<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended July 31, 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 September 20, 1999 the registrant had 3,482,019 shares of its common stock
outstanding.
Transitional Small Business Disclosure Format: YES [ ] NO [ X ]
<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, 1999
-------------
<S> <C>
ASSETS
Cash and Cash Equivalents $ 47,857
Accounts Receivable, net of allowance of $32,630 208,345
Film Costs, net of amortization of $168,409,527 199,084
Investment in Immediate Entertainment Group 1,797,286
Other Investments 1,150,000
Prepaid Expenses 13,251
Fixed Assets 8,234
Other Assets 80,570
------------
TOTAL ASSETS $ 3,504,627
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts Payable $ 324,174
Accrued Expenses 26,938
Note Payable to Related Parties 210,803
Convertible Note Payable 1,000,000
Note Payable 250,000
Deferred Revenue 7,275
------------
TOTAL LIABILITIES 1,819,190
COMMITMENTS AND CONTINGENCIES 0
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, 12,000,000 shares
authorized, 3,481,310 shares issued and outstanding 34,813
Additional Paid-In Capital 24,733,564
Deficit (23,082,940)
------------
TOTAL STOCKHOLDERS' EQUITY 1,685,437
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,504,627
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 3
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JULY 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Feature Films $ 91,865 $ 149,917
Interest Income 413 32,247
----------- -----------
92,278 182,164
COSTS AND EXPENSES
Costs Related to Revenue 0 7,357
Selling Expenses 1,451 8,465
General & Administrative Expenses 276,467 145,263
Interest 25,859 0
----------- -----------
303,777 161,085
----------- -----------
OPERATING (LOSS)/INCOME (211,499) 21,079
OTHER EXPENSES
Equity in Losses of Affiliates 237,849 0
Adjustment in Valuation of Other Investments 100,000 0
----------- -----------
337,849 0
(LOSS)/INCOME BEFORE INCOME TAXES (549,348) 21,079
Provision for Income Taxes 110 (19,114)
----------- -----------
NET (LOSS)/INCOME ($ 549,458) $ 40,193
=========== ===========
Net (Loss)/Income Per Share - Basic ($ 0.16) $ 0.02
=========== ===========
Weighted Average Number of Common
Shares - Basic 3,474,334 1,911,748
=========== ===========
Net (Loss)/Income Per Share - Diluted ($ 0.16) $ 0.02
=========== ===========
Weighted Average Number of Common Shares
and Common Share Equivalents - Diluted 3,474,334 1,935,446
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Common Additional Retained Total
Stock Stock Paid-In Earnings/ Stockholders'
Shares Amount Capital (Deficit) Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance,
April 30, 1998 1,911,748 $ 19,118 $ 21,117,200 $(17,996,623) $ 3,139,695
Issuance of Stock for
Investment in Immediate 1,477,567 14,775 3,029,016 -- 3,043,791
Issuance of Convertible
Note -- -- 427,185 -- 427,185
Net Loss -- -- -- (4,536,859) (4,536,859)
------------ ------------ ------------ ------------ ------------
Balance,
April 30, 1999 3,389,315 33,893 24,573,401 (22,533,482) 2,073,812
Issuance of Stock
for Cash 91,995 920 160,163 -- 161,083
Net Loss -- -- -- (549,458) (549,458)
------------ ------------ ------------ ------------ ------------
Balance,
July 31, 1999 3,481,310 $ 34,813 $ 24,733,564 $(23,082,940) $ 1,685,437
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
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,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss)/Income $ (549,458) $ 40,193
Adjustments to reconcile Net (Loss)/Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,534 9,420
Equity in Losses of Affiliates 237,849
Adj. in Valuation of Other Investments 100,000
Change in Assets and Liabilities:
Decrease in Restricted Cash 1,000,000 0
(Increase)/Decrease in Accounts Receivable 123,997 (83,437)
Increase in Amount Due from Related Party (93,210) 0
Decrease/(Increase) in Prepaid Expenses 2,983 5,894
Decrease in Other Assets 60,609 0
(Decrease)/Increase in Accounts Payable 53,198 (29,524)
Increase in Accrued Expenses (64,714) 18,160
(Decrease)/Increase in Deferred Revenue 0 (1,200)
----------- -----------
NET CASH AND CASH EQUIVALENTS PROVIDED BY/
(USED IN) OPERATING ACTIVITIES 872,788 (40,494)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Other Investments (1,250,000)
Gross Additions to Film Cost (41,597) (2,349)
Purchase of Marketable Securities 0 (2,420,547)
Purchase of Fixed Assets 0 (3,222)
----------- -----------
NET CASH AND CASH EQUIVALENTS USED
IN INVESTING ACTIVITIES (1,291,597) (2,426,118)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock 161,083 0
Issuance of Note Payable 250,000 0
----------- -----------
NET CASH AND CASH EQUIVALENTS PROVIDED
BY FINANCING ACTIVITIES 411,083 0
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,726) (2,466,612)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 55,583 2,658,500
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 47,857 $ 191,888
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
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 financial statements and
related footnotes for the year ended April 30, 1999 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, 1999 and the results of operations and cash flows for
the three months ended July 31, 1999 and 1998 have been included.
