-----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, URhq4nYpVY/MMLJd9vZilIK/RIM1A8zMIGHSvxNcVVkRxY4rwxKzwOwGN2moqZxJ 4PIzOyOryULa8KV123AVFg== 0000950150-97-000303.txt : 19970313 0000950150-97-000303.hdr.sgml : 19970313 ACCESSION NUMBER: 0000950150-97-000303 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970312 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: 97554857 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 FOR THE PERIOD ENDED JANUARY 31, 1997 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 January 31, 1997 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 March 7, 1997 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 JAN. 31, 1997 -------------- ASSETS Cash and Cash Equivalents $ 389,665 Marketable Securities, at market value 5,210,448 Accounts Receivable, net of allowance of $10,000 401,157 Film Costs, net of amortization of $167,475,063 857,700 Prepaid Expenses 19,053 Fixed Assets 14,999 Other Assets 2,500 ------------ TOTAL ASSETS $ 6,895,522 ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts Payable $ 301,006 Accrued Expenses 5,000 Deferred Revenue 86,814 ------------ TOTAL LIABILITIES 392,820 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common Stock, $0.01 par value, 12,000,000 shares authorized, 5,120,047 shares issued and outstanding 45,716 Additional Paid-In Capital 24,902,177 Deficit (18,445,191) ------------ TOTAL SHAREHOLDERS' EQUITY 6,502,702 ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,895,522 ============
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 NINE MONTHS ENDED JANUARY 31, ENDED JANUARY 31, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- REVENUES: Feature Films $ 181,588 $ 850,588 $ 1,460,707 $ 2,907,856 Interest Income 80,276 7,623 215,288 15,056 Other Income 730 7,635 2,079 10,952 ----------- ----------- ----------- ----------- 262,594 865,846 1,678,074 2,933,864 COSTS AND EXPENSES: Costs Related to Revenue 103,898 826,328 847,311 2,453,541 Selling Expenses 22,862 92,977 60,544 402,598 General & Admin. Exp 139,238 290,027 596,449 813,928 Interest 0 1,762 0 14,154 ----------- ----------- ----------- ----------- 265,998 1,211,094 1,504,304 3,684,221 INCOME/(LOSS) BEFORE INCOME TAXES (3,404) (345,248) 173,770 (750,357) Provision for Income Taxes (9,092) 8,047 (5,446) 53,591 ----------- ----------- ----------- ----------- NET INCOME/(LOSS) $ 5,688 ($ 353,295) $ 179,216 ($ 803,948) =========== =========== =========== =========== Net Earnings Per Share $ 0.00 ($ 0.07) $ 0.03 ($ 0.16) =========== =========== =========== =========== 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 -- -- -- 179,216 179,216 ------------ ------------ ------------ ------------ ------------ Balance, January 31, 1997 5,120,047 $ 45,716 $ 24,902,177 ($18,445,191) $ 6,502,702 ============ ============ ============ ============ ============
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 NINE MONTHS ENDED JANUARY 31, 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income/(Loss) $ 179,216 ($ 803,948) Adjustments to reconcile Net Income/(Loss) to Net Cash Provided by Operating Activities: Depreciation and Amortization 851,089 2,456,106 Change in Assets and Liabilities: Decrease in Accounts Receivable 206,962 351,971 Increase in Prepaid Expenses (15,342) (727) Decrease in Other Assets 3,000 0 Decrease in Accounts Payable (1,171) (191,189) Decrease in Accrued Expenses (86,582) (148,648) Decrease in Income Taxes Payable (47,941) (13,957) (Decrease)/Increase in Deferred Revenue (208,200) 179,000 ----------- ----------- NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES 881,031 1,828,608 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Marketable Securities (763,065) (500,118) Purchase of Fixed Assets (7,082) (9,460) Gross Additions to Film Cost (126,758) (472,470) ----------- ----------- NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES (896,905) (982,048) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments to Related Party 0 (443,132) ----------- ----------- NET CASH AND CASH EQUIVALENTS USED IN FINANCING ACTIVITIES 0 (443,132) ----------- ----------- NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (15,874) 403,428 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 405,539 153,920 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 389,665 $ 557,348 =========== ===========
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 January 31, 1997 and the results of operations and cash flows for the three and nine month periods ended January 31, 1997 and 1996 have been included. The results of operations for the nine month period ended January 31, 1997 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:
As of Jan. 31, 1997 ------------- Released Films, less amortization $776,784 Films in Production 0 Films in Development 80,916 -------- $857,700 ========
