<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1999
or
[ ] Transition Report Pursuance to Section 13 or 15(d) of the Securities
Exchange act of 1934.
For the transition period from _______ to _______
Commission File Number 0-23782
RENAISSANCE ENTERTAINMENT CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1094630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
275 Century Circle, Suite 102, Louisville, Colorado 80027
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(Address of principal executive offices) (Zip Code)
(303) 664-0300
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(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former Address)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 4, 1999, Registrant had 2,144,889 shares of common stock, $.03
Par Value, outstanding.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998 3
Statements of Operations for the Three Months
Ended June 30, 1999 and 1998
(Unaudited) 4
Statements of Operations for the Six Months
Ended June 30, 1999 and 1998
(Unaudited) 5
Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998
(Unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION 15
</TABLE>
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of
the Securities Act of 1933, as amended, and is subject to the safe harbors
created by those sections. These forward-looking statements are subject to
significant risks and uncertainties, including those identified in the
section of this Form 10-QSB entitled "Factors That May Affect Future
Operating Results," which may cause actual results to differ materially from
those discussed in such forward-looking statements. The forward-looking
statements within this Form 10-QSB are identified by words such as
"believes," "anticipates," "expects," "intends," "may," "will" and other
similar expressions. However, these words are not the exclusive means of
identifying such statements. In addition, any statements which refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or
circumstances occurring subsequent to the filing of this Form 10-QSB with the
Securities and Exchange Commission ("SEC"). Readers are urged to carefully
review and consider the various disclosures made by the Company in this
report and in the Company's other reports filed with the SEC that attempt to
advise interested parties of the risks and factors that may affect the
Company's business.
2
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RENAISSANCE ENTERTAINMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 904,862 $ 379,336
Accounts receivable (net) 26,771 18,509
Inventory 292,382 136,179
Prepaid expenses and other 822,527 237,021
------------ ------------
Total Current Assets 2,046,542 771,045
Property and equipment, net of accumulated depreciation 6,681,718 6,610,466
Covenant not to compete 0 4,996
Goodwill 494,136 519,474
Other assets 947,748 900,828
------------ ------------
TOTAL ASSETS $ 10,170,144 $ 8,806,809
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,625,520 $ 604,434
Notes payable, current portion 741,133 153,327
Unearned income 571,254 161,010
------------ ------------
Total Current Liabilities 2,937,907 918,771
Lease obligation payable 3,959,488 3,942,359
Notes payable, net of current portion 826,302 477,853
Other 39,525 38,525
------------ ------------
Total Liabilities 7,763,222 5,377,508
------------ ------------
Stockholders' Equity:
Common stock, $.03 par value, 50,000,000 shares authorized,
2,144,889 and 2,139,891 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively 64,346 64,196
Additional paid-in capital 9,430,827 9,428,477
Accumulated earnings (deficit) (7,088,251) (6,063,372)
------------ ------------
Total Stockholders' Equity 2,406,922 3,429,301
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,170,144 $ 8,806,809
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
REVENUE:
Sales $ 5,328,091 $ 5,152,757
Faire operating costs 1,862,105 1,743,549
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Gross Profit 3,465,986 3,409,208
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OPERATING EXPENSES:
Salaries 1,447,214 1,216,104
Depreciation and amortization 129,923 142,022
Advertising 662,910 645,911
Other operating expenses 814,823 728,363
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Total Operating Expenses 3,054,870 2,732,400
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Net Operating (Loss) Income 411,116 676,808
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Other Income (Expenses):
Interest income 13,524 16,253
Interest (expense) (171,934) (217,406)
Other income (expense) 24,198 8,351
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Total Other Income (Expenses) (134,212) (192,802)
------------- -------------
Net Income (Loss) before (Provision)
Credit for Income Taxes 276,904 484,006
(Provision) Credit for Income Taxes -- --
------------- -------------
Net Income (Loss) to Common Stockholders $ 276,904 $ 484,006
------------- -------------
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Net Income (Loss) per Common Share $ .13 $ .23
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Weighted Average Number of Common Shares Outstanding 2,144,889 2,104,181
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</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------------
1999 1998
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<S> <C> <C>
REVENUE:
Sales $ 5,332,412 $ 5,201,869
Faire operating costs 1,863,365 1,738,559
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Gross Profit 3,469,047 3,463,310
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OPERATING EXPENSES:
Salaries 2,015,434 1,936,178
Depreciation and amortization 259,641 283,164
Advertising 662,910 659,714
Other operating expenses 1,293,933 1,354,167
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Total Operating Expenses 4,231,918 4,233,223
