-----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, T3GCYm/4Oh3WjgAYk4XUSIZk3tWAbCnDu9LpUrevbsUbwxdwF6GWdcoRGwycgckd nzAJMIGVRidoripX13YcQA== 0001013708-99-000006.txt : 19990318 0001013708-99-000006.hdr.sgml : 19990318 ACCESSION NUMBER: 0001013708-99-000006 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990317 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: 99567160 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 QUARTERLY REPORT 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 January 31, 1999 Commission File No. 0-14234 KINGS ROAD ENTERTAINMENT, INC. (Name of small business issuer 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 March 15, 1999 the registrant had 3,389,315 shares of its common stock outstanding. Transitional Small Business Disclosure Format: YES ___ NO X_ PART I - FINANCIAL INFORMATION Item 1 - Financial Statements KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF JAN. 31, 1999 -------------------- ASSETS Cash and Cash Equivalents $ 47,216 Accounts and Notes Receivable, net of allowance of $10,000 388,108 Film Costs, net of amortization of $168,335,670 308,261 Investment in Immediate Entertainment Group 5,951,851 Prepaid Expenses 72,101 Fixed Assets 12,874 Other Assets 2,500 ------------------- TOTAL ASSETS $6,782,911 =================== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts Payable $205,017 Note Payable to Related Parties 210,803 Accrued Expenses 10,586 Deferred Revenue 8,400 ------------------- TOTAL LIABILITIES 434,806 COMMITMENTS AND CONTINGENCIES 0 SHAREHOLDERS' EQUITY Common Stock, $.01 par value, 12,000,000 shares authorized, 3,389,315 shares issued and outstanding at Jan. 31, 1999 65,815 Additional Paid-In Capital 24,542,788 Deficit (18,260,498) ------------------- TOTAL SHAREHOLDERS' EQUITY 6,348,105 ------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,782,911 =================== The accompanying notes are an integral part of this balance sheet. 2 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS NINE MONTHS ENDED JANUARY 31, ENDED JANUARY 31, 1999 1998 1999 1998 -------------------------------- -------------------------------- REVENUES Feature Films $242,806 $668,513 $464,970 $1,339,575 Interest Income 4,466 32,557 71,165 127,077 -------------- ---------- --------------- -------------- 247,272 701,070 536,135 1,466,652 COSTS AND EXPENSES Costs Related to Revenue 81,997 186,161 90,854 488,658 Selling Expenses 3,016 34,725 32,489 57,260 General & Administrative Expenses 235,604 282,320 548,191 781,291 Interest 2,426 0 2,426 0 Cancellation of Stock Options 113,754 0 113,754 0 --------------- ----------- --------------- ------------ 436,797 503,206 787,714 1,327,209 --------------- ----------- --------------- ------------ OPERATING (LOSS)/INCOME (189,525) 197,864 (251,579) 139,443 Equity in Losses of Affiliates (31,236) 0 (31,236) 0 --------------- ----------- --------------- ------------ (LOSS)/INCOME BEFORE INCOME TAXES (220,761) 197,864 (282,815) 139,443 Provision for Income Taxes 0 4,452 (18,940) 5,274 --------------- ----------- --------------- ------------ NET (LOSS)/INCOME ($220,761) $193,412 ($263,875) $134,169 =============== =========== =============== ============ Net Loss Per Share - Basic ($0.07) $0.10 ($0.11) $0.07 =============== =========== =============== ============ Weighted Average Number of Common Shares - Basic 3,389,315 1,884,141 2,404,270 1,864,423 =============== =========== =============== ============ Net Loss Per Share - Diluted ($0.07) $0.10 ($0.11) $0.07 =============== =========== =============== ============ Weighted Average Number of Common Shares and Common Share Equivalents - Diluted 3,389,315 1,911,849 2,427,714 1,895,094 =============== =========== =============== ============
The accompanying notes are an integral part of these statements. 3 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Common Common Additional Retained Total Stock Stock Paid-In Earnings/ Shareholders' Shares Amount Capital (Deficit) Equity ------------------ ------------------ ------------------ ------------------ ------------------- Balance, April 30, 1997 1,706,581 $45,716 $24,902,177 ($18,035,440) $6,912,453 Exercise of Stock Options 205,167 5,324 139,797 ----- 145,121 Distribution to Shareholders ----- ----- (3,956,696) ----- (3,956,696) Net Income ----- ----- ----- 38,817 38,817 ----------------- ----------------- ----------------- ----------------- ----------------- Balance, April 30, 1998 1,911,748 51,040 21,085,278 (17,996,623) 3,139,695 Issuance of Stock for Acquisitions 1,477,567 14,775 3,457,510 ----- 3,472,285 Net Loss ----- ----- ----- (263,875) (263,875) ----------------- ----------------- ----------------- ----------------- ----------------- Balance, Jan. 31, 1999 3,389,315 $65,815 $24,542,788 ($18,260,498) $6,348,105 ========== ========== =========== ============= ==========
