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, 2001
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, 2001 were $12,447,540.
As of March 26, 2002, 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 $493,324. As of March 26, 2002,
2,144,889 shares of the Common Stock of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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.
WEB SITE. The Company maintains a home page at www.recfair.com.
EXISTING RENAISSANCE FAIRES AND SITES
The following table shows the net operating income for the Company's four
Renaissance Faires during the 2000 and 2001 seasons.
Net Operating Income
--------------------------------------------
2000 2001
----------------- ----------------
Bristol 1,152,701 1,211,898
Northern CA 208,410 (149,481)
Southern CA 520,164 389,772
New York 632,430 429,927
----------------- ----------------
Total $2,513,705 $1,882,116
1
BRISTOL RENAISSANCE FAIRE. The Bristol Renaissance Faire is held at the Kenosha,
Wisconsin site leased by the Company. It has been in existence for 15 years. The
Bristol Renaissance Faire is operated annually for nine weekends beginning the
last weekend in June and ending the middle of 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.
Historically the Company has utilized the site for the Renaissance Faire, and
the property has been vacant during the off-season.
On April 6, 2000 the Company entered into an Asset Purchase Agreement with
Willows Fare, LLC which conveyed its 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.
NORTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. The Northern California
Renaissance Pleasure Faire has been held in the San Francisco Bay area for the
past 35 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 2000, the Faire operated seven weekends beginning
the first weekend of September and ending in mid-October. In 2001, the Faire
operated eight weekends beginning the last weekend of August and ending in
mid-October. As of this date, the 2002 operating season has not been announced.
The Northern California Faire historically operated on leased property in
Novato, California. The lease for this property expired after the 1998 season.
From 1999 through 2001, the Faire was held on the site of the original Nut Tree
Farm in Vacaville, California under a year to year lease. The Company is
currently negotiating a lease for a new site for the 2002 season. However, 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 or future operating seasons, 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 Southern 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 40 years in the Los
Angeles metropolitan area. This Faire is held annually for seven or eight
weekends beginning the first weekend of May and ending in mid-June. In the 2000
and 2001 seasons, the Faire ran eight weekends beginning the first week of May.
In 2000 and 2001, 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 2002, the Faire is scheduled to run seven weekends beginning the first
weekend of May and a School Days event is scheduled in the month of May.
2
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-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 2002 rent fixed at $249,500.
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 is now 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 produced Sterling Forest's Forest of Fear.
Historically, the Faire has been held annually for eight weekends beginning the
first weekend of August and ending the third weekend of September. The Forest of
Fear is held each year beginning the first weekend of October and ending on
Halloween. In 2000 and 2001 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 of 2002. In 2002, the Company anticipates
operating the Faire seven 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. Two one-year extensions were granted for the
2001 and 2002 season.
Faire Partners, Ltd., the Company's landlord for the Wisconsin site, is
currently negotiating with Sterling Forest Corp. to purchase the New York
property. The closing date on this transaction is expected to take place early
in the second quarter of 2002. Although a lease has not currently been signed,
the Company anticipates leasing the property from Faire Partners on a
twenty-year term with rent payments of $425,000 in years 1 through 5, $435,000
years 6 through 15 and $450,000 for lease years 16 through 20. The leased
property includes the Sterling Forest Ski Area, which the Company is currently
evaluating whether or not to continue operating.
To date, the purchase, a lease or other arrangements have not been secured for
the 2003 season. There can be no assurance that the Company will be successful
in doing so in time for the 2003 or future operating seasons, or that it will be
on terms acceptable to the Company.
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 had a negative impact on the Company's cash flow
and net income since its opening. In 2000 and 2001, the Company recorded an
asset write down of approximately $467,272 and $39,982 respectively in
connection with the closing of the Faire. The Company completed the sale of the
Virginia property in August, 2001 at a selling price of $1.3 million. The
proceeds of the sale were used to retire the first and second mortgages on the
property with excess funds set aside for use as working
3
capital. The Company does not anticipate future expenditures as a result of
the Virginia closure.
VENDORS
Approximately 14% 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.
At the Bristol Renaissance Faire site there were approximately 180 vendors in
2000 and 2001. 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 $1,100.
At the Southern California Faire there were approximately 136 vendors in 2000
and 142 vendors in 2001. At the Northern California Faire there were
approximately 145 vendors in 2000 and 2001. 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 2000 and 155
vendors in 2001. 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 2000 and 2001 seasons from each of these
activities. Attendance and revenue generated by the Company's New York and
Northern California Faires were both negatively impacted by the terrorist
attacks on September 11, 2001.
----------------------------- ----------------------- ------------------------
2000 2001
----------------------------- ----------------------- ------------------------
Gate Admissions $ 5,941,690 $ 5,851,363
Beverage Revenue 2,514,129 2,724,875
Parking Revenue 802,450 736,379
Food Revenue 11,552 2,731
Vendor Fees 1,826,190 1,751,192
Souvenir Revenue 820,122 802,637
Sponsorship Fees 197,526 205,778
Camping Fees 216,911 200,969
Miscellaneous Fees 132,246 171,616
----------- -----------
Total $12,462,816 $12,447,540
----------------------------- ----------------------- ------------------------
4
GATE ADMISSIONS. Gate admissions are generally set from $14.50 to $17.50 for
adults, $5.00 to $7.50 for children, and children under the age of five admitted
free. Discounts range from $2.00 to $3.00 for seniors and, in some cases,
students and military personnel. Off premises discount ticket sales are
available at Cub Foods, Sentry Foods, Ralph's, Calabell Market 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
Circle K. 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 $5.00 to 7.00 per car for regular
parking and $10 to 11.00 for preferred close-in parking. The Bristol and New
York Faires have preferred parking for $3.00 and $5.00 respectively.
FOOD REVENUE. The food concessions at all of the Company's Faires are run by
independent vendors. On April 6, 2000, the Company entered into an agreement to
sell its food concessions, at the Bristol Faire, to an independent food vendor.
These vendors pay the Company a commission equal to approximately 15-19% of
their gross revenues.
VENDOR FEES. Each Faire has approximately 145 to 180 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, Southern California 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.
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, Canandaigua Wines, Hinckley-Schmidt Water, Moto Photo, 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.
