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As filed with the Securities & Exchange Commission on January 20, 1998
Registration No.333-43503
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
RENAISSANCE ENTERTAINMENT CORPORATION
(Exact name of issuer as specified in its charter)
COLORADO 7900 81-1094630
(State or other jurisdiction Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Code No.
4440 ARAPAHOE AVENUE, SUITE 200
BOULDER, CO 80303
(303) 444-8273
(Address and telephone number of principal executive offices)
CHARLES S. LEAVELL
RENAISSANCE ENTERTAINMENT CORPORATION.
4440 ARAPAHOE AVENUE, SUITE 200
BOULDER, COLORADO 80303
(303) 444-8273
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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Calculation of Registration Fee
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Proposed Proposed
Title of Each Maximum Maximum
Class of Amount to be Offering Price Aggregate Amount of
Securities Registered Per Share Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock,
$.03 par value 200,000 Shares $0.5000 (1) $100,000 (2) $30.30
100,000 Shares $0.4375 (2) $ 43,750 (1) $13.26
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300,000 Shares $143,750 (1) $43.56
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(1) Based on exercise price of Common Stock Purchase Warrants.
(2) Estimated solely for purposes of calculating the registration fee. In
accordance with Rule 457(c) of Regulation C, the estimated price for the
300,000 shares is based on the closing sale price on the Nasdaq Small Cap
Market on December 22, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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300,000 Shares
RENAISSANCE ENTERTAINMENT CORPORATION
Common Stock
The shares offered hereby include up to 300,000 shares of Common Stock,
$.03 par value ("Common Stock"), of Renaissance Entertainment Corporation
(the "Company") issuable to consultants ("Selling Shareholders") for expenses
(100,000 shares) or upon the exercise of common stock purchase warrants
(200,000 shares) issued in connection with consulting services rendered to
the Company. These shares may be sold from time to time by the Selling
Shareholders for their own accounts. The 300,000 shares of Common Stock of
the Company are herein referred to as the "Shares." The Company has been
advised that the Selling Shareholders may from time to time sell the Shares
to or through brokers or dealers in one or more transactions, on the Nasdaq
Small Cap Market or otherwise, at market prices prevailing at the time of
sale, at prices relating to such prevailing market prices, or at negotiated
prices.
The Company's Common Stock is listed on the Nasdaq Small Cap Market
under the symbol FAIR. On December 22, 1997, the last reported sale price of
Common Stock, as reported on the Nasdaq Small Cap Market, was $0.4375 per
share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD
BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Since the Common Stock registered hereunder is being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Act"), the Company cannot include herein information
about the price to the public of the Common Stock or the proceeds to the
Selling Shareholders. The Company will receive no proceeds from any sales of
Common Stock by the Selling Shareholders, and the Company is obligated to pay
the expenses of this offering, which are estimated at $6,000. The Selling
Shareholders will pay their own expenses in connection with sales of the
Common Stock. The Selling Shareholders and any brokers or dealers executing
selling orders on their behalf may be deemed "underwriters" within the
meaning of the Act, in which event the usual and customary selling
commissions which may be paid to the brokers or dealers may be deemed to be
underwriting commissions under the Act. There can be no assurance that any
or all of the Shares registered hereunder will be sold. See "PLAN OF
DISTRIBUTION."
The date of this Prospectus is January __, 1998.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
ALL SHARE AMOUNTS HAVE, UNLESS INDICATED TO THE CONTRARY, BEEN ADJUSTED FOR A
TWO-FOR-ONE SPLIT OF THE COMPANY'S COMMON STOCK, EFFECTIVE OCTOBER 21, 1996.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. POTENTIAL
INVESTORS SHOULD CAREFULLY REVIEW THE INFORMATION UNDER THE HEADING "RISK
FACTORS."
THE COMPANY
Renaissance Entertainment Corporation operates five Renaissance Faires
in the United States. With these 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 entertainment industry consists of over 100
separate events of varying sizes with a Renaissance theme and has an
estimated attendance in excess of 4,000,000 visitors annually.
The Renaissance Faire is a recreation of a Renaissance village, a
fantasy experience transporting the visitor back into sixteenth century
England. This fantasy experience is created through authentic craft shops,
food vendors and continuous live entertainment throughout the day, both on
the street and the stage including actors, jugglers, jousters, magicians,
dancers and musicians.
The Company owns and operates the Bristol Renaissance Faire in Kenosha,
Wisconsin, serving the Chicago/Milwaukee metropolitan region; the Northern
California Renaissance Pleasure Faire in Novato, California, serving the San
Francisco Bay area; the Southern California Renaissance Pleasure Faire in
Devore, California, serving the greater Los Angeles metropolitan area; the
New York Renaissance Faire in Tuxedo, New York, serving the New York City
metropolitan area; and the Virginia Renaissance Faire in Fredericksburg,
Virginia, serving the Washington D.C. and Richmond metropolitan areas. The
Company is currently negotiating for a permanent location for the Southern
California Renaissance Pleasure Faire and is seeking an alternative site for
the Northern California faire. See "Risk Factors."
In July 1995, the Company acquired approximately 250 acres of land in
Fredericksburg, Virginia in order to construct a Renaissance Faire on that
site. The Virginia Renaissance Faire opened in May 1996.
In February 1996, the Company acquired all of the issued and outstanding
stock of Creative Faires, Ltd., which owns and operates the New York
Renaissance Faire. In connection with this acquisition, the Company issued
540,000 shares of Common Stock.
The Company's strategic plan is to grow through internal growth and by
developing and acquiring additional Renaissance Faires located throughout the
United States. The Company believes that with a long-term strategy of
internal growth and acquisitions, the Company will strengthen its market
position.
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The Company maintains its principal executive offices at 4440 Arapahoe
Avenue, Suite 200, Boulder, Colorado 80303, where its telephone number is (303)
444-8273.
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. See "Risk Factors."
THE OFFERING
Common Stock offered by the
Selling Shareholders . . . . . . . Up to 300,000 shares of Common
Stock. See Description of
Securities.
Common Stock outstanding
before offering (1). . . . . . . . 10,263,247
Common Stock outstanding
after offering (1) . . . . . . . . 10,563,247. Assumes that all of
the Shares are issued to the
Selling Shareholders either for
expenses or upon the exercise of
currently outstanding warrants.
Use of proceeds . . . . . . . . . . The Company will not receive any of
the proceeds from the sale of
Common Stock by the Selling
Shareholders.
Nasdaq Symbols:
Common Stock. . . . . . . . . . . .FAIR
Class A Warrants. . . . . . . . . .FAIR W
Class B Warrants. . . . . . . . . .FAIR Z
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(1) As of December 23, 1997. Does not include shares reserved for issuance
pursuant to exercise of outstanding options and warrants and the conversion
of the Notes and other convertible securities.
SUMMARY FINANCIAL DATA
The following summary financial data was derived from the Company's
financial statements included elsewhere herein and should be read in conjunction
with such financial statements and the notes thereto. On June 21, 1996, the
Company changed its fiscal year end from March 31, to December 31. The data
presented as of and for the nine months ended
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December 31, 1996, represents the transition period for the new fiscal year
end. All information is in thousands, except per share amounts.
STATEMENTS OF OPERATIONS DATA:
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NINE MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31, SEPTEMBER 30,
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1994 1995 1996 1995 1996 1996 1997
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Revenue................ $1,973 $12,540 $12,811 $10,470 $14,554 $13,242 $13,094
Gross Profit........... 1,694 9,327 8,984 7,265 9,741 8,851 8,826
Net Income (Loss)...... (98) 576 (1,274) 264 (1,852) (1,522) (420)
Net Income (Loss) to
Common Stockholders.. (98) 533 (1,274) 264 (1,852) (1,522) (420)
Net Income (Loss) per
Common Share......... (.05) .11 (.16) .03 (.21) (.17) (.04)
Weighted average
number of shares
outstanding.......... 1,901 4,801 7,824 7,644 8,907 8,813 9,574
</TABLE>
BALANCE SHEET DATA:
September 30, 1997
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Working capital (deficit) ($560)
Total assets 9,636
Total liabilities 4,022
Stockholders' equity 5,614
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating the Company and its business before purchasing the Shares offered
hereby.
RECENT LOSSES. 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. 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 the Virginia
Faire operated at a loss during 1997. If the performance of these Faires
does not improve in subsequent periods, the Company's ability to achieve and
sustain profitability in subsequent periods will be adversely affected. See
"POSSIBLE SUSPENSION OF NORTHERN CALIFORNIA FAIRE FOR 1998."
NEED FOR ADDITIONAL CAPITAL. The Company had a working capital deficit
of ($560,398) as of September 30, 1997 and ($1,506,284) as of December 31,
1996. During the first five months of fiscal 1997, the Company obtained
$1,350,000 of additional working capital through the placement of convertible
loans and on March 31, 1997, obtained an extension for the payment of
short-term bank lines of credit in the amount of $1,000,000, all of which
lines of credit have been paid as of the date of this Prospectus. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." While the Company believes that it has adequate working capital
to fund anticipated operations for fiscal 1997, it will need additional funds
to sustain operations after that time. In addition, the Company would
require additional funding to move either its Southern or Northern California
Faires to a new location (see "POSSIBLE SUSPENSION OF NORTHERN CALIFORNIA
FAIRE FOR 1998" and "POSSIBLE RELOCATION OF SOUTHERN CALIFORNIA FAIRE"), and
to expand its business, and may require additional funding in order to
develop a new site for the Northern California Faire (see "POSSIBLE
SUSPENSION OF NORTHERN CALIFORNIA FAIRE FOR 1998"). The Company recently
sold its Wisconsin faire site to a group of investors who leased the site to
the Company. This transaction resulted in an increase of approximately
$1,600,000 in the Company's working capital. The Company believes that it
needs to raise from $500,000 to $1,000,000 of short-term working capital to
fund its working capital requirements during fiscal 1998. This additional
capital would not, however, be sufficient to fund the relocation of either
the Southern or Northern California Faires. Therefore, 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 FOR 1998. The Company
operates its Northern California Faire during the Fall of each year at a site in
Novato, California. The Company's current lease for that site, which is on a
year-to-year basis, expires in 1997. The Company understands that the owner of
the site is seeking to develop the site for commercial
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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
purpose is being challenged. The Company is investigating new sites for the
Faire. There is no assurance that the Company will be successful in locating
a new site for the Northern California Faire for the 1998 or subsequent faire
seasons or, if located, successful in obtaining all necessary approvals for a
site to be available for the Faire in 1998 or any subsequent period. In
addition, the Company estimates that it could be required to spend from
$500,000 to $1,000,000 for development of a site prior to the opening of the
Faire at a new site. See "BUSINESS - EXISTING RENAISSANCE FAIRES AND SITES -
NORTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE."
POSSIBLE RELOCATION OF SOUTHERN CALIFORNIA FAIRE. Since April 1994, the
Company has operated its Southern California Faire in Devore, California.
The Company has entered into a non-binding letter of intent with the owner of
a site in Pomona, California which contemplates that the Company will
commence operation of the Southern California Faire at that site starting in
1998. The letter of intent calls for the Company to construct a new village
for the Faire. The Company estimates that the cost of such construction would
be approximately $2,000,000. The Company would need additional funds from
one or more third parties to finance such construction. Subsequent to the
execution of the letter of intent for the new site, the owner of the existing
faire site indicated that it was willing to enter into a long-term lease for
the site. 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 Prospectus, the Company had not decided whether it should enter into
a long-term lease for the current faire site or relocate the faire to the
proposed site in Pomona, California, although the Company intends to remain
at the current site through at least the 1998 faire season. See
"BUSINESS-EXISTING RENAISSANCE FAIRES AND SITES-SOUTHERN CALIFORNIA
RENAISSANCE PLEASURE FAIRE."
DEPENDENCE UPON MANAGEMENT. The Company's future success depends in a
large part on the continued service of its key marketing, sales, promotional
and management personnel and on its ability to continue to attract, motivate
and retain highly qualified employees. The loss of the services of key
personnel could have a material adverse effect upon the Company's operations
and development efforts. There can be no assurance of the continued service
to the Company of its key executive officers. The Company does not have key
person life insurance covering its management personnel or other key
employees.
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. See
"BUSINESS - COMPETITION."
LACK OF TRADEMARK PROTECTION. Because of the large number of existing
Renaissance Faires, it is unlikely that the Company will be able to rely upon
trademark or service mark
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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. See "BUSINESS - INTELLECTUAL PROPERTY."
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. See "BUSINESS - PUBLIC
LIABILITY AND INSURANCE."
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.
See "BUSINESS - VENDORS."
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. See "BUSINESS - SEASONALITY AND WEATHER."
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. See "BUSINESS -
SEASONALITY AND WEATHER."
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
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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. See
"BUSINESS - GOVERNMENT REGULATION."
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. See "POSSIBLE SUSPENSION OF
NORTHERN CALIFORNIA FAIRE FOR 1998" and "POSSIBLE RELOCATION OF SOUTHERN
CALIFORNIA FAIRE."
SHARES ELIGIBLE FOR FUTURE SALE UNDER RULE 144. The Company estimates
that in excess of 3,000,000 shares of the Company's Common Stock currently
outstanding are "restricted securities" which have been outstanding for more
than two years and can be sold publicly in compliance with Rule 144 adopted
under the Securities Act of 1933 (the "Securities Act"). Holders of
restricted securities must comply with the requirements of Rule 144 in order
to make a public sale of their shares without violating the Securities Act.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year, including
persons who may be deemed affiliates of the Company, would be entitled to
sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding such sale, provided that the Company has filed certain
periodic reports with the Securities and Exchange Commission and the sale is
made in a "broker's transaction" or in a transaction directly with a "market
maker" as those terms are used in Rule 144. A person who is not deemed to
have been an affiliate of the Company at any time during the 90 days
preceding a sale by such person, and who has beneficially owned restricted
shares for at least two years, would be entitled to sell such shares under
Rule 144 without regard to the volume limitations and public information and
manner of sale requirements described above. The possibility that
substantial amounts of Common Stock may be sold in the public market under
Rule 144 may adversely effect the prevailing market price for the Common
Stock.
MARKET OVERHANG FROM WARRANTS AND OUTSTANDING OPTIONS AND CONVERTIBLE
SECURITIES. As of December 23, 1997, the Company had outstanding options,
warrants and convertible notes and debentures to purchase a total of
6,178,392 shares, including Class A and Class B warrants to purchase an
aggregate of 3,655,530 shares issued in a public offering in 1995 ("Public
Warrants"). To the extent that such stock options or warrants are exercised
or the convertible securities converted, dilution to the interests of the
Company's shareholders may occur. Exercise of these options or warrants or
the conversion of the convertible securities or even the potential
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of their exercise or conversion may have an adverse effect on the trading
price and market for the Company's Common Stock. The holders of the options,
warrants or convertible securities are likely to exercise or convert them at
times when the market price of the shares of Common Stock exceeds the
exercise price of the options or warrants or the conversion price of the
convertible securities. Accordingly, the issuance of shares of Common Stock
upon exercise of the options or warrants or conversion of the convertible
securities may result in dilution of the equity represented by the then
outstanding shares of Common Stock. Furthermore, holders of such securities
can be expected to exercise or convert them at a time when the Company would,
in all likelihood, be able to obtain any needed capital on terms which are
more favorable to the Company than the exercise or conversion terms provided
by such securities.
PROPOSED NEW LISTING STANDARDS FOR NASDAQ SECURITIES. The Nasdaq Stock
Market recently adopted certain changes to the standards for issuers with
securities listed on Nasdaq. One of the changes included increasing the
maintenance requirements for continued listing in the Nasdaq Small Cap
Market, on which the Company's Common Stock is currently listed. While the
Company currently is in compliance with all of the new maintenance
requirements other than the $1.00 minimum stock price requirement, it could
cease to be in compliance with certain of these requirements in the future if
it continues to incur substantial losses from operations. In addition, the
Company may be required to complete a reverse stock split before February 22,
1998 to comply with the minimum stock price requirement of the new rules. If
the Company does not comply with the new maintenance requirements, its Common
Stock would be delisted from the Nasdaq Small Cap Market.
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules adopted by the Securities
and Exchange Commission. Penny stocks generally are equity securities with a
price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the Nasdaq system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the
customer's account. In addition, the penny stock rules generally require that
prior to a transaction in a penny
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stock the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have
the effect of reducing the level of trading activity in the secondary market
for a stock that becomes subject to the penny stock rules. If the Company's
securities become subject to the penny stock rules, investors in this
offering may find it more difficult to sell their securities.
SEC INVESTIGATION OF DUKE & CO., INC. The underwriter of the Company's
1995 public offering, Duke & Co., Inc. ("Duke"), is aware that the Securities
and Exchange Commission is investigating certain of Duke's trading practices
and mark-ups in connection with trading in securities of the Company
following the public offering. Historically, Duke has been the principal
market maker for the Company's Common Stock and Public Warrants. There can
be no assurance that the investigation will not adversely and materially
affect subsequent trading in the Company's securities.
AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of
Incorporation, as amended, authorize the issuance of up to 1,000,000 shares
of preferred stock. The Board of Directors has been granted the authority to
fix and determine the relative rights and preferences of preferred shares, as
well as the authority to issue such shares, without further stockholder
approval. As a result, the Board of Directors could authorize the issuance
of a series of preferred stock which would grant to holders preferred rights
to the assets of the Company upon liquidation, the right to receive dividend
coupons before dividends would be declared to common stockholders, and the
right to the redemption of such shares, together with a premium, prior to the
redemption of Common Stock. Common stockholders have no redemption rights.
In addition, the Board could issue large blocks of voting stock to fend
against unwanted tender offers or hostile takeovers without further
shareholder approval.
AUTHORIZATION OF ADDITIONAL SHARES. The Company's Articles of
Incorporation, as amended, authorize the issuance of up to 50,000,000 shares
of Common Stock, of which 10,263,247 shares were outstanding on December 23,
1997. The Company's Board of Directors has the authority to issue additional
shares of Common Stock and to issue options and warrants to purchase shares
of the Company's Common Stock without shareholder approval. In addition, the
Board could issue large blocks of voting stock to fend off unwanted tender
offers or hostile takeovers without further shareholder approval. In
addition, the Company had outstanding at December 23, 1997 options, warrants
and convertible securities to purchase 6,178,392 shares of Common Stock.
Exercise or conversion of these securities may have a further dilutive effect
on existing shareholders and warrant holders. See "MARKET OVERHANG FROM
WARRANTS AND OUTSTANDING OPTIONS AND CONVERTIBLE SECURITIES."
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MARKET FOR THE COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Since August 21, 1997, the Company's Common Stock has been traded in the
Nasdaq Small Cap Market and from September 1, 1995 to August 21, 1997, it
traded on the Nasdaq National Market. From January 27, 1995 to August 31,
1995, it traded on the Nasdaq Small-Cap Market and on the Boston Stock
Exchange, and prior to that time, the stock was traded over-the-counter on
the OTC Electronic Bulletin Board. Since December 9, 1996, the Company's
Common Stock has also been traded on the Philadelphia Stock Exchange. The
following table reflects the high and low prices of the Company's Common
Stock for each quarterly period of the two most recent calendar years and the
subsequent interim quarters retroactively adjusted for a 2-for-1 stock split
in October 1996. From the fourth quarter of 1995 forward, the prices reflect
the high and low sales prices. For the first, second and third quarters of
1995, the prices reflect the high and low bid prices as quoted by the
National Quotation Bureau, Inc. The quotations represent prices between
broker-dealers and do not include retail mark-ups and mark-downs or any
commission to the broker-dealer and may not reflect prices in actual
transactions.