The accompanying notes are an integral part of these statements. 4 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JAN. 31, 1999 1998 -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ($263,875) $134,169 Adjustments to reconcile Net Loss to Net Cash Provided by Operating Activities: Depreciation and Amortization 97,024 494,933 Equity in Losses of Affiliates 31,236 0 Changes in Assets and Liabilities: Increase in Accounts Receivable (14,645) (30,724) Increase in Prepaid Expenses (24,260) (56,523) Decrease in Accounts Payable (28,150) (61,310) Decrease in Accrued Expenses (4,414) 0 Decrease in Income Taxes Payable 0 (3,482) Decrease in Deferred Revenue (1,200) (8,982) ------------------- ------------------- NET CASH AND CASH EQUIVALENTS (USED IN)/ PROVIDED BY OPERATING ACTIVITIES (208,284) 468,081 CASH FLOWS FROM INVESTING ACTIVITIES: Sale of Marketable Securities 0 3,480,266 (Purchase)/Disposal of Fixed Assets (4,560) 3,207 Gross Additions to Film Costs (98,441) (102,740) Investment in Immediate Entertainment Group (5,983,087) 0 ------------------- ------------------- NET CASH AND CASH EQUIVALENTS (USED IN)/ PROVIDED BY INVESTING ACTIVITIES (6,086,088) 3,380,733 CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Stock for Investment in Immediate 3,472,285 0 Borrowings from Related Parties 210,803 0 Exercise of Stock Options 0 145,121 Distribution to Shareholders 0 (3,956,696) ------------------- ------------------- NET CASH AND CASH EQUIVALENTS PROVIDED BY/(USED IN) FINANCING ACTIVITIES 3,683,088 (3,811,575) ------------------- ------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,611,284) 37,239 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,658,500 248,204 ------------------- ------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $47,216 $285,443 =================== ===================
The accompanying notes are an integral part of these statements. 5 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The consolidated financial statements include the accounts of Kings Road Entertainment, Inc. and its subsidiaries. The Company has one affiliate, Immediate Entertainment Group, Inc., which is 20% owned by the Company, that is accounted for using the equity method. 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, 1998, 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, 1999 and the results of operations and cash flows for the three and nine month periods ended January 31, 1999 and 1998 have been included. The results of operations for the three and nine month periods ended January 31, 1999 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, 1998. 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 periods. Actual results could differ from those estimates. The Company has adopted Statement of Financial Accounting Standard No. 128, Earnings Per Share ("SFAS No. 128"), which became effective for financial statements issued for periods ending after December 15, 1997. In accordance with SFAS No. 128, prior year earnings per share ("EPS") amounts have been restated. SFAS No. 128 was issued to simplify the standards for calculating EPS previously set forth in Accounting Principles Board No. 15, Earnings Per Share. SFAS No. 128 replaces the presentation of primary EPS with basic EPS. The new rules also require dual presentation of basic and diluted EPS on the face of the statements of operations. In April 1998, the Company effected a 1-for-3 reverse stock split for shareholders of record on April 17, 1998. All share and per share data in the financial statements reflect the reverse stock split for all periods presented. 6 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE B - FILM COSTS Film costs consist of: As Of Jan. 31, 1999 ------------- Released Films, less amortization $115,663 Films in Production 0 Films in Development 192,598 ------- $308,261 ======= NOTE C - INVESTMENT IN IMMEDIATE ENTERTAINMENT GROUP On November 9, 1998, the Company acquired 20% of the common stock of Immediate Entertainment Group, Inc. ("Immediate") for an aggregate of $2,300,000 in cash, 1,477,567 newly issued shares of the Company's stock and a note payable to the sellers for $210,803 bearing interest at 5% per annum due upon demand but in no event earlier than April 30, 2000. The Company's investment in Immediate has been accounted for using the equity method. At January 31, 1999, the quoted market value of the Company's investment in Immediate was approximately $8,675,477. This valuation represents a mathematical calculation based on the closing price of Immediate's common stock on the NASD over-the-counter bulletin board market and is not necessarily indicative of the amounts that could be realized upon sale. Accounts and Notes Receivable include $97,000 of amounts due from Immediate. Immediate is a diversified entertainment holding company that provides services relating to music production, audio recording, CD manufacturing, film soundtrack and script development and operates a mail order music club. 