FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23782
RENAISSANCE ENTERTAINMENT CORPORATION
--------------------------
(Name of Registrant as Specified in its Charter)
Colorado 84-1094630
--------------------------------- ---------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification number
275 Century Circle, Suite 102, Louisville, Colorado 80027
------------------------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 664-0300
Securities registered under Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.03 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The issuer's revenues for the year ended December 31, 2000 were $12,462,816.
As of March 22, 2001, the aggregate market value of the Common Stock of the
Registrant, held by non-affiliates of the Registrant, based upon the average of
the closing bid and asked prices of the Common Stock as quoted on the NASD OTC
Bulletin Board Market, was approximately $334,603. As of March 22, 2001,
2,144,889 shares of the Common Stock of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
PART I
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-K 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-K
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-K 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.
ITEM 1: BUSINESS
OVERVIEW
The Company presently owns and produces four Renaissance Faires: the Bristol
Renaissance Faire in Kenosha, Wisconsin, serving the Chicago/Milwaukee
metropolitan region; the Northern California Renaissance Pleasure Faire, serving
the San Francisco Bay and Sacramento metropolitan areas; the Southern California
Renaissance Pleasure Faire in Devore, California serving the greater Los Angeles
metropolitan area; and the New York Renaissance Faire serving the New York City
metropolitan area.
The Renaissance Faire is a re-creation 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.
On January 28, 2000, the Company announced the closure of the Virginia
Renaissance Faire located in Fredericksburg, Virginia. The Virginia Renaissance
Faire has had a negative impact on the Company's cash flow and net income since
it's opening. Efforts are underway to sell the 250 acres of land on which the
Faire is located.
WEB SITE. The Company maintains a home page at www.recfair.com.
1
EXISTING RENAISSANCE FAIRES AND SITES
The Company presently owns and produces four Renaissance Faires: the Bristol
Renaissance Faire in Kenosha, Wisconsin, serving the Chicago/Milwaukee
metropolitan region; the Northern California Renaissance Pleasure Faire, serving
the San Francisco Bay and Sacramento metropolitan areas; the Southern California
Renaissance Pleasure Faire in Devore, California serving the greater Los Angeles
metropolitan area; and the New York Renaissance Faire serving the New York City
metropolitan area. From 1996 through 1999, the Company also operated the
Virginia Renaissance Faire in Fredericksburg, Virginia, serving the Washington,
D.C. and Richmond metropolitan areas. This Faire was closed in January of 2000
as the Company's working capital was not adequate to enable it to continue to
fund the Faire's negative cash flow during the period required to establish the
customer base necessary for profitable operations.
The following table shows the net operating income for the Company's Faires
during the 1999 and 2000 seasons.
Net Operating Income
--------------------------------------------
2000 1999
----------------- ----------------
Bristol 1,152,701 579,354
Northern CA 208,410 (124,937)
Southern CA 520,164 788,338
New York 632,430 261,245
Virginia -0- (414,529)
----------------- ----------------
Total $2,513,705 $1,089,471
BRISTOL RENAISSANCE FAIRE. The Bristol Renaissance Faire is held at the Kenosha,
Wisconsin site leased by the Company. It has been in existence for 14 years. The
Bristol Renaissance Faire is operated annually for nine weekends beginning the
last weekend in June and ending the third weekend in August.
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.
On April 6, 2000 the Company entered into an Asset Purchase Agreement with
Willows Fare, LLC which conveyed it's interest in certain assets previously used
by the Bristol Faire in its food operation. As part of this agreement, Willows
Fare, LLC was granted a seven-year concession agreement with the Bristol Faire
to operate as a food vendor. The purchase price of the assets was $300,000, half
of which was paid upon execution of the agreement. The Company holds a 10%
promissory note for the balance of $150,000. Payments of principal and interest
begin August 1, 2000 based on a 7-year amortization with a balloon payment on
October 31, 2003.
2
Historically the Company has only utilized the site for the Renaissance Faire,
and the property has been vacant during the off-season. During the 1999
operating season, under a joint arrangement with Educational Travel Tours, Inc.
the Company operated two School Days events in May. The Company produced a Wild
West Rodeo in October of 1998 and 1999. The Company discontinued School Days and
the Wild West Rodeo in 2000.
NORTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. The Northern California
Renaissance Pleasure Faire has been held in the San Francisco Bay area for the
past 34 years. This Faire is held annually for six to eight weekends, typically
beginning one week before the Labor Day weekend and running through the first or
second weekend of October. In 1999, the Faire operated eight weekends beginning
the last weekend of August and ending the third weekend of October. In
conjunction with the 1999 Faire, the Company conducted a Halloween event that
ran five weekends in October. In 2000, the Faire operated seven weekends
beginning the first weekend of September and ending mid-October. The Halloween
event was discontinued in 2000. At this time, the Company does not plan to offer
the Halloween event in 2001. In 2001, the Faire is expected to run eight
weekends beginning the last weekend of August and ending the second weekend of
October.
The Northern California Faire historically operated on leased property in
Novato, California. The lease for this property expired after the 1998 season.
Since 1999, the Northern California Renaissance Pleasure Faire has been held on
the site of the original Nut Tree Farm in Vacaville, California under a one-year
lease. The Company currently has a lease for the 2001 season at the Vacaville
location. To date a lease has not been obtained for the 2002 Faire season and
there can be no assurance that the Company will be successful in obtaining a
lease in time for the 2002 operating season, or that it will be on terms
acceptable to the Company.
Historically all structures, including the gates, stages, booths, shops and
arenas utilized in the Northern California Renaissance Pleasure Faires have been
mobile. These props were loaded into the Company's semi-tractor/trailers and
transported between the Northern and Southern California Renaissance Faires and,
during the off-season, were stored at the Northern Renaissance Faire site. The
booths and craft shops utilized and owned by the individual vendors were moved
onto the site for the Faire and then removed by them. The Company is seeking a
long-term lease agreement that would allow these structures to remain in place
year-round and provide the opportunity for additional income-generating events
other than the Renaissance Faire.
SOUTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. The Southern California
Renaissance Pleasure Faire has been held for the past 38 years in the Los
Angeles metropolitan area. This Faire is held annually for eight or nine
weekends beginning the last weekend of April and ending mid-June. In the 1999
and 2000 seasons, the Faire ran eight weekends beginning the first week of May.
In 1999 and 2000, the Company sponsored a School Days event in conjunction with
Events Group Corporation which was held on the Faire site in the month of May.
In 2001, the Faire is scheduled to run eight weekends beginning the last weekend
of April and a School Days event is scheduled in the month of May.
The Southern Renaissance Pleasure Faire is held in Glen Helen Regional Park
located near Devore, California. The site had previously been leased from the
San Bernardino County Parks and Recreation Department, under a one-year term. On
June 27, 2000, the Company signed a twenty-
3
year lease with San Bernardino County Parks and Recreation Department,
securing a long-term home for the Southern California Renaissance Faire. This
is a ten-year lease with two five-year options to extend. Rent on this
property is based on a percentage of gross revenues, which ranges during the
first ten-years of the lease, from four to seven percent with a guaranteed
minimum rental payment. Guaranteed minimum rent under the lease increases
$25,000 per year for the first ten years of this lease with 2001 rent fixed
at $222,500.
In the past, the Southern Renaissance Pleasure Faire site was only occupied
during the operating season and was vacated following completion of the Faire.
Accordingly, all structures were mobile and transported to the Northern
Renaissance Faire site for storage during the off-season. With the long-term
lease, the Company will be able to make permanent improvements to the site and
reduce its annual set-up cost for the Faire.
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 re-creates 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.
Historically, the Faire has held annually for eight weekends beginning the first
weekend of August and ending the third weekend of September. The Forest of Fear
is held annually beginning the first weekend of October and ending on Halloween.
In 1999 and 2000 the Company operated School Day events in cooperation with
Events Group, Inc. The Company has two School Days events scheduled at this site
in May and June of 2001. In 2001, the Company anticipates operating the Faire
eight weekends beginning the first weekend of August and the Forest of Fear will
operate four weekends in October.
In 1996, the Company signed a five-year lease with Sterling Forest Corp. to
operate the New York Faire in Sterling Forest. The original lease term expired
after the operating season in 2000. The Company has negotiated a one-year
extension on this lease through the 2001 operating season. The Company is
currently negotiating with the owners of the property to remain in Sterling
Forest and is investigating alternative locations for the Faire.
VIRGINIA RENAISSANCE FAIRE. On January 28, 2000, the Company announced the
closure of the Virginia Renaissance Faire located in Fredericksburg, Virginia.
The Virginia Renaissance Faire has had a negative impact on the Company's cash
flow and net income since its opening. In 1999 and 2000, the Company recorded an
asset write down of approximately $2,121,334 and $467,272 respectively in
connection with the closing of the Faire. Efforts are underway to sell the
property.
VENDORS
Approximately 15% of the revenues realized from presenting the Company's
Renaissance Faires are generated from the Company's relationships with vendors
who sell food and crafts and offer games and rides. Typically, there is little
turnover in vendors from one season to the next. The loss of any one or more
vendors would not have a material adverse effect upon a particular Faire.
4
At the Bristol Renaissance Faire site there were approximately 165 vendors in
1999 and 2000. The vendors 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 $1,000.
