UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarter ended July 31, 2006 |
-OR-
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from: to |
Commission File Number 0-14234
KINGS ROAD ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE | 95-3587522 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
468 N. Camden Drive Beverly Hills, California | 90210 | |
(Address of principal executive offices) | (Zip Code) |
310-278-9975
(Registrant’s telephone number, including area code)
(Former name, former address or former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o Non-accelerated filer þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange). oYes þNo
The number of shares outstanding of each of the Registrant’s classes of common stock, as of July 31, 2006 was 6,957,740 shares, all of one class of $0.01 par value Common Stock. As of April 2nd, 2008 the number of shares outstanding of each of the Registrant’s classes of common stock was 10,756,493.
Page 1 of 15
KINGS ROAD ENTERTAINMENT, INC.
FORM 10-QSB
Quarter Ended July 31, 2006
TABLE OF CONTENTS
FINANCIAL INFORMATION | PAGE | |
Item 1. | Financial Statements | |
Consolidated Balance Sheets as of July 31, 2006 and April 30, 2006 | F-1 | |
Consolidated Statements of Operations for the Three Months Ended | ||
July 31, 2006 and 2005 | F-2 | |
Consolidated Statements of Cash Flows for the Three Months Ended | ||
July 31, 2006 and 2005 | F-3 | |
Notes to the Consolidated Financial Statements as of July 31, 2006 | F-4- F-8 | |
Item 2. | Managements Discussion and Analysis or Plan of Operation | 11 |
Item 3. | Controls and Procedures | 12 |
PART II—OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 12 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
Item 3. | Defaults upon Senior Securities | 14 |
Item 4. | Submission of Matters to a Vote of Security Holders | 14 |
Item 5. | Other Information | 15 |
Item 6. | Exhibits and Reports on Form 8-K | 15 |
SIGNATURES | 15 |
Page 2 of 15
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
KINGS ROAD ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 2006 AND APRIL 30, 2006
July 31, 2006 | April 30, 2006 | ||||||
ASSETS | (unaudited) | (audited) | |||||
Current assets: | |||||||
Cash and cash equivalents | $ | 705,544 | $ | 735,825 | |||
Restricted cash | 61,952 | 61,952 | |||||
Accounts receivable, trade | 38,368 | 113,699 | |||||
Prepayments and other current assets | 0 | 0 | |||||
Total current assets | 805,864 | 911,476 | |||||
OTHER ASSETS | |||||||
Film development costs, net | 70,037 | 70,037 | |||||
Total Other Assets | 70,037 | 70,037 | |||||
TOTAL ASSETS | $ | 875,901 | $ | 981,513 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 130,338 | $ | 138,624 | |||
Accrued expenses | 383,771 | 360,508 | |||||
Deferred revenue | 1,020,169 | 1,052,442 | |||||
Line of credit | 60,000 | 60,000 | |||||
Liabilities from discontinued operations | 4,000 | 4,000 | |||||
Total current liabilities | 1,598,278 | 1,615,574 | |||||
Stockholders’ equity: | |||||||
Common stock; 12,000,000 shares authorized at $0.01 par value; 6,957,740 shares issued and outstanding at July 31 and April 30, 2006 | 69,577 | 69,577 | |||||
Additional paid-in capital | 25,211,655 | 25,211,655 | |||||
Accumulated deficit | (25,915,293 | ) | (25,687,802 | ) | |||
Net Profit (Loss) for Period | (88,316 | ) | (227,491 | ) | |||
Total stockholders’ equity (deficit) | (722,377 | ) | (634,061 | ) | |||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 875,901 | $ | 981,513 |
See accompanying notes to consolidated financial statements.