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 The Company's 1998 Stock Option Plan ("1998 Plan") provides for the grant of options to purchase up to 400,000 shares of the Company's common stock. At January 31, 1999, no options were outstanding under the 1998 Plan. On November 6, 1998, in connection with a November 6, 1998 Stock Acquisition Agreement ("Acquisition Agreement"), all of the then outstanding options under the 1998 Plan were canceled. For such cancellation, the option holders received, in the aggregate, the sum of $113,754, representing the difference between $2.35, the per share purchase price under the Acquisition Agreement, and the exercise price of $1.22 times 100,667, the number of then outstanding options. 7 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE E - STOCK OPTIONS (CONTINUED) The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations in accounting for its employee stock options because the alternative fair value accounting method provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, requires the use of valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share under the fair value accounting method for the three and nine month periods ended January 31, 1999 and 1998 has not been presented as the amounts are immaterial. NOTE F - INCOME TAXES A reconciliation of the provision for income taxes to the expected income tax expense at the statutory federal tax rate of 34% is as follows: Nine Months Ended Nine Months Ended Jan. 31, 1999 Jan. 31, 1998 Computed Expected Tax at Statutory Rate ($96,157) $67,274 Benefit of Prior Years Amended Returns (19,286) 0 State and Local Income Taxes 0 4,220 Foreign Taxes 346 232 Valuation Allowance 96,157 (67,274) --------- -------- ($18,940) $4,452 ========= ======= The Company filed amended federal and state tax returns for the fiscal years ended April 30, 1997 and 1996 that resulted in a reduction in income tax expense of $19,286 recorded during the nine month period ended January 31, 1999. For federal income tax purposes, the Company has available investment tax credits of approximately $2,166,000 after being reduced by 35% as a result of the Tax Reform Act of 1986 (expiring between 2000 and 2002) and net operating loss carryforwards of approximately $16,626,000 (expiring between 2001 and 2007) to offset future income tax liabilities. Deferred tax assets 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 are as follows: 8 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F - INCOME TAXES (CONTINUED) As Of Jan. 31, 1999 ------------- Deferred Revenue $4,000 Film Cost Amortization 18,000 Net Operating Loss Carryforwards 6,650,000 Investment Tax Credit Carryforwards 2,166,000 Foreign Tax Credit Carryforwards 400,000 --------- 9,238,000 Valuation Allowance (9,238,000) --------- $0 ========= A valuation allowance of $9,238,000 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. NOTE G - RELATED PARTY TRANSACTIONS On November 6, 1998, pursuant to a Stock Acquisition Agreement, FAB Capital Corporation ("FAB"), MBO Music Verlag GmbH ("MBO"), Western Union Leasing Ltd. ("Western") and RAS Securities Corp. (collectively, the "Acquirors") purchased 421,949, 373,350, 159,461 and 100 shares, respectively, of the Company's common stock from the Estate of Stephen Friedman ("Estate") and FAB simultaneously purchased 7,500 shares from Christopher Trunkey, the Chief Financial Officer of the Company, for a purchase price of $2.35 per share or $2,261,546 in the aggregate. Such shares represented approximately 50.3% of the Company's then outstanding common stock. Phillip Cook, Chairman, Chief Executive Officer and 25% shareholder of FAB became Chairman and Chief Executive Officer of the Company. Music Action Ltd. ("MAC") agreed that it would, as soon as practicable but in any event within 120 days after November 6, 1998, make or cause to be made an offer to each of the Company's shareholders other than the Acquirors, the Estate and Mr. Trunkey, for the purchase of up to ninety percent (90%) of such shareholder's shares at a price of $2.35 per share ("Purchase Offer"). MAC agreed that, in the event the Purchase Offer was