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, 2001 Commission File No. 0-14234

KINGS ROAD ENTERTAINMENT, INC.
(Name of small business issuer in its charter)

Delaware
(State or other jurisdiction
of incorporation) 95-3587522
(I.R.S. Employer
Identification No.)

12 East 33rd Street, 12th Floor
New York, NY 10016
(Address of principal executive office)

Issuer’s telephone number: (212) 252-9519

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 October 22, 2001, the Registrant had 3,664,390 shares of its common stock outstanding.

Transitional Small Business Disclosure Format: YES [   ]        NO [X]

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1 — Financial Statements
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2 — Management’s Discussion and Analysis of Financial Position and Results of Operations
PART II — OTHER INFORMATION
	Item 1 — Legal Proceedings
	Item 6 — Exhibits and Reports on Form 8-K
SIGNATURES

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)

			AS OF
			JULY 31, 2001
ASSETS
	Cash and Cash Equivalents		$	13,486
	Inventories			22,709
	Accounts Receivable			67,346
	Film Development Costs, Net			143,693
	Prepaid Expenses and Deposits			6,698
	Fixed Assets, Net			2,205
	Goodwill			52,090
TOTAL ASSETS			$	308,227
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES
	Accounts Payable			256,631
	Accrued Expenses			65,502
	Note Payable			19,000
	Deferred Revenue			17,241
		TOTAL LIABILITIES		358,374
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT
	Common Stock, $.01 par value, 12,000,000 shares authorized, 3,664,390 shares issued and outstanding			36,644
	Additional Paid-In Capital			24,906,655
	Deficit			(24,993,446	)
		TOTAL STOCKHOLDERS’ DEFICIT		(50,147	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT			$	308,227

The accompanying notes are an integral part of these consolidated financial statements.

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KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		FOR THE THREE MONTHS
		ENDED JULY 31,
		2001			2000
REVENUES
	Feature Films	$	150,201		$	692,565
	Merchandise Catalog Sales		36,943			0
			187,144			692,565
COSTS AND EXPENSES
	Costs Related to Revenue		29,852			225,693
	Selling Expenses		5,534			35,585
	General & Administrative Expenses		292,601			156,648
			327,987			417,926
	OPERATING (LOSS) INCOME		(140,843	)		274,639
OTHER INCOME (EXPENSE)
	Interest Income		38			5,778
	Interest Expense		(339	)		0
	Impairment of Goodwill		(15,875	)		0
			(16,176	)		5,778
	(LOSS) INCOME BEFORE INCOME TAXES		(157,019	)		280,417
Provision for Income Taxes			0			1,600
	NET (LOSS) INCOME	$	(157,019	)	$	278,817
	Net (Loss) Income Per Share — Basic and Diluted	$	(0.04	)	$	0.08
	Weighted Average Number of Common Shares — Basic and Diluted		3,664,390			3,541,140

The accompanying notes are an integral part of these consolidated financial statements.

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KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

			FOR THE THREE MONTHS
			ENDED JULY 31,
			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net (Loss) Income		$	(157,019	)	$	278,817
	Adjustments to reconcile Net (Loss) Income to Net Cash Provided by (Used in) Operating Activities:
		Depreciation and Amortization		358			227,020
		Impairment of Goodwill		15,875			0
	Changes in Assets and Liabilities:
		(Increase) Decrease in Accounts Receivable		(14,456	)		1,210
		Decrease in Inventory		11,362			0
		(Increase) in Note Receivable		0			(31,500	)
		Decrease in Prepaid Expenses		42,933			2,250
		Increase in Accounts Payable		53,262			27,902
		Increase in Accrued Expenses		9,129			0
		Increase in Deferred Revenue		14,941			8,030
	NET CASH AND CASH EQUIVALENTS (USED IN) PROVIDED BY OPERATING ACTIVITIES			(23,615	)		513,729
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of Marketable Securities			0			(300,440	)
	Gross Additions to Film Development Costs			(17,376	)		(139,143	)
	Purchase of Other Investments			0			(4,500	)
	Disposal of Fixed Assets			0			3,638
	NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES			(17,376	)		(440,445	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	NET CASH AND CASH EQUIVALENTS PROVIDED BY FINANCING ACTIVITIES			0			0
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(40,991	)		73,284
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				54,477			85,159
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	13,486		$	158,443

The accompanying notes are an integral part of these consolidated financial statements.