F-1
Page 3 of 15
KINGS ROAD ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2006 AND 2005
(Unaudited)
Three months ended July 31, | |||||||
2006 | 2005 | ||||||
REVENUES | |||||||
Feature films | $ | 67,002 | $ | 96,213 | |||
TOTAL REVENUE | 67,002 | 96,213 | |||||
OPERATING EXPENSES: | |||||||
General and administrative | 162,218 | 185,215 | |||||
Total operating expenses | 162,218 | 185,215 | |||||
INCOME (LOSS) FROM OPERATIONS | (95,216 | ) | (89,002 | ) | |||
OTHER INCOME (EXPENSE): | |||||||
Other income | 0 | 13,910 | |||||
Interest income | 6,900 | 890 | |||||
Interest expense | 0 | (900 | ) | ||||
Total Other Income | 6,900 | 13,900 | |||||
INCOME (LOSS) BEFORE INCOME TAXES | (88,316 | ) | (75,102 | ) | |||
PROVISION FOR INCOME TAXES | 0 | 0 | |||||
NET INCOME (LOSS) | $ | (88,316 | ) | $ | (75,102 | ) | |
Net income (loss) per share - Basic | $ | (0.01 | ) | $ | (0.01 | ) | |
Basic weighted average number of shares outstanding during the period | 6,957,740 | 6,957,740 |
See accompanying notes to consolidated financial statements.
F-2
Page 4 of 15
KINGS ROAD ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 2006 AND 2005
(Unaudited)
Three months ended July 31, | |||||||
2006 | 2005 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Income (loss) from continuing operations | $ | (88,316 | ) | $ | (75,102 | ) | |
Adjustments to reconcile income (loss) from continuing operations to net cash (used in) provided by operating activities: | |||||||
Depreciation and amortization | 0 | 0 | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable, trade | 75,331 | 13,447 | |||||
Prepayments and other current assets | 0 | 4,500 | |||||
Accounts payable | (8,286 | ) | 13,313 | ||||
Accrued expenses | 23,263 | 31,722 | |||||
Deferred revenue | (32,273 | ) | (32,932 | ) | |||
Net cash (used in) provided by operating activities | (30,281 | ) | (45,052 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
(Increase) decrease in restricted cash | 0 | (776 | ) | ||||
Net cash provided by (used in) financing activities | 0 | (776 | ) | ||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (30,281 | ) | (45,828 | ) | |||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 735,825 | 112,114 | |||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 705,544 | $ | 66,286 |
See accompanying notes to consolidated financial statements.
F-3
Page 5 of 15
KINGS ROAD ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
As of July 31, 2006
NOTE 1 - NATURE OF OPERATIONS
Kings Road Entertainment, Inc, and its wholly-owned subsidiary (the "Company" or "Registrant"), has been engaged primarily in the development, financing and production of motion pictures for subsequent distribution in theaters, to pay, network and syndicated television, on home video, and in other ancillary media in the United States (the "domestic market") and all other countries and territories of the world (the "international market"). Kings Road Entertainment, Inc., incorporated in Delaware in 1980, began active operations in January 1983 and released its first motion picture in 1984. There have been 17 additional pictures theatrically released in the domestic market, and seven pictures have been released directly to the domestic home video or pay television market.
The Company’s wholly-owned subsidiary, Ticker, Inc., (a California corporation) was inactive during the three months ending July 31, 2006. The consolidated financial statements include those of Kings Road Entertainment, Inc. and its subsidiary.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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, 2006, included in the Kings Road Entertainment, Inc. 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 at July 31, 2006, and the results of operations and cash flows for the three months ended July 31, 2006 have been included. The results of operations for the three months ended July 31, 2006, are not necessarily indicative of the results to be expected for the full fiscal year. All inter-company items and transactions have been eliminated in consolidation.
b. Accounting Method
The Company's consolidated financial statements are prepared using the accrual method of accounting. The Company has elected an April 30 year-end.
c. Use of Estimates
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.
