<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 September 30, 1999
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or
[ ] Transition Report Pursuance to Section 13 or 15(d) of the Securities
Exchange act of 1934.
For the transition period from to
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Commission File Number 0-23782
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)
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(Former Address)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 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 September 30, 1999 (Unaudited)
and December 31, 1998 3
Statements of Operations for the Three Months
Ended September 30, 1999 and 1998
(Unaudited) 4
Statements of Operations for the Nine Months
Ended September 30, 1999 and 1998
(Unaudited) 5
Statements of Cash Flows for the Nine Months
Ended September 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 16
</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.
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 1,296,237 $ 379,336
Accounts receivable (net) 107,136 18,509
Inventory 297,486 136,179
Prepaid expenses and other 1,009,582 237,021
------------------------------------------
TOTAL CURRENT ASSETS 2,710,441 771,045
Property and equipment, net of accumulated depreciation 6,556,882 6,610,466
Covenant not to compete 0 4,996
Goodwill 481,467 519,474
Other assets 968,708 900,828
------------------------------------------
TOTAL ASSETS $ 10,717,498 $ 8,806,809
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,684,613 $ 604,434
Notes payable, current portion 243,772 153,327
Unearned income 180,701 161,010
------------------------------------------
TOTAL CURRENT LIABILITIES 2,109,086 918,771
Lease obligation payable 3,969,609 3,942,359
Note payable, net of current portion 998,123 477,853
Other 40,022 38,525
------------------------------------------
TOTAL LIABILITIES 7,116,840 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 September 30, 1999 and December 31, 1998 respectively 64,346 64,196
Additional paid-in capital 9,430,827 9,428,477
Accumulated earnings (deficit) (5,894,515) (6,063,372)
------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 3,600,658 3,429,301
------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,717,498 $ 8,806,809
==========================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
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1999 1998
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<S> <C> <C>
REVENUE:
Sales $ 7,232,739 $9,350,396
Faire operating costs 2,224,208 2,629,512
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Gross Profit 5,008,531 6,720,884
------------------------------------------
OPERATING EXPENSES:
Salaries 1,543,476 1,703,400
Depreciation and amortization 139,157 148,045
Advertising 812,347 1,111,784
Other operating expenses 1,226,490 1,495,732
------------------------------------------
Total Operating Expenses 3,721,470 4,458,961
------------------------------------------
Net Operating (Loss) Income 1,287,061 2,261,923
------------------------------------------
Other Income (Expenses):
Interest income 16,441 23,243
Interest (expense) (151,382) (149,971)
Other income(expense) 41,613 7,700
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Total Other (93,328) (119,028)
------------------------------------------
Net Income (Loss) before (Provision) 1,193,733 2,142,895
Credit for Income Taxes
(Provision) Credit for Income Taxes - -
------------------------------------------
NET INCOME (LOSS) TO COMMON STOCKHOLDERS $ 1,193,733 $2,142,895
==========================================
NET INCOME (LOSS) PER COMMON SHARE $ 0.56 $ 1.00
==========================================
Weighted Average Number of Common Shares
Outstanding 2,144,889 2,139,894
==========================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
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1999 1998
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<S> <C> <C>
REVENUE:
Sales $12,565,151 $14,552,265
Faire operating costs 4,087,573 4,368,070
------------------------------------
Gross Profit 8,477,578 10,184,195
------------------------------------
OPERATING EXPENSES:
Salaries 3,558,910 3,639,578
Depreciation and amortization 398,798 431,208
Advertising 1,475,257 1,771,498
Other operating expenses 2,520,423 2,849,899
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Total Operating Expenses 7,953,388 8,692,183
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Net Operating (Loss) Income 524,190 1,492,012
------------------------------------
Other Income (Expenses):
Interest income 38,784 58,044
Interest (expense) (468,383) (512,368)
Other income(expense) 74,266 94,933
------------------------------------
Total Other (355,333) (359,391)
------------------------------------
Net Income (Loss) before (Provision) 168,857 1,132,621
Credit for Income Taxes
(Provision) Credit for Income Taxes -
------------------------------------
NET INCOME (LOSS) TO COMMON STOCKHOLDERS $ 168,857 $1,132,621
====================================
NET INCOME (LOSS) PER COMMON SHARE $ 0.08 $ 0.54
====================================
Weighted Average Number of Common Shares
Outstanding 2,143,542 2,113,150
====================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
