-----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, Hm4IH1+3IxF5dF5DdoiLP6neRT+zYdJ9tapKZrHCD0HR1MNUa7oEwi12YqQo9KPE ahcKqhS+vsAlX9qGH460sg== 0000950150-97-001287.txt : 19970912 0000950150-97-001287.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950150-97-001287 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19970910 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: 97678009 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 July 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 September 5, 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 JULY 31, 1997 ------------- ASSETS Cash and Cash Equivalents $ 353,393 Marketable Securities, at market value 2,133,186 Accounts Receivable, net of allowance of $10,000 290,777 Film Costs, net of amortization of $167,769,996 805,521 Prepaid Expenses 41,191 Fixed Assets 20,973 Other Assets 2,500 ------------ TOTAL ASSETS $ 3,647,541 ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts Payable $ 322,862 Accrued Expenses 15,000 Deferred Revenue 94,455 ------------ TOTAL LIABILITIES 432,317 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 (17,921,094) ------------ TOTAL SHAREHOLDERS' EQUITY 3,215,224 ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,647,541 ============
The accompanying notes are an integral part of this statement. 2 3 KINGS ROAD ENTERTAINMENT, INC. STATEMENTS OF OPERATIONS - (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1997 1996 ----------- ----------- REVENUES Feature Films $ 357,915 $ 567,815 Interest Income 60,306 65,119 Other Income 0 0 ----------- ----------- 418,221 632,934 COSTS AND EXPENSES Costs Related to Revenue 36,507 373,945 Selling Expenses 4,002 11,120 General & Administrative Expenses 263,269 245,872 ----------- ----------- 303,778 630,937 ----------- ----------- INCOME BEFORE INCOME TAXES 114,443 1,997 Provision for Income Taxes 97 2,166 ----------- ----------- NET INCOME/(LOSS) $ 114,346 $ (169) =========== =========== Net Income Per Share $ 0.02 $ 0.00 =========== =========== Weighted Average Number of Common Share and Common Share Equivalents 5,652,422 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 Income -- -- -- 114,346 114,346 ------------ ------------ ------------ ------------ ------------ Balance, July 31, 1997 5,652,422 $ 51,040 $ 21,085,278 ($17,921,094) $ 3,215,224 ============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements. 4 5 KINGS ROAD ENTERTAINMENT, INC. STATEMENTS OF CASH FLOWS - (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1997 1996 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income/(Loss) $ 114,346 $ (169) Adjustments to reconcile Net Income/(Loss) to Net Cash Provided by Operating Activities: Depreciation and Amortization 38,806 414,957 Change in Assets and Liabilities: Decrease in Accounts Receivable 23,072 368,262 Increase in Prepaid Expenses (27,896) (7,539) Decrease in Other Assets 0 3,000 Increase in Accounts Payable 7,141 40,064 Decrease in Accrued Expenses 0 (82,974) Decrease in Income Taxes Payable (3,482) (47,941) Increase/(Decrease) in Deferred Revenue 6,655 (145,620) ----------- --------- NET CASH AND CASH EQUIVALENTS PROVIDED BY OPERATING ACTIVITIES 158,642 542,040 CASH FLOWS FROM INVESTING ACTIVITIES: Sale/(Purchase) of Marketable Securities 3,833,845 (543,388) Disposal of Fixed Assets 114 0 Gross Additions to Film Cost (75,837) (90,740) ----------- --------- NET CASH AND CASH EQUIVALENTS PROVIDED BY/(USED IN) INVESTING ACTIVITIES 3,758,122 (634,128) 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 INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 105,189 (92,088) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 248,204 405,539 ----------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 353,393 $ 313,451 =========== =========
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 July 31, 1997 and the results of operations and cash flows for the three month periods ended July 31, 1997 and 1996 have been included. The results of operations for the three month period ended July 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:
July 31, 1997 ------------- Released Films, less amortization $683,589 Films in Production 0 Films in Development 121,932 -------- $805,521 ========
6 7 KINGS ROAD ENTERTAINMENT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE C - FILM COSTS (CONTINUED) In accordance with Statement of 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, 1997 and 1996, 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, 1997, options to purchase up to 103,125 shares were outstanding under the 1987 Plan at an exercise price of $.56 per share. Of the outstanding options under the 1987 Plan, 83,125 are held by the Chief Executive Officer and 20,000 by another officer of the Company. Of the outstanding options, 20,000 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:
Quarter Ending July 31, 1997 ------------- Computed Expected Tax at Statutory Rate $38,878 State and Local Income Taxes 0 Foreign Taxes 97 Valuation Allowance (38,878) ------- $ 97 =======
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: 7 8 KINGS ROAD ENTERTAINMENT, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE F - INCOME TAXES (CONTINUED)
