UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q








x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934For the quarter ended January 31, 2011


-OR-


o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934For 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)





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 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. YesxNoo





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso   Noo




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filero
Accelerated fileroNon-accelerated filero(Do not check if a smaller reporting company)
Smaller reporting companyx





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)o YesxNo





As of March 30, 2011, the registrant had 31,321,493 shares of common stock outstanding.




1





KINGS ROAD ENTERTAINMENT, INC.


FORM 10-Q


Quarter Ended January 31, 2011





TABLE OF CONTENTS





PART I - FINANCIAL INFORMATION
PAGEItem 1.
Financial Statements
3Consolidated Balance Sheets as of January 31, 2011 and April 30, 2010
3Consolidated Statements of Operations for the Three Months Ended January 31, 2011 and 2010
4Consolidated Statements of Operations for the Nine Months Ended January 31, 2011 and 2010
5Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2011 and 2010
6Notes to Consolidated Financial Statements as of January 31, 2011
7Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
11Item 3.
Quantitative and Qualitative Disclosures About Market Risk
14Item 4.
Controls and Procedures
14PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
14Item 1A.
Risk Factors
14Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
14Item 3.
Defaults Upon Senior Securities
14Item 4.
Removed and Reserved
15Item 5.
Other Information
15Item 6.
Exhibits
15SIGNATURES
15





2





PART I - FINANCIAL INFORMATION





Item 1. Financial Statements


KINGS ROAD ENTERTAINMENT, INC.


CONSOLIDATED BALANCE SHEETS


AS OF JANUARY 31, 2011 AND APRIL 30, 2010





January 31, 2011


April 30, 2010(unaudited)


(audited)ASSETSCurrent assets:Cash and cash equivalents

$
1,020


$
1,538Accounts receivable, trade


11,121



41,371Prepayments and other current assets


-



5,190Total current assets


12,141



48,099Other assets:Film development costs, net (Note 4)


58,000



58,000Total other assets


58,000



58,000TOTAL ASSETS

$
70,141


$
106,099LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)Current liabilities:Accounts payable

$
300,177


$
238,109Accrued expenses


294,600



275,477Stockholder loans


125,106



119,346Deferred revenue (Note 5)


109,091



109,091Total current liabilities


828,974



742,023Non-current liabilitiesDeferred revenue (Note 5)


404,318



463,636Total non-current liabilities


404,318



463,636Total liabilities


1,233,292



1,205,659Stockholders’ equity (deficit):Common stock; 50,000,000 shares authorized at $0.01 par value; 31,321,493 shares issued and outstanding at January 31, 2011 and 31,321,493 at April 30, 2010.


313,214



313,214Preferred stock: 2,000,000 authorized at $0.01 par value; no shares issued and outstanding at January 31, 2011 and April 30, 2010.


-



-Additional paid-in capital


25,970,141



25,970,141Accumulated deficit


(27,447,025
)


(27,383,281
)Accumulated other comprehensive income


519



366Total stockholders’ deficit


(1,163,151
)


(1,099,560
)TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$
70,141


$
106,099





See accompanying notes to consolidated financial statements.





3





KINGS ROAD ENTERTAINMENT, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010


(unaudited)





Three months ended January 31,2011


2010REVENUESFeature films

$
47,755


$
60,458TOTAL REVENUE


47,755



60,458OPERATING EXPENSES:General and administrative


120,459



102,565Total operating expenses


120,459



102,565LOSS FROM OPERATIONS


(72,704
)


(42,107
)OTHER INCOME (EXPENSE):Interest income


-



102Interest expense


(2,736
)


(9,314
)Total other income (expense)


(2,736
)


(9,212
)LOSS BEFORE INCOME TAXES


(75,440
)


(51,319
)PROVISION FOR INCOME TAXES


-



-NET LOSS

$
(75,440
)

$
(51,319
)Net loss per share – Basic & Diluted

$
(0.00
)

$
(0.00
)Basic and diluted weighted average number of shares outstanding during the period


31,321,493



26,139,971





See accompanying notes to consolidated financial statements.