The results of operations for the three-month period ended July 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, 1999.
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.
As has been widely reported, many computer systems process dates based on two
digits for the year of a transaction and may be unable to correctly process
dates in the year 2000 and beyond. The Company believes that all of its computer
systems are year 2000 compliant. Although the Company does not expect year 2000
compliance to have a material adverse effect on its internal operations, it is
possible that year 2000 compliance problems could have a significant adverse
effect on the Company's suppliers and their ability to service the Company and
to accurately process payments received.
Certain amounts for the quarter ended July 31, 1998 have been reclassified to
conform with the presentation of the July 31, 1999 amounts. The
reclassifications have no effect on net income for the quarter ended July 31,
1999.
NOTE B - FILM COSTS
Film costs consist of:
As Of
July 31, 1999
-------------
Released Films, less amortization $ 30,517
Films in Development 168,567
-------------
$199,084
=============
6
<PAGE> 7
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - INVESTMENT IN IMMEDIATE ENTERTAINMENT GROUP
On November 9, 1998, the Company acquired 2,393,235 shares of Immediate
Entertainment Group, Inc. ("Immediate"), approximately 19% of Immediate's
outstanding common stock, for an aggregate of $2,300,000 in cash, 1,477,567
newly issued shares of the Company's common stock and a note payable to the
sellers of the stock for $210,803. The Company's investment in Immediate has
been accounted for using the equity method. 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. The Company's investment in
Immediate also includes $240,210 of amounts advanced to Immediate or payments
made to third parties on Immediate's behalf.
NOTE D - OTHER INVESTMENTS
On May 12, 1999, the Company acquired 140 shares of Star TV AG ("Star"),
approximately 19% of Star's outstanding common stock for $1,000,000 in cash. The
Company's investment in Star has been accounted for using the cost method. Star
is a developing cable television network based in Switzerland.
On April 27, 1999, the Company entered into a letter agreement ("Joint Venture
Agreement") with Merchant Ivory Productions ("MIP") pursuant to which the
Company was required to contribute to Merchant Ivory Distribution, LLC ("MIFD")
on or before May 5, 1999 $250,000 plus options to purchase up to 250,000 shares
of the Company's common stock. The Company is also required to provide a
revolving line of credit of up to $500,000 to MIFD to fund print and advertising
expenses incurred by MIFD. MIFD is a joint venture between the Company and MIP,
25% owned by the Company and 75% owned by MIP formed to acquire and subsequently
distribute motion pictures in significant markets including the United States.
On May 18, 1999, the Company made a contribution of $250,000 to MIFD. MIP has
subsequently advised the Company that it believes the Company has materially
breached the Joint Venture Agreement by failing to provide the stock options and
the line of credit to MIFD. On the other hand, the Company believes that MIP has
materially breached its obligations to the Company under the Joint Venture
Agreement.
NOTE E - NOTES PAYABLE
On November 9, 1998, the Company acquired 2,393,235 shares of Immediate,
approximately 19% of Immediate's outstanding common stock, from FAB Capital
Corporation ("FAB"), MBO Music Verlag GmbH ("MBO") and West Union Leasing Ltd.
("West") for an aggregate of $2,300,000 in cash, 1,477,567 newly issued shares
of the Company's common stock and a note payable to the sellers of the stock for
$210,803 bearing interest at 5% per annum due upon demand but in no event
earlier that April 30, 2000 ("Note"). Pursuant to such transaction, FAB, MBO and
West are due $93,175, $82,424, and $35,204, respectively, under the Note. The
accrued and unpaid interest balance at July 31, 1999 was $7,653.
7
<PAGE> 8
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - NOTES PAYABLE (CONTINUED)
On April 26, 1999, the Company issued a convertible note ("Convertible Note") to
Tresor Worldwide Limited ("Tresor") in the principal amount of $1,000,000. The
Convertible Note has a term of one year and bears interest at the rate of 8% per
annum, payable quarterly on July 1, 1999, October 1, 1999 and January 1, 2000.