5
The Company has also undertaken a "Sponsorship" campaign. Major sponsors have
included Guinness Bass Company, Miller Brewing Company, Aquafina Water, Andis
System ATM's, Fuji Film, 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 2000 and 2001, the Company sponsored these
events in conjunction with Events Group, Inc. In 2000, the Company held three
daily events at two of its Faire sites with 14,373 individuals attending. In
2001, the Company held three daily events at two Faire sites with 12,977
individuals in attendance. In 2002, the Company plans three daily events at its
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 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 its control but nevertheless
could have a direct and material impact upon the Company's relative success or
failure.
COMPETITION
As a promoter and operator of family entertainment events, the Company faces
significant competition from other more traditional entertainment alternatives,
including amusement parks, theme parks, local and county fairs, and specialty
festivals. At each of the markets in which the Company competes, there are many
entertainment events which compete for the consumers' entertainment dollars.
Many of these entertainment events have attendance and revenues substantially
greater than the Company's 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.
6
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.
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 $5,000,000
per occurrence and $6,000,000 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 18, 2002, the
Company had a total of thirty two full-time employees; including eight full-time
employees working in its Colorado headquarters; nine at the Bristol Faire; ten
at the California Faires and five at the New York Faire.
7
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 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.
BRISTOL RENAISSANCE FAIRE. 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 2002, 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. In January, 2002 the Company's Board of Directors approved a
resolution to amend the Bristol lease to provide that the repurchase price for
the leased property shall be the greater of the fair market value for the
property or $4,522,443. Under the original lease the repurchase option was 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 was released in 2001 and the balance was to be
released in 2005. The proposed Sterling Forest lease for the New York Faire site
would hold the remaining $333,333 as a security deposit for both leases and
extend the release date to April 1, 2008.
SOUTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. 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 2002 rent fixed at
$249,500.
NORTHERN CALIFORNIA RENAISSANCE PLEASURE FAIRE. From 1999 through 2001, 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 is negotiating a long-term lease for a new site for this Faire starting
in 2002. To date, this lease has not be finalized and there can be no assurance
that the Company will be successful in obtaining a lease, or that it will be on
terms acceptable to the Company, in time for the 2002 or future operating
seasons.
NEW YORK RENAISSANCE FAIRE. The New York Faire is operated on 65 acres of leased
land in Tuxedo, New York. 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. Two one-year
extensions was granted for the 2001 and 2002 seasons.
Faire Partners, Ltd., the Company's landlord for the Wisconsin site, is
currently negotiating with Sterling Forest Corp. to purchase the New York
property. The closing date on this transaction is expected to take place early
in the second quarter of 2002. Although a lease has not currently been signed,
the Company anticipates leasing the
8
property from Faire Partners on a twenty-year term with annual rent payments
of $425,000 in years 1 through 5, $435,000 in years 6 through 15 and $450,000
in years 16 through 20. The leased property includes the Sterling Forest Ski
Area, which the Company is currently evaluating whether or not to continue
operating.
To date, the purchase, a lease or other arrangements have not been secured for
the 2003 Faire season. There can be no assurance that the Company will be
successful in doing so in time for the 2003 or future operating seasons, or that
it will be on terms acceptable to the Company.
VIRGINIA RENAISSANCE FAIRE. 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, 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. The Company completed the sale of the Virginia property in
August, 2001 at a selling price of $1.3 million. The proceeds of the sale were
used to retire the first and second mortgages on the property with excess funds
set aside for use as working capital. (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 Annual Meeting of the Stockholders of the Company was held on
October 30, 2001. At that meeting, the following five directors, constituting
all members of the Board of Directors, were elected: Charles S. Leavell; Robert
Geller; Sanford Schwartz; J. Stanley Gilbert; and Thomas Brown.
Shareholders also approved a proposal to increase the number of shares
reserved for issuance under the Company's 1993 Incentive Stock Plan from 750,000
to 1,250,000. The number of shares voting for the increase were 469,444; against
were 299,546; abstentions were 13,308.
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 FAIR. 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. 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
-------------------------------- ---- ---
2000
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
9
2001
First Quarter ended March 31 0.2813 0.1563
Second Quarter ended June 30 0.40 0.15
Third Quarter ended September 30 0.51 0.20
Fourth Quarter ended December 31 0.40 0.20
2002
First Quarter ended March 31 0.35 0.22
As of March 1, 2002, there were approximately 153 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, 2001.
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 had a negative impact on the Company's cash flow and net income since its
opening. In 2000 and 2001, the Company recorded an asset write down of
approximately $467,272 and $39,982, respectively, in connection with the closing
of the Faire. The Company completed the sale of the Virginia property in August,
2001 at a selling price of $1.3 million. The proceeds of the sale were used to
retire the first and second mortgages on the property with excess funds of
approximately $475,000 set aside for use as working capital. The Company does
not anticipate future expenditures as a result of the Virginia closure.
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
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.
10
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 has a lease for the New
York Faire to operate in Sterling Forest in 2002. The Company is currently
seeking to obtain long-term leases for the Northern California and the New York
Faires. 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 (See "Property--New York Renaissance Faire and Northern California
Renaissance Pleasure Faire").
The Company had a working capital surplus of $524,782 as of December 31, 2001.
While the Company believes that it has adequate capital to fund anticipated
operations for 2002, it believes it may need additional capital for future
fiscal periods. See "LIQUIDITY AND CAPITAL RESOURCES."
RESULTS OF OPERATIONS
The Company operated its New York and Northern California Faires seven weekends
in 2000 as compared to eight in 2001. The Wisconsin Faire operated nine weekends
and the Southern California Faire operated eight weekends in both 2000 and 2001.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000. Revenues
decreased $15,276 or less than 1% from $12,462,816 in 2000 to $12,447,540 in
2001. Overall revenue and attendance at the Company's Renaissance Faires was up
in 2001 with the exception of the Northern California Faire.
The Northern California Faire experienced a decrease in attendance of
approximately 12% in 2001. Revenue was down approximately $250,000 as compared
to the 2000 operating season. This decrease is thought to be partially explained
by the terrorist attacks of September 11, 2001. As of that date, the Northern
California Faire had operated three weekends, with five remaining. Reviewing the
results of operations for the final five weekends of this event in 2001 as
compared to 2000, attendance dropped 17%. It is also believed that the decreased
attendance for this Faire is the result of its relocation in 1999. When this
Faire was relocated, part of its original core audience was lost. With the
potential relocation of this event in 2002, the Company anticipates attendance
and revenue for this Faire to remain fairly flat over the upcoming three to five
years.
Faire operating costs decreased $76,523 or 2% from $3,702,506 in 2000 to
$3,625,983 in 2001. Operating expenses (year-round operating costs and corporate
overhead) increased $778,905 or 10%, from $7,719,582 in 2000 to $8,498,487 in
2001.