4





KINGS ROAD ENTERTAINMENT, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE NINE MONTHS ENDED JANUARY 31, 2011 AND 2010


(unaudited)





Nine months ended January 31,2011


2010REVENUESFeature films

$
133,183


$
216,595TOTAL REVENUE


133,183



216,595OPERATING EXPENSES:General and administrative


189,858



373,357Impairment of capitalized film costs


-



152,597Total operating expenses


189,858



525,954LOSS FROM OPERATIONS


(56,675
)


(309,359
)OTHER INCOME (EXPENSE):Interest income


-



123Interest expense


(7,069
)


(12,807
)Total other income (expense)


(7,069
)


(12,684
)LOSS BEFORE INCOME TAXES


(63,744
)


(322,043
)PROVISION FOR INCOME TAXES


-



-NET LOSS

$
(63,744
)

$
(322,043
)Net loss per share – Basic & Diluted

$
(0.00
)

$
(0.01
)Basic and diluted weighted average number of shares outstanding during the period


31,321,493



21,815,696





See accompanying notes to consolidated financial statements.





5





KINGS ROAD ENTERTAINMENT, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE NINE MONTHS ENDED JANUARY 31, 2011 AND 2010


(unaudited)





Nine months ended January 31,2011


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(63,744
)

$
(322,043
)Adjustments to reconcile net loss to net cash used in operating activities:Common stock issued for services


-



113,500Impaired film development costs


-



152,597Accrued shareholder interest payable


5,760



5,313Change in operating assets and liabilities:Accounts receivable, trade


30,250



(14,370
)Film development costs


-



(10,914
)Prepayments and other current assets


5,190



-Accounts payable


62,068



47,377Accrued expenses


19,123



18,667Deferred revenue


(59,318
)


(98,502
)NET CASH USED IN OPERATING ACTIVITIES


(671
)


(108,375
)CASH FLOWS FROM FINANCING ACTIVITIES:Common stock issued for cash


-



100,000Proceeds from shareholder loans






2,900NET CASH PROVIDED BY FINANCING ACTIVITIES


-



102,900Foreign currency translation


153



(429
)NET CHANGE IN CASH AND CASH EQUIVALENTS


(518
)


(5,904
)CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


1,538



11,416CASH AND CASH EQUIVALENTS, END OF PERIOD

$
1,020


$
5,512





See accompanying notes to consolidated financial statements.




6




KINGS ROAD ENTERTAINMENT, INC.





Notes to Consolidated Financial Statements


As of January 31, 2011








NOTE 1 – NATURE OF OPERATIONS AND GOING CONCERN





Kings Road Entertainment, Inc., and its wholly-owned subsidiaries (collectively, the "Company"), have been engaged primarily in the development, financing and production of motion pictures for subsequent distribution in movie theaters, to pay-TV, network and syndicated television, on home video and in other ancillary media in the United States and all other countries and territories of the world. Kings Road Entertainment, Inc., incorporated in Delaware in 1980, began active operations in January 1983 and released its first motion picture in 1984. In total, the Company has theatrically released 18 pictures in the domestic market and released seven pictures directly to the domestic home video or pay television market.





The Company's consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and payment of liabilities in the normal course of business. However at January 31, 2011, the Company has limited revenues and a deficit in working capital of $816,833 and has an accumulated deficit of approximately $27,447,000. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company has ceased activities that historically produced negative cash flow and is attempting to raise capital through equity-based investment instruments in order to provide funding for the development of future projects and operating expenses. Management is also evaluating new technologies with a view to expanding the Company’s core business.   However, the Company believes it highly unlikely that it will generate enough income from operations, including the expanded exploitation of its library, to meet the Company’s short term operating requirements.  Since December, 2010, the Company’s operations have been funded largely by cash advances to the Company from Michael A. Yedor, an affiliate of the Company, who is exploring the desirability of an equity investment therein, and Management believes that the Company’s ability to continue operations will depend upon its ability to attract and obtain additional investments or working capital from others, which may include affiliates of the Company.  At this time, the Company has not solicited investment from any investment banks, private equity firms or venture capitalists, nor has it retained advisers for the purpose of raising funds.