Tresor has the right to convert, in whole or in part, any outstanding and unpaid
principal and interest into fully paid and non-assessable shares of the
Company's common stock at the lower of (i) $2.06 per share or (ii) 70% of the
average closing bid price for the five (5) trading days immediately preceding
the date of conversion but in no event less than $1.00 ("Conversion Price"). The
Conversion Price is subject to reduction of 3% per month beginning on the six
month anniversary of the Convertible Note in the event any portion of the
securities issuable upon conversion have not been registered under the
Securities Act of 1933, as amended. The Company has entered into a Registration
Rights Agreement with the note holder wherein the Company, as soon as
practicable, has agreed to register the securities issuable upon conversion of
the Convertible Note. The accrued and unpaid interest balance at July 31, 1999
was $6,795.
On May 17, 1999, the Company entered into a Loan Agreement ("Star Loan
Agreement") with Star whereby the Company borrowed $250,000 from Star ("Star
Loan") bearing interest at 6% per annum. The Star Loan was originally due July
19, 1999. By agreement dated July 22, 1999, the due date was extended until
August 19, 1999. By further agreement, the due date was extended until
December 22, 1999. The accrued and unpaid interest balance at July 31, 1999
was $3,038.
NOTE F - 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 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>
Quarter Ending Quarter Ending
July 31, 1999 July 31, 1998
------------- -------------
<S> <C> <C>
Computed Expected Tax at Statutory Rate $ 237,779 $ 7,167
State and Local Taxes 110 0
Benefit of Prior Years Amended Returns 0 (19,286)
Foreign Taxes 0 172
(237,779) (7,167)
--------- ---------
Valuation Allowance
$ 110 ($ 19,114)
========= =========
</TABLE>
8
<PAGE> 9
KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - INCOME TAXES (CONTINUED)
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 quarter ended July 31, 1998.
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 $19,496,000 (expiring between 2001 and 2016)
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:
<TABLE>
<CAPTION>
As Of
July 31, 1999
-------------
<S> <C>
Deferred Revenue $ 3,000
Film Cost Amortization 8,000
Net Operating Loss Carryforwards 7,799,000
Investment Tax Credit Carryforwards 2,166,000
Foreign Tax Credit Carryforwards 400,000
-------------
10,376,000
-------------
Valuation Allowance (10,376,000)
-------------
$ 0
=============
</TABLE>
A valuation allowance of $10,376,000 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. In addition, as a result of a change in control of the
Company that occurred in November 1998, Internal Revenue Code section 382
significantly limits the Company's ability to utilize its net operating loss
carryforwards. As a result of this limitation, the Company expects that its
investment tax credit and foreign tax credit carryforwards as well as a
significant amount of its net operating loss carryforwards will expire prior to
utilization by the Company.
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION 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 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 that 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,
MBO, West and RAS purchased 962,360 shares of the Company's common stock
(approximately 50.3% of the Company's then outstanding common stock) from the
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,
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. 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 2,393,235 shares of Immediate,
approximately 19% of Immediate's outstanding common stock, for an aggregate of
$2,300,000 in cash, 1,477,567 newly issued shares of the Company's common stock
and a note payable to the sellers of the stock for $210,803. 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.
On May 12, 1999, the Company acquired 140 shares of Star TV AG ("Star"),
approximately 19% of Star's outstanding common stock for $1,000,000 in cash.
Star is a developing cable television network based in Switzerland.
RESULTS OF OPERATIONS
For the quarter ended July 31, 1999 feature film revenues were
approximately $92,000 as compared to approximately $150,000 for the quarter
ended July 31, 1997. The substantial decrease in feature film revenues of
approximately 39% 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 $400 for the
quarter ended July 31, 1999 from approximately $32,000 during the same quarter
last year, reflecting the decrease in cash and
10
<PAGE> 11
marketable securities held during the quarter ended July 31, 1999 versus the
same period last year.
The Company had no costs related to revenue for the quarter ended July
31, 1999 versus approximately $7,000 for the quarter ended July 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. Creator and
The Big Easy, for example, generated significant revenues during the quarter
with no amortization of costs associated with those revenues. Selling expenses
decreased to approximately $1,000 during the quarter ended July 31, 1999 versus
approximately $8,000 during the same quarter last year.
General and administrative costs increased by approximately 90% to
approximately $276,000 during the quarter ended July 31, 1999 versus
approximately $145,000 during the same period last year. This increase results
primarily from increases in professional fees (accounting and consultants),
investor relations costs, financing costs associated with the Convertible Note
and the write-off of certain amounts advanced to third parties. Interest
expense during the quarter ended July 31, 1999 was approximately $26,000
reflecting the interest incurred by the Company on its outstanding notes
payable. During the quarter ended July 31, 1998, the Company had no interest
expense.
