-----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, KxCjf30vWcEq5+ar1ZNHUSD7PeaRrB5W9v0XOZimGF5aotw0M/I6OELcsPcvHNUl KWF8PoJJGJKv3hwgryuT4A== 0000950150-96-001010.txt : 19960919 0000950150-96-001010.hdr.sgml : 19960919 ACCESSION NUMBER: 0000950150-96-001010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960918 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: 1934 Act SEC FILE NUMBER: 000-14234 FILM NUMBER: 96631700 BUSINESS ADDRESS: STREET 1: 1901 AVE OF THE STARS STE 605 CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3105520057 MAIL ADDRESS: STREET 1: 1901 AVE OF THE STARS STREET 2: SUITE 605 CITY: LOS ANGELES STATE: CA ZIP: 90034 10QSB 1 FORM 10-QSB DATED JULY 31, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended July 31, 1996 Commission File No. 0-14234 KINGS ROAD ENTERTAINMENT, INC. (Exact name of Registrant 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) Registrant's telephone number, including area code: (310) 552-0057 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- On September 16, 1996 the Registrant had 5,120,047 shares of its common stock, $.01 par value, issued and outstanding. 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - (UNAUDITED)
AS OF JULY 31, 1996 ------------------- ASSETS Cash and Cash Equivalents $313,451 Marketable Securities, at market value 4,990,771 Accounts Receivable, net of allowance of $10,000 239,857 Film Costs, net of amortization of $167,001,697 1,255,048 Prepaid Expenses 11,250 Fixed Assets 10,682 Other Assets 2,500 ------------------- TOTAL ASSETS $6,823,560 =================== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts Payable $342,241 Accrued Expenses 8,608 Deferred Revenue 149,394 ------------------- TOTAL LIABILITIES 500,243 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common Stock, $.01 par value, 12,000,000 shares authorized, 5,120,047 shares issued and outstanding 45,716 Additional Paid-In Capital 24,902,177 Deficit (18,624,576) ------------------- TOTAL SHAREHOLDERS' EQUITY 6,323,317 ------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,823,560 ===================
The accompanying notes are an integral part of this statement. 2 3 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1996 1995 ------------------- ------------------- REVENUES Feature Films $567,815 $984,349 Interest Income 65,119 1,475 Other Income 0 2,639 ------------------- ------------------- 632,934 988,463 COSTS AND EXPENSES Costs Related to Revenue 373,945 906,073 Selling Expenses 11,120 130,480 General & Administrative Expenses 245,872 294,138 Interest - Note B 0 10,619 ------------------- ------------------- 630,937 1,341,310 ------------------- ------------------- INCOME/(LOSS) BEFORE INCOME TAXES 1,997 (352,847) Provision for Income Taxes - Note G 2,166 26,257 ------------------- ------------------- NET INCOME/(LOSS) ($169) ($379,104) =================== =================== Net Income/(Loss) Per Share - Note A $0.00 ($0.07) =================== =================== Weighted Average Number of Common Shares 5,120,047 5,120,047 =================== ===================
The accompanying notes are an integral part of these statements. 3 4 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - (UNAUDITED)
Common Common Additional Total Stock Stock Paid-In Shareholders' Shares Amount Capital Deficit Equity --------------- --------------- --------------- --------------- ---------------- Balance, April 30, 1995 5,120,047 $45,716 $24,902,177 ($20,596,138) $4,351,755 Net Income ----- ----- ----- 1,971,731 1,971,731 --------------- --------------- --------------- --------------- ---------------- Balance, April 30, 1996 5,120,047 45,716 24,902,177 (18,624,407) 6,323,486 Net Loss ----- ----- ----- (169) (169) --------------- --------------- --------------- --------------- ---------------- Balance, July 31, 1996 5,120,047 $45,716 $24,902,177 ($18,624,576) $6,323,317 =============== =============== =============== =============== ================
The accompanying notes are an integral part of these statements. 4 5 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1996 1995 ------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ($169) ($379,104) Adjustments to reconcile Net Income/(Loss) to Net Cash Provided by Operating Activities: Depreciation and Amortization 414,957 906,613 Change in Assets and Liabilities: Decrease in Accounts Receivable 368,262 332,648 Increase in Prepaid Expenses (7,539) (15,942) Decrease/(Increase) in Other Assets 3,000 (17,100) Increase/(Decrease) in Accounts Payable 40,064 (60,167) Decrease in Accrued Expenses (82,974) (142,523) Decrease in Income Taxes Payable (47,941) 0 (Decrease)/Increase in Deferred Revenue (145,620) 75,899 ------------------- ------------------- NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES 542,040 700,324 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Marketable Securities (543,388) 0 Purchase of Fixed Assets 0 (957) Gross Additions to Film Cost (90,740) (264,823) ------------------- ------------------- NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES (634,128) (265,780) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments to Related Party 0 (268,132) ------------------- ------------------- NET CASH AND CASH EQUIVALENTS USED IN FINANCING ACTIVITIES 0 (268,132) ------------------- ------------------- NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (92,088) 166,412 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 405,539 153,920 ------------------- ------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $313,451 $320,332 =================== ===================
The accompanying notes are an integral part of these statements. 5 6 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PREPARATION The accompanying unaudited consolidated 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 consolidated financial statements and related footnotes for the year ended April 30, 1996, 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 July 31, 1996 and the results of operations and cash flows for the three month periods ended July 31, 1996 and 1995 have been included. The results of operations for the three month period ended July 31, 1996 are not necessarily indicative of the results to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended April 30, 1996. 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 (SFAS) 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 US Government securities with maturities less than one year. NOTE C - FILM COSTS Film Costs consist of:
July 31, 1996 ------------- Released Films, less amortization $1,234,308 Films in Production 0 Films in Development 20,740 ------------- $1,255,048 =============
6 7 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE C - FILM COSTS (CONTINUED) In accordance with Financial Accounting Standards No. 34, interest costs are capitalized to feature film productions until the date of completion. No interest expense was capitalized to Film Costs during the three months periods ended July 31, 1996 and 1995, respectively. 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 July 31, 1996, options to purchase up to 552,375 shares were outstanding under the 1987 Plan at exercise prices ranging from $.25 to $.56 per share. Of the outstanding options under the 1987 Plan, 485,500 are held by the Chief Executive Officer, 16,875 by a director and officer, and 50,000 by another officer of the Company. Of the outstanding options, 502,375 expire in August 1997 and 50,000 expire in November 1999. 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 July 31, 1996 ------------- Computed Expected Tax at Statutory Rate ($57) State and Local Income Taxes 774 Foreign Taxes 1,392 Valuation Allowance 57 --------------- $ 2,166 ===============
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 $14,100,000 (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: 7 8 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F - INCOME TAXES (CONTINUED)
July 31, 1996 ------------- Deferred Revenue $118,000 Film Cost Amortization (352,000) Net Operating Loss Carryforwards 5,877,000 Investment Tax Credit Carryforwards 2,166,000 Foreign Tax Credit Carryforwards 400,000 Valuation Allowance (8,209,000) ------------- $0 =============
A valuation allowance of $8,209,000 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. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the three months ended July 31, 1996, the Company reported a net loss of approximately $200 on revenues of approximately $633,000 compared to a net loss of approximately $379,000 on revenues of approximately $988,000 for the same period last year. The net loss results primarily from a decrease in revenues during the quarter of approximately 36% due to the prior sale of foreign distribution rights to most of the Company's films to another company during the fiscal year ended April 30, 1996. During the quarter ending July 31, 1996, the Company did not produce or release any new films and primarily recognized domestic home video and foreign revenues for The Redemption, which was produced and initially released during 1995. Future revenues of the Company will be dependent upon the success of the films it produces and on the Company's ability to continue to generate working capital for the development and production of new motion picture projects. (SEE "LIQUIDITY AND CAPITAL RESOURCES"). Costs relating to revenue were approximately $373,000 during the three months ended July 31, 1996 versus approximately $906,000 during the three months ended July 31, 1995. These costs relate to amortization of production costs of films for which revenue was recognized during the period and the write-down to net realizable during the period ending July 31, 1995, in accordance with generally accepted accounting principles, of the Company's investment in a film produced during a prior fiscal year. Selling expenses decreased to approximately $11,000 during the quarter ending July 31, 1996 versus approximately $130,000 for the same period last year. This decrease results primarily from the decrease in the Company's revenues of approximately 36% during the quarter. General and administrative expenses decreased by approximately $48,000 to approximately $246,000 during the period ending July 31, 1996 from approximately $294,000 during the same period last year. This decrease in overhead expenditures results primarily from a reduction in the Company's staff and the relocation of the Company's offices to smaller and more cost effective office space. 8 9 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 any revenues are generated by that film. 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 ending July 31, 1996 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. For the three month period ended July 31, 1996, the Company's net cash flow provided by operating activities was approximately $542,000 compared to approximately $700,000 during the same period last year. Net cash flows of approximately $634,000 were used in investing activities, primarily the purchase of marketable securities and gross additions to film costs. During the period ending July 31, 1995, net cash flows of approximately $266,000 were used in investing activities, primarily gross additions to film costs, and approximately $268,000 was used in financing activities, reflecting the repayment of certain obligations to an officer of the Company. Cash and cash equivalents decreased slightly from approximately $320,000 as of July 31, 1995 to approximately $313,000 as of July 31, 1996. FUTURE COMMITMENTS The Company's anticipated major financial commitments relate to the production and release of its motion pictures. Recently the Company has been concentrating on lower budget films and may continue producing these types of films, but the Company expects to pursue projects with higher budgets if sufficient financing from third parties is available and risk is limited. Although management believes it will be able to obtain financing for the production of new films, the Company's financial position and operations have been and will be constrained by the availability of adequate financing. 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. 9 10 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: September 17, 1996 KINGS ROAD ENTERTAINMENT, INC. /s/ Christopher M. Trunkey -------------------------------------------- Christopher M. Trunkey Vice President, Chief Financial and Administrative Officer and Secretary (Principal Financial and Accounting Officer) 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-QSB FOR THE QUARTERLY PERIOD ENDING JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS APR-30-1997 JUL-31-1996 313,451 4,990,771 249,857 (10,000) 1,255,048 6,799,127 218,202 (207,520) 6,823,560 350,849 0 24,947,893 0 0 (18,624,576) 6,823,560 567,815 632,934 373,945 630,937 0 0 0 1,997 2,166 (169) 0 0 0 (169) 0 0
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