At the Southern California Faire there were approximately 156 vendors in 1999
and 160 vendors in 2000. At the Northern California Faire there were
approximately 150 vendors in 1999 and 145 vendors in 2000. At both California
Faires, craft shops and booths are owned by the vendors. In lieu of a flat fee
to participate, vendors pay the Company a fee equal to 12%-20% of their gross
revenues.
At the New York Faire site there were approximately 125 vendors in 1999 and 155
vendors in 2000. The vendors and craftspersons pay an annual fee of
approximately $250 and 10%-17% 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 Faire attendance increases.
Vendors occupy their booths and shops pursuant to written lease agreements that
have a term of one year, and require renewal by both the vendor and the Company.
Under these agreements, each vendor agrees to indemnify and hold harmless the
Company from any liability that may arise by virtue of the vendors' activities
at a 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 1999 and 2000 seasons from each of these
activities. It is important to note that the Company's 1999 revenue figures
include the run of the Virginia Renaissance Faire. Food revenue is substantially
lower in 2000 as a result of the sale of the Company's food operation in
Wisconsin. Revenue was negatively impacted by the relocation of the Company's
Southern California Faire in 2000 and the Northern California Faire in 1999.
Additionally, very hot weather in 2000 negatively affected the Southern Faire's
revenue.
5
2000 1999
----------- -----------
Gate Admissions $ 5,941,690 $ 6,617,277
Beverage Revenue 2,514,129 2,894,414
Parking Revenue 802,450 847,534
Food Revenue 11,552 592,863
Vendor Fees 1,826,190 1,791,740
Souvenir Revenue 820,122 1,063,801
Sponsorship Fees 197,526 262,899
Camping Fees 216,911 245,777
Miscellaneous Fees 132,246 151,132
----------- -----------
Total $12,462,816 $14,467,437
GATE ADMISSIONS. Gate admissions are generally set from $14.00 to $17.50 for
adults, $6.00 to $7.50 for children, and children under the age of five admitted
free. Discounts range from $1.00 to $2.50 for seniors and, in some cases,
students and military personnel. Off premises discount ticket sales are
available at Cub Foods, Sentry Foods, Circle K and Shoprite. Discount coupons
are available at retail outlets operated by Company sponsors, including Subway,
White Castle, Wendy's, Blockbuster Video, Petland, P.C. Richard & Son, Vons,
Pavillions, Best Buy, Moto Photo, Border Bookstores and Tower Records. 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 $7.00 per car for regular parking
and $11 for preferred close-in parking. The Bristol and New York Faires have
preferred parking for $3.00 and $5.00 respectively.
FOOD REVENUE. At the California and New York Faires, all food concessions are
run by independent vendors. On April 6, 2000, the Company entered into an
agreement to sell their food concessions, at the Bristol Faire, to an
independent food vendor. These vendors pay the Company a commission equal to
approximately 15% of their gross revenues.
VENDOR FEES. Each Faire has approximately 145 to 165 independent 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
vendors in California pay the Company a fee of approximately 12-20% of their
gross revenue. At the Bristol and New York Faires, vendors are required to build
their own booth or shop, and either pay a flat annual fee or a percentage of
their gross income.
SOUVENIR REVENUE. At each Faire, the Company sells souvenir t-shirts,
sweatshirts, beer mugs, books and other high quality merchandise.
6
SPONSORSHIP FEES. The Company solicits sponsorship arrangements. Major sponsors
include Anheuser-Busch, Inc., Miller Brewing Company, Aquafina Water, Hard Core
Cider, Red Hook Ale, Andis Systems, Pepsi Cola Company, Grand Pacific Resorts,
Fuji Film, Playmobil, Shell, Samuel Adams and Guinness Bass Co. Some 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 advance sales campaigns.
The Company has also undertaken a "Sponsorship" campaign. Major sponsors have
included Guinness Bass Company, Miller Brewing Company, Aquafina Water, Andis
System ATM's, Shell Development, Anheuser-Busch, Inc., and Pepsi Cola Company.
Agreements with some sponsors have included joint advertising, sponsorship fees,
and product giveaways.
Since 1998, the Company has conducted matinee programs called School Days that
are designed to provide an educational experience in combination with lively
entertainment for school children. In 1999 and 2000, the Company sponsored these
events in conjunction with Events Group, Inc. In 1999, the Company held seven
daily events at four of its Faire sites with 19,097 individuals attending. In
2000, the Company held three daily events at two Faire sites with 14,373
individuals in attendance. In 2001, the Company plans three daily events at it's
Southern California and New York Faire sites.
SEASONALITY AND WEATHER
The Company generates its revenue primarily from the production of Renaissance
Faires. Since 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 four Faires in various U.S. locations, the Company has been able
to extend the period of revenue generation from early May (the start of the
Southern California Faire) through mid-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, East
coast, and Midwest, 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. However, it is normal, for adverse weather, or even
the forecast of adverse weather, to harm the financial results during certain
weekends of any particular Faire. During the period from mid-October through
April, the Company has no material income-generating activity
7
and must meet its working capital requirements from cash flow earned during
the Faire season augmented by short-term debt.
Each Faire is scheduled for a finite period that is determined substantially in
advance in order to facilitate advertising and other promotional efforts. Since
attendance at each Faire depends on the weather, poor weather conditions can
result in substantial declines in attendance and loss of revenues. All of the
Renaissance Faires' are open "rain or shine". The Company is also vulnerable to
severe climatic events that are similarly beyond it's 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 Faires in such markets. The Company competes on the
basis of entertainment value and uniqueness of the Renaissance event. The
Company emphasizes its Faires as an activity that appeals to the whole family.
While there are more than 100 annual entertainment events produced in the
country with a Renaissance theme, there are approximately 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 faire events in each location.
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, the
Company does not rely upon trademark or service mark protection for the name
"Renaissance 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. 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.
8
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 that 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
Each Faire has its own full-time staff as well as seasonal and temporary
employees who are engaged during the Faire presentation. On March 23, 2001, the
Company had a total of thirty two full-time employees; including eight full-time
employees working in its Colorado headquarters; eight at the Bristol Faire;
eleven at the California Faires and five at the New York Faire.
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.
ITEM 2: PROPERTY
The Company's corporate headquarters are located at 275 Century Circle, Suite
102, Louisville, Colorado. This property measures 2,789 square feet and is
currently leased at $3,944 per month base rent, with annual increases based on
increases in the Consumer Price Index. The lease is for a
9
term of five years expiring in 2003, with two five-year renewal options. The
Company considers these offices to be suitable for its current needs.
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. In 2001, the lease payments for the year will be $440,000. 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 2001 and the balance
released in 2005.
On December 17, 1999, the Company entered into a lease amendment with Faire
Partners, the landlord for the Wisconsin property. The amendment provided for a
one-time restructuring of rental payments. During the time period between
December 1, 1999 and May 31, 2000 the monthly base rent payable by the Company
to the landlord was reduced from $36,667 per month to $21,667 per month and
during the period of time between June 1, 2000 through November 30, 2000, the
monthly base rent payable was increased to $51,667 per month. As an inducement
to the landlord to execute this lease amendment the Company agreed to terminate
the existing warrant dated November 12, 1997 and issue a new warrant. The
original warrant provided for 153,333 shares at $5.00 per share and expired
November, 2003. The new warrant is 100,000 shares at $.30 per share, the closing
ask price on the date the lease amendment was signed. The new warrant is on the
same terms and conditions as contained in the original warrant. In December,
2000 another amendment was executed under the same terms and conditions as the
1999 amendment except this amendment strictly restructured the rental payments
and did not involve the grant of an additional warrant.
The Southern California Faire site is leased from the San Bernardino County
Parks and Recreation Department. This is a ten-year lease with two five-year
options to extend. Rent on this property is based on a percentage of gross
revenues, which ranges during the first ten-years of the lease, from four to
seven percent with a guaranteed minimum rental payment. Guaranteed minimum rent
under the lease increases $25,000 per year for the first ten years of this lease
with 2001 rent fixed at $222,500.
In 1999 and 2000, the Northern California Renaissance Pleasure Faire was held on
the site of the original Nut Tree Farm in Vacaville, California under a one year
lease. The Company currently has a lease for the 2001 season at the same
location in Vacaville. To date, a site has not been located for the 2002 season
and there can be no assurance that the Company will be successful in obtaining a
lease or purchasing property, or that it will be on terms acceptable to the
Company, in time for the 2002 or future operating seasons.
The New York Faire is operated on 65 acres of leased land in Tuxedo, New York.
The original lease term expires after the Faire season in 2000. The Company has
negotiated a one-year extension on this lease through the 2001 operating season.
The Company is currently negotiating with the owners of the property to remain
in Sterling Forest and is investigating alternative
10
locations for the Faire. To date, a site has not been located for the 2002
season and there can be no assurance that the Company will be successful in
obtaining a lease or purchasing property, or that it will be on terms
acceptable to the Company, in time for the 2002 or future operating seasons.
On July 27, 1995, the Company acquired approximately 250 acres of land in
Stafford County, Virginia, for a purchase price of $925,000. This property
housed the Virginia Renaissance Faire. The construction of the Faire was
financed, in part, with a $1.5 million mortgage (balance at December 31, 2000 -
$274,113), repayable over 15 years at an initial interest rate of 8.65%
annually. In March, 1999 the company obtained a second mortgage on this property
in the amount of $750,000. On January 28, 2000, the Company announced the
closure of the Virginia Renaissance Faire. Efforts are underway to sell the
property. The Company has not, as of the date of this report, entered into a
sales agreement for the property. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity").