F-4
Page 6 of 15
NOTE 3 - CURRENT ASSETS
a. Cash and Cash Equivalents
Cash equivalents consist of cash on hand and cash due from banks. For purposes of the statements of cash flows, the Company considers all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company maintains its cash balances at financial institutions that are federally insured. However, at times, these balances could exceed federally insured limits.
b. Restricted Cash
As of July 31, 2006, restricted cash totaled $61,952, which was associated with the Company’s line of credit. During 2004, the Company entered into a certificate of deposit to secure a revolving line of credit. This certificate of deposit had a beginning principal balance of $60,000 and interest accrued at a rate two percent below the rate on the line of credit it secured. Funds contained in this CD are classified as restricted as long as the related line of credit is outstanding.
c. 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. Once calculated royalties from actual sales have exceeded such an advance, the Company receives royalty income at the end of a specific reporting period (usually three, six or twelve months) based on actual sales from the preceding reporting period. As of July 31, 2006, none of the Company's accounts receivable was from foreign distributors.
.
NOTE 4 - FIXED & OTHER ASSETS
a. Fixed Assets
Fixed assets of the Company at July 31, 2006, consisted of various items of office equipment with a historical cost of $5,993 and a $0 net book value. All of these items were fully depreciated at July 31, 2006.
b. Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company has adopted the provisions of SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” and SFAS No. 142 "Goodwill and Other Intangible Assets." These statements require that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed their respective fair values. Assets to be disposed of are reported at the lower of the carrying amount of fair value less the costs to sell.
c. Film Development Costs
Film development costs are costs incurred for movie projects not yet in production. Film development costs, including any related interest and 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. Costs are amortized using the individual film forecast method set forth in FASB Statement No. 53 ("SFAS 53"), which bases the costs on 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 basis and, when unamortized costs exceed net realizable value for a film, that film's unamortized costs are written down to net realizable value.
F-5
Page 7 of 15
At July 31, 2006, film development costs totaled $70,037, which was net after an allowance of $30,000. During the three months ended July 31, 2006, no film development costs were determined to be impaired.
NOTE 5 - LIABILITIES
a. Deferred Revenue
As of July 31, 2006, the Company has deferred revenue totaling $1,020,169. The Company is following the guidelines of SOP 00-02 for film production and distribution.
b. Line of Credit
On March 2, 2006, the Company renewed its revolving line of credit loan with a beginning principal balance of $60,000, secured by a $60,000 certificate of deposit (see Note 3). During the period ending July 31, 2006, the line of credit accrued interest at a rate of 5.70% per annum. The Company’s credit line will expire on March 1, 2007 unless renewed.
c. Discontinued Operations
As of July 31, 2006, the Company has $4,000 of accrued liabilities outstanding for its discontinued operations.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
a. Rent
The Company rents a three-room apartment located on Doheny Drive, Beverly Hills, California as its registered office. Additionally, the Company rents flexible storage space for its archives. Rent expense for the Company's office and archive storage space was $7,661 and $7,078 during the three months ending July 31, 2006 and 2005, respectively.
b. Contingent Losses & Litigation
We have previously disclosed our material litigation and regulatory issues in our Annual Report on Form 10-KSB, for the period ended April 30, 2006, and in our other filings with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. At July 31, 2006, we were involved with various legal matters, including litigation with former officers, directors, and related parties. Although the ultimate resolution of certain matters cannot be determined at this time, we do not believe that such matters, individually or in the aggregate, will have a material adverse effect on our future consolidated results of operations, cash flows or financial condition.
Legal fees associated with litigation are recorded in the period in which they occur. The company has not created, and does not intend to create any reserves for contingent losses resulting from an unfavorable outcome from any of these legal matters.
F-6
Page 8 of 15
c. Other Commitments and Contingencies
In the ordinary course of business, the Company may become involved in matters of dispute which in the aggregate are not believed by management to be material to its financial position or results of operations.
NOTE 7 - COMMON STOCK
At July 31, 2006, the Company had 12,000,000 authorized shares of common stock, of which 6,957,740 shares were issued and outstanding. During the three months ended July 31, 2006, no new stock was either issued or authorized.
