-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A2X4oQvxvKtZ3sPO6fQpvnfwu8sTCtN0Xt5B1v0dVOhUlF/2W+M2ZrZDCYpf1syC 66tUoBLEBt1BdYdvkauudA== 0000950148-97-003064.txt : 19971216 0000950148-97-003064.hdr.sgml : 19971216 ACCESSION NUMBER: 0000950148-97-003064 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KINGS ROAD ENTERTAINMENT INC CENTRAL INDEX KEY: 0000773588 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 953587522 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-14234 FILM NUMBER: 97738678 BUSINESS ADDRESS: STREET 1: 1901 AVE OF THE STARS STE 1545 CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3105520057 MAIL ADDRESS: STREET 1: 1901 AVE OF THE STARS STREET 2: SUITE 1545 CITY: LOS ANGELES STATE: CA ZIP: 90067 10QSB 1 FORM 10-QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended October 31, 1997 Commission File No. 0-14234 KINGS ROAD ENTERTAINMENT, INC. (Exact name of small business issuer as specified in its charter) Delaware 95-3587522 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 1901 Avenue of the Stars, Suite 1545 Los Angeles, California 90067 (Address of principal executive office) Issuer's telephone number: (310) 552-0057 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 [ ] As of December 15, 1997, the registrant had 5,652,422 shares of its common stock outstanding. Transitional Small Business Disclosure Format: YES [ ] NO [X] 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
KINGS ROAD ENTERTAINMENT, INC. BALANCE SHEET - (UNAUDITED) AS OF OCT. 31, 1997 ------------ ASSETS Cash and Cash Equivalents $ 25,834 Marketable Securities, at market value 2,356,117 Accounts Receivable, net of allowance of $10,000 345,335 Film Costs, net of amortization of $167,769,996 561,431 Prepaid Expenses 47,388 Fixed Assets 15,820 Other Assets 2,500 ------------ TOTAL ASSETS $ 3,354,425 ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts Payable $ 222,090 Accrued Expenses 15,000 Deferred Revenue 75,700 ------------ TOTAL LIABILITIES 312,790 COMMITMENTS AND CONTINGENCIES 0 SHAREHOLDERS' EQUITY Common Stock, $.01 par value, 12,000,000 shares authorized, 5,652,422 shares issued and outstanding 51,040 Additional Paid-In Capital 21,085,278 Deficit (18,094,683) ------------ TOTAL SHAREHOLDERS' EQUITY 3,041,635 ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,354,425 ============
The accompanying notes are an integral part of this statement. 2 3 KINGS ROAD ENTERTAINMENT, INC. STATEMENTS OF OPERATIONS - (UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED OCTOBER 31, ENDED OCTOBER 31, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- REVENUES: Feature Films $ 313,147 $ 711,304 $ 671,062 $ 1,279,119 Interest Income 34,214 69,893 94,520 135,012 Other Income 0 1,349 0 1,349 ----------- ----------- ----------- ----------- 347,361 782,546 765,582 1,415,480 COSTS AND EXPENSES: Costs Related to Revenue 265,990 369,468 302,497 743,413 Selling Expenses 18,533 26,562 22,535 37,682 General & Admin. Exp 235,702 211,339 498,971 457,211 Interest 0 0 0 0 ----------- ----------- ----------- ----------- 520,225 607,369 824,003 1,238,306 (LOSS)/INCOME BEFORE INCOME TAXES (172,864) 175,177 (58,421) 177,174 Provision for Income Taxes 725 1,480 822 3,646 ----------- ----------- ----------- ----------- NET (LOSS)/INCOME ($ 173,589) $ 173,697 ($ 59,243) $ 173,528 =========== =========== =========== =========== Net Earnings Per Share ($ 0.03) $ 0.03 ($ 0.01) $ 0.03 =========== =========== =========== =========== Weighted Average Number of Common Shares 5,652,422 5,120,047 5,519,328 5,120,047 =========== =========== =========== ===========
The accompanying notes are an integral part of these statements. 3 4 KINGS ROAD ENTERTAINMENT, INC. STATEMENTS OF SHAREHOLDERS' EQUITY - (UNAUDITED)
Common Common Additional Total Stock Stock Paid-In Shareholders' Shares Amount Capital Deficit Equity ---------- ------- ----------- ------------ ---------- Balance, April 30, 1996 5,120,047 $45,716 $24,902,177 ($18,624,407) $6,323,486 Net Income ----- ----- ----- 588,967 588,967 ---------- ------- ----------- ------------ ---------- Balance, April 30, 1997 5,120,047 45,716 24,902,177 (18,035,440) 6,912,453 Exercise of Stock Options 532,375 5,324 139,797 ----- 145,121 Distribution to Shareholders ----- ----- (3,956,696) ----- (3,956,696) Net Loss ----- ----- ----- (59,243) (59,243) ---------- ------- ----------- ------------ ---------- Balance, October 31, 1997 5,652,422 $51,040 $21,085,278 ($18,094,683) $3,041,635 ========== ======= =========== =========== ==========