ITEM 3: LEGAL PROCEEDINGS
None.
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of the Stockholders of the Company
was held on December 5, 2000. At that meeting, the following six directors were
elected: Charles S. Leavell; Robert Geller; Sanford L. Schwartz; J. Stanley
Gilbert; and Thomas Brown.
ITEM 5: MARKET FOR THE COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Since December 21, 1998, the Company's Common Stock has been traded on
the OTC Bulletin Board under the symbol FAIRC. 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 quarter for a
1-for-5 reverse stock split in February 1998. The prices reflect the high and
low sales prices. 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
-------------------------------- ---- ---
1999
First Quarter ended March 31 0.9375 0.28
Second Quarter ended June 30 0.60 0.3984
Third Quarter ended September 30 0.55 0.3594
Fourth Quarter ended December 31 0.375 0.19
2000
11
CALENDAR YEARS ENDED DECEMBER 31 HIGH LOW
-------------------------------- ---- ---
First Quarter ended March 31 0.40 0.19
Second Quarter ended June 30 0.40 0.21
Third Quarter ended September 30 0.25 0.16
Fourth Quarter ended December 31 1.00 0.12
2001
First Quarter ended March 31 0.281 0.156
As of March 26, 2001, there were approximately 147 shareholders of
record.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock, and does not
anticipate the payment of such dividends in the foreseeable future.
ITEM 6: 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, 2000.
The Company presently owns and produces four Renaissance Faires: the Bristol
Renaissance Faire in Kenosha, Wisconsin, serving the Chicago/Milwaukee
metropolitan region; the Northern California Renaissance Pleasure Faire, serving
the San Francisco Bay and Sacramento metropolitan areas; the Southern California
Renaissance Pleasure Faire in Devore, California serving the greater Los Angeles
metropolitan area; and the New York Renaissance Faire serving the New York City
metropolitan area.
The Renaissance Faire is a re-creation 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.
On January 28, 2000, the Company announced the closure of the Virginia
Renaissance Faire located in Fredericksburg, Virginia. The Virginia Renaissance
Faire has had a negative impact on the Company's cash flow and net income since
its opening in 1996. Efforts are underway to sell the 250 acres of land on which
the Faire is located.
On April 6, 2000 the Company entered into an Asset Purchase Agreement with
Willows Fare, LLC which conveyed the Company's interest in certain assets
previously used by the Bristol Faire in its food operation. As part of this
agreement, Willows Fare, LLC was granted a seven-year concession agreement with
the Bristol Faire to operate as a food vendor. The purchase price of the assets
was $300,000, half of which was paid upon execution of the agreement. The
12
Company holds a 10% promissory note for the balance of $150,000. Payments of
principal and interest began August 1, 2000 based on a 7-year amortization with
a balloon payment on October 31, 2003.
The Company has a lease for the 2001 Faire season to operate the New York Faire
in Sterling Forest. The Company has a one-year lease for the 2001 Faire season
to operate the Northern California Faire at the same location used in 1999 and
2000, in Vacaville. On June 27, 2000, the Company signed a twenty-year lease
with San Bernardino County Parks and Recreation Department, securing a long-term
home for the Southern California Renaissance Faire. The Company has a long-term
lease expiring in 2017 for the Bristol Faire site. The Company is currently
seeking to purchase property or obtain a long-term lease for the Northern
California Faire site in 2001. It is critical to the financial condition of the
Company, that it obtain long-term leases or purchase property for its Northern
California and New York Faires.
The Company had a working capital deficit of ($732,622) as of December 31, 2000.
The Company has negotiated a short-term loan that will provide working capital
in the amount of $200,000 for use in opening it's first Faire of the season, the
Southern California Renaissance Faire. This loan requires a 1% origination fee,
15% interest and matures on June 30, 2001. These funds will be provided by
Charles S. Leavell ($100,000), Chairman of the Board of Directors and one other
director. While the Company believes that it has adequate capital to fund
anticipated operations for the balance of 2001, it believes it may need
additional capital for future fiscal periods. See "LIQUIDITY AND CAPITAL
RESOURCES."
RESULTS OF OPERATIONS
It is important to note that the Company's 1999 Results of Operation include the
run of the Virginia Renaissance Faire. The effect of the closure of the Virginia
Faire will be disclosed as each line item on the income statement is discussed.
Additionally, the Company operated it's New York and Northern California Faires
eight weekends in 1999, compared to seven in 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999. Revenues
decreased $2,004,621 or 14% from $14,467,437 in 1999 to $12,462,816 in 2000.
This decrease is largely attributable to the closure of the Company's Virginia
Faire, which contributed revenue in the amount of $1,168,015 in fiscal 1999. The
balance of the decrease is attributable to a decline in attendance at both the
Southern and Northern California Faires.
Revenue was down approximately $600,000, at the Company's Southern California
Faire, which experienced a decrease in gross attendance for the 2000 operating
season of 17%. It is believed, that the decreased attendance was the result of
relocating the Faire within Glen Helen Park and extremely hot weather through
the eight-week run of the event.
The Company's Northern California Faire, experienced a decline in gross
attendance for the 2000 operating season of 15% with revenue down approximately
$540,000 over the one-year period. It is believed, the decreased attendance for
this Faire is the result of it's relocation in 1999. When this Faire was
relocated, part of it's original core audience was lost. Likewise, as part of
the relocation,
13
new demographic areas have been tapped and it is believed that these new
areas will eventually result in an increase in attendance. The Company
believes that overall attendance at the Faire is good, considering the
ramifications of relocating such an event.
While the Company's Southern and Northern California Faires both experienced
sub-optimal operating seasons the Wisconsin and New York Renaissance Faires
collectively exceeded their 1999 revenue figures by approximately $300,000.
Faire operating costs decreased $1,355,170 or 27% from $5,057,676 in 1999 to
$3,702,506 in 2000 This decrease is partly attributable to the closure of the
Company's Virginia Faire which had faire operating expenses totaling about
$554,671 in 1999. Additionally, about $150,000 is attributable to the sale of
the Wisconsin food operation in 2000. In 1999, the Company operated a Wild West
show and a School Days event in Wisconsin with combined faire operating expenses
of approximately $80,000. Also in 1999, the Company operated a Halloween event
in Northern California which incurred approximately $60,000 in expenses. The
Wild West show and School Days event in Wisconsin and the Halloween event in
Northern California were cancelled in 2000. The balance of the decrease in faire
operating expenses is the result of overall reductions in spending.
Operating expenses (year-round operating costs and corporate overhead) decreased
$2,533,298 or 25%, from $10,252,880 in 1999 to $7,719,582 in 2000. Of the
decrease, approximately $1,210,000 is attributable to the closure of the
Company's Virginia Faire. The balance of the decrease is associated with expense
reductions throughout the Company's operations.
Of the operating expenses, salaries decreased 27%, from $4,454,731 in 1999 to
3,261,800 in 2000 reflecting a $1,192,931 decrease for the 2000 period as
compared to the 1999 period. Of this decrease, $536,320 is associated with the
closure of the Company's Virginia Faire. The balance of the change is the result
of decreased personnel expense for the Company as a result of a reduction in the
total number of employee's.
Advertising expense showed a decrease of $434,644 or 24%, from $1,797,879 in
1999 to $1,363,235 in 2000. Of the decrease, $218,873 is associated with the
closure of the Company's Virginia Faire. The balance of the decrease is the
result of the Company's utilization of alternative, less expensive forms of
marketing.
Depreciation and amortization decreased 28%, from $565,646 in 1999 to $409,525
in 2000. This decrease is primarily the result of the Company's closure of the
Virginia Faire and the associated write-down of these assets in 1999. As a
result, the Company's fixed asset base decreased and overall depreciation
expense has decreased.
Other operating expenses (all other general and administrative expenses of the
Company) decreased $749,602 or 22%, from $3,434,624 in 1999 to $2,685,022 in
2000. Of the decrease, $275,000 is associated with the closure of the Virginia
Faire. The balance of the decrease is associated with expense reductions
throughout the Company's operations.
14
As a result of the foregoing, net operating income (before interest charges and
other income) increased 223% from a ($843,119) net operating loss in 1999 to net
operating profit of $1,040,728 for the 2000 period. The Virginia Faire's net
operating loss for the year 1999 was ($598,313).
Other expense decreased $1,704,447 or 65% from ($2,608,202) in 1999 to
($903,755) in 2000. This decrease is, in large part, explained by the
adjustments required in 1999 and 2000 as a result of the Company's decision to
close the Virginia Faire. In 1999, the Company recorded an allowance for
discontinued operations and wrote down the value of the land and property. The
1999 adjustments totaled $2,121,334. The 1999 allowance for discontinued
operations was an estimate, representing the anticipated cost of administering
the Virginia site for the year 2000. In the second quarter of 2000, this
estimate was re-evaluated and determined to be inadequate to cover expenses
through the year. As a result an additional allowance in the amount of $184,416
was recorded to other expense. In the fourth quarter of 2000, administrative
expenses for 2001 as well as an additional write down of the land value was
recorded in the amount of $282,856. The adjustments recorded in 1999 and 2000
account for a decrease of $1,654,062 in other expense.
Combining net operating income with other income/expense resulted in a
$3,588,294 improvement in net income before taxes, from a ($3,451,321) net loss
for the 1999 period to $136,973 net profit for the 2000 period.
