<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended July 31, 1996 Commission File No. 0-14234
KINGS ROAD ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3587522
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1901 Avenue of the Stars, Suite 1545
Los Angeles, California 90067
(Address of principal executive office)
Registrant's telephone number, including area code: (310) 552-0057
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---- ----
On September 16, 1996 the Registrant had 5,120,047 shares of its common stock,
$.01 par value, issued and outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - (UNAUDITED)
<TABLE>
<CAPTION>
AS OF
JULY 31, 1996
-------------------
<S> <C>
ASSETS
Cash and Cash Equivalents $313,451
Marketable Securities, at market value 4,990,771
Accounts Receivable, net of allowance of $10,000 239,857
Film Costs, net of amortization of $167,001,697 1,255,048
Prepaid Expenses 11,250
Fixed Assets 10,682
Other Assets 2,500
-------------------
TOTAL ASSETS $6,823,560
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts Payable $342,241
Accrued Expenses 8,608
Deferred Revenue 149,394
-------------------
TOTAL LIABILITIES 500,243
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, 12,000,000 shares
authorized, 5,120,047 shares issued and outstanding 45,716
Additional Paid-In Capital 24,902,177
Deficit (18,624,576)
-------------------
TOTAL SHAREHOLDERS' EQUITY 6,323,317
-------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,823,560
===================
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JULY 31,
1996 1995
------------------- -------------------
<S> <C> <C>
REVENUES
Feature Films $567,815 $984,349
Interest Income 65,119 1,475
Other Income 0 2,639
------------------- -------------------
632,934 988,463
COSTS AND EXPENSES
Costs Related to Revenue 373,945 906,073
Selling Expenses 11,120 130,480
General & Administrative Expenses 245,872 294,138
Interest - Note B 0 10,619
------------------- -------------------
630,937 1,341,310
------------------- -------------------
INCOME/(LOSS) BEFORE INCOME TAXES 1,997 (352,847)
Provision for Income Taxes - Note G 2,166 26,257
------------------- -------------------
NET INCOME/(LOSS) ($169) ($379,104)
=================== ===================
Net Income/(Loss) Per Share - Note A $0.00 ($0.07)
=================== ===================
Weighted Average Number of Common Shares 5,120,047 5,120,047
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - (UNAUDITED)
<TABLE>
<CAPTION>
Common Common Additional Total
Stock Stock Paid-In Shareholders'
Shares Amount Capital Deficit Equity
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance,
April 30, 1995 5,120,047 $45,716 $24,902,177 ($20,596,138) $4,351,755
Net Income ----- ----- ----- 1,971,731 1,971,731
--------------- --------------- --------------- --------------- ----------------
Balance,
April 30, 1996 5,120,047 45,716 24,902,177 (18,624,407) 6,323,486
Net Loss ----- ----- ----- (169) (169)
--------------- --------------- --------------- --------------- ----------------
Balance,
July 31, 1996 5,120,047 $45,716 $24,902,177 ($18,624,576) $6,323,317
=============== =============== =============== =============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JULY 31,
1996 1995
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($169) ($379,104)
Adjustments to reconcile Net Income/(Loss) to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 414,957 906,613
Change in Assets and Liabilities:
Decrease in Accounts Receivable 368,262 332,648
Increase in Prepaid Expenses (7,539) (15,942)
Decrease/(Increase) in Other Assets 3,000 (17,100)
Increase/(Decrease) in Accounts Payable 40,064 (60,167)
Decrease in Accrued Expenses (82,974) (142,523)
Decrease in Income Taxes Payable (47,941) 0
(Decrease)/Increase in Deferred Revenue (145,620) 75,899
------------------- -------------------
NET CASH AND CASH EQUIVALENTS
PROVIDED BY OPERATING ACTIVITIES 542,040 700,324
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Marketable Securities (543,388) 0
Purchase of Fixed Assets 0 (957)
Gross Additions to Film Cost (90,740) (264,823)
------------------- -------------------
NET CASH AND CASH EQUIVALENTS
USED IN INVESTING ACTIVITIES (634,128) (265,780)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to Related Party 0 (268,132)
------------------- -------------------
NET CASH AND CASH EQUIVALENTS USED IN
FINANCING ACTIVITIES 0 (268,132)
------------------- -------------------
NET (DECREASE)/INCREASE IN CASH AND
CASH EQUIVALENTS (92,088) 166,412
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 405,539 153,920
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $313,451 $320,332
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements. Accordingly, they do not include all of the information
and disclosures required for annual financial statements. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes for the year ended April 30, 1996, included in
the Kings Road Entertainment, Inc. ("Company" or "Registrant") annual report on
Form 10-KSB for that period.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of July 31, 1996 and the results of operations and cash flows for
the three month periods ended July 31, 1996 and 1995 have been included.
The results of operations for the three month period ended July 31, 1996 are
not necessarily indicative of the results to be expected for the full fiscal
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB
for the year ended April 30, 1996.
Net Income or Loss per share amounts have been calculated using the weighted
average number of common shares outstanding. Stock options have been excluded
as common stock equivalents because of their antidilutive or non-material
effect.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - MARKETABLE SECURITIES
In accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
the Company determines the classification of marketable securities at the time
of purchase and reevaluates such designation at each balance sheet. Marketable
securities have been classified as available for sale and are stated at market
value. It is currently the Company's policy to purchase only US Government
securities with maturities less than one year.