The accompanying notes are an integral part of these statements. 4 5 KINGS ROAD ENTERTAINMENT, INC. STATEMENTS OF CASH FLOWS - (UNAUDITED)
FOR THE SIX MONTHS ENDED OCT. 31, 1997 1996 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss)/Income ($ 59,243) $ 173,528 Adjustments to reconcile Net (Loss)/Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 305,704 785,588 Change in Assets and Liabilities: (Increase)/Decrease in Accounts Receivable (31,486) 37,088 Increase in Prepaid Expenses (34,093) (14,028) Decrease in Other Assets 0 3,000 (Decrease)/Increase in Accounts Payable (93,631) 19,238 Decrease in Accrued Expenses 0 (83,582) Decrease in Income Taxes Payable (3,482) (47,941) Decrease in Deferred Revenue (12,100) (194,320) ---------- ----------- NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES 71,669 678,571 CASH FLOWS FROM INVESTING ACTIVITIES: Sale/(Purchase) of Marketable Securities 3,610,914 (743,690) Disposal/(Purchase) of Fixed Assets 4,359 (1,795) Gross Additions to Film Cost (97,737) (125,285) ---------- ----------- NET CASH AND CASH EQUIVALENTS PROVIDED BY/(USED IN) INVESTING ACTIVITIES 3,517,536 (870,770) CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of Stock Options 145,121 0 Distribution to Shareholders (3,956,696) 0 ---------- ----------- NET CASH AND CASH EQUIVALENTS USED IN FINANCING ACTIVITIES (3,811,575) 0 ---------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (222,370) (192,199) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 248,204 405,539 ---------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,834 $ 213,340 =========== ===========
The accompanying notes are an integral part of these statements 5 6 KINGS ROAD ENTERTAINMENT, INC. NOTES TO FINANCIAL STATEMENTS NOTE A - BASIS OF PREPARATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements. Accordingly, they do not include all of the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the financial statements and related footnotes for the year ended April 30, 1997, included in the Kings Road Entertainment, Inc. ("Company" or "Registrant") annual report on Form 10-KSB for that period. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of October 31, 1997 and the results of operations and cash flows for the three and six month periods ended October 31, 1997 and 1996 have been included. The results of operations for the three and six month periods ended October 31, 1997 are not necessarily indicative of the results to be expected for the full fiscal year. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended April 30, 1997. Net Income or Loss per share amounts have been calculated using the weighted average number of common shares outstanding. Stock options have been excluded as common stock equivalents because of their antidilutive or non-material effect. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE B - MARKETABLE SECURITIES In accordance with Statement of Financial Accounting Standards No. 115, the Company determines the classification of marketable securities at the time of purchase and reevaluates such designation at each balance sheet. Marketable securities have been classified as available for sale and are stated at market value. It is currently the Company's policy to purchase only U.S. Government securities with maturities less than one year. NOTE C - FILM COSTS Film Costs consist of:
Oct. 31, 1997 ------------- Released Films, less amortization $433,192 Films in Production 0 Films in Development 128,239 -------- $561,431 ========
6 7 KINGS ROAD ENTERTAINMENT, INC.NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE D - LITIGATION AND CONTINGENCIES In the ordinary course of business, the Company has or may become involved in disputes or litigation. On the basis of information available to it, management believes such contingencies will not have a materially adverse impact on the Company's financial position or results of operations. NOTE E - STOCK OPTIONS AND WARRANTS The Company's 1987 Non-qualified Stock Option Plan ("1987 Plan") provides for the grant of options to purchase up to 850,000 shares. At October 31, 1997, options to purchase up to 83,125 shares were outstanding under the 1987 Plan. The exercise price of such options was reduced to $.00 per share based upon the impact of the Company's extraordinary cash distribution in June 1997 of $.70 per share. All of the outstanding options under the 1987 Plan are held by the Chief Executive Officer and expire in October 2001. NOTE F - INCOME TAXES A reconciliation of the provision for income taxes to the expected income tax expense at the statutory tax rate of 34% is as follows:
Quarter Ending Oct. 31, 1997 ------------- Computed Expected Tax at Statutory Rate ($58,774) State and Local Income Taxes 0 Foreign Taxes 725 Valuation Allowance 58,774 ------- $725 =======
For federal income tax purposes, the Company has available investment tax credits of approximately $2,166,000, after being reduced 35% by the Tax Reform Act of 1986 (expiring between 2000 and 2002) and net operating loss carryforwards of approximately $16,070,000 (expiring between 2001 and 2007) to offset future income tax liabilities. Deferred tax assets and liabilities result from temporary differences between financial and tax accounting in the recognition of revenue and expenses. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows:
Oct. 31, 1997 ------------- Deferred Revenue $35,000 Film Cost Amortization (140,000) Net Operating Loss Carryforwards 6,428,000 Investment Tax Credit Carryforwards 2,166,000 Foreign Tax Credit Carryforwards 400,000 Valuation Allowance (8,889,000) ---------- $0 ==========
A valuation allowance of $8,889,000 has been recorded to offset the net deferred tax assets due to the uncertainty of realizing the benefits of the tax assets in the future. 7 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS During the quarter ended October 31, 1997, the Company did not produce any new films and derived revenues almost exclusively from the exploitation of films produced in prior fiscal years. Following the death on October 4, 1996 of Mr. Stephen Friedman, then Chairman of the Board of Directors and Chief Executive Officer of the Company, the Company has explored various business options, including, among other things, the liquidation of the Company, the sale of the Company as a going concern to an outside party, the sale of substantially all of the assets of the Company to an outside party and the issuance of shares of common stock ("Common Stock") to an outside party which would provide a new source of financing for the Company. On June 9, 1997, based upon the Company's recognition that its business plan at such date did not require the then existing level of cash on hand and that a distribution of such funds to the Company's shareholders would better serve the shareholders' interests, the Company declared a cash distribution of $3,956,695, or $.70 per share of Common Stock, that was paid on June 27, 1997 to shareholders of record on June 20, 1997. On June 23, 1997, the Company signed a non-binding letter of intent with the Morgan Kent Group, Inc. ("Morgan Kent") pursuant to which, subject to certain conditions, Morgan Kent would acquire control of the Company. Presently, Morgan Kent holds a controlling interest in a publicly held information technology company. During the week of December 15, 1997, the Company and Morgan Kent expect to execute the Stock Purchase Agreement, dated as of December 11, 1997 ("Purchase Agreement"), and an amendment thereto, dated as of December 11, 1997 ("Amendment"). This Report on Form 10-QSB will be amended as soon as practicable to reflect the terms of the Purchase Agreement and Amendment, and a copy of each of such documents will be filed as an exhibit to Amendment No. 1 to this Report on Form 10-QSB. RESULTS OF OPERATIONS For the three months ended October 31, 1997, the Company reported a net loss of approximately $174,000 on total revenues of approximately $347,000 compared to net income 8 9 of approximately $174,000 on total revenues of approximately $783,000 for the same period last year. Feature film revenue decreased by approximately 56% to approximately $313,000 for the quarter ended October 31, 1997 from approximately $711,000 for the same period last year. During the quarter ending October 31, 1997, the Company did not produce or release any new films and derived revenues almost exclusively from the exploitation of films produced in prior fiscal years. Costs relating to revenue were approximately $266,000 during the three months ended October 31, 1997 versus approximately $369,000 during the three months ended October 31, 1996. These costs relate to amortization of production costs of films for which revenue was recognized during the period. Selling expenses decreased to approximately $19,000 during the quarter ended October 31, 1997 versus approximately $27,000 for the same period last year. General and