-----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, Kd6mVLqt4t24gipGwCTiINu78w6GsmB92tXPFyBuhcy1B5j5aixhRREQ6CrDYJcx VepZ0hY2coCKKcTdAErFaw== 0000950150-96-001551.txt : 19961217 0000950150-96-001551.hdr.sgml : 19961217 ACCESSION NUMBER: 0000950150-96-001551 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961216 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: 96680846 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 FOR QUARTERLY PERIOD ENDED 10/31/96 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 October 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 December 11, 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 OCT. 31, 1996 ------------- ASSETS Cash and Cash Equivalents $ 213,340 Marketable Securities, at market value 5,191,073 Accounts Receivable, net of allowance of $10,000 571,031 Film Costs, net of amortization of $167,371,165 920,125 Prepaid Expenses 17,739 Fixed Assets 11,315 Other Assets 2,500 ------------ TOTAL ASSETS $ 6,927,123 ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts Payable $ 321,415 Accrued Expenses 8,000 Deferred Revenue 100,694 ------------ TOTAL LIABILITIES 430,109 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 (18,450,879) ------------ TOTAL SHAREHOLDERS' EQUITY 6,497,014 ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,927,123 ============
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 FOR THE SIX MONTHS ENDED OCTOBER 31, ENDED OCTOBER 31, 1996 1995 1996 1995 ----------- ----------- ----------- ----------- REVENUES: Feature Films $ 711,304 $ 1,072,919 $ 1,279,119 $ 2,057,268 Interest Income 69,893 5,958 135,012 7,433 Other Income 1,349 678 1,349 3,317 ----------- ----------- ----------- ----------- 782,546 1,079,555 1,415,480 2,068,018 COSTS AND EXPENSES: Costs Related to Revenue 369,468 721,140 743,413 1,627,213 Selling Expenses 26,562 179,141 37,682 309,621 General & Admin. Exp 211,339 229,763 457,211 523,901 Interest 0 1,773 0 12,392 ----------- ----------- ----------- ----------- 607,369 1,131,817 1,238,306 2,473,127 INCOME/(LOSS) BEFORE INCOME TAXES 175,177 (52,262) 177,174 (405,109) Provision for Income Taxes 1,480 19,287 3,646 45,544 ----------- ----------- ----------- ----------- NET INCOME/(LOSS) $ 173,697 ($ 71,549) $ 173,528 ($ 450,653) =========== =========== =========== =========== Net Earnings Per Share $ 0.03 ($ 0.01) $ 0.03 ($ 0.09) =========== =========== =========== =========== Weighted Average Number of Common Shares 5,120,047 5,120,047 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 Income - - - 173,528 173,528 ------------ ------------ ------------ ------------ ------------ Balance, October 31, 1996 5,120,047 $ 45,716 $ 24,902,177 ($18,450,879) $ 6,497,014 ============ ============ ============ ============ ============
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 SIX MONTHS ENDED OCTOBER 31, 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income/(Loss) 173,528 ($ 450,653) Adjustments to reconcile Net Income/(Loss) to Net Cash Provided by Operating Activities: Depreciation and Amortization 785,588 1,628,766 Change in Assets and Liabilities: Decrease in Accounts Receivable 37,088 279,208 Increase in Prepaid Expenses (14,028) (12,103) Decrease in Other Assets 3,000 0 Increase/(Decrease) in Accounts Payable 19,238 (252,129) Decrease in Accrued Expenses (83,582) (140,773) Decrease in Income Taxes Payable (47,941) 0 (Decrease)/Increase in Deferred Revenue (194,320) 345,816 ----------- ----------- NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES 678,571 1,398,132 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Marketable Securities (743,690) (300,118) Purchase of Fixed Assets (1,795) (9,460) Gross Additions to Film Cost (125,285) (312,069) ----------- ----------- NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES (870,770) (621,647) 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 (192,199) 508,353 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 405,539 153,920 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 213,340 $ 662,273 =========== ===========
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 October 31, 1996 and the results of operations and cash flows for the three and six month periods ended October 31, 1996 and 1995 have been included. The results of operations for the six month period ended October 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:
October 31, 1996 ---------------- Released Films, less amortization $869,181 Films in Production 0 Films in Development 50,944 -------- $920,125 ========
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 and six month periods ended October 31, 1996 and 1995. 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, 1996, options to purchase up to 635,500 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 estate of the Company's founder, Stephen Friedman, 100,000 by the Chief Executive Officer, and 50,000 by another officer of the Company. Of the outstanding options, 502,375 expire in August 1997, 50,000 expire in November 1999 and 83,125 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:
For the Three Months Ended October 31, 1996 -------------------- Computed Expected Tax at Statutory Rate $ 59,057 State and Local Income Taxes 0 Foreign Taxes 1,480 Valuation Allowance (59,057) -------- $ 1,480 ========