Of the operating expenses, depreciation and amortization decreased $46,826 or
11%, from $409,525 in 2000 to $362,699 in 2001. This decrease is partly the
result of writing down the New York asset base over several years due to the
uncertainty of the site lease arrangements upon expiration of the lease in 2001.
The final write-down of these assets was recorded in December 31, 2000. As a
result, the New York Faire depreciation expense was $60,000 less in 2001 as
compared to 2000.
Salaries increased 4%, from $3,261,800 in 2000 to $3,393,204 in 2001 reflecting
a $131,404 increase for the 2001 period as compared to the 2000 period.
Advertising expense showed a increase of $130,939 or 10%, from $1,363,235 in
2000 to $1,494,174 in 2001. Other operating expenses (all other general and
administrative expenses of the Company) increased $563,388 or 21%, from
$2,685,022 in 2000 to $3,248,410 in 2001. Of this operating expense increase,
approximately $200,000 is attributable to the additional weekend of operation at
both the Northern California and New York Faires. Operating an extra weekend
results in higher wages paid to workers and requires more advertising and other
operating dollars. In addition, in 2001 approximately $120,000 was spent
negotiating a long-term site for the Northern California Faire. In addition,
$53,000 was spent to disassemble the Northern California Faire site in
11
Vacaville and place those items in storage. The remainder of the increase is
the result of escalating costs in areas such as business and health insurance
($62,000), property taxes ($30,000), merchant fees ($10,000), payroll taxes
($40,000), utilities ($55,000) and rents, printing, express mail and travel
($120,000).
As a result of the foregoing, net operating income (before interest charges and
other income) decreased 69% from a $1,040,728 net operating profit in 2000 to
net operating profit of $323,070 for the 2001 period.
Other expense decreased $47,427 or 5% from ($903,755) in 2000 to ($856,328) in
2001. Interest expense decreased 13% from $617,803 in 2000 to $539,028 in 2001
as a result of the Company's decreased level of indebtedness. Because the
Company does not have a lease for the Northern California Faire as of the date
of this report, the unamortized goodwill ($367,446) associated with the Faire
and the remaining book value of the fixed assets ($40,924) for this event were
written-off. The Company incurred expenses in the amount of $467,272 in 2000 and
$39,982 in 2001 to finish closing the Virginia Faire and selling the property.
Combining net operating income with other income/expense resulted in a $670,231
decrease in net income before taxes, from $136,973 net profit for the 2000
period to ($533,258) net loss for the 2001 period.
Net income to common stockholders also decreased $670,231 from $136,973 net
profit for the 2000 period to ($533,258) net loss for the 2001 period. Finally,
net income per common share decreased from $0.06 for the 2000 period to ($0.25)
for the 2001 period, based on 2,144,889 weighted average shares outstanding
during the 2000 and 2001 periods.
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 its relocation in 1999. When this Faire was
relocated, part of its original core audience was lost. Likewise, as part of
the relocation, 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
12
had 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 in 1999. 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.
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.
13
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position improved during 2001 from a deficit of
($732,622) at December 31, 2000 to a surplus of $524,782 at December 31, 2001.
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.
During the first six months of fiscal 2002, the Company raised capital in the
amount of $50,000 through the issuance of 12% subordinated promissory notes. The
funds were provided by a related party. 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,
2003.
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 was due and
payable quarterly and the notes matured August 31, 2001. On the maturity date,
the non-convertible portion of the notes were retired. The maturity date for the
convertible portion of the notes were extended until August 31, 2002 under the
same terms and conditions of the original offer.
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 required principal and interest payments of approximately $17,500 in
January 2001 and July through August 2001. Interest payments approximating
$6,500 were due February through June 2001. The final payment of approximately
$575,000 was due September 1, 2001. This loan was retired in August, 2001 as a
result of the sale of the Company's property in Virginia.
Reviewing the change in financial position over the twelve months, current
assets, largely comprised of cash and prepaid expenses, increased from
$1,390,143 at December 31, 2000 to $1,489,308 at December 31, 2001, an increase
of $99,165 or 7%. Of these amounts, cash and cash equivalents decreased from
$1,002,804 at December 31, 2000 to $834,257 at December 31, 2001. Accounts
receivable increased from $7,286 at December 31, 2000 to $116,369 at December
31, 2001. Inventory increased from $104,532 at December 31, 2000 to $155,367 at
December 31, 2001. Notes receivable, current portion in the amount of $17,816 is
the 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) increased from $258,121 at December 31, 2000 to $365,499
at December 31, 2001. These costs are expensed once the Faires are operating.
Current liabilities decreased from $2,122,765 at December 31, 2000, to $964,526
at December 31, 2001, a decrease of $1,158,239 or 55%. During the year, accounts
payable and accrued expenses decreased $89,952 or 16%. Notes payable current
portion decreased $1,057,056 or 77% from $1,370,836 at December 31, 2000 to
$313,780 at December 31, 2001, in large part, as a result of the payoff of the
mortgages on the Virginia property upon
14
its sale in August, 2001. Unearned income, which consists of the sale of
admission tickets to upcoming Faires, and deposits received from craft
vendors for future Faires, decreased from $193,668 at December 31, 2000 to
$181,177 at December 31, 2001. The revenue is recognized once the Faires are
operating.
Total assets decreased from $6,624,457 at December 31, 2000 compared to
$4,767,849 at December 31, 2001. Property, plant and equipment (net of
depreciation) decreased by $1,205,119 or 31% from $3,914,210 at December 31,
2000 to $2,709,091 at December 31, 2001. This decrease is primarily the result
of the sale of the Virginia property in August, 2001. Because the Company does
not currently have a lease for the Northern California Faire, the net book value
of the Faires remaining fixed assets were decreased approximately $41,000
resulting in a zero dollar carrying value for these assets at December 31, 2001.
Goodwill, which arose from the purchase of the California Faires was being
amortized over 15 years. The remaining goodwill was written off in 2001, again
primarily as a result of the uncertainty of a lease for the 2002 operating
season of the Northern California Faire. Note receivable, net of current portion
in the amount of $110,862 is the result of, as previously mentioned, the sale of
the Company's food operation in Wisconsin. Other miscellaneous assets such as
vendor deposits, decreased from $773,303 at December 31, 2000 to $458,588 at
December 31, 2001, primarily as a result of the return of one-half of the
security deposit held by Faire Partners for the Wisconsin site ($333,333) in
November, 2001.
