<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only
/X/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
KINGS ROAD ENTERTAINMENT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
KINGS ROAD ENTERTAINMENT, INC.
1901 AVENUE OF THE STARS, SUITE 605
LOS ANGELES, CALIFORNIA 90067
January 9, 1996
To the Shareholders of Kings
Road Entertainment, Inc.:
Despite the positive financial results we achieved during the fiscal
years ending April 30, 1993 and 1994, generating approximately $1,733,000 of
net income, Kings Road reported a net loss of approximately $395,000 for the
fiscal year ended April 30, 1995. The loss results primarily from the
write-down of the Company's investment in two films produced in prior fiscal
years of $680,000. Both of the films released by the Company during the fiscal
year, The Stranger and The Redemption, were well received both domestically and
internationally and generated strong income for the Company.
Most importantly, however, as reported by the Company on its Form 8-K
dated October 26, 1995, the Company entered into an agreement with World Icon
Distribution Enterprises, C.V. whereby the Company agreed to sell certain
rights in various pictures owned or distributed by the Company for $6,500,000,
subject to reduction pursuant to the terms of the agreement. There are certain
costs associated with this transaction including sales commissions,
amortization of production costs, and guild and union payments. The Company
expects to earn approximately $5,500,000 from this transaction which the
Company expects to be completed during the quarter ending January 31, 1996.
The above transaction will provide the company with significant
working capital for the development of new mainstream motion pictures, as
opposed to the Company's recently released action/martial arts genre films, and
the Company hopes to begin production on some of these new projects in 1996.
The Company will be releasing more detailed information regarding its
production and co-production plans upon completion of the aforementioned
transaction.
Thank you for your continued support.
Sincerely Yours,
/s/ Stephen J. Friedman
----------------------------------
Stephen J. Friedman
Chairman of the Board of Directors
and Chief Executive Officer
<PAGE> 3
KINGS ROAD ENTERTAINMENT, INC.
1901 AVENUE OF THE STARS, SUITE 605
LOS ANGELES, CALIFORNIA 90067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 2, 1996
To the Stockholders of Kings
Road Entertainment, Inc.:
The Annual Meeting of Stockholders of KINGS ROAD ENTERTAINMENT, INC.
(the "Company") will be held Friday, February 2, 1996, at the principal office
of the Company at 1901 Avenue of the Stars, Suite 605, Los Angeles, California
at 12:00 noon, Pacific Standard Time, for the following purposes:
1. to elect one director to hold office for a three-year term and
until his successor is elected and qualifies; and
2. to transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business January 4, 1996
as the record date for determination of stockholders entitled to notice of and
to vote at the meeting and any adjournments or postponements thereof.
By Order of the Board of Directors
/s/ Christopher M. Trunkey
----------------------------------
Christopher M. Trunkey
Secretary
January 9, 1996
Los Angeles, California
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING
OF STOCKHOLDERS, PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY
IN THE RETURNED STAMPED ENVELOPE PROVIDED.
<PAGE> 4
PROXY STATEMENT
KINGS ROAD ENTERTAINMENT, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 2, 1996
GENERAL INFORMATION
This Proxy Statement is furnished to the holders of Common Stock, $.01
par value ("Common Stock") of Kings Road Entertainment, Inc. (the "Company") in
connection with the solicitation of proxies for the use at the annual meeting
of stockholders to be held February 2, 1996, and at any adjournment or
postponement thereof (the "Meeting"), pursuant to the accompanying Notice of
Annual Meeting of Stockholders. A form of proxy for use at the Meeting is also
enclosed. The Company anticipates mailing this Proxy Statement to its
stockholders on or about January 9, 1996.
Stockholders may revoke the authority granted by their execution of
proxies at any time before the effective exercise of proxies by delivering a
duly executed proxy bearing a later date or by filing a written revocation
thereof with the Secretary of the Company at its executive offices located at
1901 Avenue of the Stars, Suite 605, Los Angeles, California 90067. Presence
at the Meeting does not in itself revoke the proxy. All shares represented by
executed and unrevoked proxies will be voted in accordance with the
specifications therein. Proxies submitted without specification will be voted
to elect the nominee for director named herein. Management is not aware at the
date hereof of any other matters to be presented at the Meeting but, if any
other matter is properly presented, the persons named in the proxy will vote
thereon according to their best judgment.
Proxies for use at the Meeting are being solicited by the Board of
Directors of the Company. The expense of soliciting these proxies will be
borne by the Company. Proxies will be solicited directly by the Company
principally through the use of the mails, but directors, officers and regular
employees of the Company may solicit proxies personally or by telephone or
special letter. Although there is no formal agreement to do so, the Company
will also reimburse banks, brokerage houses, and other custodians, nominees and
fiduciaries for their reasonable expenses in the forwarding proxy material to
their principals.