CALENDAR YEARS ENDED DECEMBER 31 HIGH LOW
- -------------------------------- ---- ---
1995
First Quarter ended March 31 $4.50 $3.38
Second Quarter ended June 30 4.88 3.63
Third Quarter ended September 30 4.69 3.88
Fourth Quarter ended December 31 6.44 4.00
1996
First Quarter ended March 31 7.19 5.19
Second Quarter ended June 30 6.81 5.63
Third Quarter ended September 30 7.00 5.25
Fourth Quarter ended December 31 7.50 5.00
1997
First Quarter ended March 31 6.88 5.06
Second Quarter ended June 30 5.00 1.00
Third Quarter 1.25 0.50
Fourth Quarter - through December 22 1.69 .28
As of November 30, 1997, there were approximately 104 shareholders of
record. The Company estimates that there are approximately 1,530 beneficial
owners of its Common Stock.
-11-
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders.
CAPITALIZATION
The following table sets forth (i) the current liabilities and
capitalization of the Company as of September 30, 1997.
September 30, 1997
------------------
Current liabilities $1,972,313
Long-term liabilities, net of current
portion $2,049,687
------------
Total liabilities $4,022,000
Stockholders' equity:
Preferred Stock, $1.00 par value,
1,000,000 shares authorized, none
issued and outstanding --
Common Stock, $.03 par value,
50,000,000 shares authorized,
9,636,262 issued and outstanding;(1) $289,088
Accumulated (deficit) ($3,712,921)
------------
Total stockholders' equity $5,614,265
Total liabilities and stockholders'
equity $9,636,265
------------
------------
_______________
(1) Does not include shares issuable upon exercise or conversion of outstanding
options, warrants or convertible securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and
does anticipate that it will pay cash dividends in the foreseeable future.
Instead, the Company intends to apply any earnings to the development and
expansion of its business.
SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included elsewhere
in this Prospectus. Information is not provided for or at the end
-12-
<PAGE>
of fiscal 1993 as the financial statements for this period, which would be
for a predecessor company, are not available to the Company. The information
for fiscal 1993 would, as is the information for and at the end of fiscal
1994, be for only one of the Company's faires (the Bristol Renaissance Faire)
and would not be, in the Company's opinion, material to an understanding of
the Company's current financial information. The acquisition in 1996 of
Creative Fairs Ltd. was accounted for as a pooling of interest. The income
statement data for the nine months ended December 31, 1996 and 1995 include
the accounts of Creative Fairs Ltd. for the year ended December 31, 1996 and
1995 and accounts for the Company for the nine-month periods ended December
31, 1996 and 1995. The income statement data for the years ended March 31,
1996 and 1995 include the accounts of Creative Fairs Ltd. for the two years
ended December 31, 1995 and 1994 and the consolidated accounts of the Company
for the years ended March 31, 1996 and 1995, respectively. The balance sheet
data as of December 31, 1996 and 1995 include the accounts of Creative Fairs
Ltd. as of December 31, 1996 and December 31, 1995, respectively. The
balance sheet data as of March 31, 1996 and 1995, also include the accounts
of Creative Fairs Ltd. as of December 31, 1995 and 1994, respectively. The
income statement data for the year ended March 31, 1994 and as of March 31,
1994 do not include information regarding Creative Fairs Ltd. as audited
financial statements for periods prior to January 1, 1994 were not available
to the Company.
<TABLE>
<CAPTION>
NINE MONTHS
NINE MONTHS ENDED
YEARS ENDED MARCH 31, ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ------------------------ ---------------------
INCOME STATEMENT DATA 1994 1995 1996 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue $1,973 $12,540 $12,811 $10,470 $14,554 $13,242 $13,094
Gross Profit 1,694 9,327 8,984 7,265 9,741 8,851 8,826
Net Operating Income (Loss) (39) 757 (1,475) 111 (1,753) (1,432) (428)
Net Income (Loss) After Taxes (98) 576 (1,274) 309 (1,852) (1,522) (420)
Net Income (Loss) to Common
Shareholders (98) 533 (1,274) 264 (1,852) (1,522) (420)
Net Income (Loss) Per Common
Share (.05) .11 (.16) .03 (.21) (.17) (.04)
Weighted Average Common
Shares Outstanding 1,901 4,801 7,824 7,644 8,907 8,813 9,574
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, SEPTEMBER 30,
-------------------------------- -------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA 1994 1995 1996 1995 1996 1997
------ ------ ------ ------ ------ ------
(IN THOUSANDS)
Working capital (deficiency) $ (524) $3,123 $ 15 $ 768 $(1,506) $ (560)
Total current assets 167 4,012 2,120 1,308 931 1,412
Total assets 1,257 6,853 10,433 8,226 9,872 9,636
Total current liabilities 691 889 2,105 539 2,438 1,972
Long-term debt (less current maturities) 434 451 2,531 846 2,379 2,050
Stockholders' equity 132 5,513 5,797 6,841 5,055 5,614
</TABLE>
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<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, 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 will 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 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 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 ended on September 14, 1997.
Revenue for the New York Faire increased approximately $200,000 for the 1997
season compared to the 1996 season and the faire is expected to have operated
at close to a break even in 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. 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
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<PAGE>
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
temporary structures on the site and significantly reduce setup costs for the
faire. As of the date of this Prospectus, 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, although the Company intends to remain
at the current site through at least the 1998 faire season. The Company
estimates that the cost of the construction and relocation to the new site
would be approximately $2,000,000.
The Company had a working capital deficit ($1,506,284) and ($560,398) as of
December 31, 1996 and September 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 operations for fiscal 1997, it believes it must obtain
additional working capital for future fiscal periods. See "LIQUIDITY AND
CAPITAL RESOURCES."
PROSPECTIVE INFORMATION
This Prospectus 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 - NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
Revenues decreased $147,909 or 1% from $13,241,878 in 1996 to $13,093,969 in
1997. This decrease was primarily the result of a decrease in revenues for
the Virginia Faire of approximately $100,000 and a decrease in revenues for
the Southern California Faire of approximately $225,000. 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
$250,000, from a loss of approximately $680,000 for the 1996 period to a loss
of approximately $430,000 for the 1997 period, through expense control.
Operating expenses (year-round operating costs and corporate overhead)
decreased $1,029,928 or 10%, from $10,283,166 in 1996 to $9,253,238 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.
-15-
<PAGE>
Of the operating expenses, salaries increased 5%, from $3,722,829 in 1996 to
$3,907,931 in 1997, reflecting normal salary increases.
Advertising expense decreased $460,661, or 19%, from $2,450,985 in 1996 to
$1,990,324 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 10%, from $479,862 in 1996 to
$529,732 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 $424,239 or 13%, from $3,249,490 in 1996 to $2,825,251
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 $1,004,743 from a loss of ($1,432,391) for the
1996 period to a loss of ($427,648) for the 1997 period.
A 57% increase in interest expense from $187,972 in 1996 to $295,275 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 $458,886, from other expense of ($199,951) in
1996 to other income of $258,935 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. In addition, it is not possible at this time to determine what
expenses may be incurred if the Company is required to find a new site for
this Faire. 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 expense.
Combining net operating income with other income/expense resulted in a
$1,341,718 increase in net income before taxes, from a loss of ($1,761,443)
for the 1996 period to a loss of ($419,725) for the 1997 period.
-16-
<PAGE>
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 nine month period ended September
30, 1996.
Net income to common stockholders increased $1,102,445, from a loss of
($1,522,170) for the 1996 period to a loss of ($419,725) for the 1997 period.
Finally, the net loss per common share improved from a loss of ($.17) for the
1996 period to a loss of ($.04) for the 1997 period, based on 8,813,137
weighted average shares outstanding during the 1996 period and 9,574,197
weighted average shares outstanding during the 1997 period.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER
31, 1995
On June 21, 1996, the Board of Directors of the Company approved a change in
the Company's fiscal year from April 1 to March 31 to January 1 to December
31. As a result, the fiscal period ended December 31, 1996 is for a
nine-month period, rather than for a full twelve months. In order to make
the comparison of the fiscal period ended December 31, 1996 with the prior
fiscal year more meaningful, the following discussion compares the results of
operations for the fiscal period ended December 31, 1996 to the results of
operations for the nine months ended December 31, 1995, rather than to the
full fiscal year ended March 31, 1996. See "Selected Financial Data," for
information regarding the unaudited results of operations for the nine months
ended December 31, 1995, as well as information for the audited fiscal
periods ended March 31, 1995 and 1996 and December 31, 1996.
The results of operations of the Company for the nine-month period ended
December 31, 1996 reflect the nineteen-day run of the Southern California
Faire, the eighteen-day run of the Wisconsin Faire, the fifteen-day run of
the Northern California Faire, the seventeen-day run of the New York Faire
and the fifteen-day run of the Virginia Faire. The comparable period of 1995
included the same number of days for the Southern California, Wisconsin, and
Northern California Faires, but did not include the New York or Virginia
Faires. The New York Faire was acquired on February 5, 1996, and although
accounted for as a pooling of interest and therefore included in the
Company's fiscal year ended March 31, 1996, due to the different fiscal
periods for the Company and the New York Faire, the entire twelve-month
results of operations for the New York Faire for the year ended December 31,
1995 (the New York Faire's fiscal period) were reflected in the Company's
operating results for the January 1, 1996 through March 31, 1996 quarter (the
Company's fiscal year end prior to its change on June 21, 1996) and not in
the nine-month period ended December 31, 1995. The Virginia Renaissance
Faire, which was under construction as of December 31, 1995, did not generate
any revenues during the nine-month period ended December 31, 1995. Thus,
these financial statements include the results of five operating faires for
the period in 1996, but only three faires for the same period in 1995.
Revenue increased from $10,469,824 for the nine-month period ended December
31, 1995 to $14,553,577 for the nine-month period ended December 31, 1996, an
increase of $4,083,753 or 39%. The increase in revenues resulted from the
additional revenues of $949,304 and $2,360,941
-17-
<PAGE>
for the Virginia and New York Faires, respectively, for the period ended
December 31, 1996, as compared to the same period of 1995. The increased
revenues from the new faires were partially offset by a decrease of
approximately $500,000 in revenues for the Southern California Faire as
compared to the same period of 1995. Management believes that unusually
inclement weather in Virginia, New York and Southern California reduced the
expected revenues from these faire operations. In addition, the Virginia
Faire, as is typical of new faires, operated at a loss in 1996, its first
year of operation, and is expected to incur an operating loss in the 1997
faire season. During the 1996 season the Bristol Renaissance Faire revenues
increased approximately $500,000 over the 1995 season due, in part, to good
weather during each of the nine weekends of this faire. This was the eighth
consecutive year that attendance increased at the Bristol faire.
Faire operating expenses (expenses directly related to faire operations, such
as rent, grounds maintenance, contract services, contract entertainment,
food, beverage and merchandise costs) increased $1,607,464 or 50%, from
$3,205,152 in the 1995 period to $4,812,616 in the 1996 period. This
increase in expenses resulted from the additional operation of the Virginia
and New York Faires for the period ended December 31, 1996, as compared to
the same period in 1995, plus higher overall costs related to faire
operations. The gross profit, representing operating income from faire
operations before overhead expenses, increased 34% from $7,264,672 in 1995 to
$9,740,961 in 1996. This increase is attributable to the increased revenues
from the Virginia and New York Faires, partially offset by the higher overall
costs related to all faire operations.
Operating expenses (year-round operating costs and corporate overhead)
increased $4,340,783 or 61%, from $7,153,674 in 1995 to $11,494,457 in 1996.
Of these amounts, salaries increased 34% from $3,030,208 in 1995 to
$4,048,603 in 1996, representing the expansion of staffing levels resulting
from the two additional faires. Depreciation and amortization expense
increased 88% from $337,208 in 1995 to $633,819 in 1996. This increase is
primarily the result of depreciation on the approximately $3,200,000
investment in buildings and improvements to the Virginia property, as well as
the New York Faire, both of which were not included in the same period of
1995. Advertising expenditures increased 142% from $1,036,508 in 1995 to
$2,511,973 in 1996, again reflecting the necessary advertising for the two
additional faires as well as moderate increases in advertising and rates for
the other three faires. Additionally, due to contracting out certain
advertising activities previously done by faire personnel, additional
advertising expenses of approximately $136,000 were charged to advertising
expenses during the 1996 period.
The Company wrote down goodwill applicable to the Southern California Faire
by $380,000 in 1996, based on this faire's disappointing performance over the
past two operating seasons. The Company recognized as expense in the
nine-month period ended December 31, 1996, $450,000 of costs originally
expected to be incurred in 1997, which costs are the result of the decision
made in 1996 to examine an alternative site for the Company's Northern
California Faire. See "GENERAL" above regarding the possible relocation of
the Northern California Faire.
Other operating expenses (all other general and administrative expenses of
the Company) increased $720,808 or 26%, from $2,749,254 in 1995 to $3,470,062
in 1996. This increase is primarily the result of increased operating
expenses (approximately $570,000) resulting from the two additional faires,
and also greater overhead costs (approximately $100,000 in the aggregate) at
each faire site
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<PAGE>
plus an increase in other corporate activities (approximately $50,000) which
support faire operations and pursue new ventures. As a result of the
foregoing, net operating income (before interest charges and other income)
decreased $1,864,495, from $110,999 in 1995 to a loss of $1,753,496 in 1996.
A 27% decrease in interest income from $94,090 in 1995 to $68,571 in 1996
resulted from a more than 40% decrease in the Company's cash balances during
the 1996 period. A 153% increase in interest expense from $100,266 in 1995
to $253,740 in 1996 resulted from increases in the Company's borrowing levels
throughout the 1996 period as compared to 1995. Combined net interest
expense (interest expense less interest income) reflected an increase of
$178,993 for the period, from $6,176 in 1995 to $185,169 in 1996.
Miscellaneous expenses decreased from $224,612 in 1995 to $86,940 in 1996.
Combining net operating income with other income resulted in a $2,161,159
decrease in net income before taxes, from income of $309,434 in the 1995
period to a loss of $1,851,725 in the 1996 period.
Although the Company incurred a net loss for the entire fiscal year ended
March 31, 1996, for the nine-month period ended December 31, 1995, a
provision for income tax in the amount of $45,470 was recorded. As a result
of the Company's loss for the nine-month period ended December 31, 1996, no
income tax expense was recorded.
Net income to common stockholders decreased $2,115,689, from $263,964 net
income for the 1995 period to a loss of $1,851,725 for the 1996 period.
Finally, net income per common share decreased from $0.03 during the 1995
period to a loss of $.21 for the 1996 period, based on 7,643,702 weighted
average number of shares outstanding during the 1995 period and 8,907,049
weighted average number of shares outstanding during the 1996 period.
MARCH 31 FISCAL 1996 COMPARED TO FISCAL 1995
Comparisons of the fiscal year ended March 31, 1996 with the fiscal year
ended March 31, 1995 include Creative Faires, Ltd. (owner of the New York
Renaissance Faire) acquired February 5, 1996. The acquisition has been
accounted for as a pooling of interests, which means that the financial
results of Creative Faires, Ltd. have been retroactively merged into those of
the Company. Accordingly, the Company's results of operations for fiscal
1995 and fiscal 1996 include the results of Creative Faires. Because the
Company's fiscal year previously ended on March 31 and Creative Faires'
fiscal year ended on December 31, the income statements of Creative Faires
for the fiscal years ended December 31, 1994 and December 31, 1995 have been
consolidated into the Company's income statements for the fiscal years ended
March 31, 1995 and March 31, 1996, respectively. Results of operations for
Creative Faires, Ltd. includes three crafts shows and a Halloween Forest of
Fear in addition to the New York Renaissance Faire, although the Faire
represents most of its revenue.
The results of operations of the Company for the fiscal year ended March 31,
1996 reflect the nineteen-day run of the Los Angeles Faire, the eighteen-day
run of the Wisconsin Faire, the fifteen-day run of the San Francisco Faire,
and the seventeen-day run of the New York Faire. The comparable period of
fiscal 1995 included the same number of days for Los Angeles, Wisconsin
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<PAGE>
and New York Faires, but included an additional three days for the San
Francisco Faire. The Virginia Renaissance Faire, under construction as of
March 31, 1996, did not generate any revenues during fiscal 1996. Thus,
these financial statements include the results of four operating faires and
one faire under construction during fiscal 1996, as against four operating
faires during fiscal 1995. As a further note, as a result of the acquisition
of the Los Angeles Faire on April 1, 1994, the comparable figures for the
1995 fiscal year do not reflect advance ticket sales and certain prepaid
expenses of the Los Angeles Faire which were recognized by the prior owner.
Revenue increased modestly from $12,539,653 for the fiscal year ended March
31, 1995 to $12,810,617 for the fiscal year ended March 31, 1996, an increase
of $270,964 or 2%. During fiscal 1995 beverage operations for the Los
Angeles and San Francisco Faires were handled by an outside contractor, and
accordingly only the fee earned from that contractor was reported as revenue,
whereas in fiscal 1996 the Company ran the beverage operation itself and
recorded all revenue.
Faire operating expenses (expenses directly related to faire operations, such
as rent, grounds maintenance, contract services, contract entertainment,
food, beverage and merchandise costs) increased $614,377 or 19%, from
$3,212,491 in fiscal 1995 to $3,826,868 in fiscal 1996. This increase is
partially due to the inclusion of beverage costs for the Los Angeles and San
Francisco Faires, which were not reported during the previous period when
handled by an outside contractor, plus higher overall costs related to faire
operations. The gross profit, representing operating income from faire
operations before overhead expenses, decreased 4% from $9,327,162 in fiscal
1995 to $8,983,749 in fiscal 1996. This decrease is attributable to the
shorter run of the San Francisco Faire in fiscal 1996 and growing operating
costs which were not offset by increased attendance.
Operating expenses (year-round operating costs and corporate overhead)
increased $1,888,568 or 22%, from $8,570,320 for fiscal 1995 to $10,458,888
for fiscal 1996. Of these amounts, salaries increased 17% from $3,474,799 in
fiscal 1995 to $4,082,271 in fiscal 1996, representing a modest expansion of
staffing levels Company wide. Depreciation and amortization expense
increased 42% from $351,215 in fiscal 1995 to $500,203 in fiscal 1996. This
increase is largely the result of the Company's increased investment in
property and equipment for the expanded Wisconsin Faire, as well as
investment in furniture and equipment for the corporate office, which moved
to new quarters in April 1995. The approximately $3,200,000 investment in
buildings and improvements to the Virginia property were not subject to
depreciation in fiscal 1996, because at March 31, 1996 the Virginia Faire had
not yet opened. Under accounting rules those assets (categorized on the
balance sheet as construction-in-progress) were not yet depreciable.
Advertising expenditures increased 28% from $1,211,798 in fiscal 1995 to
$1,546,701 in fiscal 1996.