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Net Operating (Loss) Income (762,871) (769,913)
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Other Income (Expenses):
Interest income 22,344 34,801
Interest (expense) (317,001) (362,398)
Other income (expense) 32,653 87,233
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Total Other Income (Expenses) (262,004) (240,364)
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Net Income (Loss) before (Provision)
Credit for Income Taxes (1,024,875) (1,010,277)
(Provision) Credit for Income Taxes -- --
------------- -------------
Net Income (Loss) to Common Stockholders' $ (1,024,875) $ (1,010,277)
------------- -------------
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Net Income (Loss) per Common Share $ (.48) $ (.48)
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Weighted Average Number of Common Shares Outstanding 2,143,542 2,085,954
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</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months ended
June 30
-------------------------------
1999 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income (Loss) $ (1,024,875) $ (1,010,277)
------------- -------------
Adjustments to reconcile net income (Loss)
to net cash provided by operating
activities:
Depreciation and amortization 259,641 283,164
Gain (loss) on disposal of assets 2,141 (4,794)
(Increase) decrease in:
Accounts Receivable (8,262) (72,597)
Inventory (156,203) (60,390)
Prepaid expenses and other (637,266) (217,940)
Increase (decrease) in:
Accounts payable and accrued expenses 1,021,086 501,091
Unearned revenue and other 411,244 294,467
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Total adjustments 892,381 723,001
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Net Cash Provided by Operating Activities (132,494) (287,276)
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Cash Flows from Investing Activities:
Investment in restricted cash 0 (9,167)
Acquisition of property and equipment (297,862) (118,901)
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Net Cash (Used in) Investing Activities (297,862) (128,068)
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Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 2,500 58,623
Proceeds from notes payable 1,015,571 508,683
Principal payments on notes payable (62,189) (43,135)
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Net Cash Provided by Financing Activities 955,882 524,171
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Net Increase (Decrease) in Cash 525,526 108,827
Cash, beginning of period 379,336 590,022
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Cash, end of period $ 904,862 $ 698,849
------------- -------------
------------- -------------
Interest paid $ 317,001 $ 362,398
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</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
1. UNAUDITED STATEMENTS
The balance sheet as of June 30, 1999, the statements of operations
for the three month and six month periods ended June 30, 1999 and 1998
and the statements of cash flows for the six month periods ending June
30, 1999 and 1998, have been prepared by the Company without audit. In
the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in financial position at
June 30, 1999 and for all periods presented, have been made.
These statements should be read in conjunction with the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998,
filed with the Securities and Exchange Commission.
2. CALCULATION OF EARNINGS (LOSS) PER SHARE
The earnings (loss) per share is calculated by dividing the net income
(loss) to common stockholders by the weighted average number of common
shares outstanding.
3. SHORT-TERM NOTES; SUBSEQUENT EVENT
During the first four months of fiscal 1999 the Company raised
$500,000 of short-term capital. These funds were provided by Charles S.
Leavell ($100,000), Chairman of the Board of Directors, two directors
and two officers of the Company (an aggregate of $225,000) and three
other investors. The loans provide interest at 4.5% per quarter and are
secured by existing monies and future revenues from the Company's
Faires. The investors also were granted a five-year warrant to purchase
one share of common stock for each $5.00 loaned to the Company at an
exercise price equal to the average closing bid price for the Company's
common stock for the five business days immediately preceding the
closing of each loan. Although these loans were scheduled to mature
August 31, 1999, they were retired during July, 1999.
During March of 1999, the Company secured a second mortgage on its
Virginia real estate. The total amount of the loan is $750,000, of
which $500,000 was funded at closing and $250,000 was funded in July,
1999. This loan is secured by a Second Deed of Trust on the Virginia
property. This loan allows interest at 13% per annum. Payments are
interest only 4/1/99 through 6/1/99; principal and interest on a 5-year
amortization of the amount of debt remaining unpaid on 6/1/99 from
7/1/99 through 1/1/2000; interest only 2/1/2000 through 6/1/2000;
principal and interest on a 5-year amortization of the amount of debt
remaining unpaid on 6/1/2000 from 7/1/2000 through 11/1/2000; and
remaining principal and interest is due in full on 12/31/2000. The
investor also was granted an option to purchase one share of the
Company's common stock for each $10.00 loaned to the Company at an
exercise price of $0.81 per share. These options expire on the earlier
of 12/31/2005 or the third anniversary of the payment in full of the
loan.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the Company's
Financial Statements, including the footnotes for the fiscal period ended
December 31, 1998. On June 21, 1996, the Company changed its fiscal year end
from March 31 to December 31.