VOTING SECURITIES
On January 4, 1996, the record date for the determination of
stockholders entitled to notice of and to vote at the Meeting, the number of
outstanding shares of Common Stock was 5,120,047. The Company has no other
voting securities outstanding. Only stockholders of record on the books of the
Company at the close of business on that date will be entitled to vote at the
Meeting. Each stockholder of record on that date is entitled to one vote per
share of Common Stock held on all matters submitted to a vote of stockholders.
The holders of a majority of the outstanding shares of Common Stock present in
person or by proxy and entitled to vote will constitute a quorum at the
meeting.
<PAGE> 5
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of January 4,
1996, concerning ownership of shares of Common Stock by each person who is
known by the Company to own beneficially more than 5% of the issued and
outstanding Common Stock of the Company:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
------------------------------------ ------ -----
<S> <C> <C>
Stephen Friedman 3,239,871(1) 57.8%
1901 Avenue of the Stars, Suite 605
Los Angeles, CA 90067
---------------
</TABLE>
(1) Includes options granted to Mr. Friedman to purchase 485,500
shares at an exercise price of $.25 per share which are presently
exercisable.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of January 4, 1996, certain
information concerning ownership of shares of Common Stock by each director of
the Company and by all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
NAME OF DIRECTORS OR NUMBER OF PERCENT OF
NUMBER OF PERSONS IN GROUP SHARES CLASS
-------------------------- ------ -----
<S> <C> <C>
Stephen Friedman 3,239,871(1) 57.8%
Kenneth Aguado 16,875(2) *
Martin Davidson 0 0
All Executive Officers and
Directors as a Group (4 persons) 3,266,746(3) 58%
---------------
</TABLE>
* Less than 1%.
(1) Includes options granted to Mr. Friedman to purchase 485,500
shares which are presently exercisable.
(2) Consists of options granted to Mr. Aguado to purchase 16,875
shares which are presently exercisable.
(3) Of the shares included as beneficially owned by all directors and
officers as a group, 512,375 shares may be acquired by
exercise of options which are presently exercisable.
The Company knows of no arrangements, including any pledge of the
Company's securities, the operation of which at a subsequent date may result in
a change of control of the Company.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation currently provides for the
Board of Directors to be divided into three classes for terms of three years
each. In accordance with the Company's bylaws, the exact number of directors
has been set at three (3), with each class consisting of one member. At the
Meeting, a director will be elected for a new three-year term to fill the
directorship currently held by Kenneth Aguado, whose term expires upon the
election of his successor (or his re-election). Mr. Aguado has been nominated
for re-election.
2
<PAGE> 6
The following table provides information as to the nominee for
director as well as for the members of the Board.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
---- --- -----
<S> <C> <C>
Kenneth Aguado (1) 37 1989
Stephen Friedman (2) 58 1980
Martin Davidson (3) 54 1989
---------------
</TABLE>
(1) Nominee for term expiring in 1998.
(2) Term expires in 1996.
(3) Term expires in 1997.
KENNETH AGUADO has been a director of the Company since February 1989.
In July 1994, Mr. Aguado rejoined the Company as Vice-President for Creative
Affairs, a position he held from 1981 until 1990. Between 1990 and 1994, Mr.
Aguado headed production for Miller-Boyett Motion Pictures at Warner Brothers
and was Vice-President of Production for Badham/Cohen Group at Universal
Pictures. Mr. Aguado attended Tulane University, where he graduated with a
degree in Psychology and Film Theory & Criticism. Mr. Aguado is a nephew of
Stephen Friedman.
STEPHEN FRIEDMAN, Chairman of the Board of Directors and Chief
Executive Officer, has been an officer and director of the Company since its
inception in 1980. Mr. Friedman has been an independent motion picture
producer since 1971. He produced nine motion pictures between 1971 and 1982,
including "The Last Picture Show", "Slapshot", "Little Darlings", "Fast Break",
and "Eye of the Needle". Prior thereto, Mr. Friedman was employed as an
attorney by Paramount Pictures Corporation, Ashley Famous Agency, a talent
agency serving the entertainment industry, Columbia Pictures, and briefly the
Federal Trade Commission. Mr. Friedman graduated from Harvard Law School in
1960 and the Wharton School of the University of Pennsylvania in 1957 with a
B.S. in Economics.
MARTIN DAVIDSON has been a director of the Company since February
1989. He has been a producer, writer, and director of feature films since
1972. He produced the film "A Fan's Notes," wrote, produced and directed "The
Lords of Flatbush," wrote and directed "Almost Summer" and "Eddie and the
Cruisers," and directed "Hero at Large," "Long Gone," "Heart of Dixie," and
"Hard Promises". Mr. Davidson was the head of the motion picture division of
Ashley Famous Agency from 1960 to 1964. He attended Syracuse University from
1957 to 1958 and the American Academy of Dramatic Arts from 1959 to 1961.
At the Meeting, the individual receiving the highest number of votes
will be elected as director. Unless otherwise directed, all proxies (unless
revoked or suspended) will be voted for the nominee named above. If the
nominee shall be unavailable for election or upon election should be unable to
serve, the proxies will be voted for the election of such other person as shall
be determined by the persons named in the proxy in accordance with their
judgment. The Company is not aware of any reason why the nominee should become
unavailable for election, or if elected, should be unable to serve as a
director.
