SEC Info - Carolco Pictures Inc - ‘10-Q’ for 3/31/95

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Carolco Pictures Inc – ‘10-Q’ for 3/31/95

As of: Monday, 5/15/95 · For: 3/31/95 · Accession #: 801441-95-5 · File #: 1-09264

  As Of                Filer                Filing    For·On·As Docs:Size

 5/15/95  Carolco Pictures Inc              10-Q        3/31/95    4:105K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      24±   123K 
 4: EX-10.1     Material Contract                                     10±    40K 
 2: EX-11.1     Statement re: Computation of Earnings Per Share        1      6K 
 3: EX-27       Financial Data Schedule (Pre-XBRL)                     1      6K

10-Q — Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Defaults upon Senior Securities Exhibits and Reports on Form 8-K Financial Statements Legal Proceedings Le Studio Management's Discussion and Analysis of Financial Condition and Results of Operations Mgm Rcs
1	1st Page - Filing Submission
2	Item 1. Financial Statements
"	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 1. Legal Proceedings
"	Item 3. Defaults upon Senior Securities
"	Item 6. Exhibits and Reports on Form 8-K
6	Mgm
"	Rcs
"	Le Studio

10-Q 1st “Page” of 9 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SECURITIES AND EXCHANGE COMMISSION                          
Washington, D.C. 20549                          

Form 10-Q                           

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                         
SECURITIES EXCHANGE ACT OF 1934                           

For the Quarterly Period Ended March 31, 1995                           

Commission File No. 1-9264                          

CAROLCO PICTURES INC.                           
(Exact name of registrant as specified in its charter)                          

    Delaware                            95-4046437
(State or other jurisdiction of                   (I.R.S. Employer              
incorporation or organization)                    Identification No.)         

8800 Sunset Blvd., Los Angeles, CA                  90069     
(Address of principal executive offices)                   (Zip Code)     
Registrant's telephone number, including area code: (310) 859-8800      

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was     
required to file such reports), and (2) has been subject to such filing         
requirements for the past 90 days.                                              
Yes  X   No                                                                     

The number of shares outstanding of registrant's Common Stock, $.01 par value,  
at May 15, 1995 was 140,015,109 shares, including 2,373,756 shares of treasury  
stock.                                                                          

10-Q 2nd “Page” of 9 TOC 1st Previous Next ↓Bottom Just 2nd
CAROLCO PICTURES INC. AND SUBSIDIARIES                          

PART I. FINANCIAL INFORMATION                                                   

Item 1. Financial Statements                                                    

       Condensed Consolidated Balance Sheets - December 31, 1994 and March 31,
1995 (unaudited)                                                

    Condensed Consolidated Statements of Operations - Three months ended
March 31, 1994                                                  
and 1995 (unaudited)                                            

    Condensed Consolidated Statements of Cash Flows - Three months ended
March 31, 1994 and 1995 (unaudited)                             

Notes to Unaudited Condensed Consolidated Financial Statements  

Item 2. Management's Discussion and Analysis of Financial Condition and         
Results of Operations                                           

PART II. OTHER INFORMATION                                                      

Item 1. Legal Proceedings                                                       

Item 3. Defaults upon Senior Securities                                         

Item 6. Exhibits and Reports on Form 8-K                                        

10-Q 3rd “Page” of 9 TOC 1st Previous Next ↓Bottom Just 3rd
CAROLCO PICTURES INC. AND SUBSIDIARIES                          
CONDENSED CONSOLIDATED BALANCE SHEETS                           

                                                        [Enlarge/Download Table]
                     A S S E T S                                                         

                                                                December 31,    March 31,
                                                                   1994            1995  
                                                                           (Unaudited)   
                                                                         (In Thousands)  

                                                                                         
Cash and cash equivalents. . . . . . . . . . . . . . . . . . .  $27,336         $ 32,358 
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . .      --             1,803 
Accounts receivable, net . . . . . . . . . . . . . . . . . . .   13,835            9,079 
Accounts receivable, related parties . . . . . . . . . . . . .      340              275 
Film costs, less accumulated amortization (Notes B and C) . .    89,145          118,020 
Property and equipment, at cost, less accumulated depreciation                           
 and amortization. . . . . . . . . . . . . . . . . . . . . . .   17,413            5,531 
Other assets . . . . . . . . . . . . . . . . . . . . . . . . .    8,788            6,677 
                                                                -------         -------- 
     TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . $156,857         $173,743 
                                                               ========         ======== 

       LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                          

LIABILITIES:                                                                             
  Accounts payable and accrued liabilities . . . . . . . . . . $ 21,194         $ 16,683 
  Accrued residuals and participations . . . . . . . . . . . .   34,315           32,314 
  Income taxes, current and deferred . . . . . . . . . . . . .   15,000           15,233 
  Debt (Notes B and E) . . . . . . . . . . . . . . . . . . . .   93,855          119,776 
  Advance collections on contracts . . . . . . . . . . . . . .   15,047           15,894 
  Notes and amounts payable, related parties (Note D). . . . .   41,967           43,933 
                                                               --------         -------- 
       TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . .  221,378          243,833 

COMMITMENTS AND CONTINGENCIES - (Note F)                                                 
STOCKHOLDERS' DEFICIENCY - (Notes F and G)                                               
 Preferred stock - $1.00 par value, 10,000,000 shares authorized:                        
  Series A Convertible Preferred Stock, 120,000 shares authorized,                       
      82,500 shares issued and outstanding ($86,482,000 aggregate                        
      liquidation preference in 1994 and $87,563,000 aggregate                           
      liquidation preference in 1995). . . . . . . . . . . . .      88                89 
Common stock - $.01 par value, 650,000,000 shares authorized,                            
      140,015,109 shares issued and outstanding, including                               
      2,373,756 shares in treasury. . . . . . . . . . . . . .    1,400             1,400 
Additional paid-in capital . . . . . . . . . . . . . . . . . . 302,175           303,269 
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . .  (5,920)           (5,920)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . .(362,264)         (368,928)
                                                              ---------         ---------
      TOTAL STOCKHOLDERS' DEFICIENCY. . . . . . . . . . . . .  (64,521)          (70,090)
                                                              ---------         ---------
      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY . . . .  $156,857          $173,743 
                                                              =========         =========

See notes to condensed consolidated financial statements.                       

10-Q 4th “Page” of 9 TOC 1st Previous Next ↓Bottom Just 4th
CAROLCO PICTURES INC. AND SUBSIDIARIES                          
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                           

                                                                [Download Table]

                                                            Three Months ended  
                                                                  March 31,     
                                                            1994         1995   
                                                                (Unaudited)     
                                                              (In Thousands,    
                                                          Except per Share Data)
                                                                                
Revenues:                                                                       
  Feature films  . . . . . . . . . . . . . . . . . .     $  20,279    $  5,778  
  Other income (Note H). . . . . . . . . . . . . . .         2,724         744  
                                                         ---------    --------  
      TOTAL REVENUES. . . . . . . . . . . . . . . . .       23,003       6,522  

Costs and expenses:                                                             
  Amortization of film costs, residuals and participations  16,046       5,442  
  Selling, general and administrative. . . . . . . . . .     5,260       5,254  
  Interest . . . . . . . . . . . . . . . . . . . . . . .     3,981       3,206  
                                                         ----------   --------- 
      TOTAL COSTS AND EXPENSES. . . . . . . . . . . . .     25,287      13,902  
                                                         ----------   --------- 
      LOSS BEFORE BENEFIT FROM (PROVISION FOR)                                  
          INCOME TAXES . . . . . . . . . . . . . . . .      (2,284)     (7,380) 
Benefit from (provision for) income taxes. . . . . . .         253        (326) 
                                                         ---------    --------- 
      LOSS BEFORE EXTRAORDINARY ITEM . . . . . . . . .      (2,031)     (7,706) 
Extraordinary gain on extinguishment of debt (Note D).         ---       2,137  
                                                         ---------    --------- 
      NET LOSS . . . . . . . . . . . . . . . . . . . .     $(2,031)    $(5,569) 
                                                         =========    ========= 

Per Common Share:                                                               
  Loss before extraordinary item. . . . . . . . . . .      $(0.02)      $(0.06) 
  Income from extraordinary item. . . . . . . . . . .         ---          .02  
                                                        ----------    --------- 
  Net Loss. . . . . . . . . . . . . . . . . . . . . .      $(0.02)      $(0.04) 
                                                        ==========    ========= 

  Weighted average shares outstanding. . . . . . . . . 137,687,728   137,641,353


See notes to condensed consolidated financial statements.                       