not made within ninety days after November 6, 1998, it would deposit $1,800,000 into escrow to be applied toward the Purchase Offer. FAB agreed to make the $1,800,000 deposit into escrow in the event MAC did not do so. On February 3, 1999, the Stock Acquisition Agreement was amended to eliminate the Purchase Offer due to the fact that the Company's closing share price exceeded the $2.35 Purchase Offer price for the previous ten (10) trading days. On November 9, 1998, the Company acquired 20% of the common stock of Immediate from FAB, MBO and Western for an aggregate of $2,300,000 in cash, 1,477,567 newly issued shares of the Company's stock and a note payable to the sellers ("Note") for $210,803 bearing interest at 5% per annum due upon demand but in no event earlier than April 30, 2000. Pursuant to such transaction FAB, MBO and Western, respectively, received $1,016,679, $898,875 and $384,446 in cash, 653,131, 577,479 and 246,957 shares of the Company's common stock and are due $93,175, $82,424 and $35,204 under the Note. 9 KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE G - RELATED PARTY TRANSACTIONS (CONTINUED) The Company also entered into a non-binding letter of intent, pursuant to which Immediate will merge into a newly formed, wholly owned subsidiary of the Company in a proposed tax-free transaction. The merger is conditioned upon the negotiation and execution of definitive final agreements and the satisfaction of any legal requirements including the consent of shareholders, if required. During the quarter ending January 31, 1999, interest expense of $2,426 was accrued on the Note. Michael Berresheim, Chairman, Chief Executive Officer and significant shareholder of Immediate is the Managing Director and sole shareholder of MBO. On December 17, 1998, the Company paid $25,000 to FAB as reimbursement for expenses it incurred in connection with the pending merger negotiations between the Company and Immediate. On February 9, 1999, the Company paid $25,000 to FAB as reimbursement for legal fees incurred in connection with the pending merger negotiations between the Company and Immediate. Subsequent to November 9, 1998, the Company has advanced to Immediate or made payments to third parties on Immediate's behalf of $97,000. Immediate has agreed to repay such advances in the event the pending merger negotiations between the Company and Immediate are terminated. 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Recent Developments Subsequent to the fiscal year ended April 30, 1995, the Company has not produced any new films and has derived revenues almost exclusively from the exploitation of films produced prior to April 30, 1995. Following the death on October 4, 1996 of Mr. Stephen Friedman, the Company's founder and then Chairman of the Board of Directors and Chief Executive Officer, 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. 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 November 6, 1998, pursuant to a Stock Acquisition Agreement, FAB Capital Corporation ("FAB"), MBO Music Verlag GmbH ("MBO"), Western Union Leasing Ltd. ("Western") and RAS Securities Corp. (collectively, the "Acquirors") purchased 962,360 shares of the Company's common stock (approximately 50.3% of the Company's then outstanding common stock) from the Estate of Stephen Friedman ("Estate") and Christopher Trunkey, the Chief Financial Officer of the Company, for a purchase price of $2.35 per share or $2,261,546 in the aggregate. In addition, Music Action Ltd. ("MAC") agreed that it would, as soon as practicable but in any event within 120 days after November 6, 1998, make or cause to be made an offer to each of the Company's shareholders other than the Acquirors, the Estate and Mr. Trunkey, for the purchase of up to ninety percent (90%) of such shareholder's shares at a price of $2.35 per share ("Purchase Offer"). MAC agreed that, in the event the Purchase Offer was not made within ninety days after November 6, 1998, it would deposit $1,800,000 into escrow to be applied toward the Purchase Offer. FAB agreed to make the $1,800,000 deposit into escrow in the event MAC did not do so. On February 3, 1999, the Stock Acquisition Agreement was amended to eliminate the Purchase Offer due to the fact that the Company's closing share price exceeded the $2.35 Purchase Offer price for the previous ten (10) trading days. On November 9, 1998, the Company acquired 20% of the common stock of Immediate from FAB, MBO and Western for an aggregate of $2,300,000 in cash, 1,477,567 newly issued shares of the Company's stock and a note payable to the sellers ("Note") for $210,803 bearing interest at 5% per annum due upon demand but