3
<PAGE> 7
MEETINGS OF THE BOARD OF DIRECTORS; COMMITTEES
During fiscal 1995, the Board of Directors held no formal meetings,
but took action by unanimous written consent six times. The Board currently
does not have any standing committees.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of the Company's Chief
Executive Officer for each of the last three fiscal years. No other executive
officer of the Company received salary and bonus in excess of $100,000 in any
of the last three fiscal years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------
-------------------------- STOCK OPTIONS
NAME AND POSITION YEAR SALARY ($) BONUS ($) (SHARES)
----------------- ---- ---------- --------- -------------
<S> <C> <C> <C> <C>
Stephen Friedman 1995 60,000(1) 0 0
Chairman of the Board
and Chief Executive 1994 250,000 0 0
Officer
1993 250,000 0 235,500(2)
---------------
</TABLE>
(1) During a portion of the fiscal year, Mr. Friedman voluntarily
reduced his salary from $250,000 to $25,000 to provide the Company
with the resources necessary to begin repayment of the borrowings
identified in "Certain Relationships and Related Party Transactions".
(2) The term of previously granted options scheduled to expire on
August 8, 1992 was extended an additional five years.
OPTION GRANTS, EXERCISES AND YEAR-END VALUES
Shown below is information with respect to the unexercised options
held by the Chief Executive Officer, all of which are currently exercisable.
No options were granted to or exercised by Mr. Friedman during the fiscal year
ended April 30, 1995.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
NAME OPTIONS AT APRIL 30, 1995 AT APRIL 30, 1995 (1)
---- ------------------------- ---------------------
<S> <C> <C>
Stephen Friedman 485,500 $121,375
---------------
</TABLE>
(1) Based upon the difference between the closing stock price on
April 30, 1995 and the option exercise price.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Since December 1992, the Company has borrowed approximately $682,000
from Stephen Friedman, an officer of the Company, including $283,000 at an
interest rate of 24% per annum (Mr. Friedman's actual cost of funds), during
the fiscal year ended April 30, 1995. These funds were used for current
expenses and as additional financing for the production of certain films. In
September 1994, the Company began making regular payments to Mr. Friedman to
reduce these outstanding loans and, when excess cash was available, additional
repayments were made. To facilitate these repayments, Mr. Friedman voluntarily
reduced his salary from $250,000 to $25,000 for a portion of the fiscal year.
(SEE "EXECUTIVE
4
<PAGE> 8
COMPENSATION"). As of January 4, 1996, the principal balance due under these
loans was approximately $175,000.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Company has selected Arthur Andersen LLP as its independent public
accountants for fiscal 1996. Arthur Andersen LLP, which has acted as the
Company's independent accountants since 1992, is not expected to have a
representative present at the Meeting.
ANNUAL REPORT
Although certain portions of the Company's Annual Report on Form
10-KSB for the fiscal year ended April 30, 1995 are included with this Proxy
Statement, the Company will promptly furnish a copy of the complete Form 10-KSB
(without exhibits) without charge to any beneficial owner of securities
entitled to vote at the Meeting who provides a written request to Christopher
M. Trunkey, Secretary, Kings Road Entertainment, Inc., 1901 Avenue of the
Stars, Suite 605, Los Angeles, California 90067.
STOCKHOLDER PROPOSALS
Stockholder proposals for presentation at the Company's 1996 annual
meeting must be received by the Company at its principal executive offices for
inclusion in its proxy statement and form of proxy relating to that meeting no
later than June 20, 1996.
OTHER MATTERS
It is not expected that any other matters will be brought before the
Meeting. However, if any other matters are presented, it is the intention of
the persons named in the proxy to vote the proxy in accordance with their best
judgment.
MANAGEMENT RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE NOMINEE TO THE BOARD
OF DIRECTORS NAMED HEREIN.
ALL STOCKHOLDERS ARE URGED TO MARK, SIGN AND SEND IN THEIR PROXIES WITHOUT
DELAY TO THE COMPANY'S TRANSFER AGENT, U.S. STOCK TRANSFER COMPANY. PROMPT
RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED.