10-Q 5th “Page” of 9 TOC 1st Previous Next ↓Bottom Just 5th
CAROLCO PICTURES INC. AND SUBSIDIARIES                          
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                           

                                                                [Download Table]

                                                              Three Months Ended
                                                                   March 31,    
                                                              1994          1995
                                                                  (Unaudited)   
                                                                 (In Thousands) 

                                                                                
Net cash flow from operating activities:                                        
      NET CASH PROVIDED BY (USED IN) OPERATIONS . . . .   $(25,964)   $(32,530) 
Cash flow from investing activities:                                            
  Purchase of property and equipment . . . . . . . . .        (226)        (96) 
  Proceeds from sale of aircraft, net of costs . . . .       1,775         ---  
                                                          ---------   ----------

      NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES    1,549         (96) 
Cash flow from financing activities:                                            
  Payments on debt . . . . . . . . . . . . . . . . . .      (1,176)     (2,470) 
  Proceeds of Production Loan . . . . . . . . . . . .          ---      39,893  
  Increase in notes payable to related parties. . . .        1,653       1,966  
  Decrease in receivables from related parties . . . .         100          65  
  (Increase) decrease in restricted cash . . . . . . .       1,255      (1,803) 
  Repurchase of Vista shares and Vista Partnership Units      (744)        ---  
  Other. . . . . . . . . . . . . . . . . . . . . . . .          (2)         (3) 
                                                           --------    ---------
      NET CASH PROVIDED BY FINANCING ACTIVITIES. . . .       1,086      37,648  
                                                           --------    ---------
      INCREASE (DECREASE) IN CASH . . . . . . . . . .      (23,329)      5,022  
      Cash and cash equivalents at beginning of period      56,697      27,336  
                                                           --------    ---------
      Cash and cash equivalents at end of period. . . .    $33,368     $32,358  
                                                           ========    =========
Supplemental disclosure of cash flow information:                               
  Cash paid during the year for:                                                
    Interest (net of amounts capitalized in 1994 and 1995)   $572         $497  
                                                           ========    =========

    Income taxes . . . . . . . . . . . . . . . . . . .        $73          $93  
                                                           ========    =========


See notes to condensed consolidated financial statements.                       

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING               
ACTIVITIES:                                                               

Prior to March 29, 1995, Carolco owned the building housing its corporate 
headquarters in Los Angeles, California.  In March 1988, Carolco entered into a 
$12,000,000 mortgage loan on its headquarters building with Equitable Life      
Assurance Society of the United States ("Equitable").  The mortgage provided    
for a balloon payment of the outstanding principal amount (approximately        
$11,500,000) on March 1, 1995.  The mortgage loan, which was non-recourse       
to Carolco, was sold by Equitable to Dolphinshire, L.P. ("Dolphinshire"),       
an entity unaffiliated with Carolco, on March 29, 1995.  Immediately thereafter,
Carolco transferred the building to Dolphinshire in full satisfaction of the    
mortgage loan outstanding. At December 31, 1994, the net book value of the      
building and certain leasehold improvements was reduced to approximate the      
amount of the outstanding mortgage loan.  In March 1995, upon the close of      
the transactions described above, the balance of the mortgage loan was offset   
against the carrying value of the assets.                                       

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Note A - Basis of Presentation and Significant Account Policies Basis of        
Presentation                                                  

The accompanying unaudited condensed consolidated financial statements    
include the accounts of Carolco Pictures Inc. and its wholly-owned subsidiaries 
including Carolco International Inc. ("CII"), Carolco Television Inc. and The   
Vista Organization, Ltd. ("Vista"); The Vista Organization Partnership, L.P.;   
and Carolco Studios Inc. (Delaware) (collectively, the "Company" or "Carolco"), 
after elimination of material intercompany accounts and transactions.           
The Company is engaged in a single business segment, the entertainment industry,
and its principal activities include the production and distribution of feature 
films.                                                                          

The accompanying unaudited, condensed consolidated financial statements   
have been prepared in accordance with generally accepted accounting principles  
for interim financial information and with the instructions to Form 10-Q and    
Article 10 of Regulation S-X.  Accordingly, they do not include all the         
information and footnotes required by generally accepted accounting principles  
for complete financial statements. In the opinion of the Company's management,  
the accompanying unaudited condensed consolidated financial statements contain  
all adjustments (consisting of normal recurring accruals) considered necessary  
to present fairly the Company's financial position as of March 31, 1995 and the 
results of its operations for the three months ended March 31, 1994 and 1995.   
The Company's independent auditors have included an explanatory paragraph in    
their report on the Company's consolidated financial statements for the year    
ended December 31, 1994 stating that such financial statements have been        
prepared assuming the Company will continue as a going concern and that         
the Company's financial condition raises substantial doubt about its ability to 
continue as a going concern.  See Note B.                                       

The results of operations for the period ended March 31, 1995 are not     
necessarily indicative of the results to be expected for the year ending        
December 31, 1995.   Certain reclassifications have been made in the amounts for
1994 to conform to 1995 presentation. For further information, refer to the     
Consolidated Financial Statements and Notes thereto included in the Company's   
Annual Report on Form 10-K for the year ended December 31, 1994.                