Net income to common stockholders also improved $3,588,294 from ($3,451,321) net
loss for the 1999 period to $136,973 net profit for the 2000 period. Finally,
net income per common share improved from ($1.61) for the 1999 period to $0.06
for the 2000 period, based on 2,144,889 weighted average shares outstanding
during the 1999 and 2000 periods.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998. Revenues
decreased $751,975 or 5% from $15,219,412 in 1998 to $14,467,437 in 1999. During
the 1999 operating season, gross attendance at the Bristol and New York 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. Gross attendance for the Northern California Faire was down 7% for
the 1999 season. This decrease was largely the result of hot weather and the new
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 increased $379,012 or 8% from $4,678,664 in 1998 to
$5,057,676 in 1999. Of this increase, approximately $125,000 related to year
2000 operating expenses for the Virginia site which the Company was required to
accrue in 1999 as a result of its decision to close the Virginia Faire. The
balance of the increase related to the Company's plans for increased attendance
in 1999. When planning for growth, in any period, there are certain expenses,
such as contracts for entertainers, trash removal, etc., which are established
before the Faire opens. When revenue generation for a Faire is seriously
impacted, as in 1999 by the forecast of or actual inclement weather, it is
difficult and often impossible to curtail certain expenses.
15
Operating expenses (year-round operating costs and corporate overhead) decreased
$80,722 or 1%, from $10,333,602 in 1998 to $10,252,880 in 1999.
Of the operating expenses, salaries increased $55,814 or 1%, from $4,398,917 in
1998 to $4,454,731 in 1999.
Advertising expense decreased $83,021, or 4%, from $1,880,900 in 1998 to
$1,797,879 in 1999. This decrease was due to the continued utilization of more
cost efficient methods of advertising.
Depreciation and amortization decreased 3%, from $585,977 in 1998 to $565,646 in
1999. This decrease was primarily the result of the Company's utilization of
accelerated methods of depreciation resulting in more depreciation in the
earlier years of an asset's life and less later.
Other operating expenses (all other general and administrative expenses of the
Company) showed a decrease of $33,184 or 1%, from $3,467,808 in 1998 to
$3,434,624 in 1999. Numerous cost savings plans were implemented, again this
year, targeted at reducing this category of expenses.
As a result of the foregoing, net operating income (before interest charges and
other income) decreased $1,050,265 from income of $207,146 for the 1998 period
to a loss of ($843,119) for the 1999 period.
A 1% decrease in interest expense from $644,227 in 1998 to $639,719 in 1999
resulted from a lower cost of borrowing over the past one year period.
Other income decreased $68,982, from $155,464 in 1998 to $86,482 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.
On January 28, 2000, the Company announced the closure of its Renaissance Faire
in Fredericksburg, Virginia. The December 31, 1999 income statement includes an
expense line item in the amount of $2,121,334 that related to the write-down of
the property due to closure of the site.
Combining net operating income with other income/expense resulted in a
$3,248,241 increase in net loss, from a loss of ($203,080) for the 1998 period
to a loss of ($3,451,321) for the 1999 period. Net loss to common stockholders
increased from a loss of ($203,080) for the 1998 period to a loss of
($3,451,321) for the 1999 period. Finally, net loss per common share increased
from a loss of ($0.10) for the 1998 period to a loss of ($1.61) for the 1999
period, based on 2,095,785 weighted average shares outstanding during the 1998
period and 2,144,224 weighted average shares outstanding during the 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficit improved during 2000 from ($1,274,542) at
December 31, 1999 to ($732,622) at December 31, 2000. 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 Faire of the Faire
season, the Southern California Faire.
16
During the first six months of fiscal 2000, the Company raised capital in the
amount of $575,000 through the issuance of 12% subordinated promissory notes.
The funds were provided by Charles S. Leavell ($250,000), Chairman of the Board
of Directors, J. Stanley Gilbert ($225,000), President and a Director, and one
other investor. The notes were issued in units, each unit consisting of two
promissory notes of equal principal, identical in nature except that one note is
convertible to common stock at a price of $0.30 per share. Interest is due and
payable quarterly and the notes mature August 31, 2001.
During 1999, the Company secured a second mortgage on its Virginia real estate
that was to mature December 31, 2000. In December, 2000, the Company negotiated
an extension of the maturity date of this note with the lender. The new terms of
the loan require principal and interest payments of approximately $17,500 in
January 2001 and July through August 2001. Interest payments approximating
$6,500 are due February through June 2001. The final payment of approximately
$575,000 is due September 1, 2001. This loan provides for interest at 13% per
annum.
Reviewing the change in financial position over the twelve months, current
assets, largely comprised of cash and prepaid expenses, decreased from
$1,515,134 at December 31, 1999 to $1,390,143 at December 31, 2000, a decrease
of $124,991 or 8%. Of these amounts, cash and cash equivalents decreased from
$1,049,044 at December 31, 1999 to $1,002,804 at December 31, 2000. Accounts
receivable increased from $4,951 at December 31, 1999 to $7,286 at December 31,
2000. Inventory decreased from $201,493 at December 31, 1999 to $104,532 at
December 31, 2000. Notes receivable, current portion in the amount of $17,400,
was established in 2000 as a result of the sale of the Company's food operation
in Wisconsin. As part of the terms of this purchase, the Company agreed to carry
a note in the amount of $150,000 for a period of three years. Prepaid expenses
(expenses incurred on behalf of the Faires) decreased from $259,646 at December
31, 1999 to $258,121 at December 31, 2000. These costs are expensed once the
Faires are operating.
Current liabilities decreased from $2,789,676 at December 31, 1999, to
$2,122,765 at December 31, 2000, a decrease of $666,911 or 24%. During the year,
accounts payable and accrued expenses decreased $1,162,349 or 68%. Unearned
income, which consists of the sale of admission tickets to upcoming Faires, and
deposits received from craft vendors for future Faires, decreased from $214,789
at December 31, 1999 to $193,668 at December 31, 2000. The revenue is recognized
once the Faires are operating. The Company's increased indebtedness during the
year is attributable to the aforementioned $575,000 in financing raised during
the first six months of 2000.
Total assets decreased from $7,108,820 at December 31, 1999 compared to
$6,624,457 at December 31, 2000. Property, plant and equipment (net of
depreciation) decreased by $379,953 or 9% from $4,294,163 at December 31, 1999
to $3,914,210 at December 31, 2000. This decrease is primarily the result of the
write-down of the Virginia site assets that totaled approximately $265,000. The
Company decreased the net book value of certain fixed assets in New York
approximately $53,000 to coincide with the one year remaining on the lease of
the Sterling Forest property. Goodwill, which arose from the purchase of the two
California Faires and is being amortized over 15 years, decreased from $468,798
at December 31, 1999 to $418,122 at December 31, 2000 as the result of normal
amortization. Note receivable, net of current portion in the amount of $128,679
was established in 2000 as previously mentioned in the above section on current
assets.
17
Other miscellaneous assets such as vendor deposits, decreased from $830,725
at December 31, 1999 to $773,303 at December 31, 2000.
Total liabilities decreased from $7,128,340 at December 31, 1999 to $6,507,004
at December 31, 2000, a decrease of $621,336 or 9%. Total liabilities at
December 31, 2000 include $2,122,765 in current liabilities (discussed above),
plus approximately $150,000 from the long-term portion of debt primarily
resulting from the first mortgage on the Virginia Faire site and the $3,991,494
lease obligation with respect to the sale/leaseback of the Bristol Faire site.
Stockholders' Equity increased from a deficit of ($19,520) at December 31, 1999
to a surplus of $117,453 at December 31, 2000, an increase of $136,973 or 1%.
This increase resulted from the net profit of $136,973. As of December 31, 2000,
the Company had outstanding 2,144,889 shares of common stock.
Although inflation can potentially have an effect on financial results, during
1999 and 2000, it caused no material effect on the Company's operations, since
the change in prices charged by the Company and by the Company's vendors has not
been significant.
The lease with the County of San Bernardino requires the Company to complete
certain capital projects on an annual basis. These projects include items such
as the construction of a perimeter fence, planting trees, developing flower and
water gardens, planting grass, installing infrastructure and constructing
buildings for use at the Faire. The Company is in the process of obtaining bids
on the required projects for 2001 but estimates that the cost of these items
should not exceed $500,000. The Company has no additional significant
commitments for capital expenses during the fiscal year ending December 31,
2001. See "Factors That May Affect Future Operating Results-Need for Additional
Capital" regarding the Company's financing requirements.
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. Until 2000, the Company had incurred operating losses
since fiscal 1995. Although the Company was profitable in 2000, the net
profit of $136,973 is not substantial. There is no assurance that the Company
will remain profitable in any subsequent period.