NOTE 8 - RECOGNITION OF REVENUES
The Company’s revenues are derived primarily from distribution agreements in the US domestic market place and are amortized during the reporting period for which the revenue is applicable. Revenues derived from purchase option agreements are amortized over the period of the option granted. 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 licensing as follows:
Months After | Approximate | |
Marketplace | Initial Release | Release Period |
Domestic theatrical | 0-3 months | |
All international markets | 1-12 years | |
Domestic home video | 3-6 months | 3-12 months |
Domestic cable/pay television | 12-18 months | 18 months |
Domestic syndicated/free television | 24-48 months | 1-n years |
N0TE 9 - 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 term of the applicable lease, whichever is less.
NOTE 10 - GOING CONCERN
The Company's consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However at July 31, 2006, the Company has a deficit in working capital of $792,414, an accumulated deficit of approximately $25,915,300, and recent losses from operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company has discontinued certain operations that historically produced negative cash flow and plans to raise capital through equity-based investment instruments, which will provide funding for the development of future projects and operating expenses.
F-7
Page 9 of 15
NOTE 11 - SUBSEQUENT EVENTS
a. Option/Purchase Agreement
Subsequent to the period covered by this report, on October 6, 2006, New Line Cinema paid the Company $90,000 to extend an option pertaining to the Company's rights to the movie production, All of Me, for an additional 18-month period, up to and including April 11, 2008. The $90,000 option extension fee was split equally with Eclectic Filmworks LLC, as per a letter of agreement executed on July 1, 2005. The option period was further extended to July 21, 2008, pursuant to the Writers’ Guild strike of 2007 and 2008.
b. Settlement of Certain Lawsuits and Entry into a Material Definitive Agreement
Subsequent to the period covered by this report, on March 19, 2007, the Company entered into a Settlement Agreement and Mutual General Release with Michael Berresheim, Eric Ottens, et al., and various entities, including, but not limited to MBO Media GmbH, and other individuals and/or entities that may or may not have had a connection to Michael Berresheim, Eric Ottens, et al. For further detail s refer to Part II, Item 1- Legal Proceedings. The settlement was published in an 8-K filing on April 23, 2007.
c. Shareholder Complaint against the Company and Derivative Suit
Subsequent to this report, on December 16, 2006, a shareholder filed a complaint in the State of Delaware to Compel an Annual Meeting of Shareholders. The complaint alleged that certain members of the Board of Directors were acting in a manner that may be for their own interests and detrimental to that of the shareholders at large. Legal counsel for the Company has reviewed the case and deemed that the necessary steps have not been completed to effectuate this petition and likewise deemed the matter to be inactive at that time. The foregoing event was reported in an 8-K filed on April 23, 2007
Subsequent to this report, the same shareholder filed a complaint in the U.S. District Court of California for and on behalf of the Shareholders of Kings Road Entertainment, Inc. The complaint brought a derivative suit against four Directors of the Company, alleging that they had breached their fiduciary duties to the Company and claiming compensatory damages in the amount of $7,500,000. The case was dismissed without prejudice pursuant to local rule 7-9 on June 12, 2007. The foregoing events were reported in an 8-K filed on June 27, 2007
Subsequent to this report, on July 24, 2007, the same shareholder, in the right and for the benefit of Kings Road Entertainment Inc., re-filed the above derivative suit in the Los Angeles Superior Court (against four Directors of the Company as well as the Company as a nominal defendant. The complaint alleges that the named directors breached their fiduciary duties to the Company in conspiring to sell a majority interest in the Company without the benefit of an evaluation of the assets of the Company being performed and at a price considered by Plaintiff to be unreasonable and detrimental to the company and its shareholders, in that the price received for the majority interest was far below certain rival offers existing at the time of the transaction and claiming compensatory damages in the amount of $7,500,000.