At March 31, 1995, LDC Films, Inc., an affiliate of Pioneer Electronic    
Corporation (" Pioneer"), Cinepole Productions B.V. ("Cinepole"), and RCS       
International Communications N.V. ("RCS Communications"), owned approximately   
33.7%, 19.0% and 11.6%, respectively, of the issued and outstanding Common Stock
of the Company.  At March 31, 1995, New Carolco Investments B.V. ("New CIBV"),  
a corporation incorporated in The Netherlands, owned approximately 5.8% of the  
issued and outstanding Common Stock of the Company. Mario F. Kassar, Chairman   
of the Board of Directors and Chief Executive Officer of the Company, may be    
deemed to own beneficially the shares of the Company's Common Stock owned by    
New CIBV.  In addition, Pioneer, Cinepole and MGM Holdings Corporation ("MGM    
Holdings") own 40,000, 12,500 and 30,000 shares, respectively of Series A       
Convertible Preferred Stock, not including accrued "in-kind" dividends.         
MGM Holdings also owns $31,901,000 in aggregate principal amount of 5%          
Payment-In-Kind Convertible Subordinated Notes due 2002 (the "5% Notes"), not   
including accrued "in-kind" interest.                                           

Significant Accounting Policies                                                 

Net Loss Per Common Share:  Net loss per share is based on the weighted   
average number of common shares outstanding during the period, after appropriate
inclusion in net loss of payment-in-kind dividends of $1,045,000 in 1994 and    
$1,095,000 in 1995. Common equivalent shares, consisting of outstanding stock   
options,  warrants and the Series A Convertible Preferred Stock, were excluded  
because the effect of their inclusion would be antidilutive.  Other potentially 
dilutive securities, including the 5% Notes, were excluded because the effect of
their inclusion would be antidilutive.                                          

Income Taxes:  Effective January 1, 1993, the Company adopted Statement   
of Financial Accounting Standard (SFAS) No. 109 "Accounting for Income Taxes".  
Previously, the Company used SFAS No. 96 "Accounting for Income Taxes". The     
adoption of SFAS No. 109 had no material effect on the Company's financial      
position or results of operations for the year ended December 31, 1993. Current 
and deferred federal income taxes are provided based on the Company and its U.S.
subsidiaries owned 80% or more, filing a consolidated tax return.               

   Deferred taxes, relating to differences in accounting for film rights and the
related amortization for financial statement and tax return purposes, as well as
from financial statement reserves not currently deductible for tax purposes,    
have historically been determined by applying the current tax rate to the       
cumulative temporary differences between the recorded carrying amounts and      
corresponding tax basis of assets and liabilities at the respective dates.  Due 
to the reversal of prior book and tax differences, as of March 31, 1995,        
Carolco's deferred tax liability has been virtually eliminated.  However, due to
the potential liability arising form the ongoing examination of Carolco's 1988  
through 1993 federal income tax returns by the Internal Revenue Service ("IRS") 
and the 1988 and 1989 state income tax returns by the California Franchise Tax  
Board ("FTB"), Carolco has not reduced the amount of its current and deferred   
income tax liability.  See Note F for a discussion of these examinations.       

On October 18, 1993, the Company's wholly-owned subsidiary, Carolco       
International N.V. ("CINV") was domesticated as a Delaware corporation and its  
name was changed to CII.  Due to the domestication of CINV, in future periods,  
foreign source income of the Company will be subject to United States income    
taxation which could result in a significant increase in the Company's effective
tax rate.                                                                       

Note B - Liquidity and Going Concern Issues                                     

Carolco currently has one motion picture in production: Cutthroat Island  
starring Geena Davis and Matthew Modine and directed by Renny Harlin.  Cutthroat
Island completed principal photography in March 1995 and is scheduled to be     
completed and available for release in the fourth quarter of 1995. However,     
there can be no assurance that the film will be completed or released on        
schedule or that it will be completed and released.  The direct negative cost of
Cutthroat Island is expected to be in excess of $80,000,000.  Carolco has       
completed certain financing arrangements in connection with Cutthroat Island.   
On February 6, 1995, the limited partnership formed by Carolco to produce and   
distribute Cutthroat Island ("Cutthroat Productions L.P.") satisfied the        
conditions necessary for it to draw funds under a production loan (the          
"Production Loan") provided by a group of banks led by Berliner Bank AG         
(London Branch) and Credit Lyonnais Bank Nederland N.V. ("CLBN").  The          
Production Loan provides for financing of up to $60,238,000 in direct negative  
costs, including completion bond fees, certain contingencies and other financing
related expenses.  In February and March 1995, Carolco received approximately   
$25,031,000 in proceeds from the Production Loan, representing reimbursement of 
a portion of the approximately  $80,007,000, including capitalized interest and 
overhead, Carolco had spent in 1994 and 1995 to develop and begin production of 
Cutthroat Island.  In addition, through March 1995, $13,126,000 in proceeds from
the Production Loan were provided directly to Cutthroat Productions L.P.        
The Production Loan is collateralized by certain pre-sales of foreign and       
domestic licensing rights of Cutthroat Island.  Initial proceeds from the       
distribution of Cutthroat Island will be used exclusively to repay the          
Production Loan.  In addition, in 1994 the Company received $7,500,000 in       
co-production investments from Tele-Communications, Inc. ("TCI"), LSC+          
Investments Inc., a wholly owned subsidiary of Le Studio Canal+ (U.S.), and     
RCS Video International Services B.V. ("RCS"). These funds, together with the   
proceeds of the Production Loan, reduced Carolco's contribution to the negative 
cost of the film to approximately $47,500,000.                                  