Total liabilities decreased from $6,507,004 at December 31, 2000 to $5,183,654
at December 31, 2001, a decrease of $1,323,350 or 20%. Total liabilities at
December 31, 2001 include $964,526 in current liabilities (discussed above),
plus approximately $37,000 from the long-term portion of debt primarily
resulting from operating leases for equipment and $3,978,802 lease obligation
with respect to the sale/leaseback of the Bristol Faire site.
Stockholders' Equity decreased from a surplus of $117,453 at December 31, 2000
to a deficit of ($415,805) at December 31, 2001, a decrease of $533,258 or 6%.
This decrease resulted from the 2001 net loss of ($533,258). As of December 31,
2001, the Company had outstanding 2,144,889 shares of common stock.
Although inflation can potentially have an effect on financial results, during
2000 and 2001, 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. 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 projects
planned for 2002 but estimates that the cost of these items should not exceed
$250,000. The Company has no additional significant commitments for capital
expenses during the fiscal year ending December 31, 2002. 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. The Company has incurred operating losses in most
fiscal periods since 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.
15
NEED FOR ADDITIONAL CAPITAL. The Company had a working capital surplus
of $524,782 as of December 31, 2001. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Company has negotiated a
loan that will provide working capital for use in opening its first Faire of
the season, the Southern California Renaissance Faire. This loan is in the form
of a 12% subordinated promissory note and matures August 31, 2003. As of this
date, $50,000 has been loaned to the Company by an investor whom is a related
party. Based on the Company's planned operations for 2002, the Company believes
it has adequate capital to fund operations for 2002, to fund required capital
expenditures during the year and to repay short-term indebtedness. To the extent
that operations do not provide the necessary working capital during 2002, the
Company may need to obtain additional capital for 2002 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. From 1999 through
2001, the Northern California Renaissance Pleasure Faire was held on the site of
the original Nut Tree Farm in Vacaville, California under a year-to-year lease.
The Company currently is negotiating a long-term lease for a new site for this
Faire starting in 2002. A long-term lease agreement 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 New York Faire is operated
on 65 acres of leased land in Tuxedo, New York. 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. Two one-year extension were granted for the 2001 and 2002 seasons.
Faire Partners, Ltd., the Company's landlord for the Wisconsin site, is
currently negotiating with Sterling Forest Corp. to purchase the New York
property. The closing date on this transaction is expected to take place
early in the second quarter of 2002.
To date, the purchase, a lease or other arrangements have not been secured for
the 2003 Faire season. There can be no assurance that the Company will be
successful in doing so in time for the 2003 or future operating seasons, or that
it will be on terms acceptable to the Company.
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.
16
PUBLIC LIABILITY AND INSURANCE. As a producer of a public entertainment
event, the Company has exposure for claims of personal injury and property
damage suffered by visitors to the Faires. To date, the Company has experienced
only minimal claims, which it has been able to resolve without litigation. The
Company maintains comprehensive liability insurance which it considers to be
adequate against this risk; however, there can be no assurance that a
catastrophic event or claim which could result in damage or liability in excess
of this coverage will not occur.
DEPENDENCE UPON VENDORS. A substantial portion of the Company's
revenues generated at each Faire is derived from arrangements that the Company
has with vendors who construct elaborate booths at the Faires and sell a variety
of food, crafts and souvenirs. This arrangement consists of either a fixed
rental paid by the vendors to the Company, or a percent of revenues. In either
case, the success of a Faire is dependent upon the Company's ability to attract
responsible vendors who sell high quality goods.
SEASONALITY. The Company's Renaissance Faires are located in
traditionally seasonal areas which attract the greatest number of visitors
during the warm weather months in the spring, summer, and early fall. Unless the
Company acquires or develops additional Faire sites in areas which are
counter-seasonal to the present sites located in temperate climates, the
Company's revenues and income will be highly concentrated in the six months
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 its
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 2002, the Company currently has leases for the Bristol,
New York and Southern California Renaissance Faires. The Northern California
Faire site lease is still under negotiation. The terms and conditions of each
lease will vary by location, and to a large extent, are beyond the control of
the Company. Further, there can be no assurance that the Company will be able to
continue to lease existing Faire sites on terms acceptable to the Company, or be
successful in obtaining other sites on favorable locations. The Company's
dependence upon leasing Faire sites creates a substantial risk of fluctuation in
the Company's operations from year to year.
17
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, 2000 and 2001,
(audited);
3. Consolidated Statements of Operations for the Fiscal Years
Ended December 31, 2000 and December 31, 2001 (audited);
4. Consolidated Statements of Changes in Stockholders' Equity for
the Fiscal Years from December 31, 1999 through December 31,
2001 (audited);
5. Consolidated Statements of Cash Flows for the Fiscal Years
Ended December 31, 2000 and December 31, 2001 (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 60 Chairman of the Board of Directors, 1993
Chief Executive Officer and Chief
Financial Officer
Sanford L. Schwartz 52 Director 1993
Robert M. Geller 49 Director 1994
Thomas G. Brown 56 Director 1999
J. Stanley Gilbert 64 President and Chief Operating 1999
Officer, and a Director
Sue Brophy 46 Controller, Chief Accounting Officer --
and Corporate Secty
CHARLES S. LEAVELL, a graduate of Philips Academy Andover and Stanford
University, founded Renaissance Entertainment Corporation in 1993. He has served
as Chairman of the Board from the company's inception and in 1996 he was elected
Chief Executive Officer. Prior to Renaissance Entertainment Corporation, Mr.
Leavell
18
served as President and CEO of Leavell Management Group, a management company
specializing in restoring partnerships and acquisitions to long-term health
and profitability. It was through this company that Leavell purchased the
company's first Renaissance Faire in 1988. Mr. Leavell's former affiliations
include his long tenure with Leavell Management Group, as well as Vice-Chair
of Colorado Venture Capital Corporation, Board of Directors of CK Properties,
Fountain Valley School and the Cleo Wallace Center and serving a term on the
President's Council for Coors Scholarships for the University of Colorado.
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 principal of
Deihl, Speyer & Brown, a regional investment banking firm. Mr. Brown is a
Chartered Financial Analyst. He also serves as a director of Ashton Technology
Group, Inc.
J. STANLEY GILBERT became President and Chief Operating Officer in
January, 1997. From 1988 to 1996, he was Vice President of the Company and
General Manager of the Bristol Renaissance Faire. Mr. Gilbert was cofounder and
President of Just in Jest, Inc., an art studio featuring Renaissance and fantasy
handmade sculptures whose works have been displayed in galleries and museums.