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1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 168,857 $ 1,132,621
--------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME(LOSS) TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation and amortization 398,798 431,208
Gain(loss) on disposal of assets 302 (6,543)
(INCREASE)DECREASE IN:
Accounts receivable (88,627) (27,941)
Inventory (161,307) 6,854
Prepaid expenses and other (852,381) 31,754
INCREASE (DECREASE) IN:
Accounts payable and accrued expenses 1,080,179 (261,150)
Unearned revenue and other 21,188 3,394
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TOTAL ADJUSTMENTS 398,152 177,576
--------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 567,009 1,310,197
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in restricted cash - (13,721)
(Increase) in property and equipment (290,572) (189,422)
--------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (290,572) (203,143)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued and additional paid-in capital 2,500 58,623
Proceeds from notes payable 1,265,571 508,683
Principal payments on notes payable (627,607) (561,826)
--------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 640,464 5,480
--------------------------------------
NET INCREASE (DECREASE) IN CASH 916,901 1,112,534
CASH, BEGINNING OF PERIOD 379,336 590,024
--------------------------------------
CASH, END OF PERIOD $ 1,296,237 $ 1,702,558
======================================
INTEREST PAID $(468,383) $ (512,368)
======================================
INCOME TAX PAID(REFUND) - -
======================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1999 (Unaudited)
1. UNAUDITED STATEMENTS
The balance sheet as of September 30, 1999, the statements of
operations for the three month and nine month periods ended September
30, 1999 and 1998 and the statements of cash flows for the nine month
periods ending September 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 September 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
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 provided interest at 4.5% per quarter and
were 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.
-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
profit of $168,857 for the nine months ended September 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 several
years until it is able to build a significant customer base and awareness of
the faire.
While the Company had 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 surplus of $601,355 as of September 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 SEPTEMBER 30, 1999, COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1998
-8-
<PAGE>
Revenues decreased $2,117,657 or 23% from $9,350,396 in 1998 to $7,232,739 in
1999. This is in part due to a temporary difference in the timing of revenue
for the Northern California Faire. In 1998, the Company's faire season ended
in September. As a result, in 1998, all Faire revenue was recorded by the end
of the third quarter. In 1999, the Northern California Faire operated three
of eight weekends in the fourth quarter generating $1,092,831 in weekend
revenue. Overall Faire revenue during the 1999 season was approximately
$900,000 less than the 1998 season.
During the third quarter of 1999 gross attendance at the Faires' was
significantly lower as compared to 1998. Gross attendance was down 6% at the
Kenosha Wisconsin Faire and 19% at the New York Faire. The decreases in
attendance were directly related to the forecast of or actual inclement
weather conditions. The Northern California Faire gross attendance was down
7% for the 1999 season as compared to the 1998 season. This decrease was
largely the result of hot weather and the new physical location of the Faire.
It is not unreasonable to experience a temporary decrease in attendance when
relocating an established operation such as the Northern California Faire.
Faire operating expenses decreased $405,304 or 15%, from $2,629,512 in 1998
to $2,224,208 in 1999 and other operating expenses (year-round operating
costs and corporate overhead) decreased $737,491 or 16%, from $4,458,961 in
1998 to $3,721,470 in 1999. $363,442 of the decrease in other operating
expenses and $323,160 of the decrease in faire operating expenses relate to
the timing difference for the Northern California Faire described above and
were recorded during the 1999 period in the fourth quarter as compared to the
third quarter in the 1998 period.
Of the operating expenses, salaries decreased 9%, from $1,703,400 in 1998 to
$1,543,476 in 1999 reflecting a $159,924 decrease as a result of a continuing
reduction in personnel expense for the 1999 period as compared to the 1998
period.
Advertising expense decreased $299,437 or 27%, from $1,111,784 in 1998 to
$812,347 in 1999. This decrease was due to the continued utilization of less
expensive methods of advertising.
Depreciation and amortization decreased 6%, from $148,045 in 1998 to $139,157
in 1999.
Other operating expenses (all other general and administrative expenses of
the Company) decreased $269,242 or 18%, from $1,495,732 in 1998 to $1,226,490
in 1999. 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) decreased 43% from $2,261,923 for the 1998 period to
$1,287,061 for the 1999 period.