   CII, with Carolco as principal guarantor, has $14,000,000 in principal amount
outstanding under a credit facility with CLBN acting as agent and lender (the   
"Existing Carolco Credit Facility") as of the date hereof.  The maturity date of
the loan under the Existing Carolco Credit Facility, which is secured by        
substantially all of Carolco's assets, is September 30, 1995, provided certain  
events of default do not occur.  CLBN has agreed to remit to CII all collections
from accounts receivable pledged to CLBN,  so long as certain defaults do not   
occur.  No amounts are available for borrowing under the Existing Carolco Credit
Facility.  Repayment of the Existing Carolco Credit Facility, without a         
replacement facility, would have a severe adverse effect on the operations      
and financial viability of Carolco.                                             

In August 1992, Carolco entered into an agreement with the Screen Actors  
Guild, the Director's Guild of America, the Writers' Guild of America and the   
Motion Picture Industry Pension and Health Plan (collectively, the "Guilds")    
with respect to amounts owed to the Guilds under certain collective bargaining  
agreements.  As of March 31, 1995, the balance due the Guilds pursuant to a     
promissory note made in favor of the Guilds (the "Guild Note") was $7,485,000,  
including accrued interest at 3-month LIBOR plus 1% per annum.  The balance of  
the Guild Note is due in two remaining installments of $3,000,000 each, plus    
interest, on October 1, 1995 and October 1, 1996, with an additional $600,000   
due on October 1, 1996.  The Guild Note is secured by a lien on substantially   
all of the Company's assets, which lien is subordinated to the Existing Carolco 
Credit Facility.                                                                

In addition to the Guild Note, the Company has on-going obligations to the
Guilds, the American Federation of Musicians ("AFM") and the International      
Alliance of Theatrical Stage Employees ("IATSE") for amounts owed under similar 
collective bargaining agreements.  In February 1995, the Company paid           
approximately $3,000,000 to the Guilds, AFM and IATSE representing residual     
obligations arising from cash received by the Company in the fourth quarter of  
1994. The Company estimates that its residual obligations for the first quarter 
of 1995 will be $1,500,000.                                                     

The amount of residual obligations to be paid for future periods will be        
determined by the amount of cash receipts received by the Company in each       
quarter of 1995. As long as the Guild Note is outstanding, the on-going         
obligations of Carolco under the collective bargaining agreements with the      
Guilds are secured by the same lien as the Guild Note.                          

   In connection with the production of its motion pictures, the Company entered
into certain contingent compensation agreements with motion picture talent      
(actors, directors, producers, writers) and co-production investors             
(collectively, the "Participants") whereby the Company is obligated to pay to   
the Participants a share of the Company's receipts from the distribution of its 
released motion pictures.  At March 31, 1995, the Company had recorded a        
liability for present and future obligations of approximately $24,599,000 in    
connection with various Participants' contingent compensation arrangements.     
In April 1995, the Company reached settlements with certain Participants,       
whereby each such Participant agreed to accept a portion of the amount due at   
March 31, 1995 in exchange for the release of all claims against the Company for
current and future participation obligations, subject to certain adjustments    
under certain circumstances.  As a result of these settlement agreements, in    
April and May 1995 the Company paid approximately $4,800,000 to certain         
Participants and reduced its liability for current and future contingent        
compensation obligations. This will result in an extraordinary gain of          
$3,663,000 in the second quarter of 1995.  Additional contingent compensation   
obligations will be recorded in 1995 based on the film revenues recognized by   
the Company in 1995.                                                            