NOTE C - FILM COSTS
Film Costs consist of:
<TABLE>
<CAPTION>
July 31, 1996
-------------
<S> <C>
Released Films, less amortization $1,234,308
Films in Production 0
Films in Development 20,740
-------------
$1,255,048
=============
</TABLE>
6
<PAGE> 7
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - FILM COSTS (CONTINUED)
In accordance with Financial Accounting Standards No. 34, interest costs are
capitalized to feature film productions until the date of completion. No
interest expense was capitalized to Film Costs during the three months periods
ended July 31, 1996 and 1995, 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, 1996,
options to purchase up to 552,375 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, 485,500 are held by the Chief Executive Officer,
16,875 by a director and officer, and 50,000 by another officer of the Company.
Of the outstanding options, 502,375 expire in August 1997 and 50,000 expire in
November 1999.
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:
<TABLE>
<CAPTION>
Quarter Ending
July 31, 1996
-------------
<S> <C>
Computed Expected Tax at Statutory Rate ($57)
State and Local Income Taxes 774
Foreign Taxes 1,392
Valuation Allowance 57
---------------
$ 2,166
===============
</TABLE>
For federal income tax purposes, the Company has available investment tax
credits of approximately $2,166,000, after being reduced 35% by the Tax Reform
Act of 1986 (expiring between 2000 and 2002) and net operating loss
carryforwards of approximately $14,100,000 (expiring between 2001 and 2007) to
offset future income tax liabilities.
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
<PAGE> 8
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
July 31, 1996
-------------
<S> <C>
Deferred Revenue $118,000
Film Cost Amortization (352,000)
Net Operating Loss Carryforwards 5,877,000
Investment Tax Credit Carryforwards 2,166,000
Foreign Tax Credit Carryforwards 400,000
Valuation Allowance (8,209,000)
-------------
$0
=============
</TABLE>
A valuation allowance of $8,209,000 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
RESULTS OF OPERATIONS
For the three months ended July 31, 1996, the Company reported a net loss of
approximately $200 on revenues of approximately $633,000 compared to a net loss
of approximately $379,000 on revenues of approximately $988,000 for the same
period last year. The net loss results primarily from a decrease in revenues
during the quarter of approximately 36% due to the prior sale of foreign
distribution rights to most of the Company's films to another company during
the fiscal year ended April 30, 1996. During the quarter ending July 31, 1996,
the Company did not produce or release any new films and primarily recognized
domestic home video and foreign revenues for The Redemption, which was produced
and initially released during 1995. Future revenues of the Company will be
dependent upon the success of the films it produces and on the Company's
ability to continue to generate working capital for the development and
production of new motion picture projects. (SEE "LIQUIDITY AND CAPITAL
RESOURCES").
Costs relating to revenue were approximately $373,000 during the three months
ended July 31, 1996 versus approximately $906,000 during the three months ended
July 31, 1995. These costs relate to amortization of production costs of films
for which revenue was recognized during the period and the write-down to net
realizable during the period ending July 31, 1995, in accordance with generally
accepted accounting principles, of the Company's investment in a film produced
during a prior fiscal year. Selling expenses decreased to approximately
$11,000 during the quarter ending July 31, 1996 versus approximately $130,000
for the same period last year. This decrease results primarily from the
decrease in the Company's revenues of approximately 36% during the quarter.
General and administrative expenses decreased by approximately $48,000 to
approximately $246,000 during the period ending July 31, 1996 from
approximately $294,000 during the same period last year. This decrease in
overhead expenditures results primarily from a reduction in the Company's staff
and the relocation of the Company's offices to smaller and more cost effective
office space.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The production of motion pictures requires substantial capital. In producing a
motion picture, the Company may expend substantial sums for both the production
and distribution of a picture, before any revenues are generated by that film.
In many instances the Company obtains advances or guarantees from its
distributors but these advances and guarantees generally defray only a small
portion of a film's cost. The Company's principal source of working capital
during the quarter ending July 31, 1996 was motion picture licensing income.
Except for the financing of film production costs, management believes that its
existing cash resources will be sufficient to fund its ongoing operations.
For the three month period ended July 31, 1996, the Company's net cash flow
provided by operating activities was approximately $542,000 compared to
approximately $700,000 during the same period last year. Net cash flows of
approximately $634,000 were used in investing activities, primarily the
purchase of marketable securities and gross additions to film costs. During
the period ending July 31, 1995, net cash flows of approximately $266,000 were
used in investing activities, primarily gross additions to film costs, and
approximately $268,000 was used in financing activities, reflecting the
repayment of certain obligations to an officer of the Company. Cash and cash
equivalents decreased slightly from approximately $320,000 as of July 31, 1995
to approximately $313,000 as of July 31, 1996.
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 may continue producing these types of
films, but the Company expects to pursue projects with higher budgets if
sufficient financing from third parties is available and risk is limited.
Although management believes it will be able to obtain financing for the
production of new films, the Company's financial position and operations have
been and will be constrained by the availability of adequate financing.
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.
9
<PAGE> 10
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 17, 1996 KINGS ROAD ENTERTAINMENT, INC.
/s/ Christopher M. Trunkey
--------------------------------------------
Christopher M. Trunkey
Vice President, Chief Financial and
Administrative Officer and Secretary
(Principal Financial and Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDING JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 313,451
<SECURITIES> 4,990,771
<RECEIVABLES> 249,857
<ALLOWANCES> (10,000)
<INVENTORY> 1,255,048
<CURRENT-ASSETS> 6,799,127
<PP&E> 218,202
<DEPRECIATION> (207,520)
<TOTAL-ASSETS> 6,823,560
<CURRENT-LIABILITIES> 350,849
<BONDS> 0
<COMMON> 24,947,893
0
0
<OTHER-SE> (18,624,576)
<TOTAL-LIABILITY-AND-EQUITY> 6,823,560
<SALES> 567,815
<TOTAL-REVENUES> 632,934
<CGS> 373,945
<TOTAL-COSTS> 630,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,997
<INCOME-TAX> 2,166
<INCOME-CONTINUING> (169)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