Interest expense increased a nominal 1% from $149,971 in 1998 to $151,382 in
1999.
Interest income decreased $6,802, from $23,243 in 1998 to $16,441 in 1999.
Certain investments held by the Company matured in the fourth quarter of
1998. This amount was not reinvested but used to reduce the mortgage on the
Virginia Faire real property.
Other income increased $33,913, from $7,700 in 1998 to $41,613 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 three-months ended
-9-
<PAGE>
September 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
$949,162 decrease in net income before taxes, from income of $2,142,895 for
the 1998 period to an income of $1,193,733 for the 1999 period.
Net income to common stockholders also decreased $949,162, from $2,142,895
for the 1998 period to $1,193,733 for the 1999 period. Finally, net income
per common share decreased from $1.00 for the 1998 period to $.56 for the
1999 period, based on 2,139,894 weighted average shares outstanding during
the 1998 period and 2,144,889 weighted average shares outstanding during the
1999 period.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1998
Revenues decreased $1,987,114 or 14% from $14,552,265 in 1998 to $12,565,151
in 1999. This is in part due to a temporary difference in the timing of
revenue for the Northern California Faire as described above. In 1998, the
Company's faire season ended in September. As a result, all Faire revenue was
recorded by the end of the third quarter. In 1999, the Northern California
Faire operated the first three weekends of the fourth quarter generating
$1,092,831 in weekend revenue.
During the third quarter of 1999 gross attendance at the Faires' was
significantly lower as compared to 1998. Gross attendance was down 6% at the
Kenosha Wisconsin Faire and 19% at the New York Faire. The decrease in
attendance was directly related to the forecast of or actual inclement
weather conditions. Through the October close of the Northern California
Faire gross attendance was down 7%. This decrease was largely the result of
hot weather and the new physical location of the Faire. It is not
unreasonable to experience a temporary decrease in attendance when relocating
an established operation such as the Northern California Faire.
Faire operating expenses decreased $280,497 or 6%, from $4,368,070 in 1998 to
$4,087,573 in 1999 and other operating expenses (year-round operating costs
and corporate overhead) decreased $738,795 or 9%, from $8,692,183 in 1998 to
$7,953,388 in 1999.
These decreases are largely due to the previously mentioned timing
difference. In 1999, the Northern California Faire operated three weekends in
October and no weekends in 1998. As of September 30, 1999 the Company
recorded prepaid expenses in the amount of $686,601 associated with those
three weekends of operations. At September 30, 1998 all faire related
expenses had been recorded.
Of the operating expenses, salaries decreased 2%, from $3,639,578 in 1998 to
$3,558,910 in 1999.
Advertising expense decreased $296,241 or 17%, from $1,771,498 in 1998 to
$1,475,257 in 1999. This decrease was due to the continued utilization of
less expensive methods of advertising.
Depreciation and amortization decreased 8%, from $431,208 in 1998 to $398,798
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 $329,476 or 12%, from $2,849,899 in 1998 to $2,520,423
in 1999. The balance of the decrease is due to management's implementation of
a variety of cost saving measures.
-10-
<PAGE>
As a result of the foregoing, net operating income (before interest charges
and other income) decreased $967,822 from income of $1,492,012 for the 1998
period to income of $524,190 for the 1999 period.
A 9% decrease in interest expense from $512,368 in 1998 to $468,383 in 1999
resulted from the Company's ability to raise less expensive capital.
Other income decreased $20,667 from $94,933 in 1998 to $74,266 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
nine-months ended September 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
$963,764 decrease in net income before taxes, from income of $1,132,621 for
the 1998 period to income of $168,857 for the 1999 period.
Net income to common stockholders decreased $963,764, from income of
$1,132,621 for the 1998 period to income of $168,857 for the 1999 period.
Finally, net income per common share decreased from income of $.54 for the
1998 to $.08 for the 1999 period, based on 2,113,150 weighted average shares
outstanding during the 1998 period and 2,143,542 weighted average shares
outstanding during the 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit decreased $749,081 during the nine
months ended September 30, 1999, from ($147,726) at December 31, 1998 to
$601,355 at September 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 provided for interest at 4.5%
per quarter and were 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
-11-
<PAGE>
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 at least $750,000
additional working capital for fiscal 2000. The Company anticipates raising
working capital from private investors including officers of the Company.