Equity in losses of affiliates was approximately $238,000 during the
quarter ended July 31, 1999 reflecting the Company's share of losses incurred by
Immediate. Immediate has experienced recurring operating losses and has a
working capital deficit. Immediate's management is presently pursuing plans to
increase sales, reduce administrative costs, improve cash flow and obtain
additional financing. Immediate's ability to achieve its operating goals and to
obtain additional financing is uncertain.
During the quarter ended July 31, 1999, the Company incurred a net loss
of approximately $549,000 versus net income of approximately $40,000 for the
quarter ended July 31, 1998. This loss results primarily from (i) a valuation
allowance recorded to reflect the Company's uncertainty in fully recovering
a certain investment, (ii) the Company's share of losses incurred by Immediate,
(iii) a substantial decrease in feature film revenues due to the fact that the
Company has not produced any new films since the fiscal year ended April 30,
1995 and (iv) increased general and administrative and interest expenses. During
the quarters ended July 31, 1999 and 1998, the Company had no significant
provision for income taxes.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The production of motion pictures requires substantial capital. In
producing a motion picture, the Company may expend substantial sums for both the
production and distribution of a picture, before that film generates any
revenues. In many instances the Company obtains advances or guarantees from its
distributors but these advances and guarantees generally defray only a portion
of a film's cost. The Company's principal source of working capital during the
quarter ended July 31, 1999 was motion picture licensing income and the proceeds
from the Star Loan. Except for the financing of film production costs and the
repayment of the Convertible Note, management believes that its existing cash
resources will be sufficient to fund its ongoing operations.
For the quarter ended July 31, 1999, the Company's net cash flow
provided by its operating activities was approximately $873,000, an increase of
approximately $913,000 as compared to approximately $40,000 of net cash flow
used in operating activities during the quarter ended July 31, 1998. During the
quarter ended July 31, 1999, the Company used its cash flow from operations plus
approximately $411,000 of cash flow provided by financing activities to make
investments of $1,000,000 in Star TV and $250,000 in the Merchant Ivory Joint
Venture. SEE NOTE D - INVESTMENT IN STAR TV AND NOTE E - INVESTMENT IN MERCHANT
IVORY JOINT VENTURE. As of July 31, 1999, the Company had cash, cash equivalents
and marketable securities of approximately $48,000 as compared to approximately
$2,612,000 as of July 31, 1998.
FUTURE COMMITMENTS
On May 12, 1999, the Company used the proceeds from the Convertible Note
to purchase approximately 19% of the outstanding common stock of Star TV AG
("Star") through the Company's wholly owned subsidiary, Orwell Properties, Inc.
("Orwell"). Pursuant to a Pledge and Security Agreement between the Convertible
Note holder and Orwell, the Convertible Note is secured by Orwell's investment
in Star. In addition, Orwell has agreed to guarantee the obligations of the
Company under the Convertible Note.
If the term of the Convertible Note is not extended on or before April
20, 2000 or is not converted, the Company will need to secure financing to repay
the Convertible Note. There can be no assurance that such financing can be
secured by the Company.
On May 17, 1999, the Company entered into the Star Loan Agreement
whereby the Company borrowed $250,000 from Star bearing interest at 6% per
annum. The Star Loan was originally due July 19, 1999. By agreement dated July
22, 1999, the due date was extended until August 19, 1999. By further
agreement, the due date was extended until December 22, 1999.
The Company does not have any other material future commitments.
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
12
<PAGE> 13
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 1 - LEGAL PROCEEDINGS
In the ordinary course of business, the Company has or may become
involved in disputes or litigation. On the basis of information available to it,
management believes such contingencies will not have a materially adverse impact
on the Company's financial position or results of operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-B)
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Bylaws of Registrant. (2)
27 Financial Data Schedule. (3)
---------------
(1) Incorporated by reference to Form 10-KSB for the fiscal year ended
April 30, 1998.
(2) Incorporated by reference to Form 10-K for the fiscal year ended
April 30, 1988.
(3) Filed electronically with Securities and Exchange Commission,
omitted in copies distributed to shareholders or other persons.
(b) FORMS 8-K
None.
13
<PAGE> 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: September 28, 1999 KINGS ROAD ENTERTAINMENT, INC.
By: /s/CHRISTOPHER M. TRUNKEY
----------------------------
Christopher M. Trunkey,
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> JUL-31-1999
<CASH> 47,857
<SECURITIES> 0
<RECEIVABLES> 240,975
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<PP&E> 231,398
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0
0
<COMMON> 24,768,377
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (549,458)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