Prior to that Mr. Gilbert worked in senior management in the commercial banking
field in both California and Colorado.
SUE BROPHY has been Controller and Chief Accounting Officer of the
Company since August, 1995. 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. During the period the following failed
to file Form 4 and 5 on a timely basis: Form 4 for Pete Leavell due for the
month of September and October were filed on November 20, 2001 or forty-one and
ten days late respectively. Form 5 for Pete Leavell, J. Stanley Gilbert and Sue
Brophy were filed forty-eight days late on April 3, 2002. 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, 2001, all other required reports were
filed on a timely basis.
19
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information for the Company's fiscal
periods ended December 31, 2001 and December 31, 2000, 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 $100,000 (the
"Named Executive Officers").
TABLE I
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ----------------------- -------------------------------
Other
-------------------- Annual Restricted LTIP All Other
Compensation Stock Options/Payouts Compensation
Name and Salary Bonus ($) Award(s) ($) ($)
Principal Year ($) ($) ($) SARs
Position
-----------------------------------------------------------------------------------------------------------------------------
Charles S. Leavell, Chairman
and CEO
2001 $160,000 -0- -0- -0- -0- -0- -0-
2000 $160,000 -0- -0- -0- -0- -0- -0-
J. Stanley Gilbert,
COO and President
2001 $120,000 -0- -0- -0- -0- -0- -0-
2000 $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.
(2) In 2001, a nonqualified deferred compensation plan was established for
executive officers that, because of salary amounts, are considered
highly compensated and unable to participate in the Company's 401(k)
plan. As of December 31, 2001, Mr. Gilbert was the only executive
officer participating in the Company's nonqualified deferred
compensation plan.
OPTIONS GRANTED DURING FISCAL 2001
The following table shows option grants during fiscal 2001 to the Named
Executive Officers of the Company.
Options Granted Percent of Total Exercise Expiration
Name in Fiscal 2001 Options Granted Price Date
---- -------------- --------------- ----- ----
Charles S. Leavell 50,000* 31% $0.20 02/09
J. Stanley Gilbert 100,000* 63% $0.20 02/09
20
* These options vest one-third per year beginning February, 2002 and have a five-year expiration date.
AGGREGATED OPTION EXERCISES DURING FISCAL 2001 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to the number and value of
options held by the Named Executive Officers as of December 31, 2001. The
Company does not have any outstanding stock appreciation rights.
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs at Option/SARs at
Value FY-end (#) FY-End ($)(1)
Shares Acquired Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
---------------------------------------------------------------------------------------------------------------------------------
Charles S. Leavell -0- $-0- 166,000/50,000 0/0
J. Stanley Gilbert -0- $-0- 140,000/100,000 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, 2000 and 2001, 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.
21
Directors who are also executive officers of the Company receive no additional
compensation for their services as Directors.
GELLER AGREEMENT
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 $22,000 in 2000 and $12,500 in 2001.
SCHWARTZ COMPENSATION
Mr. Schwartz provided consulting services to the Company for which he received
$15,000 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 31, 2002, 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 951,208 (2) 34.2%
275 Century Circle, Suite 102
Louisville, Colorado 80027
Robert M. Geller 129,333 (3) 5.7%
275 Century Circle, Suite 102
Louisville, Colorado 80027
Sanford L. Schwartz 64,870 (4) 2.9%
275 Century Circle, Suite 102
Louisville, Colorado 80027
Thomas G. Brown 38,000 (5) 1.7%
275 Century Circle, Suite 102
Louisville, Colorado 80027
J. Stanley Gilbert 623,620 (6) 22.8%
275 Century Circle, Suite 102
Louisville, Colorado 80027
All Directors & Officers as a Group 1,832,031 (7) 50.1%
(6 Persons)
22
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of March 31, 2002, 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 135,875 shares of Common Stock held of record by Mr.
Leavell. Includes non-qualified options to purchase 182,667 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 107,333 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 49,000 shares
of Common Stock and warrants (owned by Creative Business Strategies) to
purchase 15,000 shares.
(5) Includes non-qualified options to purchase 33,000 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.
(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
173,333 shares of Common Stock, warrants to purchase 29,600 shares and
conversion rights to 375,000 shares.
(7) Includes 348,432 shares held of record, 585,333 shares issuable upon
exercise of stock options exercisable within 60 days of March 31, 2002,
106,600 shares issuable upon exercise of warrants and 791,666
conversion rights.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 (A Notes and B Notes)of equal principal, identical in
nature except that one note is convertible to common stock at a price of $0.30
per share (B Notes). 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), CEO and Chairman of
the Board of Directors, J. Stanley Gilbert ($225,000),
23
President and a Director, and one other investor. In August, 2001, the A
Notes were retired and the maturity date on the B Notes was extended to
August 31, 2002.
PROMISSORY NOTES--2002
During the first quarter of 2002, the Company authorized the issuance of 12%
subordinated promissory notes due August 31, 2003 in units, each unit consisting
of two promissory notes (A Notes and B Notes) of equal principal, identical in
nature except that one note is convertible to common stock at a price of $0.30
per share (B Notes). During the first three months of fiscal 2002, the Company
raised capital in the amount of $50,000 through the issuance of these notes. The
funds were provided by a related party.
FAIRE PARTNERS, LTD.
In November of 1997, the Company sold its 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 transaction. During fiscal 2001 the
Company paid Faire Partners, Ltd. $440,000 pursuant to this transaction.
Faire Partners, Ltd. is currently negotiating with Sterling Forest Corp. to
purchase the site of the New York Renaissance Faire. The closing date on this
transaction is expected to take place early in the second quarter of 2002. The
Company anticipates leasing the property from Faire Partners on a twenty-year
term with rent payments of $425,000 in years 1 through 5, $435,000 years 6
through 15 and $450,000 for lease years 16 through 20. To date, the purchase of
the property and the lease between Faire Partners, Ltd. has not been executed.
However, as noted above, this transaction may be deemed a related party because
of the estate beneficiary status of the Company's CEO and Chairman of the Board
of Directors.
The Company believes that the foregoing transactions were on terms as favorable
to the Company as could have been obtained from non-affiliated parties.
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.
24
* 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.
10.9 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.
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.
10.15 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 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.
10.18 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
incorporated by reference from Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 2000.
10.22 Lease agreement dated October 19, 2000 by and between Flying
Squirrel Entertainment, LLC. and the Company incorporated by
reference from Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2000.