Other operating expenses (all other general and administrative expenses of
the Company) increased $797,205 or 23%, from $3,532,508 for fiscal 1995 to
$4,329,713 for fiscal 1996. This increase is the result of greater overhead
costs at each faire site plus other corporate activities which support faire
operations and pursue new ventures. For example, during the 1996 fiscal
year, approximately $225,000 was spent developing new products and
distribution opportunities. Second, approximately $90,000 in product design
costs, which had been capitalized during the 1995 fiscal year, had to be
expensed when changing circumstances required a different accounting
treatment of
-20-
<PAGE>
that transaction. Third, approximately $160,000 in expenses were incurred
searching for and negotiating for the rights to new sites for the Los Angeles
and San Francisco Faires. Management believes that those Faires have the
potential to be more profitable once they are located on long-term sites with
permanent structures, since the substantial costs of re-establishing the
faires each season will be eliminated and also, the opportunity for revenue
enhancement will improve in conjunction with additional improvements to the
property. Fourth, the Company expensed approximately $300,000 in overhead
costs during construction of the new site in Virginia, including such costs
as salaries, office rent and overhead costs related to overseeing
construction. As a result of the foregoing, net operating income (before
interest charges and other income) decreased $2,231,981, from $756,842 for
fiscal 1995 to a loss of $1,475,139 for fiscal 1996.
A 128% increase in interest income from $48,132 in fiscal 1995 to $109,652 in
fiscal 1996 resulted from the investment of cash proceeds from the January
1995 stock offering. Offsetting this was a 159% increase in interest expense
from $53,223 in fiscal 1995 to $138,036 in fiscal 1996. The increase was due
to a new $1,500,000 mortgage and $250,000 note on the Virginia property, plus
a larger mortgage on the Wisconsin property. Combining interest income with
interest expense resulted in an increase in net interest expense from $5,091
in fiscal 1995 to $28,384 in fiscal 1996. Miscellaneous expenses (primarily
loss on sale of assets) of $28,327 in fiscal 1995 changed to $36,049 in
miscellaneous income (rental income and vendor refunds) in fiscal 1996.
Combining net operating income with other income resulted in a $2,190,898
decrease in net income before taxes, from income of $723,424 for fiscal 1995
to a loss of $1,467,474 in fiscal 1996.
Since the Company incurred a net loss for the 1996 fiscal year, it applied
that loss against taxable income during the previous fiscal year, resulting
in a credit of $193,803 in taxes previously booked. The excess in operating
losses above what has been applied against the previous year (approximately
$1,400,000) was carried forward to reduce taxable income in future periods.
During the 1995 fiscal year, a year of net income, income tax expense of
$147,000 was incurred.
Net income to common stockholders decreased $1,806,980, from $533,309 in
fiscal 1995 to a loss of $1,273,671 for fiscal 1996. Net income to common
stockholders for fiscal 1995 is net of $43,115 paid in dividends on preferred
stock. The Company's preferred stock was fully redeemed on January 27, 1995
in conjunction with the public offering, and there has been no preferred
stock outstanding since that date. Finally, net income per common share
decreased from $0.11 during fiscal 1995 to a loss of $0.16 during fiscal
1996, based on 4,801,044 weighted average number of shares outstanding during
fiscal 1995 and 7,824,182 weighted average number of shares outstanding
during fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit was narrowed during the nine months
ended September 30, 1997, from $1,506,284 at December 31, 1996 to $560,398 at
September 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.
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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 required the Company to pay these lines from 1997
operations. As of September 30, 1997, the entire balance of these lines was
repaid. 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 which were
secured by mortgages on the Company's Wisconsin and Virginia faire sites,
were repaid upon completion of the sale/lease back of the Wisconsin faire
site described below. The notes were secured by a mortgage on the Company's
Wisconsin Faire site. Upon the sale/lease back of the Wisconsin faire site,
the noteholders consented to a termination of the mortgage on this property
in consideration for which they were granted a mortgage on the Virginia Faire
site. The debentures were 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. The warrants
were canceled upon payment of the debentures.
Management believes that the Company should raise additional working capital
in order to more adequately fund its operations. During November 1997, the
Company completed the sale of its Wisconsin Faire site for $4,000,000. The
purchaser leased this property back to the Company for a period of 20 years
with lease payments of $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 has
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
required 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 were 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's working capital was increased by
approximately $1,600,000 as the result of this transaction. The Company
believes that it will need to raise an additional $500,000 to $1,000,000 of
short-term working capital to fund working capital requirements for the
fiscal year ending December 31, 1998. Such additional funds will not,
however, be adequate to fund the relocation of the Company's Northern or
Southern California Faires. Additional capital will be sought through
borrowings or from additional equity financing.
Reviewing the change in financial position over the nine months, current
assets, largely comprised of cash and prepaid expenses, increased from
$931,451 at December 31, 1996 to $1,411,915 at September 30, 1997, an
increase of $480,464 or 52%. Of these amounts, cash and cash equivalents
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increased from $374,289 at December 31, 1996 to $375,222 at September 30,
1997. Accounts receivable increased from $99,551 at December 31, 1996 to
$765,154 at September 30, 1997. This is a normal condition, reflecting
outstanding balances due from vendors for recently completed faires. Prepaid
expenses decreased from $139,167 at December 31, 1996 to $100,010 at
September 30, 1997.
Current liabilities decreased from $2,437,735 at December 31, 1996 to
$1,972,313 at September 30, 1997, a decrease of $465,422 or 19%. This
decrease is due to the pay off in the first nine months of the $1,000,000 in
bank lines of credit borrowing discussed above. The current portion of notes
payable decreased from $1,209,119 at December 31, 1996 to $1,112,684 at
September 30, 1997. Of this amount, $1,000,000 was repaid during November
1997 from the proceeds of the sale/leaseback transaction discussed above.
Unearned income, which consists of the sale of admission tickets to upcoming
faires and deposits received from craft vendors for future faires, decreased
from $160,588 at December 31, 1996 to $85,350 at September 30, 1997.
Total assets decreased from $9,872,349 at December 31, 1996 to $9,636,265 at
September 30, 1997, a decrease of $236,084 or 2%. Of this amount, the
increase in current assets of $480,464 was more than offset by moderate
decreases in the other non-current asset categories. Property, plant and
equipment (net of depreciation) decreased by $131,045 or 2% from $7,176,755
at December 31, 1996 to $7,045,710 at September 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 $582,819 at September 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 $285,714 at September 30, 1997.
Total liabilities decreased from $4,816,897 at December 31, 1996 to
$4,022,000 at September 30, 1997, a decrease of $794,897 or 17%. Total
liabilities at September 30, 1997 include $1,972,313 in current liabilities
(discussed above), plus $2,049,687 from the long-term portion of the
following bank loans: a $700,000 mortgage on the Bristol Faire property and a
$1,000,000 mortgage on the Virginia Faire property. The $700,000 mortgage on
the Bristol Faire property was repaid during November 1997 from the proceeds
of the sale/leaseback transaction discussed above. In August 1997, the
Company had approximately $615,000 of certificates of deposit mature which
were previously held as additional collateral by the lending bank of the two
Virginia loans. The Company elected to apply this amount to the two loans,
thereby paying off the $250,000 loan for construction of vendor booths in
Virginia, and applying the balance to reduce the mortgage on the Virginia
property.
Stockholders' Equity increased from $5,055,452 at December 31, 1996 to
$5,614,265 at September 30, 1997, an increase of $558,813 or 11%. This
increase resulted from the net loss of ($419,725), more than 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 September
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
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share, and 1,981,966 Class B warrants representing the right to purchase
common stock at $2.625 per share.
The Company has no significant commitment for capital expenses during the
fiscal year ending December 31, 1997.
BUSINESS
OVERVIEW
Renaissance Entertainment Corporation operates five Renaissance Faires in the
United States, and is engaged in a strategy to develop and acquire additional
Renaissance Faires nationwide. The 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
entertainment industry consists of over 100 separate events of varying size
with a Renaissance theme and has an estimated attendance in excess of
4,000,000 visitors annually.
The Renaissance Faire is a recreation of a Renaissance village, a fantasy
experience transporting the visitor back into sixteenth century England.
This fantasy experience is created through authentic craft shops, food
vendors and continuous live entertainment throughout the day, both on the
street and the stage, including actors, jugglers, jousters, magicians,
dancers and musicians.
STRATEGIC PLAN
The Company's long-term strategic plan is to grow internally as well as
through the acquisition of additional Renaissance Faires located throughout
the United States. At this time, the Company has no agreements or
commitments to acquire additional Renaissance Faires or faire sites.
The Company estimates that there are currently 20 major Renaissance Faires
produced in various locations throughout the country each year which are
owned by approximately 13 different owner/entities. These Faires are
predominantly in major metropolitan areas and in many cases have a history of
decades of profitable operation. Because of the fragmented nature of the
industry, the Company believes that it has an opportunity to acquire existing
major Faire productions as well as develop productions in areas which are not
currently serviced.
EXISTING RENAISSANCE FAIRES AND SITES
The Company presently owns and produces five Renaissance Faires: the Bristol
Renaissance Faire in Kenosha, Wisconsin, serving the Chicago/Milwaukee
metropolitan region; the Northern California Renaissance Pleasure Faire in
Novato, California, serving the San Francisco Bay area; the Southern
California Renaissance Pleasure Faire in Devore, California serving the
greater Los Angeles metropolitan area; the New York Renaissance Faire serving
the New York City
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metropolitan area; and the Virginia Renaissance Faire in Fredericksburg,
Virginia, serving the Washington, D.C. and Richmond metropolitan areas.
The following table shows the attendance, number of vendors and net operating
income for the Company's faires during the 1996 and 1995 faire seasons.
<TABLE>
<CAPTION>
Approximate Number
Attendance of Vendors Net Operating Income
---------------------- ----------------------- --------------------------
1995 1996 1995 1996 1995 1996
------- ------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bristol 165,174 190,604 150 150 $ 422,544 $ 987,660
Northern CA 184,444 184,548 150 150 * 352,964
Southern CA 193,761 166,283 150 150 * 745,634
New York 114,403 150,773 100 100 9,179 (301,291)
Virginia 0 60,943 0 50 -- (644,813)
------- ------- ---------- ------------
Total 657,782 753,151 $1,163,634 $1,140,154
- ---------------------
</TABLE>
* Combined net operating income for the Northern and Southern California faires
for the 1995 faire season was $731,911.
BRISTOL RENAISSANCE FAIRE. The Bristol Renaissance Faire is conducted at the
Kenosha, Wisconsin site owned by the Company. It has been in existence for
10 years. The Bristol Renaissance Faire is presented annually for nine
weekends beginning the last weekend in June and ending the third weekend in
August.
The Bristol Renaissance Faire was originally located on 80 acres. In May
1995, the Company purchased an adjacent 80 acres of real estate which in the
past it had used under lease, for a purchase price of $850,000. During
November 1997, the Company sold this site and leased it back for a period of
20 years. See "Property." Improvements which have been constructed on the
site, including the vendor booths, are permanent. Craft shops and vendor
booths are built by the individual craft vendors at their cost. In many
cases, vendors invest substantial sums of money in the construction of these
shops.
While the Company believes that the property is amenable to some
income-producing off-season activity, historically, the Company has only
utilized the site for the Renaissance Faire, and the property has been vacant
during the off-season. The Company is considering year-round uses which
could include campgrounds, a micro-brewery, an Octoberfest and music
festivals. To date, however, there exist no agreements, arrangements or
other understandings with respect to alternate year-round uses, and there can
he no assurance that the Company will be successful in developing any
income-producing, off-season activities.
NORTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. The Northern Renaissance
Pleasure Faire has been held in the San Francisco Bay area for the past 30
years. This Faire is conducted annually for six to seven weekends, typically
beginning Labor Day weekend and running through the first or second weekend
of October.
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The Northern California Faire is located on leased property in Novato,
California. The lease is currently on a year-by-year basis which, unless
extended, will expire before the 1998 faire season. The rent was $350,000 in
1996 and $300,000 in 1997. The Company is investigating new sites for the
Faire which, if acceptable and available, will not be available until at
least 1998. The Company estimates that it will be required to spend from
$800,000 to $1,300,000 for the investigation and development of a new site
prior to the opening of the Faire at the site. Due to the time required to
locate a site, obtain approval to hold a faire on the site and to prepare the
site for a faire, the Company believes it will be difficult to hold this
faire on a new site for the 1998 faire season.
In contrast to the permanent structures constructed at the Bristol
Renaissance Faire, all structures, including the gates, stages, booths, shops
and arenas utilized in the California Renaissance Pleasure Faires are mobile.
These props are loaded into the Company's semi-tractor/trailers and
transported between the Northern and Southern California Renaissance Faires
and, during the off-season, are stored at the Northern Renaissance Faire
site. The booths and craft shops utilized by vendors are owned by the
individual vendors and moved onto the site for the Faire and then removed by
them. The Faire is constructed and removed much in the same way as a circus
or traveling carnival.
SOUTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. The Southern California
Renaissance Pleasure Faire has been conducted for the past 34 years in the
Los Angeles metropolitan area. This Faire is held annually for eight
weekends beginning the last week of April and ending Mid-June.
The Southern Renaissance Pleasure Faire is held in Glenn Helen Regional Park
located near Devore, California. The site is leased from the San Bernardino
County Parks and Recreation Department, under a one year lease for the 1997
Faire. Rental under the lease is equal to 3.5% of gross revenues. The
Company has the option of leasing the San Bernardino site in the future, but
is currently investigating new sites for the Southern Renaissance Pleasure
Faire.
The Southern Renaissance Pleasure Faire site is only occupied during the
Faire season and must be vacated following completion of the Faire.
Accordingly, all structures are mobile and transported to the Northern
Renaissance Faire site for storage during the off-season.
Although the Company has operated that Faire during the past three years at a
profit, management believes that it will either have to relocate the Faire or
obtain a long-term lease for the current faire site in order to improve its
profitability in the future. 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. The letter of intent calls
for the Company to construct a new village for the Faire. The Company
estimates that the cost of such construction would be approximately
$2,000,000. The Company would need additional funds from one or more third
parties to finance such construction. Following execution of the letter of
intent, the owner of the current site for this faire indicated that it would
be willing to enter into a long-term lease for the faire site. With a
long-term lease, the Company would be able to make permanent improvements to
the site and reduce its annual set-up cost for the faire. The Company has
not, as of the date of this Prospectus, determined whether it should relocate
this faire to the new
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proposed site in Pomona or enter into a long-term lease for the existing
faire site, although the Company intends to hold this faire at the current
site in 1998.
NEW YORK RENAISSANCE FAIRE. The Company acquired Creative Faires, Ltd., the
owner and operator of the New York Renaissance Faire in February of 1996.
The New York Renaissance Faire opened in July 1978 and recreates a 16th
century English country Faire on 65 leased acres in Sterling Forest, Tuxedo,
New York. Creative Faires, Ltd. also produces Sterling Forest's Forest of
Fear as well as other arts and crafts shows in the New York tri-state area.
The Company issued 540,000 shares of the Company's Common Stock in
consideration for all of the outstanding shares of Creative Faires, Ltd. The
Company valued this faire based on the Company's estimate of net operating
income which could be achieved under the Company's management, the cost of
developing a new faire in the New York metropolitan area and the benefits of
having a renaissance faire in the greater New York metropolitan area. Since
the faire was acquired during the 1996 faire season, the Company did not have
a significant opportunity to affect the results of this faire during the 1996
faire season. A new manager has been hired for this faire and a number of
new promotional activities and entertainment acts were introduced during the
1997 faire season.
VIRGINIA RENAISSANCE FAIRE. The Company's newest Faire is located in
Fredericksburg, Virginia on 250 acres of land purchased by the Company in
July of 1995 for $925,000. Like the Bristol Faire, this is a permanent
facility, which opened for business on May 4, 1996 and operated for seven
weekends. All buildings on the property, including performance stages,
restaurants, ale stands and craft shops, were designed in a unified style
appropriate to the Renaissance period and were constructed by the Company
during the year prior to opening. This is the first time the Company has
developed a Faire on its own, since all other Faires owned by the Company
represented acquisitions of existing businesses. The Virginia Faire, as is
typical of new faires, operated at a loss in 1996, its first year of
operation, and incurred an operating loss in the 1997 faire season. These
losses may continue for one or more future faire seasons until the Company is
able to establish a regular customer base and increase the awareness of the
faire.
The construction of the Faire was financed with a $1.5 million mortgage,
repayable over 15 years at an initial interest rate of 8.65% annually, plus
the use of corporate funds. The Company also borrowed $250,000 to finance
the construction of buildings for crafts vendors, with repayment over five
years at an interest rate of 9.5% annually. Some vendors have paid for their
buildings outright, others have utilized the financing provided by the
Company, while others rent space with an option to purchase. The Company
arranged for vendor financing in order to attract desirable vendors to the
new Faire, and to develop a permanent contingent of Faire participants.
Some of the management of the Virginia Faire is handled by employees of the
Bristol Faire, including such areas as entertainment and public relations.
Although there are currently no other activities scheduled on the property
for 1997 other than the Virginia Renaissance Faire, the Company expects to
develop other income-producing activities, which may include a Halloween
forest of fright, music festivals, Christmas activities and other special
events. To date, however, there exist no agreements, arrangements or other
understandings with respect to alternate year-round uses.
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VENDORS
Approximately 13% of the revenues realized from presenting the Company's
Renaissance Faires are generated from the Company's relationships with
vendors and craftsmen who sell food and crafts, and offer games and rides.
During the 1996 faire season, there were approximately 150 vendors at each of
the Bristol, Northern California and Southern California faires, 100 vendors
at the New York faire and 50 vendors at the Virginia faire. Typically, there
is little turnover in vendors from one faire season to the next. The loss of
any one or more vendors would not have a material adverse effect upon a
particular faire.
At the Bristol Renaissance Faire site, the vendors and craftsmen are required
to construct their shops and booths at their own cost and then occupy the
structures on a year-to-year basis for an annual fee of $900.
At the Virginia Renaissance Faire site, shops and booths are constructed by
the vendors. All buildings so constructed become a permanent part of the
Faire and are the property of the Company. All vendors at the Virginia
Renaissance Faire pay the Company a fee of 6% to 15% of gross revenues.
At the Northern and Southern California Renaissance Pleasure Faires, craft
shops and booths are owned by the vendors and transported onto the site for
the duration of the Faire and then removed. In lieu of a flat fee to
participate, vendors at the California Faires pay the Company a fee equal to
15% of their gross revenues.
The decision to charge a flat fee or a percentage of revenues is based on
several factors, including the custom of a particular faire and the extent to
which vendors must invest in the construction of their booths. The advantage
to the Company of the flat fee method is that it is easier to monitor and is
more predictable. The advantage to the Company of the percentage method is
that the Company may participate to a greater extent as attendance at the
faire increases. Vendors occupy their booths and shops pursuant to written
lease agreements with the Company which have a term of one year, and require
renewal by both the vendor and the Company each year. Under these
agreements, each vendor agrees to indemnify and hold harmless the Company
from any liability which may arise by virtue of the vendors' activities at
the Faire. Nevertheless, the Company maintains general public liability
insurance which also provides coverage for such risks.