By Order of the Board of Directors
/s/ Christopher M. Trunkey
----------------------------------
Christopher M. Trunkey
Secretary
5
<PAGE> 9
APPENDIX A
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED APRIL 30, 1995
<TABLE>
<S> <C>
Management's Discussion and Analysis of Financial
Position and Results of Operations A-2
Market for Company's Common Stock and Related
Stockholder Matters A-5
Report of Independent Public Accountants A-6
Consolidated Balance Sheet As of April 30, 1995 A-7
Consolidated Statements of Operations for the Years
Ended April 30, 1995 and 1994 A-8
Consolidated Statements of Shareholders' Equity
for the Years Ended April 30, 1995 and 1994 A-9
Consolidated Statements of Cash Flows for the Years
Ended April 30, 1995 and 1994 A-10
Notes to Consolidated Financial Statements A-11
</TABLE>
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are almost exclusively derived from the
exploitation of the feature films it produces, as well as from film rights it
has acquired, and are spread over a number of years. The Company attempts to
generate revenues from theatrical distributors as soon as possible following
completion of a picture. However, lower budget films, of which the Company has
recently been producing, generally do not have a theatrical release. Revenues
from home video are initially recognized when a film becomes available for
release on videocassette, typically six months after the initial theatrical
release or, when no theatrical release occurs, upon delivery of the film to the
distributor. Revenues from pay and free television of a film are similarly
recognized when a film becomes available for exploitation in those media,
typically six to twenty-four months after the initial release. Some
distribution contracts, however, may license more than one medium, a "multiple
rights license". In this case, the full license fee is recognized when the
film is exploited in the first available medium. Revenues from international
markets generally follow the same pattern as revenues from the domestic market
and may include multiple rights licenses as well. As a result of these
factors, the Company's revenues vary significantly each year depending on the
number and success of release of films which become available in the various
media during that fiscal year. Of the two films produced by the Company during
the fiscal year ended April 30, 1995, the Company released one to the domestic
pay television market and the international home video market. The second film
was released only to certain territories in the international home video
market.
As revenues are recognized for each film, the Company amortizes the
costs incurred in producing that film. The Company amortizes film costs under
the income forecast method as described in Statement of Financial Accounting
Standards (SFAS) No. 53 which provides that film costs are amortized for a
motion picture in the ratio of revenue earned in the current period to the
Company's estimate of total revenues to be realized. The Company's management
periodically reviews its estimates on a film-by-film basis and, when
unamortized costs exceed net realizable value for a film, that film's
unamortized costs are written down to net realizable value. Costs relating to
projects which are abandoned or sold before being produced are charged to
overhead and capitalized to film costs in the year that event occurs.
RESULTS OF OPERATIONS
For the fiscal year ended April 30, 1995, the Company reported a net
loss of approximately $395,000 on feature film revenues of approximately $4.3
million as compared to a net profit of approximately $669,000 on feature film
revenues of approximately $8.1 million for the prior fiscal year. The net loss
results primarily from the write-down to net realizable value of approximately
$680,000 for two films produced by the Company in prior fiscal years and a
decrease in revenues of approximately 47%. The decrease in revenues is
primarily attributable to the fact that one of the films produced by the
Company during the current year was not available for release in the domestic
market. During the last fiscal year, the films produced by the Company were
completed and released in both the domestic and foreign markets prior to the
end of the fiscal year. The decrease is also attributable to greater
competition for lower budget films, which the Company has been producing,
resulting in generally lower prices in the home video and television markets.
Domestic television revenues were recognized for "The Stranger", "Brain
Smasher", "Knights" and "Kickboxer". Significant foreign revenues were
recognized for "Kickboxer IV: The Aggressor", "Brain Smasher", "The Stranger"
and "The Redemption".
A-2
<PAGE> 11
Costs related to revenue as a percentage of feature film revenues for
fiscal year 1995 increased to 81% from 68% for fiscal year 1994. This increase
is attributable to the write-down to net realizable value of the Company's
investment in two films produced in prior fiscal years. Selling expenses for
fiscal year 1995 decreased to approximately $502,000 from approximately
$978,000 for fiscal year 1994. This decrease results primarily from decreased
commissions expense attributable to the decrease in revenues during the fiscal
year. General and administrative expenses for the current year decreased to
approximately $645,000 from approximately $873,000 for fiscal year 1994. This
decrease is attributable to (i) continued reductions in the Company's overhead
expenditures and (ii) the decrease in salary during a substantial portion of
the current year by one of the Company's officers. Although the resulting
decrease will not be repaid to the officer, subsequent to April 30, 1995 the
officer's salary was restored to its original level. (SEE "EXECUTIVE
COMPENSATION"). During the current and prior fiscal year, interest expense of
approximately $122,000 and $118,000 for 1995 and 1994, respectively, was
capitalized to film costs in accordance with SFAS No. 34.
LIQUIDITY AND CAPITAL RESOURCES
The production of motion pictures requires substantial capital. In
producing a motion picture, the Company must expend substantial sums for both
the production and distribution of a picture, all before any revenues are
generated by that film. In certain instances the Company obtains advances and
guarantees from its distributors but these advances and guarantees generally
defray only a small portion of a film's cost.
The Company's principal sources of working capital during fiscal year
1995 were (i) motion picture licensing income and (ii) Credit Lyonnais Bank
Nederland N.V. under a revolving credit facility; borrowings were limited to a
percentage of certain contract receivables of the Company up to $1,500,000
("Credit Facility"). The Credit Facility expired on March 1, 1995 and bore
interest at LIBOR plus 3% (as of March 1, 1995, 9.0%) and was secured by a
first lien on all amounts to be received under the Company's license agreements
and by a first lien on all copyrights owned by the Company.