10.25 Amendment dated October 30, 2000 to Lease with Faire Partners,
LLC incorporated by reference from Registrant's Annual Report
on Form 10-KSB for the year ended December 31, 2000.
** 10.28 Form of Subordinated Subscription and Purchase Agreement for
2002, including A Note and Convertible B Note filed herewith.
** 10.29 Amendment dated August 31, 2001 to Subordinated Subscription
and Purchase Agreement for 2000 filed herewith.
** 23.1 Independent Auditor's Consent.
* 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.
25
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, 2001.
26
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 8, 2002 /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 8, 2002
-------------------------------------------- Chief Executive and Chief
Charles S. Leavell Financial Officer
/s/ Sue Brophy Chief Accounting Officer, Controller April 8, 2002
-------------------------------------------- and Corporate Secretary
Sue Brophy
/s/ J. Stanley Gilbert Director, President, April 8, 2002
-------------------------------------------- and Chief Operating Officer
J. Stanley Gilbert
/s/ Sanford L. Schwartz Director April 8, 2002
--------------------------------------------
Sanford L. Schwartz
/s/ Robert M. Geller Director April 8, 2002
--------------------------------------------
Robert M. Geller
/s/ Thomas G. Brown Director April 8, 2002
--------------------------------------------
Thomas G. Brown
27
RENAISSANCE ENTERTAINMENT CORPORATION
FINANCIAL STATEMENTS
WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DECEMBER 31, 2001 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, 2001 and 2000 and the related statements of operations and
changes in stockholders' equity (deficit), and cash flows for the years ended
December 31, 2001 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000 and the results of operations,
changes in stockholders' equity (deficit) and cash flows for the years ended
December 31, 2001 and 2000 in conformity with accounting principles generally
accepted in the United States of America.
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 suffered recurring losses from operations and has a negative stockholders'
equity 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
March 4, 2002
F-3
RENAISSANCE ENTERTAINMENT CORPORATION
BALANCE SHEETS
ASSETS
December 31, December 31,
2001 2000
----------- -----------
Current Assets:
Cash and equivalents $ 834,257 $1,002,804
Accounts receivable, net of allowance
for doubtful accounts of $8,696 116,369 7,286
Inventory, at lower of cost or market 155,367 104,532
Note receivable, current portion 17,816 17,400
Prepaid expenses and other current assets 365,499 258,121
----------- ----------
Total Current Assets 1,489,308 1,390,143
Property and equipment, net of accumulated
depreciation of $1,927,061 and $2,423,663
at December 31, 2001 and 2000 respectively
(Note 7) 2,709,091 3,914,210
Goodwill, net of accumulated amortization
of $827,245 and $409,123 at December 31,
2001 and 2000 respectively (Note 5) - 418,122
Covenant not to compete, net of accumulated
amortization of $100,000 at
December 31, 2001 (Note 5) - -
Note receivable, net of current portion 110,862 128,679
Other assets 458,588 773,303
----------- ----------
Total Assets $ 4,767,849 $6,624,457
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 468,309 $ 558,261
Notes payable, current portion (Note 3) 313,780 1,370,836
Lease obligation payable, current
Portion (Note 10) 1,260 -
Unearned income 181,177 193,668
----------- ----------
Total Current Liabilities 964,526 2,122,765
Lease obligation payable, net
of current portion (Note 10) 3,978,802 3,991,494
Notes payable, net of current
portion (Note 3) 37,159 145,880
Other 203,167 246,865
----------- ---------
Total Liabilities 5,183,654 6,507,004
----------- ----------
Commitments (Notes 2,3,4,8,10,11,12 and 13) - -
Stockholders' equity (deficit) (Notes 2,8,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, 2001 and 2000 64,346 64,346
Additional paid-in capital 9,430,827 9,430,827
Accumulated deficit) (9,910,978) (9,377,720)
----------- ----------
Total Stockholders' equity (deficit) (415,805) 117,453
----------- ----------
Total Liabilities and Stockholders' equity (deficit) $ 4,767,849 $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,
2001 2000
------------ -----------
REVENUE:
Sales $ 12,447,540 $12,462,816
Faire operating costs 3,625,983 3,702,506
----------- ----------
Gross Profit 8,821,557 8,760,310
----------- ----------
OPERATING EXPENSES:
Salaries and wages 3,393,204 3,261,800
Depreciation and amortization 362,699 409,525
Advertising 1,494,174 1,363,235
Other operating expenses 3,248,410 2,685,022
------------ ----------
Total Operating Expenses 8,498,487 7,719,582
------------ ----------
Net Operating Income 323,070 1,040,728
------------ ----------
Other Income (Expenses):
Interest income 83,400 93,390
Interest (expense) (539,028) (617,803)
Other income (expense) 47,652 87,930
Write-down of goodwill (367,446) -
Write-down of assets (40,924) -
Write-down of Virginia site (Note 11) (39,982) (467,272)
----------- ----------
Total Other Income (Expenses) (856,328) (903,755)
----------- ----------
Net Income (Loss) $ (533,258) $ 136,973
============ ==========
Net Income (Loss) per Common Share $ (.25) $ .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, 1999 through December 31, 2001
Common Stock Additional
-------------- Paid-in Accumulated
Shares Amount Capital (Deficit) Total
------- ------- -------- ---------- -----
Balance December 31, 1999 2,144,889 $ 64,346 $9,430,827 $(9,514,693) $ (19,520)
Net loss 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
Net income for the year ended
December 31, 2001 - - - (533,258) (533,258)
----------- ----------- ----------- ----------- -----------
Balance December 31, 2001 2,144,889 $ 64,346 $9,430,827 $(9,910,978) $(415,805)
=========== =========== =========== =========== ===========
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,
2001 2000
----------- ------------
Cash Flows from Operating Activities:
Net Income (loss) $ (533,258) $ 136,973
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 362,699 409,525
Write off of goodwill 367,446 -
Write down of assets 40,924
(Increase) decrease in:
Accounts receivable (122,186) (2,335)
Inventory (50,835) 96,961
Prepaid expenses and other 220,440 58,947
Increase (decrease) in:
Accounts payable and accrued
expenses (89,952) (1,162,349)
Unearned revenue and other (56,189) 186,069
----------- -----------
Net Cash Provided by (Used in) Operating
Activities 139,089 (276,209)
----------- -----------
Cash Flows from Investing Activities:
Increase in note receivable - (300,000)
(Repayments) of note receivable 17,401 153,921
Net (acquisition) reduction of property and
equipment, goodwill and covenant not to compete 852,172 21,104
----------- -----------
Net Cash Provided by Investing Activities 869,573 (124,975)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from (payments on) lease
obligation payable (11,432) 10,699
Proceeds from notes payable - 594,476
Principal payments on notes payable (1,165,777) (250,231)
----------- -----------
Net Cash Provided by (Used in)
Financing Activities (1,177,209) 354,944
----------- -----------
Net (Decrease) in Cash (168,547) (46,240)
Cash, beginning of period 1,002,804 1,049,044
----------- -----------
Cash, end of period $ 834,257 $1,002,804
=========== ===========
Interest paid $ 539,028 $ 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, 2001 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 the year ended March 31, 1994 REC formed a wholly
owned subsidiary called Heroes and Villains, Ltd. This entity was
formed to provide entertainment services. 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.