However, there can be no assurance that any additional capital can be
satisfactorily obtained when required.
Reviewing the change in financial position over the nine months, current
assets, largely comprised of cash and prepaid expenses, increased from
$771,045 at December 31, 1998 to $2,710,441 at September 30, 1999, an
increase of $1,939,396 or 252%. Of these amounts, cash and cash equivalents
increased from $379,336 at December 31, 1998 to $1,296,237 at September 30,
1999. Accounts receivable increased from $18,509 at December 31, 1998 to
$107,136 at September 30, 1999. Prepaid expenses (expenses incurred on behalf
of the faires) increased from $237,021 at December 31, 1998 to $1,009,582 at
September 30, 1999. These costs are expensed once the Faires are operating.
Current liabilities increased from $918,771 at December 31, 1998, to
$2,109,086 at September 30, 1999, an increase of $1,190,315 or 130%. This
change is due to an increase during the nine-month period in accounts payable
and accrued expenses of $1,080,179 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 $180,701
at September 30, 1999. The Company's net indebtedness increased $637,965
during the nine-month period as a result of the second mortgage on the
Virginia Faire real property. This debt was incurred to cover the Company's
operating expenses prior to the opening of the 1999 faire season.
Stockholders' Equity increased from $3,429,301 at December 31, 1998 to
$3,600,658 at September 30, 1999, an increase of $171,357 or 5%. This
increase is due primarily to the net income for the nine-month period.
Although inflation can potentially have an effect on financial results,
during 1998 and the first nine-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
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<PAGE>
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. The New York and Virginia Faires each operated at a loss
during 1996 and 1997. As of September 30, 1999, the Virginia Faire operated
at a significantly lower loss, 23% less as compared to the same period 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. The New York Faire operated at a profit
in 1998. During the third quarter of 1999, the Company's Wisconsin and New
York Faires' experienced the threat of or actual inclement weather throughout
much of their operating season. The Northern California Faire was relocated
in 1999 and was impacted by weather. As a result the Wisconsin, New York and
Northern California Faire results of operations were adversely affected. The
Company anticipates reporting a significantly greater loss for the fiscal
year ending December 31, 1999 as compared to 1998. There is no assurance that
the Company will return to profitability in any subsequent period.
NEED FOR ADDITIONAL CAPITAL. The Company had a working capital
surplus of $601,355 as of September 30, 1999. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." While the
Company believes that it has adequate capital to fund anticipated operations
for the balance of fiscal year 1999, it will need at least $750,000 of
additional working capital for fiscal 2000. 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 obtained a temporary lease to operate the Faire in Vacaville,
California in 1999. The Company is currently negotiating a lease for the 2000
season. 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.
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<PAGE>
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.
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.
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<PAGE>
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 had 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 lease 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 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.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders of the Company was held
on October 13, 1999. At that meeting, the following six directors, constituting
all members of the Board of Directors, were elected.
<TABLE>
<CAPTION>
VOTES CAST
NAME FOR WITHHELD
<S> <C> <C>
Charles S. Leavell 1,934,691 125,363
Robert Geller 1,934,691 125,363
Sanford L. Schwartz 1,934,691 125,363
Charles J. Weber 1,934,691 125,363
J. Stanley Gilbert 1,855,091 204,963
Thomas Brown 1,855,091 204,963
</TABLE>
Shareholders also approved a proposal to increase the number
of shares reserved for issuance under the Company's 1993 Incentive Stock Plan
from 342,000 to 750,000. The number of shares voting for the increase were
1,698,678; against were 254,929; abstentions were 106,447.
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.
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<PAGE>
Exhibit 27. Financial Data Schedule
-17-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RENAISSANCE ENTERTAINMENT CORPORATION
Dated: November 12, 1999 /s/ Charles S. Leavell
--------------------------- --------------------------------------
Charles S. Leavell, Chief Executive and
Chief Financial Officer
/s/ Sue E. Brophy
---------------------------------------
Sue E. Brophy, Chief Accounting Officer
-18-
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,296,237
<SECURITIES> 0
<RECEIVABLES> 117,734
<ALLOWANCES> 10,598
<INVENTORY> 297,486
<CURRENT-ASSETS> 2,710,441
<PP&E> 9,466,396
<DEPRECIATION> 2,909,514
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0
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<COMMON> 9,495,173
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