The Company's net cash provided by operating activities increased to
approximately $3.6 million as compared to approximately $3.5 million in fiscal
1994. The Company used its operating cash flow in investment activities,
almost exclusively gross additions to film costs, of approximately $3.6 million
in fiscal 1995, and $2.4 million in fiscal 1994 and in financing activities in
1994 with the repayment of debt of approximately $965,000. Financing
activities during 1995 contributed net cash flow of approximately $11,000,
however, the Company repaid the Credit Facility in full.
The principal asset on the Company's balance sheet is unamortized film
costs. The Company's unamortized film costs at the end of fiscal years 1995
and 1994 were approximately $4.6 million and $4.5 million respectively. Not
reflected on the Company's balance sheet, in accordance with generally accepted
accounting principles, is the full realizable value of the Company's film
library. Once fully amortized for financial statement purposes, a film may
still generate significant revenue. A consultant, hired by the Company in
October 1993, estimated the value of the Company's film library at
approximately $7 million (not including the Company's five most recently
produced films) which represented the present value of future estimated sales
less associated costs. There is no assurance that the Company could realize
all of this estimated value.
A-3
<PAGE> 12
FUTURE COMMITMENTS
The Company's anticipated major financial commitments relate to the
production and release of its motion pictures. Recently the Company has been
concentrating on lower budget films and expects to continue producing these
types of films, but will pursue projects with higher budgets if management
feels sufficient resources are available and risk is limited. The financial
resources necessary for the production and release of films is generally
dependent on adequate borrowing availability. The Credit Facility with Credit
Lyonnais expired March 1, 1995 and allowed the Company to borrow a percentage
of certain contract receivables. There are a number of banks in the
entertainment industry that support this type of lending and the Company is
actively pursuing discussions with these banks. 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.
The Company owns 50% of a limited partnership created for the sole
purpose of producing and distributing the film "The Haunted Heart". The
Company guaranteed repayment of 50% of a loan made to the partnership by the
limited partner in the approximate amount of $1.5 million. In management's
opinion, this potential future commitment will not have a materially adverse
impact on the Company's financial position or results of operations. (SEE
"NOTE I TO THE CONSOLIDATED FINANCIAL STATEMENTS").
A-4
<PAGE> 13
MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has traded on the NASDAQ stock market under
the symbol "KREN" since September 1985. The following table sets forth the
high and low closing bid prices of the Common Stock as reported by NASDAQ
through April 30, 1995:
<TABLE>
<CAPTION>
FISCAL YEAR 1994 HIGH LOW
---------------- ---- ---
<S> <C> <C>
First Quarter 5/8 3/8
Second Quarter 3/4 1/4
Third Quarter 13/16 5/8
Fourth Quarter 3/4 9/16
FISCAL YEAR 1995 HIGH LOW
---------------- ---- ---
First Quarter 11/16 9/16
Second Quarter 25/32 9/16
Third Quarter 9/16 3/8
Fourth Quarter 17/32 3/8
</TABLE>
As of July 20, 1995, the Company had approximately 275 stockholders of
record plus approximately 800 shareholders holding shares in street name.
The Company has never paid a cash or stock dividend on its Common
Stock and has no intention to pay any dividends in the future. The Company
currently intends to retain all earnings for use in its business.
A-5
<PAGE> 14
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Kings Road Entertainment, Inc.:
We have audited the accompanying consolidated balance sheet of Kings Road
Entertainment, Inc. and subsidiaries (the "Company") as of April 30, 1995, and
the related consolidated statements of operations, shareholders' equity and
cash flows for the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement preparation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kings Road
Entertainment, Inc. and subsidiaries as of April 30, 1995, and the results of
their operations and their cash flows for the two years then ended in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
July 20, 1995
A-6
<PAGE> 15
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
APRIL 30, 1995
--------------
<S> <C>
ASSETS
Cash and Cash Equivalents $ 153,920
Accounts Receivable, net of allowance of $15,000 - Note A 1,013,409
Film Costs, net of amortization of $163,276,474 - Notes A & B 4,606,268
Prepaid Expenses 8,553
Fixed Assets - Notes A & C 5,813
Other Assets 5,500
------------
TOTAL ASSETS $ 5,793,463
============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts Payable $ 599,259
Due to Related Party - Note D 443,132
Accrued Expenses 166,648
Income Taxes Payable 17,957
Deferred Revenue 214,712
------------
TOTAL LIABILITIES 1,441,708
COMMITMENTS AND CONTINGENCIES
Notes E & H
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 (20,596,138)
------------
TOTAL SHAREHOLDERS' EQUITY 4,351,755
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,793,463
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
A-7
<PAGE> 16
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30
1995 1994
---------- ----------