REVENUE SOURCES
A Renaissance Faire generates revenues from numerous sources, including gate
admissions, beverage sales, parking fees, food sales, craft fees, game fees,
camping fees, souvenir sales and sponsorship fees. The following table shows
the Company's revenues during the 1995 and 1996 faire seasons from each of
these activities.
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1995 1996
------------ ------------
Gate Admissions $ 6,143,974 $ 6,443,461
Beverage Revenue 2,495,423 2,797,683
Parking Revenue 833,342 808,008
Food Revenue 1,125,489 1,328,339
Craft Fees 1,072,043 1,319,805
Game Fees 133,327 224,542
Souvenir Revenue 536,972 724,518
Sponsorship Fees 121,540 230,020
Camping Fees 173,688 241,084
Miscellaneous Fees 171,819 436,117
------------ ------------
Total $12,810,617 $14,553,577
GATE ADMISSIONS. Gate admissions are set from $14.00 to $17.50 for adults,
$5.95 to $6.95 for children, with children under the age of five admitted
free. Discounts for senior's and military personnel are $1.00 to $2.00. Off
premises discount ticket sales are available at Cub Foods, K-Mart, Sentry
Foods, Shoprite and Kits Camera. Discount coupons are available at retail
outlets operated by the Company's sponsors, including McDonalds, Subway,
White Castle, Vons super markets and Amoco Stations. The Company has a large
group sale and advance sale program that provides discounted tickets.
Admission provides the guest with all-day continuous entertainment on
multiple stages. Major entertainment acts include full contact jousting,
falconry, variety acts, sword duels, Shakespearean vignettes and authentic
belly-dancing.
BEVERAGE INCOME. The Company sells beer, wine and soft drinks at each Faire.
PARKING INCOME. The California Faires charge $6.00 per car for regular
parking and $10 for preferred close-in parking. The Bristol and New York
Faires have preferred parking for $2.00 and $5.00. The Virginia Faire
charges $2 for regular parking.
FOOD REVENUE. At the California and New York Faires, all food concessions
are run by independent vendors. These vendors pay the Company a commission
equal to approximately 15% of their gross revenues. At the Bristol Faire,
the Company owns certain high volume food items such as turkey legs, pizza,
roast beef and brats (sausages). These items comprise approximately 40% of
the total food sales. Additional food items are sold by independent food
vendors who pay the Company approximately 15% of their gross revenues. At
the Virginia Faire, the Company currently owns all of the food concessions.
CRAFT FEES. Each Faire has from 50 to 150 independent craft vendors who sell
their goods to Faire patrons. Most of the craft items are handmade by the
artists who often demonstrate the making of their wares at the Faire. The
glassblowers and lace-makers are generally very popular. The craft vendors
in California pay the Company a fee of approximately 15% of their gross
revenue. At the Bristol, New York and Virginia Faires, craft vendors are
required to build their own booth or shop, and either pay a flat annual fee
or a percentage of their gross income.
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GAME FEES. Many games and rides are operated by independent contractors.
The Company receives 15% of the gross revenues from these games and rides.
SOUVENIR REVENUE. The sale of souvenir tee-shirts, sweatshirts, beer mugs,
books and other high quality merchandise appropriate to the Renaissance era
is believed by the Company to represent an area of excellent future
opportunity. It is intended that the Company's products will also be sold
through other outlets, such as catalogues, department stores, and on-line via
the Company's Internet Web site. There can, however, be no assurance that
the Company will be successful in marketing its products and memorabilia
through alternative means in the future.
SPONSORSHIP FEES. The Company solicits sponsorship arrangements with major
sponsors including Coca-Cola Company, Anheuser-Busch, Inc., Miller Brewing
Company, Amoco Oil Company, Eastman Kodak Company, Pepsi Cola Company and
Guinness Import Co. The sponsors also participate in joint advertising
campaigns.
CAMPING FEES. The Company allows employees and independent vendors limited
camping at the Faire sites during the Faire season. The Company provides
portable rest room facilities, showers and security for campers. The campers
are charged and pay a fee for these services.
MARKETING
The Company markets its Faires as entertainment events for the whole family,
which also include shopping and food. Marketing is accomplished through
local television and radio stations which, from time-to-time, and, often in
conjunction with other advertisers, conduct live broadcasts from the Faires.
Supplementing this television and radio advertising, newspapers and
billboards provide essential information to the general public regarding the
cost of admission, location and times of operation. Artistic brochures and
fliers are directed toward groups for advanced sales campaigns.
The Company has also undertaken a "Sponsorship" campaign. Major sponsors
have included Eastman Kodak Company, Hyatt Hotels & Resorts, Inc., Coca-Cola
Company, Miller Brewing Company, Amoco Production Company and Sentry Foods,
Inc. Agreements with such sponsors have included joint advertising,
sponsorship fees, and product giveaways.
SEASONALITY AND WEATHER
The Company generates its revenue primarily from the production of
Renaissance Faires. Since, at this point, they are exclusively outdoor
events, each Faire is scheduled for the time of year most likely to minimize
the risks and hazards of inclement weather. With a total of five Faires in
various U.S. locations, the Company has been able to extend the period of
revenue generation from late April (the start of the Southern California and
Virginia Faires) through early October (the end of the Northern California
Faire), with the Bristol Renaissance Faire being held during July and August,
and the New York Faire during August and September. The spread of Faires
over a six-month period, and the geographic spread across the West coast, the
East coast and the mid-West, helps to assure that inclement weather in one
particular geographic area at any particular time does not adversely threaten
the Company's entire source of revenue. It is normal, however, for adverse
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weather, or even the forecast of adverse weather, to harm the financial
results during certain weekends of any particular Faire.
During the period from the middle of October through the third week of April,
the Company currently has no material income-generating activity and must
meet its working capital requirements from cash flow earned during the Faire
season augmented by short-term debt. Creative Faires, Ltd. operates craft
shows and the Forest of Fear on the New York site during the fall and spring.
The Company plans to continue those events and also to develop fall events
at certain of the Company's other Faire sites.
Each Faire is scheduled for a finite period which is determined substantially
in advance in order to facilitate advertising and other promotional efforts.
Since attendance at each Faire is dependent upon the weather, poor weather
conditions can result in substantial declines in attendance and loss of
revenues. The Bristol, New York and Virginia faires are open "rain or
shine." The Northern and Southern California sites, which have temporary
buildings, are closed on rain days. The Company is also vulnerable to severe
climatic events which are similarly beyond its control but nevertheless could
have a direct and material impact upon the Company's relative success or
failure.
COMPETITION
As a promoter and operator of family entertainment events, the Company faces
significant competition from other more traditional entertainment
alternatives, including amusement parks, theme parks, local and county fairs,
and specialty festivals. At each of the markets in which the Company
competes, there are many entertainment events which compete for the
consumers' entertainment dollars. Many of these entertainment events have
attendance and revenues substantially greater than the Company's fairs in
such markets. The Company competes on the basis of entertainment value and
uniqueness of the Renaissance event. The Company emphasizes its fairs as an
activity which appeals to the whole family.
While there are more than 100 annual entertainment events produced in the
country with a Renaissance theme, there are only 20 major Renaissance Faire
productions operated in major metropolitan areas throughout the country. As
families typically do not travel to distant metropolitan areas in order to
attend a Renaissance Faire, the Company does not experience direct
competition with those other major productions. More significant competition
comes from other entertainment alternatives and smaller fair events.
Further, by the very nature of Renaissance Faires and the lack of protection
afforded by trademark, service mark and unfair competition laws, there exist
few barriers to entry into the industry, and there can be no assurance that
other companies with substantially greater resources will not develop
competing Faires in the metropolitan areas where the Company has established
productions.
INTELLECTUAL PROPERTY
Because of the number of existing Faire productions with Renaissance themes,
it is unlikely that the Company will be able to rely upon trademark or
service mark protection for the name "Renaissance
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<PAGE>
Faire" in connection with its business. However, the Company did obtain in
connection with its acquisition of Living History Center assets an assignment
of a California registration of the mark "Renaissance Pleasure Faire" which
applies only to the state of California. The Company also has a Virginia
service mark for the "Virginia Renaissance Faire." Further, it is possible
that the Company could apply for and obtain trademark or service mark
registrations on a state level for its other individual Faires, such as
"Bristol Renaissance Faire" and other name-specific marks associated with the
"Renaissance Faire" description as those names are acquired or developed.
While the Company may be able to protect a site-specific name for its
productions, the Company does not consider this protection a significant
deterrent to the entry of competitors into existing markets, given the
limited barriers to such entry.
PUBLIC LIABILITY AND INSURANCE
As a producer of public entertainment events, the Company has exposure for
claims of personal injury and property damages suffered by visitors to the
Company's Renaissance Faires. To date, however, the Company has experienced
only minimum claims which have been resolved quickly without litigation. The
Company maintains comprehensive public liability insurance in the amount of
$1,000,000 per occurrence and $2,000,000 in the aggregate, which it considers
to be adequate against this exposure. Independent vendors operating food
concessions, games and rides are required to obtain liability insurance
protection, and to provide the Company with proof of such coverage.
GOVERNMENT REGULATION
Since food and alcoholic beverages are sold at the various Faire sites, the
Company, its vendors and/or subsidiaries must comply with all applicable
rules, regulations and/or ordinances pertaining to the handling and sale of
such items. Any material violation of these regulations would subject the
Company, its vendors and/or its subsidiaries to the possibility of having
necessary food service permits and liquor licenses revoked. Material
violations may also result in penalties and fines being assessed against the
Company. The Company must also comply with all state and federal labor laws
and regulations, including all minimum wage and overtime provisions.
The Company believes that it is in compliance with all such laws, and does
not anticipate that any existing law will have a material adverse impact upon
the proposed business and operations of the Company. Although future
compliance cannot be assured in the event of future changes in such laws or
the addition of regulations governing the proposed business and operations of
the Company, the Company will, at all times, endeavor to take all feasible
and required actions necessary to maintain compliance with such laws.
EMPLOYEES
At September 30, 1997, the Company had 16 full-time employees working in its
Colorado headquarters. Each Faire has its own full-time staff as well as
seasonal and part-time employees who are engaged during the Faire
presentation. At September 30, 1997, the Bristol Faire had 6 full-
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<PAGE>
time employees, the California Faires had 12 full-time employees, the New
York Faire had 6 full-time employees and the Virginia Faire had 6 full-time
employees.
During Faire presentations, there are over 100 street actors interacting with
Faire patrons at any given time, with over 1,000 seasonal employees and
volunteers. The Company trains its professional street actors, who perform
under contract with the Company for a fixed fee. In addition, the Company
invites numerous apprentice actors and actresses to its training programs to
perform during the Faire on a volunteer basis. Only after an actor or
actress has gained a particular proficiency are they invited to become a
fully-paid contract actor for the Company.
LEGAL PROCEEDINGS
From time to time, the Company is a party to legal proceedings arising in the
ordinary course of business. On June 5, 1997, Carl Jablonski, 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.
PROPERTY
The Company's corporate headquarters are located at 4410 Arapahoe Avenue,
Suite 200, in Boulder, Colorado. This property measures 3,868 square feet
and is currently leased at $7,854 per month, with increases of 5% per annum
each November 1, expiring October 31, 2001. The Company considers these
offices to be suitable for its needs for the duration of the lease term. The
Company has an option to renew the lease for an additional five year period.
The Company leases approximately 160 acres in Kenosha County, Wisconsin,
which is home to the Bristol Renaissance Faire. The lease is for a period of
20 years with lease payments of $400,000 per year during each of the first
two years beginning in November 1997 and increasing to $543,333 per year in
years 13 through 20. The Company has the right to acquire 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
Company has made 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 Company has leased the property where the Northern California Renaissance
Pleasure Faire is held, located at 1410 Highway 37, Novato, California 94945.
Office quarters for all California personnel is included in the overall lease
covering the Faire site, which expires at the end of the 1997 faire season.
See "Business--Existing Renaissance Faires and Sites--Northern California
Renaissance Faire."
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The New York Faire is operated on 65 acres of leased land in Tuxedo, New
York. This lease expires December 31, 2000. The Company also leases offices
in New York City.
On July 27, 1995, the Company acquired approximately 250 acres of land in
Stafford County, Virginia, for a purchase price of $925,000. The funds for
this purchase were provided from the proceeds of a sale of the Company's
Common Stock early in 1995. This property houses the Virginia Renaissance
Faire. The construction of the Faire was financed with a $1.5 million
mortgage, repayable over 15 years at an initial interest rate of 8.65%
annually, plus the use of corporate funds. The Company also borrowed
$250,000 to finance the construction of buildings for crafts vendors, with
repayment over five years at an interest rate of 9.5% annually.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name, position with the Company, age of each Director or officer, and the
period during which each Director has served are as follows:
Director
Name Age Position Since
- ----- ----- ---------- ---------
Charles S. Leavell 55 Chairman of the Board of 1993
Directors & Chief
Executive Officer
Sanford L. Schwartz 47 Director 1993
Robert M. Geller 44 Director 1994
Dean Petkanas 33 Director 1996
Charles J. Weber 51 Director 1997
J. Stanley Gilbert 59 President and Chief --
Operating Officer
James R. McDonald 51 Chief Financial Officer --
Howard Hamburg 60 Vice President --
Gloria Constantin 46 Secretary --
Sue Brophy 41 Controller --
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<PAGE>
CHARLES S. LEAVELL was elected Chief Executive Officer effective June
20, 1996. From April 1993 to March 31, 1995, he was Chief Executive Officer,
and from April 1, 1995 to present he has served as Chairman of the Board of
the Company. From 1988 to present, Mr. Leavell has served as President and
Chairman of the Board of Leavell Management Group, Inc. and Ellora
Corporation. In that capacity, he has acquired, developed, and managed
numerous ventures, including the Bristol Renaissance Faire; the 4UR Guest
Ranch in Creede, Colorado, a 3,000 acre luxury ranch; and South Meadow, an
exclusive 96 unit single family development in Boulder, Colorado. Prior to
his affiliation with Leavell Management Group and Ellora Corporation, Mr.
Leavell worked with Columbia Pictures in Los Angeles, California, where he
was producer of the feature film, "The Quick and the Dead," about Grand Prix
automobile racing, and was the executive producer of another film, "Evil
Ways," about street gangs in East Los Angeles. Mr. Leavell also produced a
rock musical for the stage entitled "Goosebumps." Mr. Leavell currently sits
on the Board of Directors of The Leavell Company and CK Properties, L.C., of
El Paso, Texas, both of which are real estate development and management
corporations with extensive holdings in apartments and office buildings. Mr.
Leavell's former affiliations include Board of Directors of the Denver
International Film Festival, Denver, Colorado, and Vice-Chair of Colorado
Venture Capital Corporation, a regional investment firm. Mr. Leavell
graduated from Stanford University in 1965 with a Bachelor of Arts degree in
history.
SANFORD L. SCHWARTZ has been a Director of the Company since April,
1993. Mr. Schwartz has been a founder, senior executive or director of nine
publicly-traded companies over the last nineteen years. From 1992 to
present, Mr. Schwartz has been the Chairman of Creative Business Strategies,
Inc. ("CBSI"), a business consulting firm. Prior to starting CBSI, Mr.
Schwartz was, from 1989 to 1991, Chief Executive Officer of HealthWatch,
Inc., a publicly-traded medical equipment manufacturer. Mr. Schwartz serves
on the Board of Directors of HealthWatch, Inc.
ROBERT M. GELLER has been a Director of the Company since April 1, 1994.
He served as Chief Financial Officer of Online System Services, Inc., a
provider of internet services, from March 1995 to October 1996. Mr. Geller
has also served as the President of The Growth Strategies Group, a consulting
firm specializing in executive/board services for emerging growth companies
since August 1991. From April, 1990 to July, 1991, he was Executive
Vice-President for HealthWatch, Inc., a publicly-traded medical equipment
manufacturer. Mr. Geller is currently a director of Armanino Foods of
Distinction, Inc. and Online System Services, Inc., publicly-held
corporations, and Integral Peripherals, Inc., Requisite, Inc., and Chernow
Communications, Inc., all privately-held corporations. Mr. Geller graduated
from the University of Colorado Business School, summa cum laude, with a
Bachelor of Science degree in finance and organizational behavior in 1976.
DEAN PETKANAS was elected a director of the Company in 1996. He has
been President of Briarwood Investment Counsel, a broker/dealer registered
with the National Association of Securities Dealers since 1981. From 1992
to 1994, Mr. Petkanas was Director of Corporate Finance for Kensington Wells,
Inc. of New York. From 1989 to 1992, he served as a Vice
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<PAGE>
President of Corporate Finance and Assistant Director of Research for
Stratton Oakmont of Lake Success, New York, a broker/dealer.
CHARLES J. WEBER has been a successful key executive in the
Entertainment/Communic-ations Industry since the early 1970's. During this
time, he has also been Chairman and Chief Executive Officer of Weber
Communications, Inc., an international consulting firm providing professional
management, consulting, business development, and financial services. He
specializes in strategic alliances in the multimedia, broadcasting,
entertainment, and communications fields. In this capacity, Mr. Weber has
been instrumental in the production and financing of motion pictures, public
and private corporate financing, domestic and international distribution, and
mergers and acquisitions. He has also served in an executive role for
Fortune 500, real estate and entertainment companies and has executive
produced a number of feature films. In addition, from 1994-1995, he was
President and Chief Executive Officer of Canwest International Corp; from
1995-1996 he was President and Chief Executive Officer of the Producer's
Entertainment Group; from 1996-1997 he was President and Chief Executive
Officer of Greenlight Entertainment, Inc. Mr. Weber graduated from Manhattan
College in New York in 1965, with a B.B.A. degree in Accounting. He received
an M.B.A. degree in Finance and Management from Hofstra University in New
York in 1967.
J. STANLEY GILBERT became President and Chief Operating Officer in
January, 1997. In 1996 Mr. Gilbert was a Vice President of the Company and
he managed the Bristol Renaissance Faire from 1988 until 1996. Prior to that
he worked in the commercial banking field in senior management. Prior to
that, he was senior vice president of Cinema America, a film and video
production company. Mr. Gilbert is the president of Just in Jest, Inc., an
art studio featuring Renaissance and fantasy handmade sculptures, whose works
have been displayed in galleries and museums, including the Delaware Museum
of Fine Art. Mr. Gilbert has served as a board member of the Kenosha Area
Convention and Business Bureau. He holds a degree in Business Administration.
JAMES R. MCDONALD became Chief Financial Officer of the Company in
November, 1996. From August, 1996 until October, 1996, he served as Chief
Financial Officer of Mountain Solutions, a personal communications services
company. From January, 1994 until August, 1996, Mr. McDonald was Controller
of Omnipoint Corporation, another personal communications services company.
Mr. McDonald also was a principal of James R. McDonald, CPA, from August,
1991 until December, 1993. Mr. McDonald received a Bachelor of Science
degree in Accounting from California State University at Fullerton in 1978,
and a Masters of Business Administration in Finance from Loyola University of
Chicago in 1980.