administrative expenses increased by approximately $25,000 to approximately $236,000 during the quarter ended October 31, 1997 from approximately $211,000 during the same period last year. This increase resulted primarily from increased legal expenditures in connection with certain ongoing litigation to which the Company is a party. LIQUIDITY AND CAPITAL RESOURCES The production of motion pictures requires substantial capital. In producing a motion picture, the Company may expend substantial sums for both the production and distribution of a picture, before that film generates any revenues. In many instances the Company obtains advances or guarantees from its distributors but these advances and guarantees generally defray only a small portion of a film's cost. The Company's principal source of working capital during the quarter ended October 31, 1997 was motion picture licensing income. Except for the financing of film production costs, management believes that its existing cash resources will be sufficient to fund its ongoing operations. The consummation of the Purchase Agreement is expected to allow the Company to make a significant distribution to its shareholders without decreasing the capital of the Company. For the six months ended October 31, 1997, the Company's net cash flow provided by operating activities decreased to approximately $72,000 compared to approximately $679,000 during the six months ended October 31, 1996. Net cash flow provided by investing activities was approximately $3,516,000, primarily attributable to the sale of marketable securities. The Company used net cash flow of approximately $3,812,000 in financing activities, consisting of primarily a return of capital to shareholders. As of October 31, 1997, the Company had cash and cash equivalents of approximately $26,000 and marketable securities of approximately $2,356,000 as compared to cash and cash equivalents of approximately $213,000 and marketable securities of approximately $5,191,000 as of October 31, 1996. FUTURE COMMITMENTS The Company has no material commitments for capital expenditures. The Company will evaluate the adequacy of and need for capital resources once a final strategic plan has been developed. (SEE "RECENT DEVELOPMENTS"). FORWARD-LOOKING STATEMENTS The foregoing discussion, as well as the other sections of this Quarterly Report on Form 10-QSB, contains various forward-looking statements that reflect the Company's current views with respect to future events and financial results. Forward-looking statements usually include the verbs "anticipates," "believes," "estimates," "expects," "intends," "plans," "projects," "understands" and other verbs suggesting uncertainty. The Company reminds stockholders that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors which could cause the actual results to differ materially from the forward-looking statements. Potential factors which could affect forward-looking statements include, among other things, the Company's ability to consummate the Purchase Agreement, to identify and successfully complete film projects and to attract and retain qualified personnel. 9 10 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS In the ordinary course of business, the Company has or may become involved in disputes or litigation. On the basis of information available to it, management believes such contingencies will not have a materially adverse impact on the Company's financial position or results of operations. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-B) 3.1 Restated Certificate of Incorporation of Registrant, as amended.(1) 3.2 Bylaws of Registrant. (1) 27 Financial Data Schedule. (2) --------------- (1) Incorporated by reference to Form 10-K for the fiscal year ended April 30, 1988. (2) Filed electronically with Securities and Exchange Commission, omitted in copies distributed to shareholders or other persons. (B) FORMS 8-K None. 10 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: December 15, 1997 KINGS ROAD ENTERTAINMENT, INC. /s/Kenneth Aguado ----------------------------------- Kenneth Aguado Chairman of the Board of Directors, Chief Executive Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS APR-30-1998 OCT-31-1997 25,834 2,356,117 355,335 (10,000) 561,431 3,288,717 230,344 (214,524) 3,354,425 237,090 0 0 0 21,136,318 (18,094,683) 3,354,425 313,147 347,361 265,990 520,225 0 0 0 (172,864) 725 (173,589) 0 0 0 (173,589) (.03) (.03)
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