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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 audited financial statements and related footnotes for the year ended April 30, 2001 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 at July 31, 2001 and the results of its operations and cash flows for the three month periods ended July 31, 2001 and 2000, respectively, have been included.

The results of operations for the three month period ended July 31, 2001 are not necessarily indicative of the results to be expected for the full fiscal year. For further information, refer to the audited financial statements and footnotes thereto included in the Company’s annual report on Form 10-KSB for the year ended April 30, 2001.

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. Certain amounts for the three month period ended July 31, 2000 have been reclassified to conform to the presentation of the July 31, 2001 amounts. The reclassifications have no effect on reported net income (loss).

NOTE B — FILM DEVELOPMENT COSTS

Film development costs consist of film script projects actively in development at July 31, 2001.

NOTE C — NOTES PAYABLE

In connection with the acquisition of Animal Town, Inc. (“Animal Town”) on August 31, 2000, the Company issued a note payable to the seller of the common stock of Animal Town in the principal amount of $39,000, bearing interest at 7% per annum with an initial maturity date of November 30, 2000. The outstanding balance of the note payable at July 31, 2001 was $20,131, consisting of $19,000 of principal and $1,131 of accrued interest. The parties, by agreement, have extended the maturity date of the outstanding balance of the note to November 30, 2001.

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KINGS ROAD ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D — 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:

	Three Months			Three Months
	Ended			Ended
	July 31, 2001			July 31, 2000
Computed Expected Tax (Benefit) at Statutory Rate	$	(53,387	)	$	95,342
State and Local Taxes		0			1,600
Valuation Allowance		53,387			(95,342	)
	$	0		$	1,600

NOTE E — SEGMENT INFORMATION

The Company’s two reportable segments are distinct business areas that are managed separately and offer different products. The Company’s operating segments consist of (1) entertainment products and (2) a children’s mail order catalog operation. The entertainment products include the development, production and distribution of feature length motion pictures. The children’s mail order catalog operation consists solely of the distribution of the Animal Town catalog.

The following table presents segment information for the three months ended July 31, 2001 and 2000:

		2001			2000
Revenues:
	Entertainment Products	$	150,201		$	692,565
	Mail Order Catalog		36,943			0
Total Revenues		$	187,144		$	692,565
Net (Loss) Income:
	Entertainment Products	$	(72,073	)	$	278,817
	Mail Order Catalog		(84,946	)		0
Total Net (Loss) Income		$	(157,019	)	$	278,817

NOTE F — LITIGATION AND CONSEQUENCES

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 effect on the Company’s financial position or results of operations.

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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 its film revenues almost exclusively from the exploitation of films produced in prior years. The Company continues to fund and develop motion picture film scripts, with the intention of either producing the film, establishing a partnership or joint venture with another film production company or an outright sale of the developed script.

     On August 31, 2000, the Company completed the acquisition of the common stock of Animal Town, Inc. (“Animal Town”), a privately-held direct mail order catalogue company that markets children’s toys, games, crafts and books specializing in cooperative play and development, animal protection and environmental awareness. The Company acquired all of the outstanding common stock of Animal Town in exchange for approximately $12,000 in cash, a note payable in the amount of $39,000 to the seller of the common stock and the issuance of 77,000 shares of the Company’s common stock, the exact number of shares determined based upon a debt-for-equity exchange offer made to existing Animal Town creditors that commenced on September 29, 2000 and was concluded on January 29, 2001. The Company also agreed, on an interim basis in advance of the closing of the acquisition, to provide a secured credit facility in order for Animal Town to immediately commence production of a Fall 2000 catalog. The credit facility to Animal Town was consummated, which allowed for the production, printing and subsequent distribution of over 600,000 catalogs, and was collateralized by all of Animal Town’s inventory, trademarks and proprietary customer list. The Company is presently evaluating the Animal Town operation, which may include a substantial reduction, total cessation or sale of the operation. The Company expects revenues from merchandise sales to substantially decline.

