Medieval Attractions N.V - Page 112

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          VIII.  California and New Jersey Expansion                                  
               A.  California                                                         
               The Medieval Times group began to expand its operations.  On           
          December 15, 1987, Glendale Castle, Inc. (GCI), was incorporated            
          in California.  GCI filed 1987 (fiscal year December 23, 1987, to           
          November 30, 1988) and 1988 Federal tax returns that stated that            
          GCI was an inactive corporation.  GCI’s articles were amended on            
          December 13, 1988, to change the name of GCI to the San Diego               
          Castle, Inc. (SDCI).  The amendment stated that it had been                 
          approved by the board of directors.  In December 1988, GCI/SDCI             
          entered into a lease, signed by A. Gelabert, for vacant land in             
          Carlsbad, California.  A. Gelabert also signed papers in the name           
          of GCI/SDCI on an application for a change of zoning to                     
          accommodate the new castle facility and on an agreement for the             
          payment of a public utilities fee.                                          
               MDT maintained an account entitled “Advances - San Diego               
          Castle”.  The first entry was June 15, 1988, and the last entry             
          was November 30, 1990.  The expenses included payments to the               
          City of Carlsbad, C&L, an engineering company, and marketing fees           
          to RC.  MDT deducted these expenses on its Federal tax returns in           
          the amounts of $18,633 and $128,775 in 1988 and 1989,                       
          respectively.                                                               
               In December 1989, after the Carlsbad Planning Commission               
          denied GCI/SDCI’s project because of traffic problems, GCI/SDCI             
          withdrew its application from the planning commission.  A                   




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