Subsequent to this report, on September 28, 2007, the Company filed a demurrer on the grounds that the Plaintiff failed to set forth facts sufficient to state a cause of action against Defendants or disprove that the Directors acted in valid exercise of their business judgment according to Delaware Law. On January 4, 2008, the Plaintiff dismissed the case without prejudice.
F-8
Page 10 of 15
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following review concerns the periods ended July 31, 2006 and July 31, 2005, which should be read in conjunction with the financial statements and notes thereto presented in the Form 10-QSB and the Form 10-KSB for the fiscal year ending April 30, 2006.
Forward Looking Statements
The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", “estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
The following discussion should be read in conjunction with the Company's financial statements and related notes. Certain matters discussed herein may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:
- the volatile and competitive nature of the film industry,
- the uncertainties surrounding the rapidly evolving markets in which the Company competes,
- the uncertainties surrounding technological change of the industry,
- the Company's dependence on its intellectual property rights,
- the success of marketing efforts by third parties,
- the changing demands of customers and
- the arrangements with present and future customers and third parties.
Should one or more of these risks or uncertainties materialize or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated.
Subsequent to the fiscal year ended April 30, 1996, the Company has produced no new films and has derived its film revenues almost exclusively from the exploitation of films produced in prior years. The Company continues to fund and develop motion picture projects, with the intention of either producing the motion picture, establishing a partnership or joint venture with another film production company to develop and/or produce the project or an outright sale of the project.
Results of Operations
The Three Months Ended July 31, 2006 vs. the Three Months Ended July 31, 2005
For the quarter ended July 31, 2006, feature film revenues were $67,002 as compared to $96,213 for the quarter ended July 31, 2005. The decrease of $29,211 results primarily from decreased revenue from distribution of the Company's feature film library.
Costs and expenses decreased to $162,218 for the quarter ended July 31, 2006 as compared to $185,215 during the quarter ended July 31, 2005. This decrease of $22,997 primarily results from a decrease in professional fees.
Page 11 of 15
The Company had a net loss of $88,316 for the quarter ended July 31, 2006 as compared to a net loss of $75,102 for the quarter ended July 31, 2005. This increased loss of $13,214 results primarily from a decrease in film revenues which was partially offset by a decrease in professional fees.
Liquidity and Capital Resources
For the three months ended July 31, 2006, the Company's net cash used in operating activities was $30,281 compared to net cash used in operating activities of $45,042 during the comparable period in 2005. At July 31, 2006, the Company had cash of $705,544 as compared to $66,286 at July 31, 2005.
The Company's principal source of working capital during the three month period ended July 31, 2006 was motion picture royalty income. The Company does not currently have sufficient capital to fund its operations. If the Company fails to raise additional capital, increase revenues, or sell certain of its assets, the Company will, in all likelihood, be forced to significantly reduce its operations or liquidate.
Future Commitments
The Company does not have, nor is it aware of, any other material future commitments.
ITEM 3. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer performed an evaluation of our disclosure controls and procedures, which have been designed to permit us to effectively identify and timely disclose important information. They concluded that the controls and procedures were effective as of July 31, 2006 to provide reasonable assurance that the information required to be disclosed by the Company in reports it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. While our disclosure controls and procedures provide reasonable assurance that the appropriate information will be available on a timely basis, this assurance is subject to limitations inherent in any control system, no matter how well it may be designed or administered.
Changes in Internal Controls. There were no changes in our internal control over financial reporting during the quarter ended July 31, 2006, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Claim Against Michael Berresheim, Eric Ottens, et al.
On September 9, 2004, the Company filed suit in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, against Mr. Michael Berresheim, a former officer and director of the Company, Mr. Eric Ottens, and two company’s under the control of Messrs Berresheim and Ottens (Kings Road Entertainment, Inc., a Florida Corporation and Kings Road to Fame, Inc.). The suit filed by the Company, was seeking the return of money illegally obtained and converted from the Company, an accounting, and an injunction from further use of its trade name.
