----------
Net Income (Loss) to Common Stockholders $2,142,895 $ 833,873
---------- ----------
---------- ----------
Net Income (Loss) per Common Share $ 1.00 $ .43
---------- ----------
---------- ----------
Weighted Average Number of Common Shares
Outstanding 2,139,894 1,927,252
---------- ----------
---------- ----------
</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>
Nine Months Ended
September 30
-------------------------
1998 1997
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<S> <C> <C>
REVENUE:
Sales $14,552,265 $13,093,969
Faire operating costs 4,368,070 4,268,379
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Gross Profit 10,184,195 8,825,590
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OPERATING EXPENSES:
Salaries 3,639,578 3,907,931
Depreciation and amortization 431,208 529,732
Advertising 1,771,498 1,990,324
Other operating expenses 2,849,899 2,825,251
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Total Operating Expenses 8,692,183 9,253,238
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Net Operating (Loss) Income 1,492,012 (427,648)
----------- -----------
Other Income (Expenses):
Interest income 58,044 44,263
Interest (expense) (512,368) (295,275)
Other income (expense) 94,933 258,935
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Total Other Income (Expenses) (359,391) 7,923
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Net Income (Loss) before (Provision)
Credit for Income Taxes 1,132,621 (419,725)
(Provision) Credit for Income Taxes -- --
----------- -----------
Net Income (Loss) to Common Stockholders $ 1,132,621 $ (419,725)
----------- -----------
----------- -----------
Net Income (Loss) per Common Share $ .54 $ (.22)
----------- -----------
----------- -----------
Weighted Average Number of Common Shares
Outstanding 2,113,150 1,914,839
----------- -----------
----------- -----------
</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>
Nine Months ended
September 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (Loss) $1,132,621 $(419,725)
---------- ---------
Adjustments to reconcile net income (Loss)
to net cash provided by operating
activities:
Depreciation and amortization 431,208 529,732
Gain (loss) on disposal of assets (6,543) 1,363
(Increase) decrease in:
Stock Subscription Receivable 0 133,749
Accounts Receivable (27,941) (665,603)
Inventory 6,854 13,166
Prepaid expenses and other 31,754 (15,036)
Increase (decrease) in:
Accounts payable and accrued expenses (261,150) (293,749)
Unearned revenue and other 3,394 (61,091)
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Total adjustments 177,576 (357,469)
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Net Cash Provided by Operating Activities 1,310,197 (777,194)
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Cash Flows from Investing Activities:
Investment in restricted cash (13,721) 580,009
Acquisition of property and equipment (189,422) (340,363)
---------- ---------
Net Cash (Used in) Investing Activities (203,143) 239,646
---------- ---------
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 (561,826) (1,790,059)
---------- ---------
Net Cash Provided by Financing Activities 5,480 538,480
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Net Increase (Decrease) in Cash 1,112,534 932
Cash, beginning of period 590,024 374,289
---------- ---------
Cash, end of period $1,702,558 $ 375,221
---------- ---------
---------- ---------
Interest paid $ 512,368 $ 295,275
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND
CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 (Unaudited)
1. UNAUDITED STATEMENTS
The balance sheet as of September 30, 1998, the statements of operations
and the statements of cash flows for the three-month and nine-month
periods ended September 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 September 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 are calculated by dividing the net income
(loss) to common stockholders by the weighted average number of common
shares outstanding.
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 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 profit of $1,132,621 for the nine months ended September 30, 1998.
Although the Company expects to incur a net loss for the fiscal year ending
December 31, 1998, the loss should be significantly less than prior years.
The Virginia Faire has operated at a decreasing loss since opening in 1996.
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. The New York Faire operated at a loss during
1996 and 1997. 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. As of this writing, the New
York Faire will be profitable in fiscal year 1998.
The owner of the site for the Company's Northern California Faire has been
seeking to develop this site for commercial construction purposes. The
Company moved from this location after the close of the Faire in September,
1998. While the Company is investigating several new permanent as well as
temporary 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 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 surplus of $1,119,119 as of September 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 capital for
future fiscal periods. See "LIQUIDITY AND CAPITAL RESOURCES."
8
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1997
Revenues increased $1,142,023 or 14% from $8,208,373 in 1997 to $9,350,396
in 1998. This increase in revenue, in part, was the result of increased
attendance at the Wisconsin and New York Faires. The increase in revenue for
the Northern California Faire is partially a result of increased attendance
but also of a timing difference. In 1997 the Northern California Faire ended
the first week of October, whereas in 1998 the season ended the first week in
September. During October of 1997 the Northern Faire reported final weekend
revenue of approximately $500,000.
Faire operating expenses increased $191,676 or 8% from $2,437,836 in 1997 to
$2,629,512 in 1998. Overall cost of sales inherently increase with revenue.
Cost of sales as a percent of revenue actually decreased 1.5% from 1997 to
1998, indicating improved efficiency in the utilization of resources within
this expense category.