in no event earlier than April 30, 2000. The Company also entered into a non-binding letter of intent, pursuant to which Immediate will merge into a newly formed, wholly owned subsidiary of the Company in a proposed tax-free transaction. The merger is conditioned upon the negotiation and execution of definitive final agreements and the satisfaction of any legal requirements including the consent of shareholders, if required. Immediate's principal business is the production, acquisition and distribution of audio and video CD's as well as CD-ROM by engaging artists and producers to create recordings or acquiring previously completed recordings. Results of Operations The Three Months Ended January 31, 1999 vs. the Three Months Ended January 31, 1998 For the quarter ended January 31, 1999 feature film revenues were approximately $243,000 as compared to approximately $669,000 for the quarter ended January 31, 1998. The substantial decrease in feature film revenues of 11 approximately 64% results primarily from the fact that the Company has not produced any new films since the fiscal year ended April 30, 1995. Until such time as the Company either produces new films or develops and implements a new overall strategic plan, the Company expects that its feature film revenues will continue to decline. Interest income decreased to approximately $4,000 during the quarter ended January 31, 1999 versus approximately $33,000 for the same period last year. This decrease results from the substantial decrease in the Company's cash and marketable securities during the quarter versus the same period last year. Costs related to revenue as a percentage of feature film revenues increased to approximately 34% for the quarter ended January 31, 1999 from approximately 28% for the quarter ended January 31, 1998. These costs represent the amortization of production costs of films that generated revenue during the period. Selling expenses decreased to approximately $3,000 during the quarter ended January 31, 1999 versus approximately $35,000 during the same quarter last year. This decrease in selling expenses results from the decrease in feature film revenues of approximately 65%. General and administrative costs decreased by approximately 17% to approximately $236,000 during the quarter ended January 31, 1999 versus approximately $282,000 during the same period last year. This decrease results primarily from a substantial decrease of approximately $65,000 in legal expenditures due to the resolution in December 1997 and April 1998 of certain litigation involving the Company partially offset by increased investor relations expenses. In connection with the Stock Acquisition Agreement, all of the then outstanding options under the Company's 1998 Stock Option Plan were canceled. For such cancellation, the option holders received approximately $114,000 that was recorded as an expense during the quarter ended January 31, 1999. The Company had a net loss of approximately $221,000 for the quarter ended January 31, 1999 including equity in losses of affiliates of approximately $31,000 versus net income of approximately $193,000 for the quarter ended January 31, 1998 reflecting the Company's lower revenues during the current quarter versus the same quarter last year. The Nine Months Ended January 31, 1999 vs. the Nine Months Ended January 31, 1998 For the nine months ended January 31, 1999 feature film revenues were approximately $465,000 as compared to approximately $1,340,000 for the nine months ended January 31, 1998. The substantial decrease in feature film revenues of approximately 65% results primarily from the fact that the Company has not produced any new films since the fiscal year ended April 30, 1995. Until such time as the Company either produces new films or develops and implements a new overall strategic plan, the Company expects that its feature film revenues will continue to decline. Interest income decreased to approximately $71,000 for the nine months ended January 31, 1999 from approximately $127,000 during the same nine month period last year, reflecting the decrease in cash and marketable securities held during the nine month period ended January 31, 1999. Costs related to revenue as a percentage of feature film revenues decreased to approximately 20% for the nine months ended January 31, 1999 from approximately 37% for the nine months ended January 31, 1998. This decrease results from the fact that a significant portion of the costs associated with the Company's films have previously been amortized. Selling expenses decreased to approximately $32,000 during the nine months ended January 31, 1999 versus approximately $57,000 