The Company operates five Renaissance Faires in the United States. The
Company's newest Faire opened on May 4, 1996 in Fredericksburg, Virginia, a
project that was designed and constructed by the Company. On February 5,
1996, the Company acquired Creative Faires, Ltd., the owner and operator of
the New York Renaissance Faire. The Renaissance Faire is a re-creation of a
Renaissance village, a fantasy experience transporting the visitor back into
sixteenth century England.
Although the Company was profitable in its fiscal year ended March 31, 1995,
it incurred a net loss of ($1,273,671) in the fiscal year ended March 31,
1996, a net loss of ($1,851,725) for the nine months ended December 31, 1996,
a net loss of ($2,567,097) for the fiscal year ended December 31, 1997, a net
loss of ($203,080) for the fiscal year ended December 31, 1998 and a net loss
of ($1,024,875) for the six months ended June 30, 1999. The Virginia Faire
has operated at a decreasing loss since opening in 1996. It is typical for a
new faire such as the Virginia Faire to operate at a loss for two or more
years until it is able to build a significant customer base and awareness of
the faire. Although the New York Faire operated at a loss in 1996 and 1997 it
was profitable in 1998. In 1997 the Company hired a new manager for this
Faire, introduced several new entertainment acts and implemented additional
promotional efforts. These changes were key in returning this faire to a
profitable status.
While the Company has a temporary lease to operate the Northern California
Faire in Vacaville California, it has not secured a lease beyond the 1999
operating season. Although the Company is currently negotiating a long-term
location for the Northern California Faire there can be no assurance that the
Company will be able to secure a new site for the faire for the 2000 or
following faire seasons. Should the Company be unable to operate a Northern
Renaissance Faire it could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company is also
negotiating with the owner of the Southern California Faire site for a
long-term lease for this site. The ability to enter into a long-term lease
for this site would increase its value to the Company, as the Company could
construct structures on the site and significantly reduce setup costs for the
Faire.
The Company had a working capital deficit of ($891,365) as of June 30, 1999.
During the first seven months of fiscal 1999, the Company obtained $500,000
of additional capital through short-term loans and $750,000 by obtaining a
second mortgage on the Virginia property. While the Company believes that it
has adequate capital to fund anticipated operations for the balance of 1999,
it believes it must obtain additional capital for future fiscal periods. See
"LIQUIDITY AND CAPITAL RESOURCES."
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999, COMPARED TO THREE
MONTHS ENDED JUNE 30, 1998
8
<PAGE>
Revenues increased $175,334 or 3% from $5,152,757 in 1998 to $5,328,091 in
1999. The Company's Southern California and Virginia Faire's experienced an
increase in gross attendance for the 1999 operating seasons of 1% and 14%
respectively. However, during the first month of the third quarter of 1999
attendance has been significantly lower at the Kenosha Wisconsin Faire due to
hot weather. If weather conditions do not improve it could have a material
adverse effect on the Company's results of operations in 1999.
Operating expenses (year-round operating costs and corporate overhead)
increased $322,470 or 12%, from $2,732,400 in 1998 to $3,054,870 in 1999.
Of the operating expenses, salaries increased 19%, from $1,216,104 in 1998 to
$1,447,214 in 1999 reflecting a $231,110 increase for the 1999 period as
compared to the 1998 period. Of this increase, $101,284 reflects a timing
difference in the recognition of certain expenses that in the 1998 period had
been recognized in the first quarter. The balance reflects an increase in
personnel expense for the period.
Advertising expense showed a nominal increase of $16,999 or 3%, from $645,911
in 1998 to $662,910 in 1999.
Depreciation and amortization decreased 9%, from $142,022 in 1998 to $129,923
in 1999. This decrease is primarily the result of the Company's use of
accelerated methods of depreciation.