In the event the Company is unable to generate sufficient funds to continue its business efforts or if the Company is pursued by a larger company for a business combination, Management will analyze all strategies to continue the Company and maintain or increase shareholder value.  Under these circumstances Management would consider a merger, acquisition, joint venture, strategic alliance, a roll-up, or other business combination for the purposes of continuing the business and maintaining or increasing shareholder value.  Management believes its responsibility to maintain shareholder value is of paramount importance, which means the Company should consider the aforementioned alternatives in the event funding is not available on favorable terms to the Company when needed.





NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES





a. Basis of Presentation





The accompanying unaudited consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America and reflect all adjustments, consisting of normal recurring accruals and adjustments which are necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. Such financial statements do not include all the information or notes necessary for a complete presentation and therefore should be read in conjunction with the consolidated financial statements, including the notes thereto, contained in our Annual Report on Form 10-K for the year-ended April 30, 2010. Results for the interim period are not necessarily indicative of results that may be achieved for the entire year or for any other period.




b. Accounting Method





The Company's consolidated financial statements are prepared using the accrual method of accounting. The Company has elected an April 30 fiscal year-end.





c. Amortization





Film development costs are expensed or capitalized in accordance with generally accepted accounting principles.Theamortization of film and participation costs is calculated according to the individual-film-forecast-computation method, which amortizes or accrues (expenses) such costs in the same ratio that current period actual revenue (numerator) bears to estimated remaining unrecognized ultimate revenue as of the beginning of the current fiscal year (denominator).




7





The Company periodically reviews its capitalized film costs and where it determines that a property will not be used (i.e. will be disposed of) or where a date for production has not been set within 3 years from the time of the first capitalized transaction, a loss by a charge to the income statement is made where the carrying amount of the project exceeds its fair value.





d. Principals of Consolidation





The consolidated financial statements include the accounts of the Company and of its wholly-owned subsidiaries. As of January 31, 2011, the Company had three wholly-owned subsidiaries: Ticker, Inc., (a California corporation), which was inactive during the nine month period ended January 31, 2011, The Big Easy II Film, LLC (a California limited liability corporation), which was also inactive during the nine month period ended January 31, 2011 and Kings Road Entertainment Europe GmbH (a limited liability company incorporated under the laws of Germany), which facilitates international co-productions.





e. 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. Newly Issued Accounting Pronouncements





In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (a replacement of FASB Statement No. 162)” (SFAS No. 168). This statement modifies the GAAP hierarchy by establishing only two levels of GAAP, authoritative and non-authoritative accounting literature. Effective July 2009, the FASB Accounting Standards Codification (“ASC”), also known collectively as the “Codification,” is considered the single source of authoritative U.S. accounting and reporting standards, except for additional authoritative rules and interpretive releases issued by the SEC. The Codification was developed to organize GAAP pronouncements by topic so that users can more easily access authoritative accounting guidance. It is organized by topic, subtopic, section, and paragraph, each of which is identified by a numerical designation. The Company has adopted SFAS No. 168 prospectively beginning in the second quarter of fiscal 2010, resulting in no impact on the Company’s consolidated financial statements.




g. Earnings (Net Loss) Per Share





In accordance with generally accepted accounting principles, we calculate basic net loss per share using the weighted average number of common shares outstanding during the periods presented. We do not have any potentially dilutive common stock equivalents, such as options or warrants and we have not issued any preferred shares.





h. Foreign Currency Translation





Monetary assets and liabilities denominated in currencies other than the functional currency of U.S. Dollars are translated at exchange rates in effect at the balance sheet date. Foreign company assets and liabilities in foreign currencies are translated into U.S. Dollars at the exchange rate in effect at the balance sheet date. Foreign company revenue and expense items are translated at the average exchange rate for the period. Unrealized gains or losses arising on the translation of the accounts of foreign companies are included in accumulated other comprehensive income (loss), a separate component of stockholders’ equity.