HOWARD HAMBURG was Chief Operating Officer of the Company from April 1,
1994 to June 20, 1996, at which time he was elected a Vice President of the
Company. From 1989 to March 31, 1994, Mr. Hamburg served as Treasurer and
Planning Director of the Living History Centre, Inc., a California
non-profit, public benefit corporation and producer of the California
Renaissance Pleasure Faires. In addition to his work with LHC, Mr. Hamburg
served, from 1990 to 1993, as Vice-President of the Patent Protection
Institute, Inc., an intellectual property licensing and royalty recovery
corporation. Mr. Hamburg graduated from New York City
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Community College in 1957 with an AA degree in Engineering. In 1969 Mr.
Hamburg received a Bachelor of Arts degree in social science from California
State University at Sonoma.
GLORIA CONSTANTIN has been Secretary of the Company since 1993. She has
also been in-house Investor Relations since 1993. From 1991 to 1993, she
was employed by Leavell Management Group, Inc. Ms. Constantin holds degrees
in English and Theatre, and is an honors graduate of the Denver Paralegal
Institute.
SUE BROPHY has been Controller of the Company since August, 1995. From
1994 until 1995, Ms. Brophy was employed by Clifton, Gunderson & Co., a
public accounting firm in accounting services. From 1990 to 1993, she was
self-employed. From 1991 to 1992, she was an accountant with Rigden, Inc., a
software development company.
Each Director is elected to serve for a term of one year and until the
next Annual Meeting of Shareholders or until a successor is duly elected and
qualified.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's fiscal
periods ended December 31, 1996 (D1996), March 31, 1996 (M1996) and 1995
(M1995) regarding compensation earned by or awarded to the Company's chief
executive officer and the other executive officers whose total annual salary
and bonus exceeded $100,000 (the "Named Executive Officers").
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<PAGE>
TABLE I
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
--------------------------------- ---------------------- --------
Other All
Annual Restricted Other
Name and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($)(1) ($) SARs ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles S.
Leavell
Chairman, D1996 -0- -0- -0- -0- -0- -0- -0-
CEO and M1996 -0- -0- $48,000(1) -0- -0- -0- -0-
President M1995 $92,000 $23,894 -0- -0- -0- -0- -0-
Miles
Silverman,
CEO D1996 $95,147 -0- -0- -0- -0- -0- -0-
President M1996 $131,442 -0- -0- -0- -0- -0- -0-
M1995 $80,000 $28,894 -0- -0- 80,000 -0- -0-
Howard
Hamburg,
COO,VP D1996 $78,182 -0- -0- -0- -0- -0- -0-
M1996 $114,391 -0- -0- -0- -0- -0- -0-
M1995 $84,359 -0- -0- -0- 30,000 -0- -0-
</TABLE>
(1) Includes $48,000 received under a Consulting Agreement that terminated
March 31, 1996.
(2) All executive officers of the Company participate in the Company's group
health insurance plan. However, no Named Executive Officer received
perquisites and other personal benefits which, in the aggregate, exceeded
the lesser of either $50,000 or 10% of the total of annual salary and
bonus paid during the respective years.
OPTIONS GRANTED DURING FISCAL 1996
During the Company's fiscal period ended December 31, 1996, no options were
granted to Named Executive Officers
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<PAGE>
AGGREGATED OPTION EXERCISES DURING FISCAL 1996 AND FISCAL YEAR-END
OPTION VALUES
The following table provides information related to the number and value of
options held by the Named Executive Officers as of December 31, 1996. The
Company does not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of Number of Unexercisable
Unexercised In-the-Money
Options/SARs at Option/SARs
FY-End (#) at FY-End ($)(1)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercised
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles S. Leavell -0- $-0- 0/0 $0/$0
Miles Silverman -0- $-0- 0/0 $0/$0
Howard Hamburg -0- $-0- 84,266/30,000 $296,502/$67,500
</TABLE>
(1) The value of unexercised options is determined by calculating the
difference between the fair market value of the securities underlying the
options at fiscal period end and the exercise price of the options.
STOCK INCENTIVE PLAN
There are currently 1,420,000 shares of the Company's Common Stock, $.03
par value, reserved for issuance upon the exercise of options granted under
the Company's 1993 Incentive Stock Plan (the "Plan"). On the Proxy Card for
the November 24, 1997, meeting of the Company's shareholders, a vote on a
proposal to increase the number of shares reserved for issuance under that
Plan was requested. This item was added late in the preparation of the proxy
materials and no disclosure regarding the Plan and this proposal was included
in the accompanying Proxy Statement due to a communications failure. The
Company learned, just prior to the meeting, that some shareholders were
soliciting against this proposal and subsequently discovered that a
description of the proposal had not been included in the Proxy Statement.
Because of this omission, no action was taken at the meeting with respect to
the proposal to increase the number of shares reserved for issuance under the
Plan.
EMPLOYMENT AGREEMENTS
The Company has Employment Agreements with several of its executive officers
and key employees, the material provisions of which are summarized as follows:
HOWARD HAMBURG. Effective April 1, 1994, the Company entered into an
Employment Agreement with Mr. Hamburg as Treasurer of Renaissance Pleasure
Faires, Inc. Effective April 28, 1995, Mr. Hamburg was also appointed the
Company's COO. Effective June 20, 1996, Mr. Hamburg resigned as COO and was
appointed a Vice President. The current Employment Agreement, which
supersedes the agreement dated April 1, 1994, has a term of one year from
the date of termination notice from the Company. His current annual salary
is $110,250.
KEVIN PATTERSON. Effective April 1, 1994, the Company entered into an
Employment Agreement with Mr. Patterson as Chief Executive Officer of
Renaissance Pleasure Faires, Inc. Mr. Patterson also served as a Vice
President of the Company from August 1994 to November 1997. The current
Agreement, which supersedes the agreement dated April 1, 1994, expires in
November 1998. His current base salary is $78,750.
BARBARA HOPE. On February 5, 1996, the Company entered into an
Employment Agreement with Ms. Hope as an officer of Creative Faires, Ltd. in
connection with the acquisition of Creative Faires, Ltd. The Agreement has a
term of two years, subject to termination only for cause, and provides for a
base salary of $100,000, with bonuses and salary increases payable at the
discretion of the Company. Ms. Hope and Mr. Gaiti are in charge of the
Company's faire merchandise program.
DONALD C. GAITI. On February 5, 1996, the Company entered into an
Employment Agreement with Mr. Gaiti as an officer of Creative Faires, Ltd. in
connection with the acquisition
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<PAGE>
of Creative Faires, Ltd. The Agreement has a term of two years, subject to
termination only for cause, and provides for a base salary of $100,000, with
bonuses and salary increases payable at the discretion of the Company. Ms.
Hope and Mr. Gaiti are in charge of the Company's faire merchandise program.
DIRECTOR COMPENSATION
During the fiscal period ended December 31, 1996, Directors, other than Mr.
Geller and Mr. Leavell, received no cash compensation for their services as
such, however they were reimbursed for their expenses associated with
attendance at meetings or otherwise incurred in connection with the discharge
of their duties as Directors of the Company. During July 1997, the Board of
Directors authorized the granting of options to outside directors
representing the right to acquire up to 40,000 shares for each year that a
director serves on the Board. These options are to be granted in lieu of
cash compensation. Directors who are also executive officers of the Company
receive no additional compensation for their services as Directors.
GELLER AGREEMENT
Effective April 1, 1994, the Company appointed Robert M. Geller to serve as a
director of the Company and entered into an agreement with him pursuant to
which the Company agreed to include his name on the slate of nominees to be
elected to serve as directors of the Company, and Mr. Geller consented to the
inclusion of his name as a nominee through the 1996 annual meeting of
shareholders. Pursuant to the terms of the agreement, Mr. Geller was granted
non-qualified options exercisable to acquire up to 83,333 shares of the
Company's Common Stock at an exercise price of $2.25 per share. Further, the
Company has agreed to pay him $300 for each Board of Directors meeting he
attends and to reimburse him for out-of-pocket expenses incurred in
connection with attending those meetings. The Company has also agreed to
reimburse Mr. Geller for his out-of-pocket expenses incurred in connection
with his services rendered as a consultant to the Company for which he also
receives $75 an hour. Under this agreement, Mr. Geller received $30,137 in
the 1996 fiscal year and $9,421 in the nine-month period ended December 31,
1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Geller, Schwartz and Leavell.
Mr. Leavell, who is Chief Executive Officer and a director of the Company,
participates in all discussions and decisions regarding salaries, benefits
and incentive compensation for all employees of the Company, except
discussions and decisions relating to his own salary, benefits and incentive
compensation.
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<PAGE>
CERTAIN TRANSACTIONS
CONVERTIBLE DEBENTURES
During May 1997, the Company raised $1,000,000 through the issuance of
convertible debentures, of which $250,000 principal amount 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. The investments by Mr. Leavell
and his father were made through the conversion of short-term loans they had
made to the Company earlier in fiscal 1997. The debentures were secured by
mortgages on the Company's Wisconsin and Virginia faire sites and were
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 at the time of conversion. 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 at the date of exercise of
the warrants. During November 1997, the debentures were paid and the warrants
were canceled.
CBSI CONSULTATION AGREEMENT
Sanford L. Schwartz was elected to serve as a member of the Company's Board of
Directors in April, 1993. Mr. Schwartz is President, Director and a principal
stockholder of Creative Business Strategies, Inc., ("CBSI"), a business
consulting firm. The Company had a Consultation Agreement with CBSI which
expired December 31, 1996, pursuant to which CBSI performed financial and public
relations services for the Company and assisted the Company in the evaluation of
acquisition candidates, including Creative Faires, Ltd. In consideration of
those services, the Company paid CBSI a fee of $4,500 per month and $200 per
hour for services rendered in excess of 20 days per month. A total of $36,000
was paid to CBSI during the nine months ended December 31, 1996, pursuant this
agreement.
CREATIVE FAIRES, LTD. AGREEMENT
On February 5, 1996, the Company, its newly-created and wholly-owned subsidiary
Cfaires Acquisition Corp., Creative Faires, Ltd., and Barbara Hope and Donald C.
Gaiti, the sole shareholders of Creative Faires, Ltd., entered into an Agreement
and Plan of Merger pursuant to which Cfaires Acquisition Corp. was merged with
and into Creative Faires, Ltd. In connection with the merger, Ms. Hope and Mr.
Gaiti who are married to each other, received an aggregate of 540,000 shares of
the Company's Common Stock, and the Company became the sole shareholder of
Creative Faires, Ltd. The Company also agreed to employ Mr. Gaiti and Ms. Hope
as officers of Creative Faires, Ltd. for two-year periods. The market value for
the 540,000 shares of Common Stock at the time of the transaction was
$3,071,250. The shares were "restricted" shares as defined in Rule 144
promulgated by the Securities and Exchange Commission.
The Company believes that the foregoing transactions were on terms as favorable
to the Company as could have been obtained from non-affiliated parties.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock, as of December 23, 1997, by:
(i) each of the directors of the Company, (ii) all officers and directors of the
Company as a group, and (iii) holders of 5% or more of the Company's Common
Stock. Each person has sole voting and investment power with respect to the
shares shown, except as noted.
Name and Address Percent of
Of Beneficial Owner Number of Shares Class (1)
- ------------------- ---------------- ---------
Charles S. Leavell
1881 Ninth Street, Suite 319
Boulder, Colorado 80302 1,257,374 (2) 12.2%
Legacy Fund, LLC
4900 Woodway
Suite 650
Houston, Texas 77056 900,000 (3) 8.8%
Robert M. Geller 226,666 (4) 2.2%
Sanford L. Schwartz 4,350 (5) *
Gregg Adam Thaler (6) 0 *
Dean Petkanas 0 *
Charles J. Weber(6) 0 *
All Directors & Officers as a Group 1,947,159 (7) 18.2%
(Eight [8] Persons)
* Less than one percent
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of December 23, 1997, or within 60
days of such date, are treated as outstanding when determining the percent
of the class owned by such individual and when determining the percent
owned by the group.
(2) Includes 778,000 shares of Common Stock held of record by Leavell
Management Group, Inc., a controlled corporation of Mr. Leavell who would
be deemed to exercise the voting and investment power with respect to the
securities held by LMG. 133,334 shares of Common Stock held of record by
LMG are subject to an option granted in favor of Mr. Leavell, exercisable
at a price of $.937 per share. Mr. Leavell disclaims beneficial
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<PAGE>
ownership of the securities held by LMG for purposes of Section 16 under
the Exchange Act. Includes options to purchase 100,000 shares at $0.57
per share.
(3) Represents shares issuable upon conversion of Notes at an assumed
conversion price of $.25 per share. See "Description of Securities --
Convertible Secured Notes."
(4) Includes non-qualified options to purchase 166,666 shares of Common Stock
at an exercise price of $1.125 per share and non-qualified options to
purchase 60,000 shares of Common Stock at an exercise price of $3.50 per
share.
(5) Includes 4,350 shares owned by Creative Business Strategies, Inc., a
corporation of which Mr. Schwartz is an officer, director and shareholder.
(6) Mr. Thaler's term as a director expired and Mr. Weber was elected to the
Board during November 1997.
(7) Includes 426,666 shares issuable upon exercise of stock options exercisable
within 60 days of December 23, 1997.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 51,000,000 shares of capital stock,
including 50,000,000 shares of Common Stock, $.03 par value, and 1,000,000
shares of Preferred Stock, $1.00 par value. As of December 23, 1997, there
were 10,263,247 shares of Common Stock outstanding and no shares of Preferred
Stock outstanding.
COMMON STOCK
No share of Common Stock is entitled to preference over any other share of
Common Stock, and each share of Common Stock is equal to every other share of
Common Stock in all respects. Holders are entitled to one vote for each share
of Common Stock held of record at each meeting of the shareholders, and to
receive dividends when and as declared by the Board of Directors. To date, the
Company has not paid cash dividends. There is no cumulative voting for the
election of directors. Accordingly, the owners of a majority of the shares of
Common Stock outstanding may elect all of the directors to be elected by the
holders of the Common Stock, if they choose to do so, and the owners of the
balance of such shares would not be able to elect any directors. The holders of
Common Stock do not have preemptive rights. The shares of Common Stock offered
hereby will be, upon issuance, fully paid and non-assessable.
-43-
<PAGE>
PREFERRED STOCK
The Board of Directors is authorized to issue up to 1,000,000 shares of
Preferred Stock, in any one or more classes or series, to fix the dividend,
redemption, liquidation, retirement, conversion, voting and other preference
rights for such shares, and to issue options and warrants for the purchase of
such shares, on such terms and for such consideration as the Board may deem
appropriate without further shareholder action. Such additional shares may have
disproportionately higher voting rights or class voting rights, may be
convertible into shares of Common Stock, and may rank prior to the Common Stock
as to payment of dividends or the distribution of assets upon liquidation or
dissolution. The Board of Directors, without shareholder approval can issue
shares of Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. Currently, no
shares of Preferred Stock are outstanding and the Company does not have plans to
issue any Preferred Stock.
CONVERTIBLE SECURED NOTES
During April 1997, the Company issued $350,000 principal amount of its 10%
Convertible Secured Notes due October 31, 1997 (the "Notes"). The Notes are
secured by a mortgage on the Company's faire site in Virginia and are
convertible into shares of the Company's Common Stock at the lesser of $1.75 per
share or 50% of the market value of the Company's Common Stock at the time of
conversion.
TRANSFER AGENT AND REGISTRAR
Corporate Stock Transfer, Denver, Colorado, has been appointed as the Transfer
Agent and Registrar for the Common Stock and the A and B Warrants.
SELLING SHAREHOLDERS
The following table sets forth the number of shares of the Company's Common
Stock to be offered by the Selling Shareholder named herein, and, as of December
29, 1997, the number and percentage of shares beneficially owned prior to and
following completion of the offering made hereby.
-44-
<PAGE>
<TABLE>
<CAPTION>
Prior to Offering Shares Offered After Offering
----------------- Pursuant to this --------------
Name Number Percentage Prospectus Number Percentage
---- ----------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Wall Street Financial 150,000(1) 1.4% 150,000(1) -0- -0-
5353 Manhattan Circle
Suite 201
Boulder, CO 80303
Boulder Financial 150,000(1) 1.4% 150,000(1) -0- -0-
Group LLC
Promontory Court
Boulder, CO 80304
</TABLE>
____________
(1) Includes 100,000 shares of Common Stock issuable upon the exercise of
common stock purchase warrants exercisable at $0.50 per share.
PLAN OF DISTRIBUTION
The Shares offered by the Selling Shareholders may be sold from time to
time by the Selling Shareholders, or by pledgees, donees, transferees or other
successors in interest of the Selling Shareholders, at their sole discretion.
Such sales may be made on the Nasdaq Small Cap Market or otherwise at prices and
on terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. The Shares offered by the Selling Shareholders
are not being underwritten.
In general, the Shares may be sold by one or more of the following means:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) an exchange distribution in accordance with the rules of such
exchange (if the securities are then listed on an exchange); (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
or (e) other securities transactions. In effecting sales, brokers or dealers
engaged by the Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from the
Selling Shareholders in amounts to be negotiated immediately prior to the sale.
No commissions or other fees shall be payable by the Company to any broker or
dealer in connection with this offering. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, in connection with such
sales. The Company will pay the expenses of this offering, estimated at $6,000.
LEGAL MATTERS
The legality of the Common Stock will be passed upon for the Company by the
firm of Gray, Plant, Mooty, Mooty & Bennett, P.A.
-45-
<PAGE>
EXPERTS
The audited financial statements of the Company for the fiscal periods
ended December 31, 1996 and March 31, 1996, which are included herein have been
examined and reported on by Schumacher and Associates, Inc., as indicated in
their reports with respect thereto, and are incorporated by reference, in
reliance upon the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549, and inspected at the Commission's regional offices at Suite 1400,
500 West Madison Street, Chicago, Illinois 60661. Copies of such material can
also be obtained from the Public Reference Section of the Commission, 450 Fifth
Street N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding the Company at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Act"), with respect to
the securities offered hereby. This Prospectus omits certain information
included in such Registration Statement. For further information about the
Company and its securities, reference is made to such Registration Statement and
to the exhibits filed as part thereof or otherwise incorporated therein. Each
summary in this Prospectus of information included in the Registration Statement
or any exhibit thereto is qualified in its entirety by this reference to such
information or exhibit.