<S> <C> <C>
REVENUES
Feature Films - Note A $4,281,973 $8,076,564
Interest Income 313 692
Other Income 1,510 2,500
---------- ----------
4,283,796 8,079,756
---------- ----------
Costs Related to Revenue 3,476,300 5,510,564
Selling Expenses 502,327 978,498
General & Administrative Expenses 645,478 872,635
Interest - Note B 0 0
---------- ----------
4,624,105 7,361,697
---------- ----------
INCOME/(LOSS) BEFORE INCOME TAXES (340,309) 718,059
Provision for Income Taxes - Note G 54,436 49,011
---------- ----------
NET INCOME/(LOSS) ($394,745) $669,048
========== ==========
Net Income/(Loss) Per Share - Note A ($0.07) $0.13
========== ==========
Weighted Average Number of Common Shares 5,407,345 5,339,339
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
A-8
<PAGE> 17
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Common Additional Retained Total
Stock Stock Paid-In Earnings/ Shareholders'
Shares Amount Capital (Deficit) Equity
--------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance,
April 30, 1993 5,080,047 $45,316 $24,886,327 ($20,870,441) $4,061,202
Net Income -- -- -- 669,048 669,048
--------- --------- ---------- ------------ -----------
-- -- -- -- --
Balance,
April 30, 1994 5,080,047 45,316 24,886,327 (20,201,393) 4,730,250
Net Income -- -- -- (394,745) (394,745)
Exercise of
Stock Options 40,000 400 15,850 -- 16,250
--------- ------- ----------- ----------- ----------
-- -- -- -- --
Balance,
April 30, 1995 5,120,047 $45,716 $24,902,177 ($20,596,138) $4,351,755
========= ======= =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
A-9
<PAGE> 18
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)/Income ($ 394,745) $ 669,048
Adjustments to reconcile Net (Loss)/Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 3,487,394 5,521,657
Provision for loss on Accounts Receivable 17,500 114,885
Change in Assets and Liabilities:
Decrease in Restricted Cash 10,430 0
Decrease/(Increase) in Accounts Receivable 411,704 (221,059)
Decrease in Prepaid Expenses 3,440 27,905
Decrease in Other Assets 20,661 0
Decrease in Accounts Payable (68,385) (683,904)
Decrease in Settlements Payable 0 (525,000)
Increase in Accrued Expenses 139,621 13,179
Decrease in Income Taxes Payable 0 (1,110)
Decrease in Deferred Revenue (32,940) (1,401,763)
----------- -----------
NET CASH AND CASH EQUIVALENTS
PROVIDED BY OPERATING ACTIVITIES 3,594,680 3,513,838
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (5,813) 0
Gross Additions to Film Cost (3,622,888) (2,386,897)
----------- -----------
NET CASH AND CASH EQUIVALENTS
USED IN INVESTING ACTIVITIES (3,628,701) (2,386,897)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Debt 2,807,855 2,064,164
Repayment of Debt (2,858,179) (3,127,734)
Borrowing from Related Party 283,000 99,286
Repayments to Related Party (238,349) (805)
Proceeds from Exercise of Stock Options 16,250 0
----------- -----------
NET CASH AND CASH EQUIVALENTS PROVIDED
BY/(USED IN) FINANCING ACTIVITIES 10,577 (965,089)
----------- -----------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (23,444) 161,852
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 177,364 15,512
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 153,920 $ 177,364
=========== ===========
Cash paid for:
Interest - Note A 97,879 91,014
Taxes - Note G 54,436 49,011
</TABLE>
The accompanying notes are an integral part of these statements
A-10
<PAGE> 19
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation - The consolidated financial statements include the
accounts of Kings Road Entertainment, Inc. and its subsidiaries after
elimination of all intercompany items and transactions.
Basis of Presentation - The consolidated financial statements have been
prepared on a going concern basis which assumes the realization of assets and
the satisfaction of liabilities in the normal course of business.
Recognition of Revenues - The Company recognizes revenues in accordance with
the provisions of SFAS No. 53. Revenues from theatrical exhibition are
recognized on the dates of exhibition. Revenues from international, home
video, television and pay television license agreements are recognized when
the license period begins and the film is available for exhibition or
exploitation pursuant to the terms of the applicable license agreement.
Once complete, a typical film will generally be made available for license as
follows:
<TABLE>
<CAPTION>
Months After Approximate
Marketplace Initial Release Release Period
----------- --------------- --------------
<S> <C> <C>
Domestic theatrical 6 months
All international markets 1-10 years
Domestic home video 6 months 6-12 months
Domestic cable/pay television 12-18 months 18 months
Domestic syndicated/free television 24-48 months 1-6 years
</TABLE>
In 1995, the Company earned revenue from one significant customer of
approximately $930,000 (22%) of consolidated revenues. No customer constituted
more than 10% of total sales for 1994.
Revenues from foreign sources were approximately $2,712,000 and $5,391,000 in
1995 and 1994, respectively.
Film Costs - Film costs, including related interest and production overhead,
are capitalized as incurred. Profit participations and residuals, if any, are
accrued in the proportion that revenue for a period bears to the estimated
future revenues. The individual film forecast method set forth in SFAS 53 is
used to amortize these costs based in the ratio of revenue earned in the
current period to the Company's estimate of total revenues to be realized.