NEED FOR ADDITIONAL CAPITAL. The Company had a working capital deficit
of ($732,622) as of December 31, 2000. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Company has negotiated a
short-term loan that will provide working capital in the amount of $200,000 for
use in opening it's first Faire of the season, the Southern California
Renaissance Faire. This loan requires a 1% origination fee, 15% interest and
matures on June 30, 2001. These funds will be provided by Charles S. Leavell
($100,000), Chairman of the Board of Directors and one other director. Based on
the Company's planned operations for 2001, the Company believes it has adequate
capital to fund operations for 2001, to fund required capital expenditures
during the year and to repay the second mortgage on the
18
Virginia property and other short-term indebtedness. To the extent that
operations do not provide the necessary working capital during 2001, the
Company may need to obtain additional capital for 2001 and future fiscal
periods. 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. In 1999 and 2000, the
Northern California Renaissance Pleasure Faire was held on the site of the
original Nut Tree Farm in Vacaville, California under a one-year lease. The
Company has negotiated an additional one-year lease for 2001 to operate the
Faire at the same location, the Nut Tree Farm. The Company is seeking a
long-term lease agreement at a location that would provide expense savings by
allowing the Faire structures to remain in place year-round and provide the
opportunity for additional income-generating events other than the Renaissance
Faire. There can be no assurance that the Company will be successful in
obtaining a long-term lease, or that it will be on terms acceptable to the
Company. 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.
POSSIBLE RELOCATION OF NEW YORK FAIRE. The Company has a lease for the
2001 Faire season to operate the New York Faire in Sterling Forest. The Company
is negotiating with the owner of the Sterling Forest property and investigating
other possible locations for the New York Faire. However, there can be no
assurance that the Company will be successful in securing a site for the New
York Faire for the 2002 season, or that such arrangements will be on terms
acceptable to the Company. Should the Company be unable to operate a New York
Renaissance Faire it could have a material adverse effect on the Company's
business, results of operations and financial condition.
COMPETITION. The Company faces significant competition from numerous
organizations throughout the country which offer Renaissance Faires and other
entertainment events, including amusement parks, theme parks, local and county
fairs and festivals, some of which possess significantly greater resources than
the Company, and in many cases, greater expertise and industry contacts. The
Company estimates that there are currently 20 major Renaissance Faires produced
each year. In addition, the Company estimates that there are 100 minor
Renaissance Faire events held throughout the United States each year, ranging in
duration from one day to two weekends.
LACK OF TRADEMARK PROTECTION. Because of the large number of existing
Renaissance Faires, the Company is not able to rely upon trademark or service
mark protection for the name "Renaissance Faire." As a result, there is no
protection against others using the name "Renaissance Faire" for the production
of entertainment events similar to those produced by the Company. The Company's
own Faires could be negatively impacted by association with substandard
productions.
PUBLIC LIABILITY AND INSURANCE. As a producer of a public entertainment
event, the Company has exposure for claims of personal injury and property
damage suffered by visitors to
19
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
ending 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 it's
own regulatory requirements that 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. In 2001, the Company currently has leases for each of it's
four Renaissance Faires. 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
20
leasing Faire sites creates a substantial risk of fluctuation in the Company's
operations from year to year.
ITEM 7: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as part of this report:
1. Report of Independent Certified Public Accountants;
2. Consolidated Balance Sheets as of December 31, 1999 and 2000,
(audited);
3. Consolidated Statements of Operations for the Fiscal Years
Ended December 31, 1999 and December 31, 2000 (audited);
4. Consolidated Statements of Changes in Stockholders' Equity for
the Fiscal Years from December 31, 1998 through December 31,
2000 (audited);
5. Consolidated Statements of Cash Flows for the Fiscal Years
Ended December 31, 1999 and December 31, 2000 (audited); and
6. Notes to the Consolidated Financial Statements.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART II
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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 59 Chairman of the Board of Directors, 1993
Chief Executive Officer and Chief
Financial Officer
Sanford L. Schwartz 51 Director 1993
Robert M. Geller 48 Director 1994
21
Thomas G. Brown 56 Director 1999
J. Stanley Gilbert 63 President and Chief Operating 1999
Officer, and a Director
Howard Hamburg 64 Vice President --
Sue Brophy 45 Controller and Chief Accounting --
Officer
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 CK
Properties, L.C., of El Paso, Texas, which is a real estate development and
management corporation 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.
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 past twenty years. From 1992 to present, Mr.
Schwartz has been the Chairman of Creative Business Strategies, Inc. a business
consulting firm.
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.
THOMAS G. BROWN was elected a director of the Company on October 19,
1999. Mr. Brown has been President and Managing Director of Wyndham Capital
Corporation, an investment banking and research firm since he founded it in
1996. Mr. Brown was also a co-founder of Ablum, Brown & Company, an investment
banking firm specializing in leveraged buyout transactions. He served as its
Managing Director from January 1988 until December 1995. Prior to his tenure
with Ablum, Brown & Company, Mr. Brown served as principal of several investment
management and investment banking firms including seven years as a
22
principal of Deihl, Speyer & Brown, a regional investment banking firm. Mr.
Brown is a Chartered Financial Analyst. He also serves as a director of both
Ashton Technology Group, Inc. and Mobile P.E.T. Systems Inc.
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 was 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.
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. Mr. Hamburg's employment with the Company terminated on January 31,
2001.
SUE BROPHY has been Controller and Chief Accounting Officer 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. Ms.
Brophy holds a Bachelor of Arts degree in Biology, a Master of Science degree in
Accounting, and has been a licensed CPA since 1995.
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
On May 1, 1991, comprehensive new rules promulgated by the Securities and
Exchange Commission relating to the reporting of securities transactions by
directors and officers became effective. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the Company and
written representations that no other reports were required, during the fiscal
year ended December 31, 1999, all required reports were filed on a timely basis.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's fiscal
periods ended December 31, 2000 and December 31, 1999, 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 $100,000 (the
"Named Executive Officers").
23
TABLE I
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------------------------
Annual Compensation Awards Payouts
----------------------------------- --------------------- -----------------------
Other Restricted LTIP
Name and Annual Stock Options/ All Other
Principal Salary Bonus Compensation Award(s) Payout Compensation
Position Year ($) ($) ($) ($) SARs ($) ($)
--------------------- ---- --------- ----- ------------ ---------- ----- -------- ------------
Charles S. Leavell,
Chairman and CEO
2000 $160,000 -0- -0- -0- -0- -0- -0-
1999 $160,000 -0- -0- -0- -0- -0- -0-
J. Stanley Gilbert,
COO and President
2000 $120,000 -0- -0- -0- -0- -0- -0-
1999 $120,000 -0- -0- -0- -0- -0- -0-
(1) 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 $50,000 or 10% of the total of
annual salary and bonus paid during the respective years.
OPTIONS GRANTED DURING FISCAL 2000
The following table shows option grants during fiscal 2000 to the Named
Executive Officers of the Company.
OPTIONS GRANTED PERCENT OF TOTAL EXERCISE EXPIRATION
NAME IN FISCAL 2000 OPTIONS GRANTED PRICE DATE
---- -------------- --------------- ----- ----
Charles S. Leavell 0 0 N/A N/A
J. Stanley Gilbert 0 0 N/A N/A
AGGREGATED OPTION EXERCISES DURING FISCAL 2000 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to the number and value of
options held by the Named Executive Officers as of December 31, 2000. The
Company does not have any outstanding stock appreciation rights.
24
Number of Value of Unexercised
Unexercised In-the-
Options/SARs at Money Option/SARs
Value FY-end (#) at FY-End ($)(1)
Shares Acquired Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
---------------------------- ---------------- -------- --------------- ----------------------
Charles S. Leavell -0- $-0- 166,000/0 0/0
J. Stanley Gilbert -0- $-0- 140,000/0 0/0
(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.
EMPLOYMENT AGREEMENTS
Effective December 11, 1998 the Company entered into an Employment Agreement
with Charles S. Leavell, CEO, and J. Stanley Gilbert, President and COO. The
agreements become effective at such time as a change of control (as defined by
the acquisition by any individual, entity or group of 30% of more of the then
outstanding shares of common stock of the Company or the combined voting power
of the then outstanding voting securities of the Company) takes place. These
agreements have a term of three years beginning with a change in control of the
Company.
DIRECTOR COMPENSATION
During the fiscal years ended December 31, 1999 and 2000, Directors, other than
Mr. Geller, Mr. Schwartz, Mr. Gilbert 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 8,000 shares
(retroactively adjusted for the February 1998 one-for-five reverse stock split)
for each year that a director serves on the Board. These options were to be
granted in lieu of cash compensation. In October 2000, the Board of Directors
authorized a new plan for granting of options in consideration for serving on
the Company's Board of Directors. Each member of the Board of Directors who is
not an employee of the Company is granted a non-statutory stock option pursuant
to the Company's Stock Option Plan, each such option to represent the right to
acquire up to 60,000 shares of the Company's common stock, to have an exercise
price equal to the fair market value of the Company's common stock at the close
of business ($0.16) and to have the standard terms for non-statutory stock
options granted pursuant to the Plan, provided that the options shall vest at
the rate of 5,000 shares per quarter beginning 12/31/2000 for a three year
period, so long as the Director continues to serve on the Company's Board of
Directors and attends all meetings.
25
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 on the
Board of Directors' of the Company. As a Director, Mr. Geller receives
compensation as outlined in the above section entitled Director Compensation. In
addition, Mr. Geller provides consulting services to the company. For these
services, Mr. Geller received cash compensation in the amount of $35,000 in 1999
and $22,000 in 2000.
SCHWARTZ COMPENSATION
During 2000, Mr. Schwartz provided consulting services to the Company. He is to
receive $15,000 cash compensation for these services in 2001.