NOTE 3 – CURRENT ASSETS





a. Cash and Cash Equivalents





Cash equivalents consist of cash on hand and cash on deposit at financial institutions. 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. Accounts Receivable





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 January 31, 2011, the Company had a total of $11,121 in accounts receivable.




8





NOTE 4 - 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 in accordance with U.S. GAAP. 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 which bases the costs amortized 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. Management’s periodical review of unamortized film costs resulted in no impairment during the nine month period ending January 31, 2011.





At January 31, 2011, film development costs totaled $58,000 and were unchanged when compared to April 30, 2010.





The Company does not expect to amortize film development costs during the next twelve months.  The components of the Company’s film costs at January 31, 2011 relate entirely to movies in development for theatrical release.





Regarding the Company’s released films, there are no unamortized film costs capitalized on the balance sheet.





The Company does not have any accrued participation liabilities for its projects in development. The Company accrues costs for participation liabilities primarily for existing movies in distribution in the period and amount in which they occur.  The Company’s cash flows for film costs, participation costs, exploitation costs and manufacturing costs are classified as operating activities in the Statement of Cash Flows.





NOTE 5 – DEFERRED REVENUE





Deferred revenue represents the unamortized portion of royalty advances from distributors. The Company amortizes a royalty advance across the applicable period of each distribution agreement.  Current liabilities disclose the amount expected to be amortized during the subsequent 12 month period and the balance is disclosed as a non-current liability. As of January 31, 2011 and April 30, 2010, the Company had deferred revenue totaling $513,409 and $572,727, respectively. The decrease is primarily due to the regular amortization of royalty advances but is partially offset by the inclusion of a royalty advance received with a new distribution agreement. The Company is following the guidelines of ASC Topic No. 926 for film production and distribution (See Note 4).





NOTE 6 - COMMITMENTS AND CONTINGENCIES





a. Rent





The Company rents its registered office space at 468 N. Camden Drive in Beverly Hills, California and additional office space in Santa Monica, California until June 2010. The Company also rents flexible storage space for its archives. Rent expense for the Company's offices and archive storage space was $8,093 and $13,454 during the three months ended January 31, 2011 and 2010, respectively and $26,266 and $39,938 during the nine months ended January 31, 2011 and 2010, respectively. All rental agreements may be terminated upon one month’s notice.


b. Writing Agreement





As a result of a writing agreement signed on February 19, 2008, in connection with a currently untitled feature length motion picture remake/sequel of one of the films in the Company’s library, the Company is obligated to pay the writer a further $66,667 in installments upon completion of certain writing milestones which may occur during the course of the agreement. As these milestones occur, the amounts due will be paid or accrued. Given the uncertainty surrounding the production of this movie, the Company has recognized an impairment charge for this project in the period ended April 30, 2010.




9





c. Stockholder Loans





As of January 31, 2011, the Company had borrowed the principal sum of $106,877 ($125,106) including accrued interest) from two of its largest stockholders, the Company’s former Head of Production, Mr. Sven Ebeling and the Company’s former President and CEO, Mr. Philip Holmes under the terms of an arrangement dated October 15, 2008, which authorized the borrowing of up to $500,000 from stockholders of the Company to fund working capital and other needs (the “Loan” or “Loans”). The Loans are not collateralized and bear interest at an adjustable rate equal to 3% above the WSJ Prime Rate which interest rate is reset quarterly. The term of each Loan will be for a maximum of one year from the end of the month in which the Loan is made. At the end of this term, the Company will either repay the Loan with interest or renegotiate the Loan with the lending party. Upon default or failure to negotiate a mutual extension, the lenders may require the Company issue shares at the value of the 90-day rolling average share price of the Company’s common stock as quoted on the Pink Sheets at the lower of the trading price at the day of lending or date of renewal. The value shall include the principal and accumulated interest. The accrued interest charge is recognized on the balance sheet together with the principal amount of the loans and the annual interest charge is expensed on the Statement of Operations.  As of January 31, 2011 the accumulated interest for the loans totaled $18,229.  The Company disclosed this transaction in a Form 8-K filed on July 21, 2008.  On July 22, 2009, the board of directors unanimously resolved to extend and clarify the terms under which Loans may be made to the Company to include amounts due to stockholders for services and to provide for the conversion of those loans to equity at any time during the term of the Loan at the 90 day rolling average stock price as quoted on the Pink Sheets.  On December 17, 2010 the board terminated this arrangement whereby the Loans could be converted to equity upon demand of the lender.  As the Loans and accrued interest are on an annual renewal basis, the Company has classified the Loans as a current liability. Of the principal sum of $106,877 outstanding as of July 31, 2010, an amount of $90,000 plus accrued interest was re-negotiated according to the original terms on July 31, 2009 between the stockholders and the Company resulting in a 12 month extension of the Loan term through to July 31, 2010. On July 31, 2010 no agreement was reached between the Company and the lending stockholders so the loans were deemed to be extended for a further year until July 31, 2011.