F-8
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(1) Summary of Significant Accounting Policies, Continued
(a) General, Continued
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.
(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 is carried at cost, net of accumulated
depreciation. Depreciation is computed using principally accelerated
methods over the useful lives of the assets ranging from three to
thirty years.
(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, beverage concessions sales,
lease revenue and fees charged to vendors. At various dates subsequent
to the end of the operation of the prior year's faires, and prior to
the opening of the next year's 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 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.
F-9
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(1) Summary of Significant Accounting Policies, Continued
(d) Revenue and Expense Recognition and Cost of Sales, Continued
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.
(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, 2001, the Company had approximately $610,000 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.
F-10
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(1) Summary of Significant Accounting Policies, Continued
(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.
(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 suffered recurring losses from operations and has a negative
stockholders' equity that raise substantial doubts about its ability to
continue as a going concern. Management is attempting to raise
additional capital.
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
provide an opportunity for the Company to continue as a going concern.
F-11
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(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.
At December 31, 2001, the Company had 1,239,433 warrants and options
outstanding with expiration dates through 2006. The following is a
summary of the options and warrants outstanding at December 31, 2001:
During the year ended December 31, 1998, 241,833 options were granted
of which 33,000 have exercise prices of $.31 expiring in November 2003,
80,000 have exercise prices of $.81 expiring in June 2005, and 128,833
have exercise prices of $.81 expiring in June 2003. Also during the
year ended December 31, 1998, 99,600 warrants were granted which have
exercise prices of $1.51 expiring in March 2003. During the year ended
December 31, 1999, 350,000 options were granted of which 275,000 have
exercise prices of $.53 expiring in March 2004, and 75,000 have
exercise prices of $.81 expiring in December 2005. Also during the year
ended December 31, 1999, 100,000 warrants were granted which have
exercise prices of $.52 expiring in March 2004, and the Company
replaced a warrant for 153,333 shares at $1.00 per share expiring
November 2003, with a new 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 granted which have convertible prices of
$.30 expiring in August 2002. During the year ended December 31, 2001,
the Company granted 150,000 incentive stock options to two officers of
the Company, vesting one-third per year, beginning February 2002,
exercisable at $.25 per share, and expiring in February 2006. In
addition, 10,000 options were granted to an officer, vesting in 2002,
exercisable at $.25 per share, and expiring in March 2006.
The options granted during 2001 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-12
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(2) Common and Preferred Stock, Continued
Number Exercise Price Expiration Date
------ -------------- ---------------
99,600 $ 1.51 March, 2003
33,000 $ .31 November, 2003
128,833 $ .81 June, 2003
100,000 $ .30 November, 2003
100,000 $ .52 March, 2004
275,000 $ .53 March, 2004
8,000 $ .53 April, 2004
180,000 $ .16 October, 2004
75,000 $ .81 December, 2005
150,000 $ .25 February, 2006
10,000 $ .25 March, 2006
80,000 $ .81 June, 2005
---------
1,239,433
(3) Notes Payable
Notes payable at December 31, 2001 are summarized as follows:
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, 2002. $ 287,500
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%. 63,439
-----------
Total 350,939
Less current portion 313,780
-----------
Long-term portion $ 37,159
===========
F-13
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(3) Notes Payable, Continued
Principal payments due on notes payable for each of the next three
fiscal years ending December 31 and in the aggregate thereafter, are as
follows:
2002 $ 313,780
2003 24,758
2004 10,906
Thereafter 1,495
-----------
$ 350,939
(4) Leases
The Company leases the New York Faire site with terms expiring through
the year 2002. Annual lease payments on the New York Faire site are
$330,567 for 2000, $360,000 for 2001, and $378,000 for 2002.
The Company leases the Wisconsin Faire site with terms expiring through
the year 2017. Annual lease payments on the Wisconsin Faire site are
$440,000 for 1999 through 2004, $486,667 for 2005 through 2007, and
$533,333 from 2008 through the end of the lease.
The Company leases the Southern California Faire site with terms
expiring through the year 2010. Annual lease payments on the Southern
California Faire site are $195,000 for 2000, $226,322 for 2001, and
$247,500 for 2002, with annual increases through the end of the lease.
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 were $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,
2002 $ 1,108,736
2003 714,500
2004 786,167
2005 811,167
2006 836,167
Thereafter 8,080,416
-----------
Total $12,337,153
===========
F-14
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(4) Leases, Continued
Rent expense for the year ended December 31, 2001 and for the year
ended December 31, 2000 totaled approximately $1,163,867 and
$1,096,788, respectively.
(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
was recorded as goodwill in the accompanying financial statements.
Goodwill was being amortized on a straight-line basis over fifteen
years. Management reviewed the carrying value of goodwill on a periodic
basis, at least annually, to determine if there was any impairment in
value. If management determined that the carrying value was not
recoverable over the remaining amortization term, the excess balance,
if any, was 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. During the year ended
December 31, 2001, the Company determined that the goodwill was further
impaired and wrote off the unamortized balance of $367,446 as a charge
to other operating expenses.
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, 2001.
(6) Income Taxes
As of December 31, 2001, there are no current or deferred income taxes
payable. As of December 31, 2001, the Company has total deferred tax
assets of approximately $1,490,000 due to operating loss carry forwards
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
$1,490,000. Thus, no tax assets have been recorded in the financial
statements as of December 31, 2001.
F-15
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(6) Income Taxes, Continued
The Company has available at December 31, 2001, unused operating loss
carry forwards of approximately $9,900,000 which may be applied against
future taxable income, expiring in various years through 2021. The
available net operating loss carry forwards may be reduced if there is
a 50% or more change in ownership.