-46-
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Audited Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statement of Changes in Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
Consolidated Balance Sheet as of September 30,
1997 (unaudited) F-28
Consolidated Statements of Operations for the nine
months ended September 30, 1997 and 1996 (unaudited) F-29
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 (unaudited) F-30
Notes to Financial Statements (unaudited) F-31
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Renaissance Entertainment Corporation
and Consolidated Subsidiary
We have audited the combined balance sheet of Renaissance Entertainment
Corporation and Consolidated Subsidiary as of March 31, 1996 and December 31,
1996 and the related consolidated statements of operations and changes in
stockholders' equity, and cash flows for the nine month period ended December
31, 1996 and for the years ended March 31, 1995 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Renaissance Entertainment
Corporation and Consolidated Subsidiary as of March 31, 1996 and December 31,
1996 and the combined results of operations, changes in stockholders' equity and
cash flows for the nine period ended December 31, 1996 and the years ended March
31, 1995 and 1996 in conformity with generally accepted accounting principles.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
March 31, 1997
F-2
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, December 31,
1996 1996
------------- -------------
Current Assets:
Cash and equivalents $ 631,063 $ 374,289
Income tax refunds receivable (Note 6) 323,380 -
Stock subscription receivable (Note 13) - 133,749
Accounts receivable, net of allowance
for doubtful accounts of $8,341 69,434 99,551
Inventory, at lower of cost or market 116,221 184,695
Prepaid expenses and other current assets 979,769 139,167
------------- ------------
Total Current Assets 2,119,867 931,451
Property and equipment, net of accumulated
depreciation of $1,372,060 and $1,982,765
at March 31, 1996 and December 31, 1996
respectively (Note 7) 5,156,217 7,176,755
Construction in progress 1,080,895 -
Goodwill, net of accumulated amortization
of $160,960 and $206,410 at March 31,
1996 and December 31, 1996
respectively (Note 5) 1,046,285 620,826
Covenant not to compete, net of
accumulated amortization of $40,000
and $55,000 at March 31, 1996 and
December 31, 1996 respectively (Note 5) 60,000 45,000
Restricted cash (Note 11) 848,296 890,116
Other assets 121,909 208,201
-------------- ------------
Total Assets $10,433,469 $9,872,349
-------------- -------------
-------------- -------------
F-3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
Current Liabilities: 1996 1996
------------ ------------
Accounts payable and accrued expenses $ 1,181,090 $1,068,028
Notes payable, current portion (Note 3) 437,956 1,209,119
Unearned income 485,798 160,588
------------ ------------
Total Current Liabilities 2,104,844 2,437,735
Notes payable, net of current
portion (Note 3) 2,531,187 2,341,987
Other - 37,175
------------ ------------
Total Liabilities 4,636,031 4,816,897
------------ ------------
Commitments (Notes 3, 4, 8 and 12) - -
Stockholders' Equity (Notes 2, 8, 10, 12 and 13):
Preferred stock, $1.00 par value, 1,000,000
shares authorized, none issued and
outstanding - -
Common stock, $.03 par value, 50,000,000
shares authorized, 8,721,706 and
9,233,772 issued and outstanding
at March 31, 1996 and December 31, 1996
respectively 261,652 277,013
Additional paid-in capital 6,977,256 8,071,634
Accumulated (deficit) (1,441,470) (3,293,195)
------------ ------------
Total Stockholders' Equity 5,797,438 5,055,452
------------ ------------
Total Liabilities and Stockholders' Equity $10,433,469 $9,872,349
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Month Period Ended
----------------------------------- -------------------------------------
REVENUE: March 31, 1995 March 31, 1996 December 31, 1995 December 31, 1996
-------------- --------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Sales $12,539,653 $12,810,617 $10,469,824 $14,553,577
Faire operating costs 3,212,491 3,826,868 3,205,152 4,812,616
-------------- --------------- ----------------- -----------------
Gross Profit 9,327,162 8,983,749 7,264,672 9,740,961
-------------- --------------- ----------------- -----------------
OPERATING EXPENSES:
Salaries and wages 3,474,799 4,082,271 3,030,205 4,048,603
Depreciation and amortization 351,215 500,203 337,708 633,819
Advertising 1,211,798 1,546,701 1,036,508 2,511,973
Other operating expenses 3,532,508 4,329,713 2,749,254 4,300,062
-------------- --------------- ----------------- -----------------
Total Operating Expenses 8,570,320 10,458,888 7,153,674 11,494,457
-------------- --------------- ----------------- -----------------
Net Operating Income (Loss) 756,842 (1,475,139) 110,999 (1,753,496)
-------------- --------------- ----------------- -----------------
Other Income (Expenses):
Interest income 48,312 109,652 94,090 68,571
Interest (expense) (53,223) (138,036) (100,266) (253,740)
Other income (expense) (28,327) (36,049) 204,612 (98,229)
-------------- --------------- ----------------- -----------------
Total Other Income (expenses) (33,418) 7,665 198,436 (98,229)
-------------- --------------- ----------------- -----------------
Net Income (Loss) before (Provision)
Credit for Income Taxes 723,424 (1,467,474) 309,434 (1,851,725)
(Provision) Credit for Income Taxes (147,000) 193,803 45,470
-------------- --------------- ----------------- -----------------
Net Income (Loss) 576,424 (1,273,671) 263,964 (1,851,725)
-------------- --------------- ----------------- -----------------
Dividends on Preferred Stock (43,115)
-------------- --------------- ----------------- -----------------
Net Income (Loss) to Common
Stockholders $ 533,309 $(1,273,671) $ 263,964 $(1,851,725)
-------------- --------------- ----------------- -----------------
-------------- --------------- ----------------- -----------------
Net Income (Loss) per Common Share $ .11 $ (.16) $ .03 $ (.21)
-------------- --------------- ----------------- -----------------
-------------- --------------- ----------------- -----------------
Weighted Average Number of Shares
Outstanding 4,801,044 7,824,182 7,643,702 8,907,049
-------------- --------------- ----------------- -----------------
-------------- --------------- ----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
From March 31, 1994 through December 31, 1996
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Paid-in Accumulated
Shares Amount Capital (Deficit) Total
--------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994 3,204,356 $ 96,130 $ 966,585 $ (701,108) $ 361,607
Common stock issued, acquisition of assets 1,136,666 34,100 498,711 -- 532,811
Common stock issued, private placements 800,000 24,000 216,000 -- 240,000
Common stock issued, services 133,384 4,002 120,998 -- 125,000
Common stock issued, public offering, net of
offering costs of $646,056 2,070,000 62,100 2,914,344 -- 2,976,444
Common stock issued in exchange for preferred
stock issued 583,334 17,500 794,695 -- 812,195
Preferred dividends -- -- -- (43,115) (43,115)
Net income for the year ended March 31, 1995 -- -- -- 576,424 576,424
--------- --------- --------- ----------- ----------
Balance March 31, 1995 7,927,740 237,832 5,511,333 (167,799) 5,581,366
Treasury stock acquired in cashless transaction
and retired (20,626) (618) (81,886) -- (82,504)
Cashless exercise of stock option 66,666 2,000 80,504 -- 82,504
Common stock issued for cash 678,200 20,346 1,334,402 -- 1,354,748
Exercise of stock options 69,726 2,092 132,903 -- 134,995
Net Loss for the year ended March 31, 1996 -- -- -- (1,273,671) (1,273,671)
--------- --------- --------- ----------- ----------
Balance march 31, 1996 8,721,706 261,652 6,977,256 (1,441,470) 5,797,438
Exercise of Class A warrants at $2.00 per share 125,328 3,760 246,896 -- 250,656
Exercise of Class B warrants at $2.63 per share 34,000 1,020 88,230 -- 89,250
F-6
<PAGE>
Exercise of stock options 324,998 9,749 610,224 -- 619,973
Issuance of stock for services 27,740 832 151,118 -- 151,950
Fees incurred in connection with exercising
warrants -- -- (2,090) -- (2,090)
Net loss for the nine month period ended
December 31, 1996 -- -- -- (1,851,725) (1,851,725)
--------- --------- --------- ----------- ----------
Balance December 31, 1996 $9,233,772 $ 277,013 $8,071,634 $(3,293,195) $ 5,055,452
--------- --------- --------- ----------- ----------
--------- --------- --------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
---------------------------------- --------------------------------------
March 31, 1995 March 31, 1996 December 31, 1995 December 31, 1996
-------------- -------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities: $ 576,424 $(1,273,671) $ 263,964 $(1,851,725)
Net Income (loss) -- -- -- --
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 351,214 500,200 337,708 633,819
Impairment of goodwill -- -- -- 380,000
Stock issued for services 125,000 -- -- 151,950
(Increase) decrease in:
Income tax refund receivable -- (323,380) -- 323,380
Accounts receivable (50,124) (19,310) (178,844) (163,866)
Prepaid expenses (570,332) (396,276) 291,995 840,602
Inventory (82,900) (33,321) (13,134) (68,474)
Other assets (49,657) (38,811) -- (86,292)
Increase (decrease) in:
Income taxes payable 48,175 (48,175) (25,738) --
Accounts payable and accrued
expenses 274,940 742,368 (117,449) (113,062)
Unearned revenue and other 322,083 42,681 (313,197) (294,030)
---------- ----------- ---------- -----------
Net Cash Provided by Operating Activities 946,823 (847,695) 245,305 (247,698)
---------- ----------- ---------- -----------
Cash Flows from Investing Activities:
Investment in restricted cash -- (848,296) (846,449) (41,820)
Repayment of advances 351,150 -- -- --
Acquisition and construction of
property and equipment, goodwill
and covenant note to compete (896,551) (4,920,023) (3,490,356) (1,507,008)
---------- ----------- ---------- -----------
Net Cash (Used in) Investing Activities (545,401) (5,768,319) (4,336,775) (1,548,828)
---------- ----------- ---------- -----------
Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 3,278,450 1,489,743 1,100,908 957,789
Preferred dividends paid (43,115) -- -- --
Advances from officers 60,500 -- -- --
Proceeds from notes payable -- 3,053,989 1,068,729 1,000,000
Principal payments on notes payable (438,793) (595,400) (593,340) (418,037)
Other -- -- (36,458) --
---------- ----------- ---------- -----------
Net Cash Provided by (Used in)
Financing Activities 2,857,042 3,948,332 1,539,839 1,539,752
---------- ----------- ---------- -----------
Net Increase (Decrease) in Cash 3,258,464 (2,667,682) (2,551,631) (256,774)
Cash beginning of period 40,281 3,298,745 3,296,652 631,063
---------- ----------- ---------- -----------
Cash, end of period $3,298,745 $ 631,063 $ 745,021 $ 374,289
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Interest paid $ 54,506 $ 112,248 $ 100,267 $ 268,605
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Income tax paid $ 98,825 $ 237,752 $ 129,577 $ --
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Cashless exercise of stock option $ -- $ 82,504 $ 82,504 $ --
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
Note: The Company issued common and preferred stock for assets totaling
$1,408,000 during the year ended March 31, 1995. During the year ended March
31, 1996 the Company issued 540,000 shares of its common stock to consummate
the business combination with CFL, which was accounted for as a pooling of
interests, effective for the fiscal year ended March 31, 1995. The
accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Renaissance
Entertainment Corporation (Company) (REC) is presented to assist in
understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management
who is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of
the financial statements.
(a) GENERAL
REC was incorporated under the laws of the State of Colorado on
June 24, 1988. On April 6, 1993, REC acquired one hundred percent of
the common stock of Ellora Corporation, a Wisconsin corporation which
owned and operated the Bristol Renaissance Faire located in Kenosha,
Wisconsin. In the acquisition, REC issued a total of 1,784,800 shares
of common stock to the shareholders of Ellora Corporation,
representing ninety-one percent of the total issued and outstanding
shares of REC following the exchange. The acquisition was accounted
for as a reverse acquisition since the controlling shareholders of
Ellora became the controlling shareholders of REC. During the year
ended March 31, 1994 REC formed a wholly-owned subsidiary called
Heroes and Villains, Ltd. This entity was formed to provide
entertainment services and had limited activity during the year.
During February, 1994 REC formed Renaissance Pleasure Faires, Inc.
(RPFI) for the purpose of acquiring the assets and the business of two
Renaissance Faires in California. In connection with this acquisition
and the formation of RPFI, the Company issued 1,136,666 shares of its
common stock and 875,000 shares of Series A Convertible Preferred
Voting Stock and assumed certain liabilities and guaranteed certain
lease obligations of the seller. The preferred shares were later
exchanged for common stock. Of the common shares issued, 524,000
common shares were issued to the seller and 612,666 common shares were
issued to shareholders of Western Renaissance Fair Presentation, Inc.
(Western) a newly formed California corporation, formed for the
purpose of providing management services to operators of renaissance
festivals.
Western was owned by certain employees of the seller. Subsequent to
its acquisition,
F-9
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(a) GENERAL
Western was merged into a subsidiary of REC. For accounting purposes,
the acquisition of the California Faires net assets and business and the
acquisition of Western was treated as one combined acquisition with the
excess of cost over fair value of net assets acquired accounted for as
goodwill. The preferred shares had an annual 6% dividend provision
payable monthly in arrears. The preferred shares had equal voting
rights per share as the common shares outstanding (583,334 votes after
giving effect to the reverse common stock splits described in note 10).
The preferred shares had a conversion provision that they could be
converted by the holders at any time during the first two years into
common stock on a one-for-three basis. REC had the right at any time to
redeem these shares at $1.00 per share. During January, 1995 these
preferred shares were converted to 583,334 shares of common stock. The
Company also forgave loans to the seller totaling $62,805 which reduced
additional paid-in capital related to this conversion transaction.
Prior to conversion, the Company paid dividends totaling $43,115 related
to these preferred shares. All documents related to this closing and
all shares issued were signed and dated in March, 1994. The bill of
sale related to the transfer of the assets was effective April 1, 1994.
In connection with this transaction, certain controlling shareholders
have entered into a stock pooling and voting agreement requiring the
voting for certain individuals to serve as directors of the Company. In
connection with this acquisition, the Company incurred approximately
$50,000 of legal and professional fees and issued 233,066 shares of
common stock valued at $72,833 for consulting services related to
assistance with negotiations regarding the acquisition. The business
combination as of April 1, 1994 was accounted for as a purchase by REC.
See Note 10 for additional information related to this business
combination.
Effective December 31, 1995 REC acquired 100% ownership of Creative
Faires, Ltd. (CFL) in exchange for the issuance of 540,000 restricted
common shares of REC stock. REC entered into employment agreements with
the two former owners of CFL and one of the two former owners became a
director of REC. The business combination with CFL was accounted for as
a pooling of interests. The Company changed its year end to December 31,
effective December 31, 1996. The March 31, 1996 consolidated balance
sheet includes the accounts of
F-10
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(a) GENERAL
CFL as of December 31, 1995 and the consolidated accounts of REC and
subsidiaries as of March 31, 1996. The consolidated statements of
operations and cash flows include the accounts of CFL for the two years
ended December 31, 1995 and the consolidated accounts of REC and
subsidiaries for the two years ended March 31, 1996. The consolidated
statements of operations and cash flows include the accounts of CFL for
the year ended December 31, 1996 and accounts of REC for the nine month
period ended December 31, 1996. During the three-month period ended
March 31, 1996, REC loaned $141,179 to CFL which was not eliminated in the
consolidated financial statements because of the different year ends. The
majority of the advances to CFL were used for start-up costs for the
upcoming New York Faire described in Note 9. The $141,179 has been
included with prepaid expenses in the March 31, 1996 consolidated balance
sheet.
All subsidiaries of the Company were merged into REC as of March 31, 1996
with the exception of Creative Faires, Ltd.
All references to the "Company" refer to REC and its subsidiaries. All
intercompany transactions and account balances have been eliminated in the
financial statements other than as noted above.
(b) PER SHARE INFORMATION
Per share information is determined using the weighted average number of
shares outstanding during the periods after giving effect to the common
stock splits described in Note 10.
(c) PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, net of accumulated
depreciation. Depreciation is computed using principally accelerated
methods over the useful lives of the assets ranging from three to thirty
years, as follows:
Useful lives (years)
--------------------
Computers 5
Vehicles 5
Trailers 7
Office Furniture 7
Costumes 7
Faire Equipment 7
Buildings - Temporary 15
Buildings - Permanent 30
F-11
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(d) REVENUE AND EXPENSE RECOGNITION AND COST OF SALES
The Company recognizes revenues from the renaissance fairs as earned
during the period when the fairs are in operation.
These revenues consist principally of gate entrance fees, food and
beverage concessions sales, lease revenue and fees charged to craft
vendors. At various dates subsequent to the end of the operation of the
prior years fairs, and prior to the opening of the next years fairs, the
Company receives deposits from the craft vendors and others. These
deposits are carried as unearned revenue until applied to fees charged
and then earned on a pro-rata basis during the operation of the fair.
Cost of sales as shown in the statement of operations includes all
direct costs associated with the production of the Renaissance Faire,
including cost of food, beverage and merchandise sold, labor costs for
seasonal help and other direct costs of the production. All other
expenses related to operation of the fair are shown as operating
expenses in the statement of operations.
Advertising costs are expensed as incurred. Direct costs related to the
setting up of the fairs are capitalized as prepaid expenses and expensed
during the period of the operation of the applicable fairs. Also,
included in prepaid expenses at March 31, 1996 is $141,179 of advances
from REC to CFL. CFL has a December 31 year end and REC had a March 31
year end, which was changed to December 31, effective December 31, 1996.
These advances relate principally to cost related to setting up the New
York Faire but also include operating expenses which apply to the short
period after the CFL year end. See a description above of the business
combination with CFL accounts for a pooling of interest.
(e) STOCK SPLIT
During the fiscal year ended March 31, 1995, the Company effected a
one-for-three reverse stock split and changed the par value of the
common stock from $.01 to $.03 per share. During the period ended
December 31, 1996, the Company effected a two-for-one stock split. The
financial statements were retroactively adjusted for this split.
F-12
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) CONCENTRATIONS OF CREDIT RISKS
Financial instruments that potentially subject the company to
concentrations of credit risk consist principally of temporary cash
investments and cash equivalents and trade accounts receivables. At
March 31, 1996 and December 31, 1996 respectively, the Company had
approximately $1,370,000 and $1,065,000 of its cash and cash
equivalents in financial institutions in excess of amounts insured by
agencies of the U.S. Government. Most of the trade receivables are
from customers in one geographic location, principally California.
The Company does not require collateral for its trade accounts
receivables.
(g) CASH EQUIVALENTS
The Company considers all short term investments in securities that
mature in 90 days or less to be cash equivalents.
(h) INVENTORY
The Company's inventory consists principally of merchandise held for
sale. The Company carries its inventory at the lower of cost or
market. Cost is determined on an average cost basis.
(i) ALLOWANCE FOR BAD DEBTS
The Company provides an allowance for bad debts based on prior
collection experience.
(j) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
F-13
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(k) GEOGRAPHIC AREA OF OPERATIONS AND INTEREST RATES
The Company owns and operates Renaissance Faires principally in five
major metropolitan areas of the U.S.A. The potential for severe
financial impact can result from negative effects of economic conditions
within the markets or geographic areas. Since the Company's business is
principally in five areas, this concentration of operations results in
an associated risk and uncertainty.
(l) CONSTRUCTION IN PROGRESS
As of March 31, 1996 the Company had incurred $1,080,895 of construction
costs related to the Company building a fair site in Virginia. These
construction costs incurred consisted of buildings and land
improvements. The construction was completed subsequent to March 31,
1996.
(m) IMPAIRMENT OF LONG-LIVED ASSETS
The Company regularly evaluates the recoverability of assets for its
faires and reviews its assets to assure that the amount therefor carried
on the Company's financial statements is commensurate with the future
economic benefit to be recovered over time from use of such assets. The
Company determined that the goodwill associated with its acquisition of
the California Faires net assets and its acquisition of Western was
impaired after estimating the expected gross profit from future
revenues, based on declining attendance for these faires in 1996 and
prior periods, as compared to the net book value. The Company wrote
down the intangible assets by $380,000 through a charge to other
operating expenses during the period December 31, 1996. At December 31,
1996, the remaining goodwill associated with this acquisition was
$620,826.