Other operating expenses (all other general and administrative expenses of
the Company) increased $86,460 or 12%, from $728,363 in 1998 to $814,823 in
1999. Of this increase, $127,816 reflects a timing difference in the
recognition of certain expenses that in the 1998 period had been recognized
in the first quarter. The balance reflects a decrease of $41,356 in overall
spending in this category.
As a result of the foregoing, net operating income (before interest charges
and other income) decreased 39% from $676,808 for the 1998 period to $411,116
for the 1999 period.
A 21% decrease in interest expense from $217,406 in 1998 to $171,934 in 1999
resulted from the Company's ability to raise less expensive capital.
Other income increased $15,847, from $8,351 in 1998 to $24,198 in 1999. This
line item is a collection of income and expense items that do not
specifically relate to the general operations of the business in the current
period. These items are variable and often non-recurring events.
Combining net operating income with other income/expense resulted in a
$207,102 decrease in net income before taxes, from income of $484,006 for the
1998 period to an income of $276,904 for the 1999 period.
Net income to common stockholders also decreased $207,102, from $484,006 for
the 1998 period to $276,904 for the 1999 period. Finally, net income per
common share decreased from $.23 for the 1998 period to $.13 for the 1999
period, based on 2,104,181 weighted average shares outstanding during the
1998 period and 2,144,889 weighted average shares outstanding during the 1999
period.
9
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1998
Revenues increased $130,543 or 3% from $5,201,869 in 1998 to $5,332,412 in
1999. The Company's Southern California and Virginia Faire's experienced an
increase in gross attendance for the 1999 operating seasons of 1% and 14%
respectively. However, during the first month of the third quarter of 1999
attendance was significantly lower at the Kenosha Wisconsin Faire due to hot
weather. If weather conditions do not improve it could have a material
adverse effect on the Company's results of operations in 1999.
Operating expenses (year-round operating costs and corporate overhead)
decreased $1,305 or .3%, from $4,233,223 in 1998 to $4,231,918 in 1999.
Of the operating expenses, salaries increased 4%, from $1,936,178 in 1998 to
$2,015,434 in 1999, reflecting a marginal increase in personnel expense.
Advertising expense showed a nominal increase of $3,196 or .5%, from $659,714
in 1998 to $662,910 in 1999.
Depreciation and amortization decreased 8%, from $283,164 in 1998 to $259,641
in 1999. This decrease is primarily the result of the Company's use of
accelerated methods of depreciation.
Other operating expenses (all other general and administrative expenses of
the Company) decreased $60,234 or 4%, from $1,354,167 in 1998 to $1,293,933
in 1999. This decrease is due to management's continuing implementation of a
variety of cost saving measures.
As a result of the foregoing, net operating loss (before interest charges and
other income) decreased $7,042 from a loss of ($769,913) for the 1998 period
to a loss of ($762,871) for the 1999 period.
A 13% decrease in interest expense from $362,398 in 1998 to $317,001 in 1999
resulted from the Company's ability to raise less expensive capital.
Other income decreased $54,580 from $87,233 in 1998 to $32,653 in 1999. This
line item is a collection of income and expense items that do not
specifically relate to the general operations of the business in the current
period. These items are variable and often non-recurring events such as the
receipt of monies for an easement and a lease cancellation in 1998. For the
six-months ended June 30, 1999 other income is largely comprised of amounts
collected from the Company's credit card program and billboard rentals.
Combining net operating income with other income/expense resulted in a
$14,598 decrease in net income before taxes, from a loss of ($1,010,277) for
the 1998 period to a loss of ($1,024,875) for the 1999 period.
Net income to common stockholders decreased $14,598, from a loss of
($1,010,277) for the 1998 period to a loss of ($1,024,875) for the 1999
period. Finally, net income per common share held at a loss of ($.48) for the
1998 and the 1999 periods, based on 2,085,954 weighted average shares
outstanding during the 1998 period and 2,143,542 weighted average shares
outstanding during the 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
10
<PAGE>
The Company's working capital deficit increased $743,639 during the six
months ended June 30, 1999, from ($147,726) at December 31, 1998 to
($891,365) at June 30, 1999. The Company's working capital requirements are
greatest during the period from January 1 through May 1, when it is incurring
start-up expenses for its first Faires of the Faire season, the Southern
California and Virginia Faires. During the first four months of fiscal 1999
the Company raised $500,000 of short-term capital. These funds were provided
by Charles S. Leavell ($100,000), Chairman of the Board of Directors, two
directors and two officers of the Company (an aggregate of $225,000) and
three other investors. The loans provide for interest at 4.5% per quarter and
are secured by existing monies and future revenues from the Company's Faires.