d.Contingent Losses & Litigation





Legal fees associated with litigation are recorded or accrued in the period in which they occur.  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. As of January 31, 2011, the Company was not involved in any litigation.





Management is aware of two claims for services incurred before and after the balance sheet date.  Concerning the first claim, concurrently with the events described in Note 10-Subsequent Events, the Company’s formerPresident and CEOhad discussions with the Company regarding compensation for services he rendered to the Company between February 2008 and December 2010. During that period, the compensation arrangements between the Company and its former President and CEO were not clearly defined and, as a result, no related amounts were provided in the Company’s historical financial statements.  Based on discussions held to date, Management believes that the parties will ultimately agree to a currently undefined participation arrangement in certain of the Company’s film assets.  Because any amount that may be incurred by the Company under such an arrangement is dependent upon the outcome of uncertain future events, the Company has not accrued any amounts in the accompanying financial statements as a result of this contingency.




For the second matter, the Company’s former head of production, who was terminated in December 2010, claimed by letter dated July 20, 2010 that he was owed compensation for past services to the Company rendered from approximately November 2007.  Within this notification, he claims he is owed salary compensation, although Management is not aware of the existence of any employment agreement.  Further, he claims that he is entitled to additional compensation through a production services agreement dated August 4, 2008 between the Company and an entity he controls, West Coast Pictures (“WCP”).  He has also asserted breach of obligations under this production services agreement and believes that WCP is entitled to additional shares of the Company’s common stock.   Additional claims of wrongdoing and breach of fiduciary duties have also been made against former board members of the Company, acting in their oversight capacity of King’s Road Entertainment, Inc., and include demand for reimbursement of legal expense pursuing such claims.  Management has not accrued a loss contingency for this matter given the uncertainty of facts and information currently available to Management, as they have only begun a preliminary investigation of these matters;  however, the range of future payments could be from $0 through $1.2 million.  If any formal claims are made through legal action, the Company intends to vigorously defend its position.




NOTE 7 – RELATED PARTY TRANSACTIONS





None.





NOTE 8 - COMMON STOCK





At January 31, 2011, the Company had 50,000,000 authorized shares of common stock, $0.01 par value,of which 31,321,493 were issued and outstanding and 2,000,000 authorized shares of “blank check” preferred stock, $0.01 par value, of which no preferred shares were issued or outstanding.  At April 30, 2010, the Company had 50,000,000 authorized shares of which 31,321,493 were issued and outstanding.




10





NOTE 9 – RECOGNITION OF REVENUES





Revenue from the sale or licensing of films is recognized in accordance generally accepted accounting principles. 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, video-on-demand, 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
ApproximateMarketplace
Initial Release
Release PeriodDomestic theatrical

0-3 monthsAll international markets

1-12 yearsDomestic home video/DVD/Video on Demand
3-6 months
3-12 monthsDomestic cable/pay television
12-18 months
18 monthsDomestic syndicated/free television
24-48 months
1-n years





These periods are dynamic and as new media, distribution platforms and consumer demands dictate, they will continue to change.