during the same nine month period last year. 12 General and administrative costs decreased by approximately 30% to approximately $548,000 during the nine months ended January 31, 1999 versus approximately $781,000 during the same nine month period last year. This decrease results primarily from a substantial decrease of approximately $277,000 in legal expenditures due to the resolution in December 1997 and April 1998 of certain litigation involving the Company which was partially offset by increased investor relations expenses. In connection with the Acquisition Agreement, all of the then outstanding options under the Company's 1998 Stock Option Plan were canceled. For such cancellation, the option holders received approximately $114,000 that was recorded as an expense during the nine months ended January 31, 1999. The Company had a net loss of approximately $264,000 for the nine months ended January 31, 1999 including equity in losses of affiliates of approximately $31,000 versus net income of approximately $134,000 for the quarter ended January 31, 1998 reflecting the Company's lower revenues during the current nine month period versus the same period last year. 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 may obtain advances or guarantees from its distributors but these advances and guarantees generally may defray only a portion of a film's cost. The Company's principal source of working capital during the nine months ended January 31, 1999 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 nine months ended January 31, 1999, the Company's net cash flow used in its operating activities was approximately $208,000, a decrease of approximately $676,000 as compared to approximately $468,000 of net cash flow provided by operating activities during the nine months ended January 31, 1998. This decrease is due primarily to the substantial decrease of approximately 67% in feature film revenues during the nine month period ended January 31, 1999 as compared to the same period in 1998. During the nine months ended January 31, 1999, the Company invested approximately $5,984,000 for the purchase of 20% of the outstanding common stock of Immediate. This investment was funded through the issuance of approximately $3,472,000 worth of the Company's common stock, $2,300,000 of existing cash and cash equivalents and approximately $211,000 of borrowings from related parties. During the nine months ended January 31, 1998, the Company used cash flow, primarily generated by the sale of marketable securities, to make a cash distribution to shareholders of approximately $3,957,000 on June 27, 1997. As of January 31, 1999, the Company had cash and cash equivalents of approximately $47,000 as compared to approximately $2,772,000 as of January 31, 1998. 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"). 13 Forward-Looking Statements The foregoing discussion, as well as the other sections of this Quarterly Report on Form 10-QSB, contains 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 shareholders 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 that could affect forward-looking statements include, among other things, the Company's ability to identify, produce and complete film projects that are successful in the marketplace, to arrange financing, distribution and promotion for these projects on favorable terms in various markets and to attract and retain qualified personnel. In addition, the Company is currently seeking merger and acquisition proposals for the Company and its plans, strategies and future results are subject to the outcome of any such proposals. PART II - OTHER INFORMATION Item 2 - Changes in Securities and Use of Proceeds (c) On November 9, 1998, the Company issued 1,477,567 shares of Common Stock as partial consideration for its acquisition of 20% of the outstanding common stock of Immediate. See the third paragraph under Note G to the Financial Statements, above. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule. (b) Forms 8-K On November 20, 1998, the Company filed a Form 8-K reporting under Item 1 thereof a change in control of the Company. 14 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. Date: March 15, 1999 KINGS ROAD ENTERTAINMENT, INC. By: /s/Phillip Cook -------------------------- Phillip Cook Chief Executive Officer EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS APR-30-1999 JAN-31-1999 47,216 0 398,108 (10,000) 308,261 743,585 237,627 (224,753) 6,782,911 205,017 0 24,608,603 0 0 (18,260,498) 6,782,911 242,806 247,272 81,997 436,797 31,236 0 2,426 (220,761) 0 (220,761) 0 0 0 (220,761) (.07) (.07)
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