The investors also were granted a five-year warrant to purchase one share of
common stock for each $5.00 loaned to the Company at an exercise price equal
to the average closing bid price for the Company's common stock for the five
business days immediately preceding the closing of each loan. These loans
were retired during July 1999.
During March of 1999, the Company secured a second mortgage on its Virginia
real estate. The total amount of the loan is $750,000, of which $500,000 was
funded at closing and $250,000 was funded in July, 1999. This loan is secured
by a Second Deed of Trust on the Virginia property. This loan allows interest
at 13% per annum. Payments are interest only 4/1/99 through 6/1/99; principal
and interest on a 5-year amortization of the amount of debt remaining unpaid
on 6/1/99 from 7/1/99 through 1/1/2000; interest only 2/1/2000 through
6/1/2000; principal and interest on a 5-year amortization of the amount of
debt remaining unpaid on 6/1/2000 from 7/1/2000 through 11/1/2000; and
remaining principal and interest is due in full on 12/31/2000. The investor
also was granted an option to purchase one share of the Company's common
stock for each $10.00 loaned to the Company at an exercise price of $0.81 per
share. These options expire on the earlier of 12/31/2005 or the third
anniversary of the payment in full of the loan.
While the Company believes it has adequate capital to fund anticipated
operations for fiscal 1999, it believes it must obtain additional working
capital for future periods.
Reviewing the change in financial position over the quarter, current assets,
largely comprised of cash and prepaid expenses, increased from $771,045 at
December 31, 1998 to $2,046,542 at June 30, 1999, an increase of $1,275,497
or 165%. Of these amounts, cash and cash equivalents increased from $379,336
at December 31, 1998 to $904,862 at June 30, 1999. Accounts receivable
increased from $18,509 at December 31, 1998 to $26,771 at June 30, 1999.
Prepaid expenses (expenses incurred on behalf of the faires) increased from
$237,021 at December 31, 1998 to $822,527 at June 30, 1999. These costs are
expensed once the Faires are operating.
Current liabilities increased from $918,771 at December 31, 1998, to
$2,937,907 at June 30, 1999, an increase of $2,019,136 or 220%. This change
is due to an increase during the six-month period in accounts payable and
accrued expenses of $1,021,086 as a result of the Company's decision to defer
payments of trade payables. Unearned income, which consists of the sale of
admission tickets to upcoming faires, and deposits received from vendors for
future faires, increased from $161,010 at December 31, 1998 to $571,254 at
June 30, 1999. The Company increased indebtedness during the six-month period
in the amount of $953,384. Of the capital raised during the first six months
of 1999, approximately $584,158 is short-term financing. This debt was
incurred to cover the Company's operating expenses prior to the opening of
the 1999 faire season.
11
<PAGE>
Stockholders' Equity decreased from $3,429,301 at December 31, 1998 to
$2,406,922 at June 30, 1999, a decrease of $1,022,379 or 30%. This decrease
is due primarily to the net loss incurred during the six-month period.
Although inflation can potentially have an effect on financial results,
during 1998 and the first six-months of fiscal 1999 it caused no material
affect on the Company's operations, since the change in prices charged by the
Company and by Company's vendors has not been significant.
The Company has no significant commitment for capital expenses during the
fiscal year ending December 31, 1999.
INFORMATION SYSTEMS AND THE YEAR 2000 ISSUE
The Company has completed an analysis of the effect of Year 2000 issues on
its operations. As a result of this analysis it is believed that these
effects should not have a material affect on the Company. The Company has
determined that critical computer hardware, including personal computers and
network server equipment are compliant. Software used by the Company in its
accounting and payroll function has been warranted by the manufacturers to be
compliant.
The Company does not rely heavily on any specific vendor or group of vendors
and therefore believes that exposure in this area is minimal. Even so, there
can be no assurance that the systems of other companies that interact with
the Company will be sufficiently Year 2000 compliant so as to avoid an
adverse impact on the Company's operations, financial condition and results
of operation. In addition the Company may be adversely affected by potential
interruptions of utility, communications or transportation systems as a
result of Year 2000 issues.