Results of Operations

     For the quarters ended July 31, 2001 and 2000, feature film revenues were approximately $150,000 and $693,000, respectively, a decrease of approximately $543,000. The substantial decrease in feature film revenues was attributable to (1) the sale of the Company’s rights to “Ticker”, a feature film project that had been developed by the Company, for approximately $243,000, during the quarter ended July 31, 2000 for which there were no comparable sales during the quarter ended July 31, 2001 and (2) decreased domestic and foreign distribution revenues from feature films in the Company’s film library. Revenues derived from merchandising sales of the Animal Town children’s catalog were approximately $37,000 and $0 for the quarters ended July 31, 2001 and 2000, respectively, the increase totally attributable to the Company’s acquisition of Animal Town on August 31, 2000 and for which there were no comparable revenues during the quarter ended July 31, 2000. The Company is presently evaluating the Animal Town catalog operation, which may include a substantial reduction, total cessation or sale of the operation. The Company expects revenues from merchandise sales to substantially decline. Interest income decreased to $38 for the quarter ended July 31, 2001 compared to approximately $5,800 for the quarter ended July 31, 2000, reflecting a decrease in cash and marketable securities held during the quarter ended July 31, 2001.

     Costs related to sales were approximately $30,000 and $226,000 for the quarters ended July 31, 2001 and 2000, respectively. The comparable decrease resulted primarily from the amortization of costs related to “Ticker”. Selling costs were approximately $6,000 and $36,000

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for the quarters ended July 31, 2001 and 2000, respectively. The comparable decrease resulted primarily from a reduction in commissions payable to the Company’s sales agents handling domestic and foreign distribution of the Company’s film library.

     General and administrative costs were approximately $293,000 and $157,000 for the quarters ended July 31, 2001 and 2000, respectively. The comparable increase resulted primarily from initial operating costs and expenses associated with the Animal Town catalog, which the Company acquired on August 31, 2000 and for which there were no comparable costs and expenses during the quarter ended July 31, 2000. The Company expects to reduce its general and administrative costs as it evaluates an alternative plan of operation for the Animal Town catalog. Interest expense was approximately $400 for the quarter ended July 31, 2001 and was attributable to a note payable issued by the Company on August 31, 2000 in connection with the acquisition of Animal Town. During the quarter ended July 31, 2000, the Company had no interest expense. The Company recorded an impairment charge of approximately $16,000 during the quarter ended July 31, 2001 for the writedown of goodwill associated with the Animal Town acquisition. There was no comparable impairment charge during the quarter ended July 31, 2000.

     The Company had a net loss of approximately $157,000 for the quarter ended July 31, 2001 compared to net income of $279,000 for the quarter ended July 31, 2000. The substantial decrease in net income resulted primarily from (i) significantly decreased revenues during the quarter ended July 31, 2001, as discussed in detail above, and (ii) an increase in general and administrative costs attributable to initial operating costs and expenses associated with the Animal Town catalog. During the quarters ended July 31, 2001 and 2000, the Company had no significant provisions for income taxes.

Liquidity and Capital Resources

     The Company’s principal source of working capital during the three month period ended July 31, 2001 was motion picture licensing income and merchandise product sales from its catalog operation. The Company continues to invest in the development of motion picture film projects, the production of which requires substantial capital. In the event that the Company decides to invest in the production of one or more of its developed film projects, the Company will need to examine and evaluate the additional capital requirements to undertake such activities. The Company presently does not have sufficient capital to pursue such activities. Except for the financing of new film production costs, the Company believes it has sufficient working capital to maintain its ongoing operations.

     For the quarter ended July 31, 2001, the Company’s net cash flow used in operating activities was approximately $24,000 compared to net cash flow provided by operating activities of approximately $514,000 for the quarter ended July 31, 2000. The resulting decrease was principally attributable to the substantial decrease in reported net income and principally accounted for the significant reduction in net cash used in investing activities from approximately $441,000 during the quarter ended July 31, 2000 to approximately $17,000 during the quarter ended July 31, 2001. At July 31, 2001 and 2000, the Company had cash and cash equivalents of approximately $13,000 and $158,000, respectively.

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Future Commitments

     The Company does not have, nor is it aware of, any 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 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.

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)

(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.

(b) Forms 8-K

     None.

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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: October 22, 2001	KINGS ROAD ENTERTAINMENT, INC.
	By:	/s/ Michael L. Berresheim
		Michael L. Beresheim, Chairman
		and Chief Executive Officer

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