On April 18, 2006, the Court entered a final default judgment in favor of the Company, awarded damages in the amount of $332,534 and entered a permanent injunction requiring Berresheim to cease and desist from all use of the name Kings Road in any capacity. Subsequent to this report, Defendant filed an appellate brief to appeal the judgment on October 25, 2006.
Page 12 of 15
Subsequent to this report, on March 19, 2007, this matter was resolved with the execution of a Settlement Agreement and Mutual General Release (see below: “Settlement of Certain Lawsuits and Entry into a Material Definitive Agreement“).
Claim on the Company from MBO Media GmbH
On March 29, 2005, the Company received a communication from an attorney- representing MBO Media GmbH and its managing director Mr. Michael Berresheim (former director and officer of the Company) demanding the Company's repayment of leasing costs of 179,884 Euro for the video and film editing suite Avid Symphony V 2.0 as allegedly paid by her client MBO Media GmbH (formerly MBO Musikverlags GmbH). The Company has no record of any such claim, invoice, or corresponding leasing/repayment agreement between the parties in its files and has passed this correspondence on to its counsel, who repudiated this claim on April 4, 2005. Subsequent to this report, this claim was included in the counterclaims filed by defendant Berresheim with his affirmative defenses filed on July 26, 2005 (see above Claim against Michael Berresheim, Eric Ottens, et al.).
Subsequent to this report, on March 19, 2007, this matter was resolved with the execution of a Settlement Agreement and Mutual General Release (see below: “Settlement of Certain Lawsuits and Entry into a Material Definitive Agreement“).
Shareholder Demand for Inspection of Company Records
On March 30, 2005 the Company received a letter dated March 22, 2005 an attorney representing Kings Road Enterprises Corp. (formerly Parkland AG, an entity controlled by a former Director and Officer of the Company), seeking to inspect the Corporation's stock ledger, list of its stockholders, and its other books and records and to make copies or extracts there from, all as provided in Section 220 of the Delaware General Corporation Law , which states that the purpose of the demand and the inspection is (i) to make a determination as to the value of the Stockholder's stock in the Corporation, (ii) to investigate the Corporation's compliance with applicable laws, including but not limited to applicable corporate and securities laws and its own organizational and operational requirements as may be set forth in the books and records, based upon a reasonable suspicion of mismanagement and/or self-dealing due, among other things, to the apparent sale of stock to certain stockholders for less than its actual value. The Company's counsel has complied with this demand.
Subsequent to this report, on March 19, 2007, this matter was resolved with the execution of a Settlement Agreement and Mutual General Release (see below: “Settlement of Certain Lawsuits and Entry into a Material Definitive Agreement“).
Settlement of Certain Lawsuits and Entry into a Material Definitive Agreement
Subsequent to the period covered by this report, on March 19, 2007, the Company entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with the following parties: MBO Musikverlags GmbH, a German limited liability company (“MBO Musikverlag”); MBO Media GmbH, a German limited liability company (“MBO Media”) and its new owner, as of March 2006, Tacitus Treuhand, Switzerland (“Tacitus”); Fabulous AG, a Nevada corporation (“Fabulous”), formerly Kings Road Entertainment Corp. (“KREC”), and prior to that Parkland AG (“Parkland”); Metropolitan Worldwide, Inc., a Nevada corporation (“Metropolitan”); Donal C. Tunnell (“Tunnell”); William E. Ottens (“Ottens”); and Lothar Michael Berresheim (“Berresheim”) individually and in his capacity as an officer, director, manager, member and/or shareholder of MBO Musikverlag, MBO Media, Tacitus, Fabulous/KREC/Parkland, KRFame, Florida and KREN Florida, including any affiliates, subsidiaries, parents and other entities controlled, directly or indirectly by Berresheim, (collectively the “Berresheim Entities”). A Settlement and Mutual Release was also concluded with Ms. Beate C. Mueller.