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.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock, as of March 27, 2001, 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 874,540 (2) 31.6%
275 Century Circle, Suite 102
Louisville, Colorado 80027
Robert M. Geller 114,333 (3) 5.1%
275 Century Circle, Suite 102
Louisville, Colorado 80027
26
Sanford L. Schwartz 49,870 (4) 2.3%
275 Century Circle, Suite 102
Louisville, Colorado 80027
Thomas G. Brown 23,000(5) 1.1%
275 Century Circle, Suite 102
Louisville, Colorado 80027
J. Stanley Gilbert 590,287(6) 21.8%
275 Century Circle, Suite 102
Louisville, Colorado 80027
All Directors & Officers as a Group 1,677,030 (7) 47.5%
(7 Persons)
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of March 27, 2001, 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 176,000 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. 26,667 shares of Common Stock
held of record by LMG are subject to an option granted in favor of Mr.
Leavell. Includes 75,874 shares of Common Stock held of record by Mr.
Leavell. Includes non-qualified options to purchase 166,000 shares.
Includes warrants to purchase 40,000 shares, 20,000 of which are held
by Leavell Management Group, Inc. Includes conversion rights to 416,666
shares of Common Stock, 83,333 of which are held by Leavell Management
Group, Inc. Mr. Leavell disclaims beneficial ownership of the
securities held by LMG for purposes of Section 16 under the Exchange
Act. This does not include warrants to purchase 40,000 shares owned by
an estate to which Mr. Leavell is a beneficiary.
(3) Includes non-qualified options to purchase 92,333 shares of Common
Stock and warrants to purchase 22,000 shares.
(4) Includes 870 shares owned by Creative Business Strategies, Inc., a
corporation of which Mr. Schwartz is an officer, director and
shareholder. Includes non-qualified options to purchase 34,000 shares
of Common Stock and warrants (owned by Creative Business Strategies) to
purchase 15,000 shares.
(5) Includes non-qualified options to purchase 18,000 shares of Common
Stock and 5,000 shares of Common Stock held of record by his spouse.
Mr. Brown disclaims beneficial ownership of the securities held by his
spouse for purposes of Section 16 under the Exchange Act.
27
(6) Includes 5,200 shares of Common Stock held of record and an option to
purchase 15,000 shares of Common Stock held by his spouse. Mr. Gilbert
disclaims beneficial ownership of the securities for purposes of
Section 16 under the Exchange Act. Includes 25,487 shares of Common
Stock held of record by Mr. Gilbert, non-qualified options to purchase
140,000 shares of Common Stock, warrants to purchase 29,600 shares and
conversion rights to 375,000 shares.
(7) Includes 288,431 shares held of record, 490,333 shares issuable upon
exercise of stock options exercisable within 60 days of March 27, 2001,
106,600 shares issuable upon exercise of warrants and 791,666
conversion rights.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHORT-TERM NOTES-1999
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.
PROMISSORY NOTES-2000
In 1999, the Company authorized the issuance of up to $1,000,000 of 12%
subordinated promissory notes due August 31, 2001 in units, each unit consisting
of two promissory notes of equal principal, identical in nature except that one
note is convertible to common stock at a price of $0.30 per share. During the
first six months of fiscal 2000, the Company raised capital in the amount of
$575,000 through the issuance of these notes. The funds were provided by Charles
S. Leavell ($250,000), Chairman of the Board of Directors, J. Stanley Gilbert
($225,000), Member of the Board of Directors, and one other investor.
The Company believes that the foregoing transactions were on terms as favorable
to the Company as could have been obtained from non-affiliated parties.
FAIRE PARTNERS, LTD.
In November of 1997, the Company sold it's Wisconsin property in a
sale-leaseback transaction to Faire Partners, Ltd. of El Paso, Texas. One of the
owners of Faire Partners, Ltd. was related to the CEO and Chairman of the Board
of Directors of the Company. This related party is now deceased and his
ownership in Faire Partners, Ltd. is currently part of his estate. Because the
Company's CEO and Chairman of the Board of Directors of the Company is a
beneficiary of this estate, the estate may be deemed a related party. See "Item
2-Property" for the terms of this
28
transaction. During fiscal 2000 the Company paid Faire Partners, Ltd.
$440,000 pursuant to this transaction.
PART IV
ITEM 13: EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
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 Renaissance Entertainment Corporation 1993 Stock Incentive
Plan. (1)
* 10.1 Specimen Vendor and Exhibitor Agreement for the Bristol
Renaissance Faire.
* 10.2 Specimen Vendor and Exhibitor Agreement for the Northern and
Southern Renaissance Pleasure Faires.
* 10.3 Specimen Bristol Renaissance Faire Concession Agreement.
* 10.4 Specimen Bristol Renaissance Faire Games Concession Agreement.
10.5 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.
10.6 Form of Loan and Security Agreement for 1998, including form
of Stock-Term Notes and form of Warrant to purchase common
stock, incorporated by reference from the Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
10.7 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.
10.9 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, incorporated by reference from
Registrant's Registration Statement on Form S-1 (No.
333-43503).
10.10 Lease dated January 21, 1998 by and between Attache Publishing
Services, Inc. and the Company, incorporated by reference from
the Registrants Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
10.11 Employment Agreement dated December 11, 1998 with Charles S.
Leavell, incorporated by reference from Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
29
10.12 Employment Agreement dated December 11, 1998 with J. Stanley
Gilbert, incorporated by reference from Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1998.
10.13 Amendment dated December 17, 1999 to Lease with Faire Partners
LLC, incorporated by reference from Registrant's Annual Report
on Form 10-KSB for the year ended December 31, 1999.
10.14 Guaranty Agreement of Charles S. Leavell dated December 17,
1999, incorporated by reference from Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1999.
10.15 Warrant Agreement dated December 17, 1999, incorporated by
reference from Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1999.
10.16 Amendment dated February 15, 2000 to Lease with San Bernardino
County Regional Parks Division, incorporated by reference from
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
10.17 Amendment dated March 24, 2000 to Lease with Sterling Forest
LLC, incorporated by reference from Registrant's Annual Report
on Form 10-KSB for the year ended December 31, 1999.
10.18 Asset Purchase Agreement between Jim and Marta Selway and the
Company dated April 6, 2000, incorporated by reference from
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1999.
10.19 Form of Subordinated Subscription and Purchase Agreement for
2000, including A Note and Convertible B Note incorporated by
reference from Registrant's Quarterly Report on Form 10-QSB
for the period ended March 31, 2000.
** 10.20 Lease dated June 27, 2000 by and between San Bernardino
County Community and Cultural Resources Department and the
Company.
** 10.21 Lease dated May 30, 2000 by and between TKG Nut Tree, LLC.
And the Company.
** 10.22 Lease agreement dated October 19, 2000 by and between Flying
Squirrel Entertainment, LLC. and the Company.
** 10.23 Lease agreement dated November 29, 2000 by and between
Vacaville Redevelopment Agency and City of Vacaville and the
Company.
** 10.24 Extension and Modification Agreement dated December 1, 2000
between Holly Mortgage Trust and the Company.
** 10.25 Amendment dated October 30, 2000 to Lease with Faire Partners,
LLC.
** 10.26 Guaranty Agreement of Charles S. Leavell dated October 27,
2000.
* 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.
** Filed herewith.
30
REPORTS ON FORM 8-K
The Registrant filed no Current Reports on Form 8-K during the final quarter of
the fiscal period ended December 31, 2000.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RENAISSANCE ENTERTAINMENT CORPORATION
Date: April 16, 2001 /s/ CHARLES S. LEAVELL
-------------------------------------------
Charles S. Leavell, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHARLES S. LEAVELL Chairman of the Board, April 16, 2001
----------------------------- Chief Executive and Chief
Charles S. Leavell Financial Officers
/s/ SUE BROPHY Chief Accounting Officer April 16, 2001
-----------------------------
Sue Brophy
/s/ J. STANLEY GILBERT Director, President, April 16, 2001
----------------------------- and Chief Operating Officer
J. Stanley Gilbert
/s/ SANFORD L. SCHWARTZ Director April 16, 2001
-----------------------------
Sanford L. Schwartz
/s/ ROBERT M. GELLER Director April 16, 2001
-----------------------------
Robert M. Geller
/s/ THOMAS G. BROWN Director April 16, 2001
-----------------------------
Thomas G. Brown
32
RENAISSANCE ENTERTAINMENT CORPORATION
FINANCIAL STATEMENTS
WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DECEMBER 31, 1999 AND DECEMBER 31, 2000
F-1
RENAISSANCE ENTERTAINMENT CORPORATION
FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Page
Report of Independent Certified Public Accountants F-3
Audited Financial Statements:
Balance Sheets F-4
Statements of Operations F-5
Statement of Changes in Stockholders'
equity (deficit) F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Renaissance Entertainment Corporation
We have audited the balance sheets of Renaissance Entertainment Corporation as
of December 31, 1999 and 2000 and the related statements of operations and
changes in stockholders' equity (deficit), and cash flows for the years ended
December 31, 1999 and 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 as of December 31, 1999 and 2000 and the results of operations,
changes in stockholders' equity (deficit) and cash flows for the years ended
December 31, 1999 and 2000 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1, the Company
has minimal stockholders' equity and a net working capital deficiency that raise
substantial doubts about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
2525 Fifteenth Street, Suite 3H
Denver, CO 80211
February 28, 2001
F-3
RENAISSANCE ENTERTAINMENT CORPORATION
BALANCE SHEETS
ASSETS
December 31, December 31,
1999 2000
----------- ------------
Current Assets:
Cash and equivalents $ 1,049,044 $ 1,002,804
Accounts receivable, net of allowance
for doubtful accounts of $2,500 4,951 7,286
Inventory, at lower of cost or market 201,493 104,532
Note receivable, current portion - 17,400
Prepaid expenses and other current assets 259,646 258,121
----------- ---------
Total Current Assets 1,515,134 1,390,143
Property and equipment, net of accumulated
depreciation of $2,364,201 and $2,423,663
at December 31, 1999 and 2000 respectively
(Note 7) 4,294,163 3,914,210
Goodwill, net of accumulated amortization
of $358,447 and $409,123 at December 31,
1999 and 2000 respectively (Note 5) 468,798 418,122
Note receivable, net of current portion - 128,679
Other assets 830,725 773,303
----------- ----------
Total Assets $ 7,108,820 $6,624,457
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 1,720,610 558,261
Notes payable, current portion (Note 3) 854,277 1,370,836
Unearned income 214,789 193,668
----------- ----------
Total Current Liabilities 2,789,676 2,122,765
Lease obligation payable (Note 11) 3,987,116 3,991,494
Notes payable, net of current
portion (Note 3) 311,873 145,880
Other 39,675 246,865
----------- ----------
Total Liabilities 7,128,340 6,507,004
----------- ----------
Commitments (Notes 2,3,4,8,10,11,12,13 and 14) - -
Stockholders' Equity (Deficit) (Notes 2,8,9 and 10):
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, 2,144,889 issued and
outstanding at December 31, 2000 64,346 64,346
Additional paid-in capital 9,430,827 9,430,827
Accumulated (deficit) (9,514,693) (9,377,720)
----------- ----------
Total Stockholders' Equity (Deficit) (19,520) 117,453
----------- ----------
Total Liabilities and Stockholders' Equity (Deficit) $ 7,108,820 $6,624,457
=========== ==========
The accompanying notes are an integral part of the financial statements.