July 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 ----------- 8,889,000 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. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS During the quarter ended July 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 to an outside party which would provide a new source of financing for the Company. From January through May 1997, the Company had discussions with over twenty outside parties which expressed varying degrees of interest in acquiring all or part of the Company or in supplying additional capital in return for an equity interest in the Company. On June 23, 1997, the Company signed a non-binding letter of intent with a privately held corporation ("Acquiror") pursuant to which, subject to certain conditions, Acquiror would acquire control of the Company. Presently, Acquiror holds a controlling interest in a publicly held information technology company. The term of the non-binding letter of intent expired August 20, 1997; however, as of September 5, 1997, the Company and Acquiror are continuing negotiations. As of September 5, 1997, Acquiror and the Company contemplate entering into a transaction involving the distribution to the Company's shareholders of all of the Company's cash and marketable securities and the subsequent acquisition of control of the Company by Acquiror through the purchase of newly-issued shares of common stock. For the purposes of such stock purchase, the non-distributed assets of the Company, subject to completion of financial and other due diligence, were tentatively valued by the parties, as of September 5, 1997, in an amount between $2.5 million and $3.2 million. The final structure, terms (including purchase price) and conditions of such transaction have not yet been determined nor has the 8 9 Acquiror completed its evaluation of the Company's assets, however, and no assurances can be made that the transaction, if completed, will be substantially the same as the transaction described or that the valuation will not be significantly different from the range set forth above. The non-binding letter of intent provided that such transaction is conditioned upon, among other things, the completion of due diligence to the satisfaction of both parties, the completion of a definitive agreement that is satisfactory to both parties, the receipt of all necessary consents and approvals and the absence of any material adverse change in the business or prospects of the Company. As a result, there can be no assurance that Acquiror and the Company will consummate the contemplated transaction. In the event that Acquiror does acquire control of the Company, there can be no assurance that the Company will adhere to its current strategy and a change in the Company's business strategy could have a material adverse impact upon the Company's results of operations and financial position. If the Company does not complete the contemplated transaction, the Company will have to choose among its other options as noted above. 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. RESULTS OF OPERATIONS For the three months ended July 31, 1997, the Company reported net income of approximately $114,000 on total revenues of approximately $418,000 compared to a net loss of approximately $200 on total revenues of approximately $633,000 for the same period last year. Feature film revenue decreased by approximately 37% to approximately $358,000 for the quarter ended July 31, 1997 from approximately $568,000 for the same period last year. During the quarter ending July 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 $37,000 during the three months ended July 31, 1997 versus approximately $374,000 during the three months ended July 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 $4,000 during the quarter ended July 31, 1997 versus approximately $11,000 for the same period last year. General and administrative expenses increased by approximately $17,000 to approximately $263,000 during the quarter ended July 31, 1997 from approximately $246,000 during the same period last year. This increase results 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 July 31, 1997 was motion picture licensing income. Except for the 9 10 financing of film production costs, management believes that its existing cash resources will be sufficient to fund its ongoing operations. For the three months ended July 31, 1997, the Company's net cash flow provided by operating activities decreased to approximately $159,000 as compared to approximately $542,000 during the three months ended July 31, 1996. Net cash flow provided by investing activities was approximately $3,758,000, primarily the sale of marketable securities. The Company used net cash flow of approximately $3,812,000 in financing activities, primarily a return of capital to shareholders. As of July 31, 1997, the Company had cash and cash equivalents of approximately $353,000 and marketable securities of approximately $2,133,000 as compared to cash and cash equivalents of approximately $313,000 and marketable securities of approximately $4,991,000 as of July 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") 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. 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: September 5, 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) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB FOR THE QUARTER ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 3-MOS APR-30-1998 JUL-31-1997 353,393 2,133,186 300,777 (10,000) 805,521 3,582,877 234,743 (213,770) 3,647,541 337,862 0 21,136,318 0 0 (17,921,094) 3,647,541 357,915 418,221 36,507 303,778 0 0 0 114,443 97 114,346 0 0 0 114,346 .02 .02
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