(2) COMMON AND PREFERRED STOCK
The Articles of Incorporation of the Company authorize issuance of a
maximum of 50,000,000 shares of $.03 par value common stock and
1,000,000 shares of $1.00 par value preferred stock. See note 1 for a
description of the preferred stock issued and then subsequently
converted to common stock.
During January, 1995 the Company sold in a public offering 1,035,000
units of its securities at $3.50 per unit. Each unit consisted of one
share of common stock and one Class A warrant and one Class B warrant.
Each Class A warrant entitles the warrant holder thereof to purchase one
share of common stock at a price of $4.00 per share through January 27,
2000. Each Class B warrant entitles the holder thereof to
F-14
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(2) COMMON AND PREFERRED STOCK, CONTINUED
purchase one share of common stock at a price of $5.25 per share through
January 27, 2000. These warrants were immediately exercisable. The
warrants are redeemable by the Company after 24 months from January 27,
1995, the date of the prospectus, or sooner with the consent of the
Underwriter, at a price of $.01 per warrant upon 30 days' notice mailed
within ten days after the closing bid price of the Company's common
stock has equaled or exceeded 150% of the then current respective
warrant exercise price for a period of 20 consecutive trading days. The
holders of the warrants called for redemption are granted exercise
rights until the close of business on the date preceding the date fixed
for redemption.
The Company incurred $646,056 of costs related to this offering. These
offering costs have been offset against the proceeds of the offering.
(3) NOTES PAYABLE
Notes payable at December 31, 1996 and March 31, 1996 are summarized as
follows:
March 31, December 31,
1996 1996
------------- ----------------
Note payable to bank at 8.65%,
interest quarterly until June, 1996
then monthly principal and interest
payment of $5,082 through May, 2011
collateralized by land, improvements
and jumbo CD's. See Note 11. $1,500,000 $1,475,950
Note payable to bank at 9.5%, 60
equal monthly payments of $5,251
through March, 2001 collateralized
by land, improvements and jumbo
CD's. See Note 11. 250,000 219,605
F-15
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(3) NOTES PAYABLE, CONTINUED
Mortgage payable to Bank One Kenosha
at 9.5 % at March 31, 1996 and 9.25%
at 9.25% at December 31, 1996;
interest quarterly, two annual
payments of $100,000 each with a
balloon payment of $700,000 due
January, 1998; collateralized by land
and improvements. 900,000 800,000
Note payable to Bank One Colorado at
the bank reference rate plus 1%, 9.25%
at December 31, 1996, due September 1,
1996; collateralized by inventory,
accounts and equipment. - 746,132
Note payable to Bank One Kenosha at
the bank reference rate plus 2% with a
minimum rate of 10.25%; interest paid
monthly with the balance due September
1996, extended to December 15, 1997;
collateralized by equipment, fixtures
and inventory. 250,000 250,000
Various notes payable to financial
institutions collateralized by certain
vehicles. Payable in monthly
installments of principal and interest;
final payments due in 2000, interest
ranging from 10% to 12%. 69,144 59,419
------ ------
Total 2,969,144 3,551,106
Less current portion 437,957 1,209,119
------- ---------
Long-term portion $2,531,187 $2,341,987
---------- ----------
---------- ----------
In March 1997, the Company entered into a loan workout agreement with Bank
One Colorado and Bank One Kenosha (Bank One Wisconsin). The agreement
provides that ***
F-16
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(3) NOTES PAYABLE, CONTINUED
the Company make principal payments of $50,000 each to Bank One Colorado
and Bank One Wisconsin. Upon execution of this agreement, the Company
executed a real estate mortgage in favor of Bank One Colorado subordinated
to the Bank One Wisconsin's mortgage. Bank One Colorado agreed to
subordinate its mortgage to a potential new loan from a third party lender
to the Company in the amount of from $750,000 to $1.5 million, so long as
the new loan is funded prior to June 1, 1997 and the Company is not
otherwise in default under the loans. As part of this agreement, Bank One
Colorado changed the terms of its loan agreement to provide the Company
interest monthly on its loan starting April 30, 1997 with principal
payments of $150,000 on June 30, 1997, $200,000 on July 31, 1997, $250,000
on August 31, 1997 and final principal payment of $90,189 on September 30,
1997. Additionally Bank One Wisconsin modified the terms of its loan
agreement to provide for monthly interest payments starting April 30, 1997
with four monthly principal payments of $50,000 starting June 30, 1997. If
the Company complies with all terms of this agreement, Bank One Wisconsin
agrees to renew its real estate mortgage to provide for quarterly principal
payments of $50,000 beginning in March 1998 with the remaining balance due
and payable in December 1998. The Company agreed, if it obtains
alternative financing in excess of $2.5 million during calendar year 1997,
then the Company will immediately pay off all amounts then due and owing
Bank One Colorado and Bank One Wisconsin, excluding the Bank One Wisconsin
mortgage.
Maturities of notes payable for each of the next five fiscal years ending
December 31 and in the aggregate thereafter, are as follows:
1997 $ 1,210,214
1998 2,188,583
1999 66,108
2000 68,807
2001 17,394
---------
$ 3,551,106
-----------
-----------
(4) LEASES
The Company leases a vehicle under a four year lease which commenced June 8,
1992 with monthly lease payments of $336. Effective April 1, 1995 the
Company entered into an operating lease at 4440 Arapahoe in Boulder, Colorado
for office facilities. Initial monthly rental payments are $3,066 with
annual increases of 5% per annum. Commencing November 1, 1996,
F-17
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(4) LEASES, CONTINUED
the Company leased additional office space at 4410 Arapahoe in Boulder,
Colorado and subleased its original office space at 4440 Arapahoe. This
lease provides initial monthly lease payments of $5,969 increasing to
$7,255 for the five year term of the lease. In addition the Company will
be allocated certain operating expenses. The Company also leases various
other properties in New York with terms expiring through the year 2001.
Annual lease payments on the New York Faire site range from approximately
$270,000 to $312,000 over the next five years.
Future minimum rentals under all operating leases with terms exceeding
twelve months are as follows:
Year Ending
December 31,
1997 436,177
1998 456,623
1999 476,237
2000 468,370
2001 79,807
---------
Total $1,917,214
----------
----------
Effective January 1, 1997, the Company entered into a three year sublease
agreement to sublease its old office space at 4440 Arapahoe. The sublessee
assumes every obligation of the Company under its lease. The Company
remains liable under its lease.
Future minimum sublease rentals are as follows:
Year ending
December 31,
1997 $ 28,979
1998 30,428
1999 31,949
2000 24,849
2001 -
----------
Total $ 116,205
---------
---------
F-18
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Rent expense for the nine-month period ended December 31, 1996 and for the
years ended March 31, 1995 and 1996 totaled approximately $431,292,
$404,495 and $788,375, respectively.
(5) GOODWILL AND COVENANT NOT TO COMPETE
The cost of the acquisition of the California Faire assets and business as
described in Notes 1 and 10 in excess of the fair value of assets acquired
has been recorded as goodwill in the accompanying financial statements.
Goodwill is being amortized on a straight-line basis over fifteen years.
Management reviews the carrying value of goodwill on a periodic basis, at
least annually, to determine if there is any impairment in value. If
management determines that the carrying value is not recoverable over the
remaining amortization term, the excess balance, if any, will be expensed.
During the period ended December 31, 1996, the Company determined that the
goodwill was impaired and wrote off $380,000 as a charge to other operating
expenses. As of March 31, 1996 and December 31, 1996 the Company's net
carrying value for goodwill was $1,046,285 and $620,826 after amortization
and write down of $160,960 and $586,419 respectively.
In addition, the Company allocated $100,000 for certain covenants not to
compete for certain officers and employees of The Living History Centre
related to the asset and business acquisition. These covenants not to
compete are being amortized on a straight-line basis over five years.
(6) INCOME TAXES
The Company files income tax returns with its subsidiaries.
During the year ended March 31, 1995 the Company utilized loss carryovers
to offset taxable income totaling approximately $386,000 resulting in
realization of tax benefits of approximately $154,000. During the year
ended March 31, 1996 the Company incurred an operating loss resulting in a
carryback to prior years. As of March 31, 1996 the Company had income tax
refunds receivable resulting from the carryback and refunds receivable from
excess estimated payments which together totaled $323,380.
F-19
<PAGE>
RECONCILIATION OF STATUTORY TAX
TO ACTUAL INCOME TAX EXPENSE (BENEFIT)
The following is a reconciliation of the statutory tax rates to actual income
tax expense:
For the year ended March 31, 1995:
Expected tax at statutory rates $ 311,072
Benefit of Net Operating Loss (93,124)
Benefit of graduated tax rates (28,937)
Benefit of Federal deduction for state income taxes (13,745)
All other differences (28,266)
--------
Provision for Income Taxes $147,000
--------
--------
For the year ended March 31, 1996:
Expected tax at statutory rates $ -0-
Benefit of carryback of Net Operating Loss (193,803)
---------
Provision (Credit) for Income Taxes ($193,803)
---------
---------
F-20
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(7) PROPERTY AND EQUIPMENT
December 31, 1996 March 31, 1996
----------------- --------------
Land $3,415,798 $2,888,350
Buildings and Improvements 3,018,450 1,171,794
Office Furniture and Equipment 490,975 366,171
Costumes, Props and Other Assets 2,180,297 2,101,962
---------- ---------
Sub-total 9,105,520 6,528,277
Less Accumulated Depreciation (1,928,765) (1,372,060)
---------- ----------
Total $7,176,755 $5,156,217
---------- ----------
---------- ----------
(8) WARRANTS ISSUED FOR SERVICES AND STOCK OPTIONS
In January, 1994 the Company issued warrants to purchase an aggregate of
266,666 shares of the Company's common stock at an exercise price of $1.87
per share. These warrants were issued pursuant to a Form S-8 registration
statement for various consulting services. These warrants were exercised
during the year ended March 31, 1995. These 266,666 warrants were valued
at $.15 per warrant and expensed in the total amount of $40,000 in the
financial statements.
Pursuant to the Company's stock option plans, the Company has granted
options to acquire 1,186,318 shares of the Company's common stock. Of this
amount 136,392 options have been exercised and 11,998 have expired during
the year ended March 31, 1996. The options are exercisable at prices
ranging from $1.13 per share to $3.50 per share. During the period ended
December 31, 1996, 105,000 options were granted with a weighted average
price of $5.74, 324,998 options were exercised at a weighted average price
of $1.87 and 150,000 options terminated with a weighted average price of
$4.09. The remaining number of options outstanding at December 31, 1996
totaled 571,762 with a weighted average price of $2.60 which are
exercisable at various dates through 2001.
(9) BUSINESS COMBINATION, NEW YORK FAIRE
Effective December 31, 1995 the Company issued 540,000 shares of its
restricted common stock for 100% ownership of Creative Faires, Ltd. (CFL)
The transaction was accounted for as a pooling of interests as described in
Note 1. CFL principally conducted a New York Faire.
F-21
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(9) BUSINESS COMBINATION, NEW YORK FAIRE, CONTINUED
REC and consolidated subsidiaries previously reported revenue of
$10,459,476 and net income of $624,609 during the year ended March 31,
1996. The revenues and net loss of CFL included in the combined
statement of operations for the year ended March 31, 1995 amounted to
$2,081,177 and $(48,185), respectively. Revenues of $2,308,378 and a net
loss of $(37,756) of CFL, incurred prior to the business combination have
been included in the combined statement of operations for the year ended
March 31, 1996.
(10) BUSINESS COMBINATION, CALIFORNIA FAIRES
Effective April 1, 1994 the Company acquired the assets and certain
liabilities of The Living History Centre, (LHC) a California,
not-for-profit corporation. The Company issued 1,136,666 shares of its
common stock and 875,000 shares of its preferred stock as consideration for
the net assets acquired. The preferred stock was converted into common
stock during January, 1995. In addition to acquiring certain assets and
liabilities of LHC, the Company has acquired the rights to operate two
California Renaissance Faires.
See Note 1 financial statements for additional information related to the
business combination. The transaction was accounted for as a purchase by
REC. The results of operations of the LHC Faire operations are included in
the income statement of REC commencing April 1, 1994. The cost of this
acquisition was approximately $2,534,000, including assumption of
liabilities and issuance of the common and convertible preferred stock.
The following table shows the allocation of the purchase price assets:
Cash $ 63,000
Prepaid faire costs 318,000
Inventory 56,000
Accounts receivable 87,000
Property and equipment 664,000
Covenant not to compete 100,000
Goodwill 1,207,000
Other assets 39,000
---------
$ 2,534,000
-----------
-----------
F-22
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(10) BUSINESS COMBINATION, CALIFORNIA FAIRES, CONTINUED
Liabilities assumed 640,000
Preferred stock issued 875,000
Common stock issued 533,000
Cash advanced and acquisition
expenses incurred 486,000
----------
$ 2,534,000
-----------
-----------
Assets and liabilities acquired or assumed were recorded at estimated fair
value at April 1, 1994 the date of acquisition.
The amount assigned to the common stock was $532,812 ($.9375 per share)
approximately one half of the market trading price of the Company's common
stock as of April 1, 1994. This value was used due to the large number of
shares and their restrictive nature. LHC, a non-profit corporation,
obtained an appraisal of its business for the purpose of determining an
approximate valuation necessary to obtain regulatory approval for sale of
its assets. Although this appraisal indicated a valuation in an amount
such that the common stock of REC exchanged for the certain net assets and
the business of LHC would have been recorded at $1.56 per share, management
of REC did not believe that such a valuation was appropriate under the
circumstances. The appraiser based the valuation on projected net income
from the California Faires of $500,000 per year. The California Faires
have not been historically profitable and to assume that the Faires will
earn $500,000 per year is, as explained in the appraisal, inherently highly
speculative. Therefore, management believes that the appraisal is
unsuitable for determining a value of the business acquired. Management
gave consideration to the following transactions and events when it
determined the appropriate valuation of the shares issued in the
acquisition:
a. In the fall of 1993, the Company sold 253,334 shares at a cash price
of $.75 per share. Following this private offering of a small number
of shares, the Company incurred substantial operating losses and
accumulated deficits.
b. For the two years prior to their acquisition, the two California
Renaissance Faires had generated substantial net operating loss of
$(869,953) and $(928,569) in the years 1992 and 1993, respectively.
c. In August 1994, the Company sold in a private offering 800,000 shares
at a price of $.30 per share, principally to raise working capital to
cover the anticipated cost of the public offering.
F-23
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(10) BUSINESS COMBINATION, CALIFORNIA FAIRES, CONTINUED
d. The public market of the Company's common stock was highly illiquid,
with only 300,000 shares in the public float eligible for trading.
Management believes that the price of $1.875 per share of the
publicly-traded shares was not indicative of the fair market value of
substantially larger blocks of restricted shares.
e. The Company issued 77,688 shares and warrants to purchase an
additional 133,334 shares at an exercise price of $.9375, to an entity
affiliated with a director of the Company. The shares and the
exercise price of the warrants were valued at 100% of the public
trading price due to (I) the transaction having been between the
Company and a related party, and (ii) the fact that the shares were
registered on a Form S-8 which rendered them free-trading.
f. The Company has granted to executive officers and key employees
incentive stock options at an exercise price of $1.875 per share. In
order to qualify as incentive stock options under Section 422 of the
Internal Revenue Code, the options must be priced at 100% of the
public trading market of the Company's common stock.
Management believes that recording the shares issued for the LHC
acquisition at 50% of the publicly traded value is reasonable, appropriate
and normal for this large of a block of restricted securities. Goodwill is
being amortized on a straight-line basis over a fifteen year period and the
covenant not to compete is being amortized on a straight-line basis over a
five year period. The Company believes that a 15 year estimated life over
which goodwill is being amortized is reasonable due to the fact the
California Faires have been in existence approximately 30 years and the
fact that the average life of other currently successful Renaissance Faires
in the United States is over 15 years and there is no reason to believe
that those Faires will not be in existence for another 15 years.
It is the Company's policy that management on a periodic basis, at least
quarterly, will evaluate the Carrying value of goodwill and other
intangibles to determine if there is an impairment of value or the
remaining estimated life is less than the remaining unamortized period. If
the evaluation indicates write-downs or adjustments to the amortization are
necessary, such write-downs or adjustments will be made immediately.
(11) RESTRICTED CASH
Certificates of Deposit in the amount of $890,116 at December 31, 1996 are
collateral to an 8.65% and a 9.5% loan maturing in 2011 and 2001,
respectively, and Certificates of
F-24
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(11) RESTRICTED CASH, CONTINUED
Deposit totaling $275,000 may be released annually beginning March 1, 1997
and each year thereafter provided that projected net operating income goals
are realized in each of the three operating seasons commencing in 1996. If
the Certificates of Deposit have not been released for any of the previous
years but the projected income goal for the current year is reached, the
Certificates of Deposit for the previous year and the current year shall be
released. If projected goals are not reached by year three, then the
certificates shall be released in any subsequent year that the third year
goal amount is reached.
(12) COMMITMENTS AND SUBSEQUENT EVENTS
Effective December 16, 1994 the Company entered into an agreement with a
consulting firm to provide to the Company certain promotional services for
the Company's fairs. The Company has agreed to pay commissions to the
consulting firm of 17.65% of the actual net billings by advertisers for
media placed pursuant to plans approved by the Company. The Company has
also agreed to pay $7,500 per month for the five year term of the
agreement. The Company has also granted an option to the consulting firm
to allow the firm to acquire a minimum of 66,000 and a maximum of 132,000
shares of the Company's common stock at $1.625 per share with the increase
depending on the results of the services performed by the consulting firm.
Effective October 1, 1994 the Company entered into a consulting agreement
with a company owned by a director of Renaissance Entertainment
Corporation. The Company has agreed to pay the consulting company $4,500
per month for twenty hours per month for services. Additional hours will
be compensated at $200 per hour. The term of the agreement continues until
December 31, 1996. Effective April 1, 1995 the Company agreed to pay
$4,000 per month for consulting services to a director of the Company which
expired effective December 31, 1995. The Company also has a consulting
agreement with another company that is owned by a director of the Company.
This agreement is for $75 per hour plus $300 per Board meeting and can be
terminated at any time.
On August 1, 1996, the Company entered into a one year agreement with a
consultant. The agreement provides that the Company pay the consultant a
fee equal to 5% of any debt or equity infusion to the Company initiated or
introduced to the Company
F-25
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(12) COMMITMENTS AND SUBSEQUENT EVENTS, CONTINUED
by the consultant. Additionally, the Company will pay the consultant a fee
equal to 5% of the total value of the merger or acquisition, including the
value of stock, cash and other assets of the merged entities.
Subsequent to December 31, 1996 the Company issued 54,738 shares of its
common stock as payment of the Company's liabilities.
During the year ended March 31, 1995 the Company adopted a non-qualified
deferred compensation plan for ten employees of the Company. Monthly
contributions to the plan total approximately $3,500. Beginning April 1,
1996 monthly contributions are approximately $1,152.
(13) STOCK SUBSCRIPTIONS RECEIVABLE
At December 31, 1996 the Company had stock subscriptions receivable in the
amount of $133,749 which was collected in full in January, 1997.