F-4
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
Year Ended Year Ended
December 31, December 31,
1999 2000
----------- ------------
REVENUE:
Sales $ 14,467,437 $12,462,816
Faire operating costs 5,057,676 3,702,506
----------- -----------
Gross Profit 9,409,761 8,760,310
----------- -----------
OPERATING EXPENSES:
Salaries and wages 4,454,731 3,261,800
Depreciation and amortization 565,646 409,525
Advertising 1,797,879 1,363,235
Other operating expenses 3,434,624 2,685,022
----------- -----------
Total Operating Expenses 10,252,880 7,719,582
----------- -----------
Net Operating Income (Loss) (843,119) 1,040,728
----------- -----------
Other Income (Expenses):
Interest income 66,369 93,390
Interest (expense) (639,719) (617,803)
Other income (expense) 86,482 87,930
Write-down of Virginia site (Note 12) (2,121,334) (467,272)
----------- -----------
Total Other Income (Expenses) (2,608,202) (903,755)
----------- -----------
Net Income (Loss) $(3,451,321) $ 136,973
=========== ===========
Net Income (Loss) per Common Share $ (1.61) $ .06
=========== ===========
Weighted Average Number of
Shares Outstanding 2,144,889 2,144,889
=========== ============
The accompanying notes are an integral part of the financial statements.
F-5
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
From December 31, 1998 through December 31, 2000
Common Stock Additional
--------------------- Paid-in Accumulated
Shares Amount Capital (Deficit) Total
--------- -------- ---------- ------------ -----------
Balance December 31, 1998 2,139,891 $ 64,196 $9,428,477 $ (6,063,372) $ 3,429,301
Issuance of stock for services 4,998 150 2,350 - 2,500
Net loss for the year ended December 31, 1999 - - - (3,451,321) (3,451,321)
--------- -------- ---------- ------------ -----------
Balance December 31, 1999 2,144,889 64,346 9,430,827 (9,514,693) (19,520)
Net income for the year ended
December 31, 2000 - - - 136,973 136,973
--------- -------- ---------- ------------ -----------
Balance December 31, 2000 2,144,889 $ 64,346 $9,430,827 $ (9,377,720) $ 117,453
========= ======== ========== ============ ===========
The accompanying notes are an integral part of the financial statements.
F-6
RENAISSANCE ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended Year Ended
December 31, December 31,
1999 2000
----------- -----------
Cash Flows from Operating Activities:
Net Income (loss) $(3,451,321) $ 136,973
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 565,646 409,525
(Increase) decrease in:
Accounts receivable 13,558 (2,335)
Inventory (65,314) 96,961
Prepaid expenses and other 43,172 58,947
Increase (decrease) in:
Accounts payable and accrued
expenses 1,116,176 (1,162,349)
Unearned revenue and other 54,929 186,069
----------- -----------
Net Cash Provided by (Used in) Operating
Activities (1,723,154) (276,209)
----------- -----------
Cash Flows from Investing Activities:
Increase in note receivable - (300,000)
(Repayments) of note receivable - 153,921
Net (acquisition) reduction of property
and equipment, goodwill and covenant
not to compete 1,810,635 21,104
----------- -----------
Net Cash Provided by (Used in) Investing
Activities 1,810,635 (124,975)
----------- -----------
Cash Flows from Financing Activities:
Common stock issued and additional
paid-in capital 2,500 -
Proceeds from lease obligation
payable 44,757 10,699
Proceeds from notes payable 1,265,590 594,476
Principal payments on notes payable (730,620) (250,231)
----------- -----------
Net Cash Provided by Financing Activities 582,227 354,944
----------- -----------
Net Increase (Decrease) in Cash 669,708 (46,240)
Cash, beginning of period 379,336 1,049,044
----------- -----------
Cash, end of period $ 1,049,044 $ 1,002,804
=========== ===========
Interest paid $ 639,719 $ 617,803
=========== ===========
Income tax paid $ - $ -
=========== ===========
The accompanying notes are an integral part of the financial statements
F-7
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(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. During February, 1994 REC formed Renaissance Pleasure
Faires, Inc. (RPFI) which acquired the assets and the business of two
Renaissance Faires in California.
The business combination with the California Faires was accounted for
as a purchase by REC with the excess of cost over fair value of net
assets acquired accounted for as goodwill. See Note 5 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 restricted common
shares of REC stock. The business combination with CFL was accounted
for as a pooling of interests. The financial statements include the
accounts of CFL.
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.
All subsidiaries of the Company were merged into REC as of March 31,
1996 with the exception of Creative Faires, Ltd. which was merged into
REC during 1998.
The Company uses a December 31 year end.
F-8
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(b) PER SHARE INFORMATION
Per share information is determined using the weighted average number
of shares outstanding during the periods after giving effect for the
stock splits.
(c) PROPERTY AND EQUIPMENT
Property and equipment are 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.
(d) REVENUE AND EXPENSE RECOGNITION AND COST OF SALES
The Company recognizes revenues from the renaissance faires as earned
during the period when the faires 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
faires, and prior to the opening of the next years faires, 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 faire.
Faire operating expenses 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 and other direct costs of the production. All other expenses
related to operation of the faire are shown as operating expenses in
the statement of operations.
Advertising costs are expensed over the term of the faire to which the
expense applies. Direct costs related to the setting up of the faires
are capitalized as prepaid expenses and expensed during the period of
the operation of the applicable faires.
F-9
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) 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
December 31, 2000, the Company had approximately $780,000 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.
(f) CASH EQUIVALENTS
The Company considers all short term investments in securities that
mature in 90 days or less to be cash equivalents.
(g) 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.
(h) ALLOWANCE FOR BAD DEBTS
The Company provides an allowance for bad debts based on prior
collection experience.
(i) 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-10
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(j) GEOGRAPHIC AREA OF OPERATIONS AND INTEREST RATES
The Company owns and operates Renaissance Faires principally in four
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 four areas, this concentration of operations
results in an associated risk and uncertainty.
(k) BASIS OF PRESENTATION - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
has minimal stockholders' equity and a working capital deficiency that
raise substantial doubts about its ability to continue as a going
concern. Management is attempting to raise additional capital and to
sell certain real estate owned.
In view of these matters, realization of certain of the assets in the
accompanying balance sheet is dependent upon continued operations of
the Company, which in turn is dependent upon the Company's ability to
meet its financial requirements, raise additional capital, and the
success of its future operations.
Management believes that its ability to raise additional capital and
attempting to sell certain real estate owned provide an opportunity for
the Company to continue as a going concern.
(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.
During January, 1995 the Company sold in a public offering 1,035,000
units of its securities. Each unit consisted of one share of common
stock and one Class A warrant and one Class B warrant. Each Class A
warrant entitled 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 entitled the holder thereof to purchase one share
of common stock at a price of $5.25 per share through January 27, 2000.
These warrants were changed based upon the forward two-
F-11
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(2) COMMON AND PREFERRED STOCK, CONTINUED
for-one split effective October 17, 1996 and the reverse one-for-five
stock split effective February 23, 1998, decreasing the number of
warrants on a one-for-two and one-half basis and increasing the
exercise price to $10.00 and $13.125 per share respectively. These
warrants were immediately exercisable. The warrants were redeemable by
the Company at a price of $.05 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 were granted exercise
rights until the close of business on the date preceding the date fixed
for redemption. These warrants expired in the year ended December 31,
2000.
The Company incurred $646,056 of costs related to this offering. These
offering costs were offset against the proceeds of the offering.
During 1999, in connection with financing activities, the Company
issued warrants for 75,000 shares at $.81 exercise price and 100,000
shares at $.30 per share exercise price. These warrants expire in 2005
and 2003, respectively.