Operating expenses (year-round operating costs and corporate overhead) showed
a decrease of $338,444 or 7%, from $4,797,405 in 1997 to $4,458,961 in 1998.
Of the operating expenses, salaries decreased 10%, from $1,888,412 in 1997 to
$1,703,400 in 1998, reflecting a continuing reduction in personnel expense
for the 1998 period as compared to the 1997 period.
Advertising expense decreased $184,549, or 14%, from $1,296,333 in 1997 to
$1,111,784 in 1998. This decrease was due to the continued utilization of
more cost efficient methods of advertising.
Depreciation and amortization decreased 20%, from $186,162 in 1997 to
$148,045 in 1998. This decrease 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.
Other operating expenses (all other general and administrative expenses of
the Company) increased $69,234 or 5%, from $1,426,498 in 1997 to $1,495,732
in 1998.
As a result of the foregoing, net operating income (before interest charges
and other income) increased 132% from $973,132 for the 1997 period to
$2,261,923 for the 1998 period.
A 51% increase in interest expense from $99,108 in 1997 to $149,971 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. Except for the above-mentioned item, the Company's borrowing level
and associated interest expense has decreased over the past one year period.
Other income increased $61,399, from expense of $53,699 in 1997 to income of
$7,700 in 1998. The primary cause of the expense incurred in 1997 was in
connection with the termination of an employee. These expenses decreased in
1998.
9
<PAGE>
Combining net operating income with other income/expense resulted in a
$1,309,022 increase in net income before taxes from income of $833,873 for
the 1997 period to an income of $2,142,895 for the 1998 period.
Net income to common stockholders also increased $1,309,022, from $833,873
for the 1997 period to $2,142,895 for the 1998 period. Finally, net income
per common share increased from $.43 for the 1997 period to an income of
$1.00 for the 1998 period, based on 1,927,252 weighted average shares
outstanding during the 1997 period and 2,139,894 weighted average shares
outstanding during the 1998 period.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1997
Revenues increased $1,458,296 or 11% from $13,093,969 in 1997 to $14,552,265
in 1998. This increase was primarily the result of increased revenue of
approximately $43,000 for the Virginia Faire, $133,000 for the Southern
California Faire, $236,000 for the Wisconsin Faire, $150,000 for the New York
Faire and $844,000 for the Northern California Faire. The increased revenue
for the Virginia, Wisconsin, and New York Faires was primarily due to
increased attendance. The increased revenue for the Southern California Faire
was due to an increase in paid attendance, as well as being open one more
weekend in 1998 than in 1997. The increased revenue for the Northern
California Faire is in part a result of increased attendance, but also of a
timing difference. In 1997, the Northern California Faire ended the first
week of October, whereas in 1998 the season ended the first week in
September. During October of 1997, the Northern Faire reported final weekend
revenue of approximately $500,000.
Faire operating expenses increased $99,691 or 2% from $4,268,379 in 1997 to
$4,368,070 in 1998. Overall cost of sales inherently increases with revenue.
Cost of sales as a percent of revenue actually decreased 2.5% from 1997 to
1998 indicating improved efficiency in the utilization of resources within
this expense category.
Operating expenses (year-round operating costs and corporate overhead)
decreased $561,055 or 6%, from $9,253,238 in 1997 to $8,692,183 in 1998.
Of the operating expenses, salaries decreased 7%, from $3,907,931 in 1997 to
$3,639,578 in 1998, reflecting a continuing reduction in personnel expense
for the 1998 period as compared to the 1997 period.
Advertising expense decreased $218,826, or 11%, from $1,990,324 in 1997 to
$1,771,498 in 1998. This decrease was due to the continued utilization of
more cost efficient methods of advertising.
Depreciation and amortization decreased 19%, from $529,732 in 1997 to
$431,208 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) showed a marginal increase of $24,648 or 1%, from $2,825,251 in
1997 to $2,849,899 in 1998.
10
<PAGE>
As a result of the foregoing, net operating income (before interest charges
and other income) increased $1,919,660 from a loss of ($427,648) for the 1997
period to income of $1,492,012 for the 1998 period.
A 73% increase in interest expense from $295,275 in 1997 to $512,368 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. Except for the above-mentioned item, the Company's borrowing level
and associated interest expense has decreased over the past one year period.
Other income decreased $164,002, from $258,935 in 1997 to $94,933 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
$1,552,346 increase in net income before taxes, from a loss of ($419,725) for
the 1997 period to income of $1,132,621 for the 1998 period.
Net income to common stockholders increased $1,552,346, from a loss of
($419,725) for the 1997 period to income of $1,132,621 for the 1998 period.