The Company also derives revenues from service production contracts. Third parties engage the Company to develop or produce film projects on a consulting basis. These revenues will generally be recognized in the period in which the work is performed. In a given accounting period, where a timing difference results in the cash received exceeding the actual work performed, the difference between the cash flows and the recognition of revenue is recorded as deferred revenue. Conversely, where work performed exceeds the payments received then the difference is recorded as accounts receivable.





NOTE 10 – SUBSEQUENT EVENTS





Management has evaluated all subsequent events through the date the financial statements were available to be issued.





On February 18, 2011, the board of directors elected Douglas Beach, CPA to the board of directors and to the position of Chief Financial Officer.  This appointment increased the number of elected board members to 7.





On February 18, 2011 the board of directors elected Lee Williams and Doug Beach as members of the Audit Committee.





On March 29, 2011, all members of the board of directors and management of the Company who had not already done so  approved and signed the Company’s Code of Ethics.





The new board of directors tasked its officers to bring the Company’s periodic filings up to date and to keep those filings current, and  to address the material weaknesses perceived in the Company’s financial controls and procedures.  Specifically the board and the executive officers took the following actions to remediate these material weaknesses  :




·
The Company appointed Douglas Beach, CPA, as the CFO to oversee the financial affairs of the Company.  Management believes Mr. Beach qualifies as a “financial expert”




·
The Company reconstituted the audit committee of the board of directors, which included Douglas Beach and Lee Williams.  Mr. Williams has been determined to be  independent of the Company.




·
The Company retained the services of the former President and CEO to assist in accounting and tax matters given his thorough knowledge of the Company’s operations.




·
The Company committed financial resources for professional services providers, including legal and accounting.







Since December, 2010, Michael A. Yedor and certain of his affiliates have been advancing the Company funds necessary for the operations of the Company.  That amount as of March 29, 2011 is $194,390, and is anticipated to be larger as the Company incurs additional operating expenses that are not funded through income from operations.  It is anticipated that these advances shall be converted into securities of the Company at such time as the value of the Company and the magnitude and nature of these advances are determined.  Mr. Yedor is an officer and director of the Company.





ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The following discussion concerns the periods ended January 31, 2011 and January 31, 2010, which should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this document as well as the Form 10-K for the fiscal year ended April 30, 2010.





Results of Operations





The Three Months Ended January 31, 2011 vs. the Three Months Ended January 31, 2010


For the quarter ended January 31, 2011, operating revenues were $47,755 as compared to $60,458 for the quarter ended January 31, 2010. The decrease of $12,703 results primarily from a decrease in distribution royalties during the three month period ending on January 31, 2011.




11





Operating expenses amounted to $120,459 for the quarter ended January 31, 2011 as compared to $102,565 during the quarter ended January 31, 2010. This increase of approximately $17,894 is primarily due to an increase in legal fees of approximately $48,000; residual expenses of approximately $22,000; marketing expenses of approximately $8,000 and general administrative expenses of approximately $10,000 partially compensated by decreases in consulting fees of approximately $44,000; employee compensation and bonuses of approximately $16,000 and rental expense by approximately $10,000.





Interest expenses decreased to $2,736 for the quarter ended January 31, 2011 as compared to $9,314 during the quarter ended January 31, 2010. The decrease of $6,578 is primarily attributable to the inclusion of scheduled interest from a settlement agreement between the Company and a former officer and director during the period ended January 31, 2010.





The Company had a net loss of $75,440 for the quarter ended January 31, 2011 as compared to a net loss of $51,319 for the quarter ended January 31, 2010. The increase in losses of $24,121 results primarily from the decrease in revenue and the increase in operating costs as described above.





The Nine Months Ended January 31, 2011 vs. the Nine Months Ended January 31, 2010


For the nine months ended January 31, 2011, operating revenues were $133,183 as compared to $216,595 for the nine months ended January 31, 2010. The decrease of $83,412 is attributable to revenues from a non-recurring royalty adjustment of approximately $38,310 and expiry of the distribution contract for a movie during the period ended January 31, 2010.