Management periodically reviews its estimates on a film-by-film and, when
unamortized costs exceed net realizable value for a film, that film's
unamortized costs are written down to net realizable value. Costs related to
projects which are abandoned or sold before being produced are charged to
overhead and capitalized to film costs in the year that event occurs.
A-11
<PAGE> 20
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and Amortization - Depreciation of fixed assets is computed by
the straight-line method over the estimated useful lives of the assets ranging
from three to five years. Leasehold improvements are amortized over the
useful life of the improvements or the terms of the applicable lease,
whichever is less.
Per Share Data - Per share computations are based on the average number of
the Company's common shares and common equivalents outstanding during each year.
Concentration of Credit Risk - The Company licenses various rights in its
films to distributors throughout the world. Generally, payment is received in
full or in part prior to the Company's delivery of the film to the applicable
distributor. As of April 30, 1995, approximately 25% of the Company's
accounts receivable were from foreign distributors.
Income Taxes - Effective May 1, 1993, the Company adopted SFAS 109,
"Accounting for Income Taxes", which required a change to the "asset and
liability method" of accounting for income taxes from the "deferred method" of
accounting for income taxes. The adoption of SFAS 109 did not have a material
effect on the Company's financial position or results of operations. (SEE
"NOTE G").
Accounts Receivable - Accounts receivable are stated net of an allowance for
doubtful accounts of $15,000 as of April 30, 1995.
NOTE B - FILM COSTS
Film Costs consist of:
<TABLE>
<CAPTION>
April 30, 1995
--------------
<S> <C>
Released Films, less amortization $4,449,274
Films in Production 0
Films in Development 156,994
----------
$4,606,268
==========
</TABLE>
Based on the Company's estimates of revenues as of April 30, 1995, 100% of
unamortized film costs applicable to released films will be amortized during
the three years ended April 30, 1998.
Interest capitalized to film costs was $121,930 and $118,041 in 1995 and 1994,
respectively. Overhead capitalized to film costs was $522,405 and $294,049 in
1995 and 1994, respectively.
A-12
<PAGE> 21
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - FIXED ASSETS
Fixed Assets consist of:
<TABLE>
<CAPTION>
April 30, 1995
--------------
<S> <C>
Office Equipment $180,526
Furniture & Fixtures 28,217
Leasehold Improvements 4,159
--------
212,902
Less -- Accumulated Depreciation 207,089
--------
$ 5,813
========
</TABLE>
NOTE D - DEBT
As of April 30, 1995, the Company had no bank debt. The Credit Facility
expired March 1, 1995 and was fully repaid on March 20, 1995. The Credit
Facility bore interest at LIBOR plus 3% (as of March 1, 1995, 9.0%) and was
secured by a first lien on all amounts to be received under the Company's
license agreements and by a first lien on all copyrights owned by the Company.
All collateral has subsequently been released.
Since December 1992, the Company has borrowed approximately $682,000 from
Stephen Friedman, an officer of the Company, including $283,000 at an interest
rate of 24% per annum (Mr. Friedman's actual cost of funds), during the fiscal
year ended April 30, 1995. These funds were used for current expenses and as
additional financing for the production of certain films. In September 1994,
the Company began making regular payments to Mr. Friedman to reduce these
outstanding loans and, when excess cash was available, additional repayments
were made. To facilitate these repayments, Mr. Friedman voluntarily reduced
his salary from $250,000 to $25,000 for a portion of the fiscal year.
Repayments to Mr. Friedman during the fiscal year were approximately $239,000.
Interest expense to Mr. Friedman during the fiscal year was approximately
$56,000 .
NOTE E - COMMITMENTS AND CONTINGENCIES
The Company leases approximately 3,300 square feet of office space on a
month-to-month basis at $1.00 per square foot per month.
Rent expense was $46,637 and $77,778 in 1995 and 1994, respectively. Rent
expense for 1994 is net of $2,500 of sublease rental income.
The Company operates in one business segment, consisting primarily of
production and distribution of feature length motion pictures.
NOTE F - STOCK OPTIONS AND WARRANTS
The Company's 1987 Nonqualified Stock Option Plan (the "1987 Plan") provides
for the grant of options to purchase up to 850,000 shares. At April 30, 1995,
options to purchase up to 302,375 shares were outstanding under the 1987 Plan
at exercise prices ranging from $.25 to $.56 per share. Of the outstanding
options under the 1987 Plan, 235,500 are held by the
A-13
<PAGE> 22
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F- STOCK OPTIONS AND WARRANTS (CONTINUED)
Chief Executive Officer, 16,875 by a director and 50,000 by another officer of
the Company. Options to purchase an additional 250,000 shares also have been
granted to the Chief Executive Officer outside the 1987 Plan at an exercise
price of $.25 per share. Of the outstanding options, 502,375 expire in August
1997 and 50,000 expire in November 1999.