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 or nine month periods ended January 31, 1997 and 1996. 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 January 31, 1997, options to purchase up to 635,500 shares were outstanding under the 1987 Plan at exercise prices ranging from $.25 to $.56 per share. Of the outstanding options under the 1987 Plan, 485,500 are held by the estate of the Company's founder, Stephen Friedman, 100,000 by the chief executive officer and 50,000 by another officer of the Company. Of the outstanding options, 502,375 expire in August 1997, 50,000 expire in November 1999 and 83,125 expire in October 2001. NOTE F - INCOME TAXES A reconciliation of the provision for income taxes to the expected income tax expense at the statutory tax rate of 34% is as follows:
For the Three Months Ended Jan. 31, 1997 ------------- Computed Expected Tax at Statutory Rate ($ 1,157) Federal Income Tax Refund (15,812) State and Local Income Taxes 4,020 Foreign Taxes 2,700 Valuation Allowance 1,157 -------- ($ 9,092) ========
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 THREE MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE MONTHS ENDED JANUARY 31, 1996 Revenues for the three months ended January 31, 1997 decreased to approximately $263,000 from approximately $866,000, a decrease of approximately $603,000, or 70%, over the comparable period of the prior year, primarily as a result of the Company's decision not to produce or release any new films during this three month period. During the three months ended January 31, 1997, the Company primarily derived revenues from films that were not included in the sale of foreign distribution rights to the Company's film library ("Foreign Sale") during the prior fiscal year. Future revenues are dependent upon the Company's ability to develop, produce and release successful motion pictures, which in turn is dependent upon the Company's ability to generate working capital for the development, production and release of such motion pictures. (SEE "LIQUIDITY AND CAPITAL RESOURCES"). Costs and expenses for the three months ended January 31, 1997 decreased to approximately $266,000 from approximately $1,211,000, a decrease of approximately $945,000 or 78%, over the comparable period of the prior year. Costs related to revenue for the three months ended January 31, 1997 decreased to approximately $104,000 from approximately $826,000, a decrease of approximately $722,000, or 87%, over the comparable period of the prior year, primarily due the Company's decision not to produce new films during this three month period and a corresponding decrease in amortization of production costs. Selling expenses for the three months ended January 31, 1997 decreased to approximately $23,000 from approximately $93,000, a decrease of approximately $70,000, or 75%, over the comparable period of the prior year, due in large part to the Company's reduced sales activities following the Foreign Sale. General and administrative expenses for the three months ended January 31, 1997 decreased to approximately $139,000 from approximately $290,000, a decrease of approximately $151,000, or 52%, over the comparable period of the prior year, primarily due to significantly reduced salary expenditures and the Company's relocation to smaller and more cost-effective office space. The above factors contributed to net income of approximately $6,000 for the three months ended January 31, 1997 as compared to a net loss of approximately $353,000, or $0.07 per share, for the three months ended January 31, 1996. NINE MONTHS ENDED JANUARY 31, 1997 COMPARED TO NINE MONTHS ENDED JANUARY 31, 1996 Revenues for the nine months ended January 31, 1997 decreased to approximately $1,678,000 from approximately $2,934,000, a decrease of approximately $1,256,000, or 43%, over the comparable period of the prior year, primarily as a result of the Company's decision not to produce or release any new films during this nine month period. The Company derived revenues primarily from films that were not included in the Foreign Sale. Costs and expenses for the nine months ended January 31, 1997 decreased to approximately $1,504,000 from approximately $3,684,000, a decrease of approximately $2,180,000, or 59%, over the comparable period of the prior year. Costs related to revenue for 8 9 the nine months ended January 31, 1997 decreased to approximately $847,000 from approximately $2,454,000, a decrease of approximately $1,607,000, or 65% over the comparable period of the prior year, primarily due to a decrease in the amortization of production costs during the nine month period ended January 31, 1997. Selling expenses for the nine months ended January 31, 1997 decreased to approximately $61,000 from approximately $403,000, a decrease of approximately $342,000 or 85% over the comparable period of the prior year, due in large part to the Company's reduced sales activities following the Foreign Sale. General and administrative expenses for the nine months ended January 31, 1997 decreased to approximately $596,000 from approximately $814,000, a decrease of approximately $218,000 or 27% over the comparable period of the prior year, primarily due to the aforementioned reduction in salary and office expenditures. The above factors contributed to net income of approximately $179,000, or $0.03 per share, for the nine months ended January 31, 1997 as compared to a net loss of approximately $804,000, or $0.16 per share, for the nine months ended January 31, 1996. LIQUIDITY AND CAPITAL RESOURCES The production of motion pictures requires substantial capital. The Company may expend substantial amounts of money for both the production and distribution of a motion picture before any revenues are generated by that motion picture. 