(14) SUBSEQUENT EVENTS
The Company incurred substantial losses from operations during 1995 and
1996 and incurred significant cost overruns in the construction of its
Virginia faire. As described in note 3, the Company has entered into loan
workout agreements with two banks which will require total bank principal
loan payments of $1,100,000 during 1997.
Subsequent to December 31, 1996, the Company raised $750,000 from an
officer of the Company and a related party through the issuance of
convertible debt and has commitments from investors for $600,000 of
convertible debt and additional equity capital. In order to reduce the
Company's working capital requirements, management has implemented a number
of cost reductions which it estimates will reduce the Company's operating
expenses by approximately $1,300,000 during the fiscal year ending December
31, 1997.
Management believes that the additional capital raised, plus the additional
capital to be received from investors, in conjunction with the reductions
in operating expenses are sufficient for the Company to be able to meet its
financial commitments in 1997.
F-26
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(14) SUBSEQUENT EVENTS, CONTINUED
The Company's lease for the site of its Northern California faire expires
April 30, 1997. While the Company believes that its lease for this site
will be renewed for the 1997 faire, there can be no assurance of such
renewal. If the lease is not renewed, it is doubtful that the Company
would conduct a faire in Northern California in 1997.
(15) FOURTH QUARTER ADJUSTMENTS
The Company recognized as expense in the nine-month period ended December
31, 1996, $450,000 of costs to be incurred in 1997, which costs are the
result of changing conditions at the Company's Northern California Faire
which became apparent to the Company in 1996. This adjustment, which was
made in the fourth quarter, was material to fourth quarter operation.
F-27
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(Unaudited)
ASSETS
September 30,
1997
-------------
Current Assets:
Cash and equivalents $ 375,222
Stock subscription receivable 133,749
Accounts receivable (net) 765,154
Inventory 171,529
Prepaid expenses and other 100,010
-------------
Total Current Assets 1,411,915
Property and equipment, net of accumulated depreciation 7,045,710
Covenant not to compete 29,999
Goodwill 582,819
Restricted cash 310,107
Other assets 255,715
-------------
TOTAL ASSETS $ 9,636,265
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 774,279
Notes payable, current portion 1,112,684
Unearned income 85,350
-------------
Total Current Liabilities 1,972,313
Notes payable, net of current portion, unrelated parties 1,748,365
Notes Payable, related parties 250,000
Other 51,322
-------------
Total Liabilities 4,022,000
-------------
Stockholders' Equity:
Common stock, $.03 par value, 50,000,000
shares authorized, 9,636,262 shares
issued and outstanding at September 30, 1997 289,088
Additional paid-in capital 9,038,098
Accumulated earnings (deficit) (3,712,921)
-------------
Total Stockholders' Equity 5,614,265
-------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 9,636,265
-------------
-------------
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
------------------------------
1997 1996
----------- -----------
REVENUE:
Sales $13,093,969 $13,241,878
Faire operating costs 4,268,379 4,391,103
----------- -----------
Gross Profit 8,825,590 8,850,775
----------- -----------
OPERATING EXPENSES:
Salaries 3,907,931 3,722,829
Depreciation and amortization 529,732 479,862
Goodwill Writedown -- 380,000
Advertising 1,990,324 2,450,985
Other operating expenses 2,825,251 3,249,490
----------- -----------
Total Operating Expenses 9,253,238 10,283,166
----------- -----------
Net Operating (Loss) Income (427,648) (1,432,391)
----------- -----------
Other Income (Expenses):
Interest income 44,263 58,871
Interest (expense) (295,275) (187,972)
Other income (expense) 258,935 (199,951)
----------- -----------
Total Other Income (Expenses) 7,923 (329,052)
----------- -----------
Net Income (Loss) before (Provision)
Credit for Income Taxes (419,725) (1,761,443)
(Provision) Credit for Income Taxes -- 239,273
----------- -----------
Net Income (Loss) to Common Stockholders $ (419,725) $(1,522,170)
----------- -----------
----------- -----------
Net Income (Loss) per Common Share $ (.04) $ (.17)
----------- -----------
----------- -----------
Weighted Average Number of Common
Shares Outstanding 9,574,197 8,813,137
----------- -----------
----------- -----------
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS
Nine Months ended
September 30,
--------------------------
1997 1996
----------- -----------
Cash Flows from Operating Activities:
Net income (Loss) $ (419,725) $(1,522,170)
----------- -----------
Adjustments to reconcile net income (Loss)
to net cash provided by operating activities:
Depreciation and amortization 529,732 859,862
Gain (loss) on disposal of assets 1,363 25,981
(Increase) decrease in:
Stock subscription receivable 133,749
Inventory 13,166 (91,783)
Receivables (665,603) (277,136)
Prepaid expenses and other (15,036) 89,095
Increase (decrease) in:
Accounts payable and accrued expenses (293,749) 1,143,478
Unearned revenue and other (61,091) 53,352
----------- -----------
Total adjustments (357,469) 1,802,849
----------- -----------
Net Cash Provided by Operating
Activities (777,193) 280,679
----------- -----------
Cash Flows from Investing Activities:
Investment in restricted cash 580,009 (26,182)
Acquisition of property and equipment (340,363) (2,678,888)
----------- -----------
Net Cash (Used in) Investing Activities 239,646 (2,705,070)
----------- -----------
Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 978,539 957,661
Proceeds from notes payable 1,350,000 3,092,628
Principal payments on notes payable (1,790,059) (751,541)
----------- -----------
Net Cash Provided by Financing Activities 538,480 3,298,748
----------- -----------
Net Increase (Decrease) in Cash 933 874,357
Cash, beginning of period 374,289 732,553
----------- -----------
Cash, end of period $ 375,222 $ 1,606,910
----------- -----------
----------- -----------
Interest paid $ 295,275 $ 187,972
----------- -----------
----------- -----------
Income tax paid $ 374 $ (239,273)
----------- -----------
----------- -----------
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION AND
CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
September 30, 1997 (Unaudited)
1. UNAUDITED STATEMENTS
The balance sheet as of September 30, 1997, the statements of operations
and the statements of cash flows for nine month periods ended September 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 September 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 (nine months ended September 30, 1997) was an
increase of approximately $292,950 over the amount that would have been
reported. The effect of this change on earnings per share of the current period
(nine months ended September 30, 1997) was a reduction in the loss per share of
approximately $.03 per share from the amount that would have been reported.
4. SUBSEQUENT EVENTS
During November 1997, the Company completed a sale and leaseback of its real
property in Wisconsin. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
F-31
<PAGE>
No dealer, salesman, Selling Shareholder or any other person has been
authorized to give any information or to make any representations other than
those contained in this Prospectus in connection with the offer made by this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or the solicitation of any offer to buy any
security other than the shares of the Common Stock offered by this Prospectus,
nor does it constitute an offer to sell or a solicitation of any offer to buy
the shares of Common Stock by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that information contained herein is correct as of any time subsequent to the
date hereof.
_______________
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Market for the Common Equity and Related Stockholder Matters . . . . . . . .10
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . .12
Management's Discussion and Analysis of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . .43
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-1
_______________
300,000 Shares
RENAISSANCE
ENTERTAINMENT
CORPORATION
--------
PROSPECTUS
--------
January , 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses of the Company in
connection with the sale and distribution of the Common Stock being
registered. All of the amounts shown are estimates, except for the Securities
and Exchange Commission registration fee.
Securities and Exchange Commission fee $ 40
Printing and Edgar expenses 1,000
Accounting fees and expenses 1,000
Legal fees and expenses 3,000
Miscellaneous 960
-------
TOTAL $6,000
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article VIII of the Company's Amended and Restated Articles of
Incorporation provides that the Company shall indemnify any director,
officer, employee or agent of the corporation made or threatened to be made a
party to a proceeding, by reason of the former or present official act of the
person, against judgments, penalties, fines, settlements and reasonable
expenses incurred by the person in connection with the proceeding if certain
standards are met.
Article XI of the Company's Amended and Restated Articles of
Incorporation eliminates certain personal liability of the directors of the
Company for monetary damages for certain breaches of director's fiduciary
duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
1. For unregistered sales of the Company's securities prior to
February 27, 1996, reference is made to Item 26 of the Company's
Registration Statement on Form SB-2 (No. 33-85538), declared effective
by the Commission on January 27, 1995, and the post-effective
amendments thereto.
2. During April 1997, the Company issued $350,000 principal amount
of its 10% Convertible Secured Notes to three investors. The Notes
were acquired for investment purposes and were issued without
registration under the Securities Act of 1933, in reliance upon
Section 4(2)
<PAGE>
thereof for offerings not involving a public offering of securities.
No underwriters were involved in such offering and no commissions were
paid for the solicitation of the investors. The Notes are convertible
into shares of the Company's Common Stock at the lesser of $1.75 per
share or 50% of the market price for such stock at the time of
conversion.
3. During May 1997, the Company issued $1,000,000 principal amount
of its 9% Convertible Debentures to three investors. The holders of
the Debentures were also granted warrants representing the right to
acquire 200,000 shares of the Company's common stock at a warrant
exercise price of the lesser of $3.00 per share or 70% of the market
price for such stock at the time of exercise of the warrants. The
securities were acquired for investment purposes and were issued
without registration under the Securities Act of 1933, in reliance
upon Section 4(2) thereof for offerings not involving a public
offering of securities. No underwriters were involved in such
offering and no commissions were paid for the solicitation of the
investors. The Debentures were convertible into shares of the
Company's common stock at the lesser of $4.50 per share or 70% of the
market price for such stock at the time of conversion. During
November 1997 the debenture were paid and the warrants were canceled.
4. During November 1997, the Company entered into a sale/lease back
transaction with respect to its Wisconsin faire site. In connection
with this transaction, the purchasers of the property were 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
$1.00 per share. The warrants were acquired for investment purposes
and were issued without registration under the Securities Act of 1933,
in reliance upon Section 4(2) thereof for offerings not involving a
public offering of securities. No underwriters were involved in such
offering and no commissions were paid for the solicitation of the
investor.
5. During November 1997, the Company entered into a Consulting and
Warrant Compensation Agreement with Wall Street Financial. Pursuant
to this agreement, the Company issued warrants to purchase up to
200,000 shares of the Company's common stock and agreed to issue an
additional 100,000 shares of common stock to Consultant in payment of
expenses. These securities were issued without registration under the
Securities Act of 1933, in reliance on Section 4(2).
<PAGE>
ITEM 16. EXHIBITS
Exhibit No Title
---------- -----
3.0(i) Amended and Restated Articles of Incorporation,
incorporated by reference from the Amendment No. 1
to Registrant's Registration Statement on Form 8-A
filed with the Commission on April 12, 1994.
3.0(ii) By-Laws, incorporated by reference from the Amendment
No. 1 to Registrant's Registration Statement on Form 8-A
filed with the Commission on April 12, 1994.
* 3.1 Articles of Amendment to the Articles of Incorporation.
4.1 Specimen Certificate of Common Stock, incorporated by
reference from the Amendment No. 1 to Registrant's
Registration Statement on Form 8-A filed with the
Commission on April 12, 1994.
* 4.2 Specimen Class A Warrant Certificate.
* 4.3 Specimen Class B Warrant Certificate.
* 4.4 Warrant Agreement.
* 4.15 Renaissance Entertainment Corporation 1993 Stock Incentive
Plan.
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A.--filed
with initial Registration Statement.
10.1 Employment Agreement with Howard Hamburg, incorporated by
reference from the Registrant's Current Report on Form 8-K
dated December 31, 1995.
10.2 Office Lease with Diana Wilkins dated August 15, 1996,
incorporated by reference from the Registrant's Annual
Report on Form 10-K for the nine months ended December 31,
1996.
* 10.3 Letter Agreement with Rob Geller dated July 19, 1994.
* 10.4 Specimen Vendor and Exhibitor Agreement for the Bristol
Renaissance Faire.
* 10.5 Specimen Vendor and Exhibitor Agreement for the Northern
and Southern Renaissance Pleasure Faires.
<PAGE>
* 10.6 Specimen Bristol Renaissance Faire Concession Agreement.
* 10.7 Specimen Bristol Renaissance Faire Games Concession
Agreement.
* 10.8 License Agreement and Lease with San Bernardino County for
the Southern Renaissance Pleasure Faire site.
* 10.9 Investment Banking Agreement with Duke & Co., Inc.
10.10 Lease Agreement between Creative Faires, Ltd. and Sterling
Forest Corporation dated June 12, 1996 incorporated by
reference from the Registrant's Annual Report on
Form 10-KSB for the year ended March 31, 1996.
* 10.11 Employment Agreement dated February 5, 1996 with Barbara
Hope.
* 10.12 Employment Agreement dated February 5, 1996 with Donald C.
Gaiti.
10.13 Mortgage with Union Bank & Trust in the amount of $1,500,000
with respect to the Virginia property, incorporated by
reference from the Registrant's Annual Report on Form 10-KSB
for the year ended March 31, 1996.
10.14 Subscription and Purchase Agreement for 9% Convertible
Debentures, incorporated herein by reference from the
Registrant's Registration Statement on Form S-1
(No. 333-26677) declared effective by the Commission in
October 30, 1997.
10.15 Consulting and Warrant Compensation Agreement dated
November 4, 1997 between the Company and Wall Street
Financial - filed with initial Registration Statement.
10.16 Supplemental Agreement & Subscription and Purchase
Agreement for 10% Convertible Secured Notes - filed
with initial Registration Statement.
10.17 Purchase Agreement dated November 12, 1997 between Faire
Partners, LLC and Renaissance Entertainment Corporation,
including Lease Agreement and Warrant to Purchase Common
Stock as exhibits thereto - filed with initial Registration
Statement.
21.0 Subsidiaries, incorporated by reference from the
Registrant's Annual Report on Form 10-KSB for the year
ended March 31, 1996.
23.1 Independent Auditor's Consent--filed herewith.
23.2 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A.--see
Exhibit 5.1.
24.1 Power of Attorney (included on signature page).
<PAGE>
* Incorporated by reference from the Company's Registration
Statement on Form SB-2, declared effective by the
Commission on January 27, 1995, and the post-Effective
amendments thereto.
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement : (i) to include
any prospectus required by Section 19(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination
of the offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant as discussed above, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boulder, State of Colorado, on January 19, 1998.
RENAISSANCE ENTERTAINMENT
CORPORATION.
By /s/Charles S. Leavell
---------------------------------
Charles S. Leavell
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 19th day of January,
1998, by the following persons in the capacities indicated:
<PAGE>
Signature Position
- --------- --------
/s/ Charles S. Leavell
- ------------------------- Director and Chairman of the Board and
Charles S. Leavell Chief Executive Officer
/s/ James R. McDonald
- ------------------------- Chief Financial Officer
James R. McDonald
/s/ Sue Brophy
- ------------------------- Chief Accounting Officer
Sue Brophy
/s/ Sanford L. Schwartz*
- ------------------------- Director
Sanford L. Schwartz
/s/ Robert M. Geller*
- ------------------------- Director
Robert M. Geller
/s/ Dean Petkanas*
- ------------------------- Director
Dean Petkanas
/s/ Charles J. Weber*
- ------------------------- Director
Charles J. Weber
* By Charles S. Leavell attorney-in-fact.
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
FORM S-1
INDEX TO EXHIBITS
Exhibit No Title
---------- -----
3.0(i) Amended and Restated Articles of Incorporation, incorporated by
reference from the Amendment No. 1 to Registrant's Registration
Statement on Form 8-A filed with the Commission on April 12,
1994.
3.0(ii) By-Laws, incorporated by reference from the Amendment No. 1 to
Registrant's Registration Statement on Form 8-A filed with the
Commission on April 12, 1994.
* 3.1 Articles of Amendment to the Articles of Incorporation.
4.1 Specimen Certificate of Common Stock, incorporated by reference
from the Amendment No. 1 to Registrant's Registration Statement
on Form 8-A filed with the Commission on April 12, 1994.
* 4.2 Specimen Class A Warrant Certificate.
* 4.3 Specimen Class B Warrant Certificate.
* 4.4 Warrant Agreement.
* 4.15 Renaissance Entertainment Corporation 1993 Stock Incentive Plan.
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A.--filed
with initial Registration Statement.
10.1 Employment Agreement with Howard Hamburg, incorporated by
reference from the Registrant's Current Report on Form 8-K
dated December 31, 1995.
10.2 Office Lease with Diana Wilkins dated August 15, 1996,
incorporated by reference from the Registrant's Annual
Report on Form 10-K for the nine months ended December 31,
1996.
* 10.3 Letter Agreement with Rob Geller dated July 19, 1994.
* 10.4 Specimen Vendor and Exhibitor Agreement for the Bristol
Renaissance Faire.
* 10.5 Specimen Vendor and Exhibitor Agreement for the Northern and
Southern Renaissance Pleasure Faires.
* 10.6 Specimen Bristol Renaissance Faire Concession Agreement.
* 10.7 Specimen Bristol Renaissance Faire Games Concession Agreement.
* 10.8 License Agreement and Lease with San Bernardino County for the
Southern Renaissance Pleasure Faire site.
* 10.9 Investment Banking Agreement with Duke & Co., Inc.
10.10 Lease Agreement between Creative Faires, Ltd. and Sterling Forest
Corporation dated June 12, 1996 incorporated by reference from
the Registrant's Annual Report on Form 10-KSB for the year ended
March 31, 1996.
* 10.11 Employment Agreement dated February 5, 1996 with Barbara Hope.
* 10.12 Employment Agreement dated February 5, 1996 with Donald C. Gaiti.
10.13 Mortgage with Union Bank & Trust in the amount of $1,500,000 with
respect to the Virginia property, incorporated by reference from
the Registrant's Annual Report on Form 10-KSB for the year ended
March 31, 1996.
10.14 Subscription and Purchase Agreement for 9% Convertible
Debentures, incorporated herein by reference from the
Registrant's Registration Statement on Form S-1 (No. 333-26677)
declared effective by the Commission in October 30, 1997.
10.15 Consulting and Warrant Compensation Agreement dated November 4,
1997 between the Company and Wall Street Financial - filed
with initial Registration Statement.
10.16 Supplemental Agreement & Subscription and Purchase Agreement for
10% Convertible Secured Notes - filed with initial Registration
Statement.
10.17 Purchase Agreement dated November 12, 1997 between Faire
Partners, LLC and Renaissance Entertainment Corporation,
including Lease Agreement and Warrant to Purchase Common Stock
as exhibits thereto - filed with initial Registration Statement.
21.0 Subsidiaries, incorporated by reference from the Registrant's
Annual Report on Form 10-KSB for the year ended March 31, 1996.
23.1 Independent Auditor's Consent--filed herewith.
23.2 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A.--see Exhibit
5.1.
24.1 Power of Attorney (included on signature page of initial
Registration Statement).
* Incorporated by reference from the Company's Registration
Statement on Form SB-2, declared effective by the Commission
on January 27, 1995, and the post-Effective amendments thereto.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the use of our report dated March 31, 1997,
accompanying the consolidated financial statements of Renaissance Entertainment
Corporation as of March 31, 1996 and December 31, 1996 and for the periods
ended March 31, 1995, March 31, 1996, and December 31, 1996 included in the
Company's Registration Statement on Form S-1 and to the reference made to our
firm under the caption "Experts" in the Registration Statement.
Schumacher & Associates, Inc.
January 19, 1998