Page 13 of 15
The Settlement Agreement calls for Berresheim to deliver to the Company three (3) original certificate representing One Million Four Hundred Fifty-One Thousand Two Hundred Forty-Seven (1,451,247) shares of the Company’s Common Stock (“Settlement Shares”), these being all the shares held or beneficially owned by Berresheim. Further, the parties agreed to the following: discharges and releases of Berresheim, Tunnell, Ottens, the Berrsheim Entities, and their officers, directors, managers, members, shareholders, assigns, attorneys, agents, representatives, principals, predecessors and successors in interest (collectively, the “Berresheim Parties”), from any and all claims, demands, obligations, or causes of action of whatever nature or description; Dismissal of the Fourth DCA Litigation Appeal; Dismissal of the MBO Litigation; Dismissal of the Tunnell Litigation; Dissolution of KRFame Florida and KREN Florida; Withdrawal of Fictitious Name Filing of Regal Productions; Acknowledgement and Agreement to Refrain from Use of Kings Road Name by Berresheim; Transfer and Assignments of any Rights to the Kingsroadentertainment.com Website Ownership and Content; Agreement to Refrain from Acquiring Shares of Kings Road Stock by Berresheim Entities and Berresheim; Agreement to Refrain from Soliciting, Enticing, Encouraging or Assisting Claims of Litigation Against Kings Road by Berresheim and Berresheim Entities; and Non-Solicitation of Vendors, Customers or Employees of Kings Road by Berresheim. For consideration of the above, including the surrender of the Settlement Shares, the Company will pay Mr. Berresheim Sixty Thousand Dollars ($60,000) upon the receipt of the Settlement Shares by the Company’s Stock Transfer Agent, U.S. Stock Transfer Corporation; the transfer and quitclaim from the Company to Berresheim of the rights to the script entitled “Babylon Blues;” Agreement to refrain from opposing Berresheim’s motion to vacate the KREN Litigation; Dismissal of the MBO Litigation; Agreement to Refrain from Acquiring Shares of Metropolitan; Agreement to Refrain from Soliciting, Enticing, Encouraging or Assisting Claims of Litigation Against Berresheim.
The foregoing event was reported in an 8-K filed on April 23, 2007
Claim against the Company by Beate C. Mueller
On March 8, 2006, the Company was served with a complaint dated December 12, 2005 filed with the Frankfurt District Court against the Company and company officer Geraldine Blecker individually by Ms. Beate C. Mueller, demanding payment of the total sum of Euro 20,000, plus 10.5% interest as from May 11, 2004. This claim is based on an invoice relating to legal costs incurred in representing Michael Berresheim, a former officer and director of the Company, individually in litigation pertaining to the Company. On March 9, 2006, the Company’s German counsel repudiated this claim.
Subsequent to this report, on March 21, 2007, this matter was resolved with the execution of a Settlement Agreement and Mutual General Release between the parties.
The foregoing event was reported in an 8-K filed on April 23, 2007
Other litigation
As of July 31, 2006, the Company was not aware of any pending claims or assessments, other than as described above or related to the matters described above, which may have a material adverse impact on the Company's financial position or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None in the three month period ending July 31, 2006
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our shareholders during the quarter ended July 31, 2006.
Page 14 of 15
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
OF
KINGS ROAD ENTERTAINMENT INC.
31.1 | Rule 13a-14 (a)/15d-14 (a) Certification of President. |
31.2 | Rule 13a-14 (a)/15d-14 (a) Certification of Chief Financial Officer. |
32 | Section 1350 Certifications. |
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KINGS ROAD ENTERTAINMENT, INC. (Registrant) | ||
| | |
Date: July 23, 2008 | By: | /s/ Philip Holmes |
Philip Holmes, President |
Page 15 of 15