The Company does not open its first Renaissance Faire until approximately May
of each year. Although there is an approximate two month pre-faire gear-up
period, it is believed that any difficulties encountered as a result of Year
2000 could be resolved before impacting the Company's operations.
The Company does not presently anticipate that the costs to address the Year
2000 issue will have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information contained in this report, prospective
investors should carefully consider the following factors in evaluating the
Company and its business.
RECENT LOSSES. The Company has incurred substantial operating losses
since fiscal 1995. In addition, although significantly lower than previous
years, the Company incurred a loss in fiscal 1998. There is no assurance that
the Company will return to profitability in any subsequent period. The New
York and Virginia Faires each operated at a loss during 1996 and 1997. As of
June 30, 1999, the Virginia Faire operated at a significantly lower loss, 33%
less as compared to the same period in 1998. The New York Faire operated at a
profit in 1998. If the performance of the Virginia Faire does not continue to
improve, the Company's ability to achieve and sustain profitability in
subsequent periods will be adversely affected.
NEED FOR ADDITIONAL CAPITAL. The Company had a working capital
deficit of ($891,365) as of June 30, 1999. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
12
<PAGE>
OF OPERATIONS." While the Company believes that it has adequate capital to
fund anticipated operations for the balance of fiscal year 1999, it will need
additional capital to sustain operations after that time. Additional capital
may be sought through borrowings or from additional equity financing. Such
additional equity financing may result in additional dilution to investors.
In any case, there can be no assurance that any additional capital can be
satisfactorily obtained if and when required.
POSSIBLE SUSPENSION OF NORTHERN CALIFORNIA FAIRE. Historically, the
Company has operated its Northern California Faire during the fall of each
year at a site in Novato, California. While the Company had a lease for this
site in 1998, it was known that the owners of the property were seeking to
develop the land. Subsequent to the conclusion of the 1998 season, the
Company moved its Northern California operations from this location. The
Company has obtained a temporary lease to operate the Faire in Vacaville,
California in 1999. The Company has also obtained a long-term lease, subject
to certain contingencies, for a permanent site for this Faire. The lease is
contingent upon the Company obtaining the necessary permits to operate the
Faire and the lessor closing on the purchase of the property. It is uncertain
if the contingencies will be satisfied and that the Company will be
successful in completing this lease in time for the 2000 faire season. Should
the Company be unable to operate a Northern Renaissance Faire at the proposed
new site or another temporary site in 2000, it could have a material adverse
effect on the Company's business, results of operations and financial
condition. The Company estimates that it could be required to spend from
$500,000 to $750,000 for construction of structures prior to the opening of
the Faire at a permanent site. Should the chosen site require development of
an infrastructure, water, electricity, etc., the cost to the Company could
increase substantially.
POSSIBLE RELOCATION OF SOUTHERN CALIFORNIA FAIRE. Since April 1994,
the Company has operated its Southern California Faire in Devore, California.
The Company has not secured a lease for this site in 2000. The Company is
currently negotiating with the owners of the Devore property regarding both
short and long-term use of this property. The Company believes that it either
needs to obtain a long-term lease for the current site or relocate the Faire
to another site for which a long-term lease would be available. This would
allow the Company to construct permanent structures on the site and
significantly reduce setup costs for this Faire. As of the date of this
report, the Company has not entered into a long-term lease for the current
site and there can be no assurance that it will be able to do so.
COMPETITION. The Company faces significant competition from numerous
organizations throughout the country which offer Renaissance Faires and other
entertainment events, including amusement parks, theme parks, local and
county fairs and festivals, some of which possess significantly greater
resources than the Company, and in many cases, greater expertise and industry
contacts. The Company estimates that there are approximately 20 major
Renaissance Faires produced each year. In addition, the Company estimates
that there are 100 minor Renaissance Faire events held throughout the United
States each year, ranging in duration from one day to two weekends.
LACK OF TRADEMARK PROTECTION. Because of the large number of
existing Renaissance Faires, the Company is not able to rely upon trademark
or service mark protection for the name "Renaissance Faire." As a result,
there is no protection against others using the name "Renaissance Faire" for
the production of entertainment events similar to those produced by the
Company. The Company's own Faires could be negatively impacted by association
with substandard productions.