In addition, options of 275,000 were granted at an exercise price of
$.53 per share.
During 2000, in connection with financing activities, the Company
replaced a certain warrant dated November 12, 1997 pursuant to an
Amendment of Lease Agreement dated December 17, 1999.
(3) NOTES PAYABLE
Notes payable at December 31, 2000 are summarized as follows:
Note payable to bank at 9.25%, monthly principal and interest payment
currently of $15,396, increasing over the term of the loan through July
31, 2002, collateralized by land and improvements. $ 274,113
Note payable to Mortgage lender, collateralized by all assets and prior
perfected to all debt except note payable bank. Interest only payments
payable at 13% from February 1, 2001 through June 1, 2001. Principal
and interest payments from July 1, 2001 through November 1, 2001 in an
amount equal to a five year amortization of the outstanding balance as
of June 1, 2001
Balance due in full on September 1, 2001. 605,827
F-12
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(3) NOTES PAYABLE, CONTINUED
Notes payable to primarily related parties, Consisting of two
promissory notes of equal value to each party, identical in nature
except that one note is convertible to common stock at a
price of $.30 per share. Interest is payable quarterly
at 12%, balance due in full on August 31, 2001. 575,000
Notes payable to equipment manufacturers collateralized by certain
equipment, payable in monthly installments of principal and interest;
final payments due in 2003, interest ranging from 9.776% to 22%. 61,776
-----------
Total 1,516,716
Less current portion 1,370,836
-----------
Long-term portion $ 145,880
===========
Principal payments due on notes payable for each of the next five
fiscal years ending December 31 and in the aggregate thereafter, are as
follows:
2001 $ 1,370,836
2002 127,574
2003 16,537
Thereafter 1,769
-----------
$ 1,516,716
===========
(4) LEASES
The Company leases the New York Faire site with terms expiring through
the year 2001. Annual lease payments on the New York Faire site are
$338,905 for 2000 and $360,000 for 2001.
Effective January 21, 1998, the Company entered into an operating lease
at 275 Century Circle in Louisville, Colorado for office facilities.
Initial monthly rental payments are $3,603 plus 27% of operating costs
with annual increases tied to the CPI for a term of five years.
Future minimum rentals under all operating leases with terms exceeding
twelve months are as follows:
Year Ending
December 31,
2001 1,168,236
2002 663,236
2003 645,000
2004 716,667
2005 741,667
Thereafter 8,069,083
-----------
Total $12,003,889
===========
F-13
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(4) LEASES, CONTINUED
Rent expense for the year ended December 31, 2000 and for the year
ended December 31, 1999 totaled approximately $974,233 and $1,033,328,
respectively. See Note 13 for subsequent event.
(5) GOODWILL AND COVENANT NOT TO COMPETE
The cost of the acquisition of the California Faire assets and business
as described in Note 1 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 December 31,
2000 the Company's net carrying value for goodwill was $418,122 after
amortization.
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 fully amortized at December 31, 2000.
(6) INCOME TAXES
As of December 31, 2000, there are no current or deferred income taxes
payable. As of December 31, 2000, the Company has total deferred tax
assets of approximately $1,400,000 due to operating loss carryforwards
and the depreciation timing differences described above. However,
because of the uncertainty of potential realization of these tax
assets, the Company has provided a valuation allowance for the entire
$1,400,000. Thus, no tax assets have been recorded in the financial
statements as of December 31, 2000.
The Company has available at December 31, 2000, unused operating loss
carryforwards of approximately $9,400,000 which may be applied against
future taxable income, expiring in various years through 2020. The
available net operating loss carryforwards may be reduced if there is a
50% or more change in ownership.
F-14
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(7) PROPERTY AND EQUIPMENT
Land $ 2,320,283
Buildings and Improvements 1,859,967
Office Furniture and Equipment 475,134
Costumes, Props and Other Assets 1,682,489
-----------
Sub-total 6,337,873
Less Accumulated Depreciation (2,423,663)
----------
Total 3,914,210
==========
(8) WARRANTS AND OPTIONS
At December 31, 2000, the Company had 2,182,766 warrants and options
outstanding with expiration dates through 2005. The following is a
summary of the options and warrants outstanding at December 31, 2000:
Number Exercise Price Expiration Date
--------- -------------- ---------------
7,000 $ 1.125 June, 2001
958,333 $ .30 August, 2001
99,600 $ 1.51 March, 2003
168,000 $ .31 November, 2003
131,833 $ .81 June, 2003
100,000 $ .30 November, 2003
375,000 $ .53 March, 2004
8,000 $ .53 April, 2004
180,000 $ .30 October, 2004
75,000 $ .81 December, 2005
80,000 $ .81 June, 2005
---------
2,182,766
=========
During the year ended December 31, 1998, 286,833 options were granted
of which 74,500 have exercise prices of $.31 expiring in November, 2003
and 212,333 have exercise prices of $.81 expiring in June, 2003. During
the year ended December 31, 1999, 275,000 options were granted which
have exercise prices of $.53 expiring in March, 2004. Also during the
year ended December 31, 1999, the Company replaced a warrant for
100,000 shares with an exercise price of $.30 expiring in November
2003. During the year ended December 31, 2000, 180,000 options were
granted which have exercise prices of $.16 expiring in October, 2004
and 8,000 options were granted which have exercise prices of $.53
expiring in April, 2004. In addition, 958,333 convertible debentures
were issued which have exercise prices of $.30 expiring in August 2001.
The options granted during 1999 and 2000 were principally granted to
employees and directors of the Company. The exercise prices at the
dates of grants approximated market value of the common stock.
Therefore, no compensation expense was recorded in the financial
statements related to the options since the estimated fair value would
not be material.
F-15
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(9) 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 227,333 shares of its
common stock and 175,000 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 of the financial statements for additional information
related to the business combination. The transaction was accounted for
as a purchase by REC.
(10) COMMITMENTS
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 granted an option to the consulting firm
to allow the firm to acquire a minimum of 13,200 and a maximum of
26,400 shares of the Company's common stock at $8.13 per share with the
increase depending on the results of the services performed by the
consulting firm.
(11) SALE LEASE BACK TRANSACTION
During November, 1997, the Company sold its real property in Wisconsin
to a related party for $4,000,000 and signed a 20 year non-cancellable
lease back on this property with monthly lease payments in the initial
amount of $33,333 increasing to $45,278 over the term of the lease. The
Company has an option to reacquire the property during the twenty year
lease period at fixed amounts as specified in the lease. Since the
Company continues to have an economic interest in the property due to
the option, the Company treated the transaction as a financing
arrangement. As of December 31, 2000, the outstanding balance on the
finance obligation was $3,991,494 using an effective interest rate of
approximately 11%. The purchaser was deemed to be a related party as a
relative of the Chairman of the Board of the Company is a minority
interest investor in the Company which purchased this property.
F-16
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(11) SALE LEASE BACK TRANSACTION, CONTINUED
On December 17, 1999, the Company entered into a lease amendment with
Faire Partners, the landlord for the Wisconsin property. The amendment
provided for a one-time restructuring of rental payments. During the
time period between December 1, 1999 and May 31, 2000 the monthly base
rent payable by the Company to the landlord was reduced from $36,667
per month to $21,667 per month and during the period of time between
June 1, 2000 through November 30, 2000, the monthly base rent payable
was increased to $51,667 per month. As an inducement to the landlord to
execute this lease amendment the company agreed to terminate the
existing warrant and issue a new warrant. The original warrant provided
for 100,000 shares at $.30 per share and expires November, 2003. The
warrant in 1999 grants 100,000 shares at $.30 per share, the closing
ask price on the date the lease amendment was signed. The 1999 warrant
is on the same terms and conditions as contained in the original
warrant.
(12) WRITE-DOWN OF VIRGINIA SITE
On October 27, 1999, the board of directors decided to discontinue
operations at the Virginia site. Efforts are underway to sell the
property. The 1999 and 2000 financial statements include a loss of
$2,121,334 and $467,272, respectively, related to the write-down of the
property due to closure of the site. Included in this loss are
estimated accrued closing expenses of $65,000. The property is pledged
as collateral on a first and second mortgage totaling $879,940.
(13) EMPLOYMENT AGREEMENTS
Effective December 11, 1998, the Company entered into employment
agreements with its Chief Executive Officer and President. The
agreements become effective at such time as a change of control (as
defined by the acquisition by any individual, entity or group of 30% or
more of the then outstanding shares of common stock of the Company or
the combined voting power of the then outstanding voting securities of
the Company) takes place. These agreements have a term of three years
beginning with a change in control of the Company.
(14) SUBSEQUENT EVENTS
The Company's leases for two of its four Faire sites have or will
expire in 2001. To date no leases have been obtained to extend
operations beyond 2001. Management is pursuing leases in each location.
An unsuccessful lease negotiation in 1999 for Northern California
resulted in a loss of $70,000 of a $100,000 deposit made in 1998.
RENAISSANCE ENTERTAINMENT CORPORATION
F-17
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 2000
(14) SUBSEQUENT EVENTS, CONTINUED
Effective February 27, 2001, the board of directors granted stock
options of 100,000 and 50,000, respectively, to two officers of the
Company at an exercise of $.20 per share. The options are to vest
one-third per year, commencing February 27, 2002. The granting of these
options are subject to approval of shareholders as there were
insufficient options to fulfill the transaction.
F-18