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. 7 8 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS For the three months ended October 31, 1996, the Company reported net income of approximately $174,000 on revenues of approximately $783,000 compared to a net loss of approximately $72,000 on revenues of approximately $1,080,000 for the same period last year. Revenue during the quarter ended October 31, 1996 decreased approximately 28% as compared to the same period last year the due to the prior sale of the foreign distribution rights to most of the Company's films to another company during the fiscal year ended April 30, 1996. For the six months ended October 31, 1996, the Company reported net income of approximately $174,000 on revenues of approximately $1,425,000 compared to a net loss of approximately $451,000 on revenues of approximately $2,068,000 for the same period last year. The change in net income results primarily from reductions in selling and general and administrative expenses of approximately $339,000 and the write-down to net realizable value, during the six month period ended October 31, 1995, in accordance with generally accepted accounting principles, of the Company's investment in a film produced during a prior fiscal year. During the six months ended October 31, 1996, the Company did not produce or release any new films and primarily recognized revenues from a sale of US and Canadian television rights to ten of the Company's films and foreign revenues on the Company's most recently produced films which were not included in the aforementioned sale of foreign distribution rights. 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 $370,000 during the three months ended October 31, 1996 versus approximately $721,000 during the three months ended October 31, 1995. These costs relate to amortization of production costs of films for which revenue was recognized during the period. Selling expenses decreased to approximately $27,000 during the quarter ending October 31, 1996 versus approximately $179,000 for the same period last year. This decrease results primarily from the decrease in the Company's sales activities due to the sale of foreign distribution rights to most of the Company's films to another Company last year. General and administrative expenses decreased by approximately $19,000 to approximately $211,000 during the period ending October 31, 1996 from approximately $230,000 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. 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 8 9 working capital during the quarter ending October 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 six month period ended October 31, 1996, the Company's net cash flow provided by operating activities was approximately $639,000 compared to approximately $1,398,000 during the same period last year. Net cash flows of approximately $831,000 were used in investing activities, primarily the purchase of marketable securities. During the six month period ending October 31, 1995, net cash flows of approximately $622,000 were used in investing activities, primarily the purchase of marketable securities and 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 to approximately $213,000 as of October 31, 1996 from approximately $662,000 as of October 31, 1995 while marketable securities increased to approximately $5,191,000 as of October 31, 1996 from approximately $300,000 as of October 31, 1995. FUTURE COMMITMENTS The Company's anticipated major financial commitments relate to the production and release of future motion pictures. The Company's most recent films were "low budget" films and while the Company may continue producing these types of films, the Company may 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. On October 4, 1996, Stephen Friedman, the Company's chairman of the board and chief executive officer died. Kenneth Aguado, an officer of the Company and a member of its board of directors since 1989, was named chief executive officer and was elected by the board of directors as its new chairman. Although the Company's operations are continuing, the death of Mr. Friedman, the Company's founder and key employee, may significantly affect the Company's financial position and future results of operations. In light of this event, the Company's managment is currently re-evaluating its business plan. 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 None. 9 10 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) (B) FORMS 8-K On November 8, 1996, the Company filed a Form 8-K reporting under Item 1 thereof that Stephen Friedman, the beneficial owner of 3,239,871 shares of common stock of the Company, died on October 4, 1996 and that the executors of his estate would be entitled to vote those shares which represent 58% of the issued and outstanding stock of the Company. The Form 8-K also reported under Item 5 thereof that due to Mr. Friedman's death, Susan Aguado, Mr. Friedman's sister had been appointed to serve the remainder of Mr. Friedman's term on the Company's board of directors. Subsequent to Mrs. Aguado's appointment, the board of directors elected Kenneth Aguado, an officer of the Company and the son of Mrs. Aguado, as its new chairman and named Mr. Aguado as president and chief executive officer of the Company. 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 11, 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) 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-QSB FOR THE QUARTERLY PERIOD ENDING OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 3-MOS APR-30-1997 OCT-31-1996 213,340 5,191,073 581,031 (10,000) 920,125 6,895,569 219,998 (208,683) 6,927,123 329,415 0 0 0 24,947,893 (18,450,879) 6,927,123 711,304 782,546 369,468 607,369 0 0 0 175,177 1,480 173,697 0 0 0 173,697 .03 .03
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