NOTE G - 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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Computed Expected Tax at Statutory Rate ($116,000) $244,140
State and Local Income Taxes 9,940 13,011
Foreign Taxes 44,496 36,000
Valuation Allowance 116,000 (244,140)
-------- --------
$54,436 $49,011
======== ========
</TABLE>
For federal income tax purposes, the Company has available income 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 $15,921,000 (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:
<TABLE>
<CAPTION>
As of
Assets/(Liabilities) April 30, 1995
-------------------- ---------------
<S> <C>
Deferred Revenue $ 86,000
Film Cost Amortization (158,000)
Net Operating Loss Carryforwards 6,368,000
Investment Tax Credit Carryforwards 2,166,000
Foreign Tax Credit Carryforwards 400,000
------------
8,862,000
Valuation Allowance (8,862,000)
------------
$ 0
============
</TABLE>
A valuation allowance of $8,862,000 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.
A-14
<PAGE> 23
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - LITIGATION AND CONTINGENCIES
In December 1994, the Company filed a lawsuit in the Superior Court of the
County of Los Angeles against The Movie Group, Inc. ("TMG") alleging causes of
action for breach of contract, conversion, and breach of fiduciary duty, among
other things, and seeking an accounting and declaratory relief, among other
things, arising from a sales agency agreement ("Agreement") with TMG in
connection with one of the Company's films. Under the Agreement, the Company
is entitled to receive certain monies derived from exploitation of the film
after deduction of certain fees and expenses. The Company believes TMG has
substantially underpaid the monies to which the Company is entitled to receive.
The lawsuit seeks payment of any monies due along with termination of the
Agreement. While management believes it may prevail on some or all of the
causes of action, the likelihood of any monetary recovery is uncertain and the
Company may be required to share any recovery with certain third parties.
Subsequent to April 30, 1995, TMG filed a cross-complaint against the Company
and a third party alleging, among other things, inducing breach of contract,
recission based on fraud and intentional interference with existing business
relationships. Management believes it has substantial defenses to all of the
allegations in the cross-complaint.
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 I - INVESTMENT IN LIMITED PARTNERSHIP
In September 1993, the Company entered into an agreement ("Agreement") with
another corporation ("Limited Partner") wherein a limited partnership
("Partnership") was formed for the purpose of producing and distributing one
theatrical motion picture ("Picture") at a cost of approximately $3,000,000.
The Company is the general partner, responsible for all financial and tax
reporting of the Partnership, and owns 50% of the Partnership. Under the
Agreement, the Company is obligated (i) to contribute 25% of the budget of the
Picture to the Partnership and (ii) to guarantee repayment of one-half of a
loan made to the Partnership by the Limited Partner of 50% of the budget of the
Picture. The outstanding balance of the aforementioned loan was approximately
$1.5 million as of April 30, 1995. The remaining 25% of the budget of the
motion picture was provided by the Limited Partner.
All revenue generated by the Picture, after deduction of certain distribution
expenses, will be disbursed (i) to the Limited Partner to repay the
aforementioned loan with interest, then (ii) to the Limited Partner to
reimburse certain legal expenses incurred in connection with the Agreement,
then (iii) to the Company until it receives a deferred executive producer's fee
of $250,000, and then (iv) to the Company and Limited Partner in equal shares.
For financial reporting purposes, the Company's contribution of 25% of the
Picture, and certain capitalized overhead and interest expenses, are included
in film costs. Revenue from the Partnership will be recognized when received
and the Company's costs amortized according to the individual film forecast
method described in Note A. In management's opinion, none of the commitments
made by the Company in the Agreement will have a materially adverse impact on
the Company's financial position and results of operations.
A-15
<PAGE> 24
KINGS ROAD ENTERTAINMENT, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 2, 1996
The undersigned hereby constitutes and appoints Stephen J. Friedman
and Christopher M. Trunkey, and each of them, the true and lawful attorneys,
agents and proxies of the undersigned, with full power of substitution, to
vote, as specified herein, with respect to all the shares of Common Stock of
KINGS ROAD ENTERTAINMENT, INC. (the "Company"), standing in the name of the
undersigned at the close of business on January 4, 1996, at the Annual Meeting
of Stockholders to be held February 2, 1996 and at any and all adjournments or
postponements thereof.
1. ELECTION OF DIRECTOR FOR THREE-YEAR TERM ENDING IN 1997:
[ ] FOR Kenneth Aguado
[ ] WITHHOLD AUTHORITY
to vote for Kenneth Aguado
2. IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF
The shares represented by this Proxy will be voted in the manner
directed herein by the undersigned stockholder. If no directions to the
contrary are made, this Proxy will be voted FOR the election as director of the
nominee named above.
Dated:_____________________, 1996
___________________________________________
(Signature)
___________________________________________
(Signature if held jointly)
IMPORTANT: PLEASE SIGN EXACTLY AS NAME APPEARS AT THE LEFT. EACH JOINT OWNER
SHOULD SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC., SHOULD GIVE FULL
TITLE. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED
PERSON.
PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF KINGS ROAD ENTERTAINMENT, INC.