Semi-annual interest of approximately $3,261,000 on the 11.5%/10%         
Reducing Rate Senior Notes due 2000 (the "New Senior Notes") and the 13%/12%    
Reducing Rate Senior Subordinated Notes due 1999 (the "New Senior Subordinated  
Notes") is due on April 15 and October 15 of each year.  Semi-annual interest of
approximately $224,000 on the 13% Senior Subordinated Notes due 1996 is due on  
June 1 and December 1 of each year. On May 2, 1995, the Company paid            
approximately $3,279,000 representing semi-annual interest due on the New Senior
Notes and New Senior Subordinated Notes.  Such interest payments were made prior
to the end of the 30-day grace period provided in the indentures governing such 
issues of indebtedness.                                                         

Going Concern Issues                                                            

As a result of its reduced production schedule, Carolco did not generate  
revenues from new production  in 1994 and anticipates that it will continue to  
experience losses through 1995.  During the next 12 months, the Company will not
have sufficient cash resources and existing financing sources to meet its       
operating expenses and scheduled debt service obligations, and to continue to   
fund its principal business activity -- the development, production and         
exploitation of motion pictures. Therefore, the Company is currently considering
a plan which will allow it to continue to operate as a going concern.           

The plan being considered by the Company includes a combination of the    
following: the sale of certain assets; identifying and securing new equity      
investments and/or sources of financing; negotiating more advantageous          
distribution arrangements which would finance at least 100% of the development, 
production and distribution of new films; and restructuring the Company's       
outstanding obligations either outside of a Chapter 11 Bankruptcy filing, or    
within a Chapter 11 Bankruptcy filing (including a possible prenegotiated plan).

  If the Company is unable to successfully accomplish the aforementioned plan,
or implement other similar strategies, the Company will be unable to continue as
a going concern. The consolidated financial statements as of and for the three  
months ended March 31, 1995 do not include any adjustments to reflect the       
possible future effects on the recoverability of assets or amounts of           
liabilities that may result from the inability of the Company to continue as a  
going concern.                                                                  

Note C - Film Costs                                                             

                                                                [Download Table]

                                                     December 31,     March 31,
                                                        1994             1995  
                                                              (Unaudited)      
                                                             (In Thousands)    
                                                                               
Film costs are comprised of the following:                                     
   Released, less amortization. . . . . . . . . . .  $ 20,925         $ 19,031 
   In process and development . . . . . . . . . . .    68,220           98,989 
                                                     --------         -------- 
   Total film costs . . . . . . . . . . . . . . . .  $ 89,145         $118,020 


   Interest and production overhead capitalized to film costs during the
three months ended March 31, 1995 totaled $297,000 and $912,000, respectively.  
Interest and production overhead capitalized to film costs during the three     
months ended March 31, 1994 totaled $156,000 and $833,000 respectively.         

Note D - Related Party Transactions                                             

MGM:                                                                            

In 1993, MGM Holdings purchased from the Company $30,000,000 in   
aggregate principal amount of 5% Notes in exchange for $30,000,000. The         
$30,000,000 in principal amount of 5% Notes will mature in October 2002         
and bears interest at 5% per annum, payable quarterly.  Consistent with the     
treatment of MGM Holdings as a "principal shareholder," the Company recorded the
5% Notes in Notes and Amounts Payable, Related Parties, at its present value of 
$21,361,000 to yield a fair market interest rate of 10%. The discount of        
$8,639,000 was recorded as an increase to equity.  The Company will recognize   
additional interest expense of approximately $960,000 per year related to the   
amortization of this discount.  Interest accruing on or prior to the fifth      
anniversary of the date of issuance may be paid in cash or by payment in-kind of
additional 5% Notes with a principal amount equal to the amount of such         
interest, or a combination thereof, at the election of the Company.             
Thereafter, interest shall be paid in cash.  Through March 31, 1995, interest of
approximately $1,901,000 has been paid in additional 5% Notes and interest of   
approximately $332,000 has been accrued.  The 5% Notes, and any accrued and     
unpaid interest thereon, will automatically be converted into Common Stock of   
the Company on the 20th business day following the date on which                
Metro-Goldwyn-Mayer Inc. ("MGM") shall have received an aggregate of            
$100,000,000 in distribution fees under MGM's distribution agreement with the   
Company (the "MGM Distribution Agreement").  This conversion rate will be       
equal to 1,667 shares of Common Stock for each $1,000 principal amount of 5%    
Notes and each $1,000 of accrued and unpaid interest, subject to certain        
adjustments.  Alternatively, the 5% Notes may be converted into Common Stock of 
the Company at the aforementioned conversion rate (subject to certain           
adjustments,) effective on the maturity date (October 2002) or upon certain     
defaults under the indenture governing the 5% Notes; or in the event that the   
Company (i) declares a dividend on its Common Stock in excess of $.05           
per share, (ii) offers to redeem or repurchase Common Stock, (iii) merges or    
consolidates, unless the Company is the surviving corporation, or (iv)          
undertakes to sell all or substantially all its assets.  As of March 31, 1995,  
approximately 53,178,000 shares of Common Stock of the Company would be issued  
upon conversion of the 5% Notes.                                                