13
<PAGE>
PUBLIC LIABILITY AND INSURANCE. As a producer of a public
entertainment event, the Company has exposure for claims of personal injury
and property damage suffered by visitors to the Faires. To date, the Company
has experienced only minimal claims, which it has been able to resolve
without litigation. The Company maintains comprehensive liability insurance
which it considers to be adequate against this risk; however, there can be no
assurance that a catastrophic event or claim which could result in damage or
liability in excess of this coverage will not occur.
DEPENDENCE UPON VENDORS. A substantial portion of the Company's
revenues generated at each Faire is derived from arrangements that the
Company has with vendors who construct elaborate booths at the Faires and
sell a variety of food, crafts and souvenirs. This arrangement consists of
either a fixed rental paid by the vendors to the Company, or a percent of
revenues. In either case, the success of a Faire is dependent upon the
Company's ability to attract responsible vendors who sell high quality goods.
SEASONALITY. The Company's Renaissance Faires are located in
traditionally seasonal areas which attract the greatest number of visitors
during the warm weather months in the spring, summer, and early fall. Unless
the Company acquires or develops additional Faire sites in areas which are
counter-seasonal to the present sites located in temperate climates, the
Company's revenues and income will be highly concentrated in the six months
ended October 31st of each year.
DEPENDENCE UPON WEATHER. Each Renaissance Faire operated by the
Company is scheduled for a finite period, typically consecutive weekends
during a seven to nine-week period, which are determined substantially in
advance in order to facilitate advertising and other promotional efforts. The
success of each Faire is directly dependent upon public attendance, which is
directly affected by weather conditions. While each of the Company's Faires
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. Further, as the Renaissance Faires are outdoor events, they are
vulnerable to severe weather conditions that can cause damage to the Faire's
infrastructure and buildings, as well as injuries to patrons and employees.
Risks associated with the weather are beyond anyone's control, but have a
direct and material impact upon the relative success or failure of a given
Faire.
LICENSING AND OTHER GOVERNMENTAL REGULATION. For each Faire operated
by the Company, it is necessary for the Company to apply for and obtain
permits and other licenses from local governmental authorities controlling
the conduct of the Faire, service of alcoholic beverages, service of food,
health, sanitation, and other matters at the Faire sites. Each governmental
jurisdiction has its own regulatory requirements which can impose
unforeseeable delays or impediments in preparing for a Faire production.
While the Company has been able to obtain all necessary permits and licenses
in the past, there can be no assurance that future changes in governmental
regulation or the adoption of more stringent requirements may not have a
material adverse impact upon the Company's future operations.
FAIRE SITES. While the Company has a temporary lease to operate the
Northern California Faire in Vacaville California, it has not secured a lease
beyond the 1999 operating season. Although the Company is currently
negotiating a long-term location for the Northern California Faire there can
be no assurance that the Company will be able to secure a new site for the
faire for the 2000 or following faire seasons. The Southern California Faire,
Bristol Renaissance Faire, and the New York Faire are all operated on leased
sites. It is expected that future Faires that may be developed by the
Company, if any, will also be presented on leased sites. The terms and
conditions of each lease will vary by location, and to a large extent, are
beyond the control of the Company. Further, there
14
<PAGE>
can be no assurance that the Company will be able to continue to lease
existing Faire sites on terms acceptable to the Company, or be successful in
obtaining other sites on favorable locations. The Company's dependence upon
leasing Faire sites creates a substantial risk of fluctuation in the
Company's operations from year to year.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
See Note 3 of the Notes to the Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations for information regarding issuance
of short-term notes and a second mortgage on the Virginia
property which include the granting of warrants representing
the right to acquire 175,000 shares of the Company's common
stock. These securities were issued without registration under
the Securities Act of 1933 in reliance upon Section 4(2) of
the Act. No underwriters were involved in the issuance of
these securities.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company was not required to file a report on Form 8-K
during the six-months ended June 30, 1999.
Exhibit 27. Financial Data Schedule
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RENAISSANCE ENTERTAINMENT CORPORATION
Dated: August 11, 1999 /s/ Charles S. Leavell
------------------------------
Charles S. Leavell, Chief Executive and
Chief Financial Officer
/s/ Sue E. Brophy
------------------------------
Sue E. Brophy, Chief Accounting Officer
16
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