Finally, net income per common share increased from a loss of ($.22) for the
1997 period to income of $.54 for the 1998 period, based on 1,914,839
weighted average shares outstanding during the 1997 period and 2,113,150
weighted average shares outstanding during the 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position improved during the nine months ended
September 30, 1998, from a deficit of $204,821 at December 31, 1997 to a
surplus of $1,119,119 at September 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 allowed interest
at 6% per quarter and were 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. These loans were
repaid in August of 1998. While the Company believes it has adequate capital
to fund anticipated operations for the balance of fiscal 1998, it believes it
must obtain approximately $1,000,000 of debt or equity financing for the
first quarter of 1999 and future periods. While the Company has initiated
discussions with several potential sources, there can be no assurance that
additional funding will be available or that it will be available on terms
acceptable to the Company.
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 $2,285,206 at September
11
<PAGE>
30, 1998, an increase of $1,049,600 or 85%. Of these amounts, cash and cash
equivalents increased from $590,022 at December 31, 1997 to $1,702,558 at
September 30, 1998. Prepaid expenses and other current assets, decreased
from $480,320 at December 31, 1997 to $396,297 at September 30, 1998.
Accounts receivable increased from $21,710 at December 31, 1997 to $49,651 at
September 30, 1998. This is a normal condition, reflecting outstanding
balances due from vendors for recently completed Faires. Inventory decreased
5% from $143,554 at December 31, 1997 to $136,700 at September 30, 1998.
Inventory normally decreases after the Faire season.
Current liabilities decreased from $1,440,427 at December 31, 1997, to
$1,166,087 at September 30, 1998, a decrease of $274,340 or 19%. This
decrease is primarily due to a reduction during the nine-month period in
accounts payable and accrued expenses of $261,149. Unearned income, which
consists primarily of the sale of admission tickets to upcoming Faires, and
deposits received from craft vendors for future Faires, decreased from
$142,503 at December 31, 1997 to $129,862 at September 30, 1998. Notes
payable, current portion, decreased from $115,135 at December 31, 1997 to
$114,585 at September 30, 1998.
Stockholders' Equity increased from $3,573,758 at December 31, 1997 to
$4,764,998 at September 30, 1998, an increase of $1,191,240 or 33%. This
increase resulted primarily from the net profit during the nine-month period.
Although inflation can potentially have an effect on financial results,
during 1997 and the first nine 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 the 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, although significantly lower than previous
years, 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. Current results indicate that
the Virginia Faire operated at a significantly lower loss, approximately 20%
less as compared to the prior year. The New York Faire is expected to
operate at a profit in 1998. 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 surplus
of $1,119,119 as of September 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 year 1998, it will need additional 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
12
<PAGE>
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 has operated its Northern California Faire during the fall of each
year at a site in Novato, California. While the Company had a lease for this
site in 1998, it was known that the owners of the property were seeking to
develop the land. Subsequent to the conclusion of the 1998 season, the
Company moved its Northern California operations from this location. The
Company is currently in negotiations involving 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 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 costs for this Faire. As of the date
of this report, the Company has not entered into a long-term lease for the
current 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 is 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
13
<PAGE>
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, 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, 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 currently does not have a Northern California
Faire site. The Southern California Faire, Bristol Renaissance Faire, and
the New York Faire are all 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.
14
<PAGE>
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 a former officer of the
Company 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 estoppel, negligent representation, age
discrimination, physical disability discrimination and negligent infliction
of emotional distress. On September 15, 1998 this case was settled through
mediation. The mediator found for the former employee in the amount of
approximately $50,000 to be paid in full by September, 2000.
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
NAME FOR ABSTENTIONS
<S> <C> <C>
Charles S. Leavell 1,842,100 31,457
Sanford L. Schwartz 1,740,633 133,014
Robert Geller 1,841,900 31,747
Charles Weber 1,841,900 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
from 284,000 to 484,000. The number of shares voting for the increase were
595,108; against were 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 September 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: November 10, 1998 /s/
--------------------------------------
Charles S. Leavell, Chief Executive and
Chief Financial Officer
/s/
--------------------------------------
Sue E. Brophy, Chief Accounting Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,702,558
<SECURITIES> 0
<RECEIVABLES> 52,601
<ALLOWANCES> 2,950
<INVENTORY> 136,700
<CURRENT-ASSETS> 2,285,206
<PP&E> 9,603,988
<DEPRECIATION> 2,899,101
<TOTAL-ASSETS> 10,758,027
<CURRENT-LIABILITIES> 1,166,087
<BONDS> 4,889,966
0
0
<COMMON> 9,434,893
<OTHER-SE> (4,727,675)
<TOTAL-LIABILITY-AND-EQUITY> 4,764,998
<SALES> 14,552,265
<TOTAL-REVENUES> 14,552,265
<CGS> 1,531,710
<TOTAL-COSTS> 4,368,070
<OTHER-EXPENSES> 8,692,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 512,368
<INCOME-PRETAX> 1,132,621
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,132,621
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<NET-INCOME> 1,132,621
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
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