(7) Property and Equipment
Land $ 1,085,283
Buildings and Improvements 2,035,310
Office Furniture and Equipment 346,686
Costumes, Props and Other Assets 1,168,873
-----------
Sub-total 4,636,152
Less Accumulated Depreciation (1,927,061)
-----------
Total $ 2,709,091
===========
(8) 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.
F-16
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(9) 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 twenty-year
non-cancelable 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, 2001, the outstanding balance
on the finance obligation was $3,980,062 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 was a
minority interest investor in the company, which purchased this
property.
On December 1999 and 2000, the Company entered into a lease amendment
with Faire Partners, the landlord for the Wisconsin property. The
amendment provided for a restructuring of rental payments for 1999 and
2000. During the time periods between December 1 and May 31 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
from June 1 through November 30, the monthly base rent payable was
increased to $51,667 per month. As an inducement to the landlord to
execute this lease amendment in 1999 the Company agreed to terminate
the existing warrant and issue a new warrant. The original warrant
provided for 153,333 shares at $1.00 per share and expires November
2003. The new warrant grants 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. There was no warrant transaction involved in the 2000
lease amendment.
(11) Write-down of Virginia Site
On October 27, 1999, the Board of Directors decided to discontinue
operations at the Virginia site. The 2001 and 2000 financial statements
include a loss of $39,982 and $467,272, respectively, related to the
write-down and sale of the property due to closure of the site. During
the year ended December 31, 2001, the Company sold the Virginia
property.
F-17
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(12) Write-down of Assets
The Company's lease for its Northern California Faire expired in 2001
and has not been renewed. The Company has not been able to obtain a new
lease for this site. During the year ended December 31, 2001, the
Company determined that the fixed assets at its Northern California
Faire were impaired and wrote off the net book value of $40,924 as a
charge to other expenses.
(13) Retirement and Stock Plans
The Company sponsors, for all eligible employees, a salary deferral
plan, whereby employees can elect to have a portion of their salary
deferred. The Company contributes a match based on a percentage, which
is determined from year to year. Matching contributions totaled $2,922,
and $2,362 for the years ended December 31, 2001 and 2000,
respectively. All such deferrals are not subject to income tax, and are
held by a third-party trustee.
Effective October 15, 2001, the Company established a non-qualified
deferred compensation plan for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees. The Board of Directors has authority to determine the
persons eligible for participation in this plan. As of December 31,
2001, the Company had accrued a total of $18,000 for deferred
compensation relating to this plan.
(14) Stock-Based Compensation
Stock options
As permitted by FASB Statement No. 123, Accounting for Stock-Based
Compensation, the Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25)
and related interpretations in accounting for its employee option
plans. Under APB 25, compensation expenses are recognized at the time
of option grant if the exercise price of the Company's employee stock
option is below the fair market value of the underlying common stock on
the date of the grant.
The Company's Board of Directors has granted non-qualified stock
options and warrants to officers and employees of the Company. The
following is a table of outstanding options and changes during 2001 and
2000:
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
F-18
(14) Stock-Based Compensation, Continued
Weighted
Average
Employee Non-employee Exercise
Options Options Price
------------- ------------- -------------
Options Outstanding, December 31, 1999 424,500 84,333 0.63
Options granted:
Employees 128,000 0.18
Non-employees 60,000 0.16
Options expired - - -
Options exercised - - -
------------- ------------- -------------
Options Outstanding, December 31, 2000 552,500 144,333 0.50
Options granted:
Employees 160,000 0.20
Non-employees - - -
Options expired - - -
Options exercised - - -
------------- ------------- -------------
Options Outstanding, December 31, 2001 712,500 144,333 0.45
============= ============= =============
At December 31, 2001, outstanding options vest as follows:
Weighted
Range of Exercise Prices Average
------------------------ Number of Exercise
Vested at December 31, High Low Shares Price
---------------------------- --------- ------- ------------ -------------
2000 and earlier 0.81 0.16 523,833 $ 0.61
2001 0.53 0.16 68,000 $ 0.20
2002 0.81 0.20 120,000 $ 0.18
2003 0.81 0.20 95,000 $ 0.18
2004 0.81 0.20 50,000 $ 0.20
------------
856,833
============
F-19
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(14) Stock-Based Compensation, Continued
If not previously exercised or canceled, options outstanding at December 31,
2000 will expire as follows:
Weighted
Range of Exercise Prices Average
------------------------ Exercise
Year Ending December 31, High Low Shares Price
------------------------------- --------- ------- ----------- -------------
2003 0.81 0.31 153,833 0.70
2004 0.53 0.53 275,000 0.53
2005 0.81 0.16 268,000 0.37
2006 0.20 0.20 160,000 0.20
------------
856,833 0.45
============
Pro Forma Stock-Based Compensation Disclosures
The Company applies APB Opinion 25 and related interpretations in accounting for
its stock options and warrants which are granted to employees. Accordingly, no
compensation cost has been recognized for grants of options to employees since
the exercise prices were equal to the fair value of the Company's common stock
on the grant dates. Had compensation cost been determined based on an estimate
of the fair value consistent with the method of SFAS No. 123 at the grant dates
for awards under those plans, the Company's net loss and loss per share would
have been increased to the pro forma amounts indicated below.
Year Ended December 31,
-----------------------
2001 2000
-------------------- --------------------
Net income (loss) applicable to common stockholders
As reported $ (533,258) $ 136,973
Pro forma (555,240) 136,973
Net income (loss) per share applicable to common
stockholders
As reported $ (.25) $ .06
Pro forma (.26) .06
F-20
RENAISSANCE ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
(14) Stock-Based Compensation, Continued
Options granted during 2001 consist of:
Weighted
Weighted average average
fair value at exercise
Year and Type grant date price
------------------------------------------- -------------------- -------------
Year ending December 31, 2000:
Exercise price equals fair value: 0.14 0.16
Exercise price exceeds fair value: 0.29 0.53
Year ending December 31, 2001:
Exercise price equals fair value: 0.18 0.2
The fair value of each option was computed using the Black-Scholes method using
the following weighted-average assumptions:
Expected Volatility: 180%
Risk-free interest rate: 6.08%
Expected Dividends: -
Expected Term in Years: 3
(15) Contingency
The Company's lease for its Northern California Faire expired in 2001
and has not been renewed. The Company has not been able to obtain a new
lease for this site. The Company's lease for its New York Faire will
expire in 2002. To date no leases have been obtained to extend
operations at this site beyond 2002. Management is pursuing leases in
each location.
F-21