       In connection with the production of Cutthroat Island, CLBN, an affiliate
of MGM, was one of the lead lenders providing the Production Loan.  In addition,
MGM has agreed to distribute Cutthroat Island domestically and internationally  
ursuant to the MGM Distribution Agreement.                                      

RCS:                                                                            

      In March 1992, CINV sold 50% ownership in one of its principal development
projects to RCS in return for RCS's commitment to pay, subject to certain       
conditions, 50% of the costs of development and production of the project.      
Through March 31, 1995, RCS had advanced approximately $7,000,000,              
representing certain development and production commitments due pursuant to     
this agreement.                                                                 

 In June 1990, the Company, through a nominee of CINV, and Le Studio
Canal+ S.A. ("Le Studio"), formed a partnership (the "Carolco/Le Studio         
Partnership"). In January 1992, the Carolco/Le Studio Partnership entered into a
co-financing arrangement with Le Studio and RCS pursuant to which CINV,         
Le Studio and RCS each made co-financing payments equal to one-third of the     
total production cost of the motion picture, Chaplin. In exchange for their     
co-financing payments, Le Studio and RCS are each entitled to one-third of      
the net receipts from Chaplin, reduced to one-sixth of the net receipts after   
they have each recouped their initial co-financing payments, plus interest.     
RCS asserted a claim of approximately $5,000,000 against Carolco alleging that  
Carolco guaranteed certain levels of performance and agreed to reimburse a      
portion of RCS's  unrecouped investment in the motion picture Chaplin.          

     Pursuant to an agreement between Carolco and RCS, in April 1995 Carolco
paid RCS $4,000,000 and RCS quitclaimed to Carolco all of its ownership and     
other interest in the motion picture development project discussed above and    
also waived all claims relating to Chaplin. As a result, in the second quarter  
of 1995, the Company will record an extraordinary gain of $1,071,000 relating to
the Chaplin claims.                                                             

Le Studio:                                                                      

  Le Studio has asserted a claim against Carolco alleging that Carolco
guaranteed certain levels of performance and agreed to reimburse a portion of Le
Studio's unrecouped investment in the motion picture Chaplin.  Le Studio has not
specified the amount of its claim. Le Studio has also claimed that Caorlco is   
obligated to pay $500,000 as reimbursement for expenses incurred by Le Studio in
connection with certain restructuring transactions consummated in 1992.  Carolco
believes that Le Studio relinquished its claim for reimbursement as part of the 
October 1993 restructuring.  Although Carolco and Le Studio are discussing these
claims, Carolco is unable to predict the outcome of these disputes.             

Other:                                                                          

    Pursuant to a series of agreements (collectively, the "Domestic Video Output
Agreement"), the Company granted to LIVE Home Video Inc. ("LHV"), a subsidiary  
of LIVE Entertainment Inc. ("LIVE") and a former subsidiary/affiliate of the    
Company, domestic home video rights to the Company's feature films (except      
Cliffhanger and Iron Eagle III) on which principal photography commenced prior  
to July 31, 1995 or for which LHV has paid an advance to the Company prior to   
such date.  Canadian home video rights were not granted to LHV in the case of   
several films produced by the Company.  In consideration for the rights granted 
by the Company, LHV agreed to pay the Company certain advances for each picture.

    CINV entered into an agreement with an affiliate of LIVE pursuant to which
LIVE's affiliates acquire home video rights in the German-speaking European     
markets for most of the Company's films for which principal photography has     
commenced or for which LHV paid an advance prior to July 31, 1995 (the "German  
Output Agreement").  In consideration for the rights granted by the Company, the
LIVE affiliate agreed to pay CINV certain advances for each picture.            

       In January 1995, in order to settle disputes between them with respect to
the United States and Canadian video distribution rights to the film Cutthroat  
Island, LIVE and the Company agreed that Cutthroat Island would not be subject  
to the Domestic Video Output Agreement or the German Output Agreement.  Pursuant
to a separate agreement, LIVE obtained the video distribution rights to         
Cutthroat Island in the United States and Canada for a video advance to be paid 
by LIVE.  In addition, LIVE agreed to certain amendments to the Domestic Video  
Output Agreement, whereby LIVE would no longer have certain rights of offset    
between prior films distributed pursuant to such agreement.  In exchange for the
aforementioned arrangements and resolution, the Company paid $3,500,000 to LIVE 
against accrued liabilities of approximately $5,600,000 and recognized an       
extraordinary gain of approximately $2,100,000.                                 