Costs and expenses amounted to $189,858 for the nine months ended January 31, 2011 as compared to $525,954 during the nine months ended January 31, 2010. This decrease of approximately $336,096 is primarily due to a decrease in the impairment of film development costs of approximately $153,000 and decreases in consulting fees of approximately $115,000; employee bonuses and payroll of approximately $58,000 and a reduction in rent and general administrative expenses of approximately $18,000.  These reductions were partially offset by an increase in marketing expenses of approximately $8,000.





The Company had a net loss of $63,744 for the nine months ended January 31, 2011 as compared to a net loss of $322,043 for the nine months ended January 31, 2010. This decrease in net loss of $258,299 resulted primarily from the impairment of capitalized film development expenses and expenses as described above which were partially offset by the reduction in revenues during the period.





Liquidity and Capital Resources





The production of motion pictures requires substantial working capital. The Company must expend substantial sums for development as well as for the production and distribution of a picture, before that picture generates any revenues. The Company's principal source of working capital during the nine months ended January 31, 2011, was motion picture distribution and licensing income. In general, cash flows resulting from the distribution of the Company’s existing film library have declined and are expected to continue to decline over the long term. The Company is taking measures to renew expiring licenses and ensure its library is continuously distributed in all major world markets to slow down this trend. It is unlikely that the Company's existing distribution and licensing income will be sufficient to fund its ongoing operations. For this reason, the Company is developing new movies and seeking equity funding for these movies in order to fully implement its business planning as a movie production and distribution company.The Company anticipates that its films will primarily be financed by external sources including tax and location incentives, sales made in advance to distributors and TV companies as well as the receipt of minimum guarantee payments from sales companies. External financing will likely significantly reduce the equity required to fund the balance of the production budget as well as the inherent risk in movie financing. In order to fully implement the Company’s business planning, the Company’s liquidity requirements include amounts for screenplay acquisition and development as well as the hiring of creative personnel. . The Company is currently reviewing its estimates to fully implement its business planning and is investigating new technologies and business opportunities.  However, the Company believes it highly unlikely that it will generate enough income from operations, including the expanded exploitation of its library, to meet the Company’s short term operating requirements.  Since December, 2010, the Company’s operations have been funded largely by cash advances to the Company from Michael A. Yedor, an affiliate of the Company, who is exploring the desirability of an equity investment therein, and Management believes that the Company’s ability to continue operations will depend upon its ability to attract and obtain additional investments or working capital from others, which may include affiliates of the Company.  At this time, the Company has not solicited investment from any investment banks, private equity firms or venture capitalists, nor has it retained advisers for the purpose of raising funds.




In the event the Company is unable to generate sufficient funds to continue its business efforts or if the Company is pursued by a larger company for a business combination, Management will analyze all strategies to continue the Company and maintain or increase shareholder value.  Under these circumstances Management would consider a merger, acquisition, joint venture, strategic alliance, a roll-up, or other business combination for the purposes of continuing the business and maintaining or increasing shareholder value.  Management believes its responsibility to maintain shareholder value is of paramount importance, which means the Company should consider the aforementioned alternatives in the event funding is not available on favorable terms to the Company when needed.




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At January 31, 2011, the Company had cash of $1,020 as compared to $1,538 at April 30, 2010.





Contractual Obligations





As a result of a writing agreement signed on February 19, 2008, in connection with a currently untitled feature length motion picture remake/sequel of one of the films in the Company’s library, the Company is obligated to pay the writer a further $66,667 in installments upon completion of certain writing milestones which may occur during the course of the agreement. As these milestones occur, the amounts due will be either paid or accrued. Given the uncertainty surrounding the production of this movie, the Company has recognized an impairment charge for this project in the period ended April 30, 2010.





Effective March 15, 2010, the Company settled a dispute with former officer and director Ms. Geraldine Blecker over deferred salary amounting to $48,000 and accumulated interest of $7,034. Commencing with September 2010, the Company has agreed to pay Ms. Blecker a monthly sum of $1,000 against the outstanding balance of $55,034.  The balance due shall accrue interest at an annual rate of 6.25%.  At January 31, 2011, the balance owed by the Company was approximately $52,340.





The Company does not have, nor is it aware of, any other material contractual obligations.