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 motion picture's total cost. During the three month period ended January 31, 1997, the Company's principal source of working capital was motion picture licensing income. Except for the financing of motion picture production costs, management believes that its existing cash resources will be sufficient to fund the Company's ongoing operations. For the nine month period ended January 31, 1997, the Company's net cash flow provided by operating activities was approximately $881,000 compared to approximately $1,829,000 for the comparable period ended January 31, 1996. For the nine months ended January 31, 1997, net cash and cash equivalents used in investing activities, primarily the purchase of marketable securities, was approximately $897,000 compared to approximately $982,000, primarily used for the purchase of marketable securities and gross additions to film costs, for the comparable period ended January 31, 1996. Cash and cash equivalents decreased to approximately $390,000 at January 31, 1997 from approximately $557,000 at January 31, 1996. Marketable securities increased to approximately $5,210,000 at January 31, 1997 from approximately $500,000 at January 31, 1996. FUTURE COMMITMENTS The Company's expected significant financial commitments relate to the future production and release of motion pictures. The Company's most recent films were low-budget productions. Although the Company may continue to produce low-budget films, it may elect to produce higher budget films if the Company is able to secure sufficient third party financing and management determines the reasonableness of the risks associated with a higher budget production. Although management believes that the Company will be able to obtain financing for the production of new motion pictures, the Company's financial position and operations have been, and will continue to be, limited by the availability of adequate financing from third party sources. 9 10 On October 4, 1996, Stephen Friedman, the Company's chief executive officer and chairman of the Company's board of directors, died. Kenneth Aguado, an officer of the Company and a member of its board of directors since 1989, was named chief executive officer and elected chairman by the board of directors. The Company is continuing operations, but the death of Mr. Friedman, the Company's founder and key employee, may significantly affect the Company's financial position and results of operations. Following Mr. Friedman's death, the Company's board of directors reviewed the Company's business plan and determined that additional capital resources, beyond those currently available to the Company, were necessary to pursue management's business strategy. On February 12, 1997, the Company announced that it had begun actively seeking acquisition and merger proposals for the Company. The Company's inability to locate an appropriate acquisition or merger candidate would significantly affect management's ability to pursue its business strategy and could significantly affect the Company's financial position and results of operations. Pursuant to the Purchase and Sale Agreement between the Company and World Icon Distribution Enterprises C.V ("Icon") dated October 3, 1995, $1,245,000 was placed in escrow pending completion of Icon's due diligence on the Foreign Sale. On December 5, 1996, the Company and Icon reached an agreement in principle ("Agreement") regarding certain claims made by Icon resulting from their due diligence. Under the terms of the Agreement, the Company would receive approximately $692,500 of the escrowed funds, plus interest accrued thereon since February 1996, upon signature of the Agreement. In addition, the Company would be obligated to pay certain costs associated with the Agreement estimated to be approximately $155,000. Both parties have agreed to execute the Agreement following the execution by Icon and various third parties of assumption agreements whereby Icon would assume certain obligations of the Company under various industry-wide collective bargaining agreements. 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. (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: March 7, 1997 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 ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 3-MOS APR-30-1997 JAN-31-1997 389,665 5,210,448 411,157 (10,000) 857,700 6,858,970 225,284 (210,285) 6,895,522 306,006 0 24,947,893 0 0 (18,445,191) 6,895,522 181,588 262,594 103,898 265,998 0 0 0 (3,404) (9,092) 5,688 0 0 0 5,688 0.00 0.00
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