Recent Events





By letter dated December 9, 2010, Bekim Zemoski resigned from his position as a member of the Company’s board of directors, effective as of that date.  On December 13, 2010, the holder of the right to vote a majority of the Company’s shares of common stock voted by written consent in lieu of a meeting to:  remove the remaining two members of the Company’s board of directors; increase the authorized number of members of the Company’s board of directors from three to nine; to amend the Company’s bylaws; to authorize the officers, if appropriate and considered to be in the Company’s best interest, to amend the Company’s certificate of incorporation; and to elect Michael A. Yedor, Kari E. Yedor, Dimitri Logothetis, Susan E. O’Donnell, Lee D. Williams and Peter Meyer to the Company’s board of directors.





On December 17, 2010 the Board of Directors elected the following officers to serve in their positions at the pleasure of the board; Michael A. Yedor as its President, Philip M. Holmes as its Executive Vice-President, Dimitri Logothetis as its Treasurer and Chief Operating Officer and Kari E. Yedor to the position of Company Secretary.





On December 17, 2010 the Company rescinded its offer to certain of its shareholders to accept additional loans from certain shareholders and to convert their shareholder loans to common stock of the Company at prices based upon the ninety day rolling average of transactions (excluding private placements and non-transactional price quotes) as of the day of such shareholders’ written commitment to convert as set forth in board resolutions dated July 15, 2008, July 22, 2009 and December 12, 2009 as being unworkable, unduly vague and unenforceable.





On December 20, 2010 the Company terminated the Production Services Agreement which it had entered into with West Coast Pictures, LLC and terminated Mr. Sven Ebeling from his position as the Company’s Head of Production.




Cautionary Note on Forward-Looking Statements





This Quarterly Report on Form 10-Q 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.





Forward-looking statements 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,





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- 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.   We disclaim any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.





ITEM 4. CONTROLS AND PROCEDURES.





a. Evaluation of Disclosure Controls and Procedures


Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as required by Rule 13a-15 and Rule 15d-15.





The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended (the “Exchange Act”). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within required time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.





Based on the foregoing evaluation and the material weaknesses in our internal control over financial reporting as of April 30, 2010 that we have not yet remediated, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are not effective as of January 31, 2011.


b. Changes in Internal Control over Financial Reporting





There have been no material changes in our internal control over financial reporting during the fiscal quarter ended January 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We continue to have material weaknesses in our internal control over financial reporting as described in Item 9A in our Annual Report on Form 10-K for our fiscal year ended April 30, 2010 and those deficiencies have not yet been remediated by us.





PART II - OTHER INFORMATION





ITEM 1.
LEGAL PROCEEDINGS





As of March 31, 2011, the Company was not aware of any pending claims or assessments, which may have a material adverse impact on the Company's financial position or results of operations.


ITEM 1A.
RISK FACTORS


There have been no material changes from the risk factors disclosed in Part 1, Item 1A - Risk Factors in our Annual Report on Form 10-K for the year ended April 30, 2010.





ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.





ITEM 3.
DEFAULTS UPON SENIOR SECURITIES





None.




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ITEM 4.
REMOVED AND RESERVED










ITEM 5.
OTHER INFORMATION





None


ITEM 6.
EXHIBITS.


3.1
Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to Form 10-KSB for the fiscal year ended April 30, 1998 filed with the Commission on July 30, 1998)


3.2
Certificate of Amendment of the Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 6, 2008)3.3
Bylaws of Registrant (Incorporated by reference to Exhibit 3.2 to Form 8-K filed on June 18, 2008)3.4
Bylaws of Registrant as passed by the Board by unanimous written consent on December 17, 2010  (Incorporated by reference to Exhibit 3.4 to Form 10-K filed March 31, 2011)


31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14 and 15d-14 of the Exchange Act (filed herewith)


31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 of the Exchange Act (filed herewith)


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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed herewith)








SIGNATURES





Pursuant to the requirements 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.








KINGS ROAD ENTERTAINMENT, INC.Date:  March 31, 2011
By:
/s/ Michael A. YedorMichael A. Yedor, Chief Executive Officer








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