       On January 1, 1995, the Company retained Daniels & Associates ("Daniels")
and Jefferson Capital Group ("Jefferson") to act as the Company's non-exclusive 
financial advisors and agents of the Company to assist the Company in locating  
capital sources, to market for sale substantially all of the Company's film     
library rights, to make recommendations with respect to any transactions which  
may result and to consider a possible restructuring of the Company's capital    
structure.  Michael E. Garstin, a principal in Daniels, is a member of Carolco's
Board of Directors.  In consideration of the services to be provided by Daniels 
and Jefferson, Carolco agreed to pay $1,800,000 payable over twelve months at   
the rate of $150,000 per month. Carolco is required to make a minimum of six    
monthly payments under the agreement, with 60% of all fees paid to Daniels and  
40% paid to Jefferson. In addition, Carolco agreed to pay all reasonable        
out-of-pocket expenses incurred by Daniels and Jefferson up to $100,000.  During
the three months ended March 31, 1995, the Company paid $280,000 to Daniels and 
$180,000 to Jefferson.                                                          

Note E - Debt                                                                   

       Prior to March 29, 1995, Carolco owned the building housing its corporate
headquarters in Los Angeles, California.  In March 1988, Carolco entered into a 
$12,000,000 mortgage loan on its headquarters building with Equitable. The      
mortgage provided for a balloon payment of the outstanding principal amount     
(approximately $11,500,000) on March 1, 1995.  The mortgage loan, which was     
non-recourse to Carolco, was sold by Equitable to Dolphinshire on March 29,     
1995.  Immediately thereafter, Carolco transferred the building to Dolphinshire 
in full satisfaction of the mortgage loan outstanding. At December 31, 1994, the
net book value of the building and certain leasehold improvements was reduced to
approximate the amount of the outstanding mortgage loan.  In March 1995, upon   
the close of the transactions described above, the balance of the mortgage loan 
was offset against the carrying value of the assets.                            

       In connection with the motion picture Cutthroat Island, through March 31,
1995, the Production Loan provided motion picture financing of approximately    
$39,893,000, including approximately $1,736,000 in loan costs and fees.  The    
Production Loan provides for financing of up to $60,238,000 in direct negative  
costs, including completion bond fees, certain contingencies and other financing
related expenses.  The Production Loan bears interest at LIBOR, plus 2 % per    
annum and is payable on the earlier of (i) March 1, 1997 or (ii) fifteen months 
following the initial United States theatrical release of Cutthroat Island.     
Initial proceeds from the distribution of Cutthroat Island will be used         
exclusively to repay the Production Loan.                                       

Note F - Commitments and Contingencies                                          

      As of March 31, 1995, the Company has received approximately $937,000 in
deposits on cancelled licensing agreements and on certain films which the       
Company may not produce. Traditionally, the Company has been able to allocate   
advances of this nature to other pictures being produced by the Company which   
contain elements similar to the original film. However as a result of reduced   
production commitments, the Company may be required to return these deposits.   

In June 1993, the Company entered into a non-exclusive consulting 
agreement with Anthony J. Scotti, Chairman of the Company's former              
subsidiary/affiliate, LIVE, and Chairman and Chief Executive Officer of All     
American Communications, an unaffiliated company, for the period commencing     
immediately after the Company's October 1993 restructuring and ending twelve    
months thereafter.  This agreement was extended under the same terms and        
conditions as the original consulting agreement and currently terminates on     
June 30, 1995. Pursuant to the agreement, Mr. Scotti consults with management of
the Company with respect to the operation of the Company's                      
business and such other matters as may be agreed upon between the Company and   
Mr. Scotti. In consideration for the services provided by Mr. Scotti, the       
Company pays Mr. Scotti $40,000 per month plus reimbursement of all expenses    
incurred by Mr. Scotti in connection with the services provided by him under the
agreement. Mr. Scotti is entitled to participate in any and all of the Company's
employee stock option plans during the term of the agreement, and is granted    
options to purchase shares of the Company's Common Stock (the terms and number  
of options to be negotiated in the future) at an exercise price per share equal 
to 1.25 times the market value of the Common Stock at the date of commencement  
of the consulting period. In addition, Mr. Scotti is indemnified from certain   
liabilities in connection with the performance of his duties under the          
agreement. During the three months ended March 31, 1995, the Company paid       
$120,000 to Mr. Scotti for his services under this agreement.                   

Spiderman Litigation:                                                         

     On April  20, 1993, 21st-Century Film Corporation ("21st")  and Menahem
Golan ("Golan")  filed an action against Carolco, CINV and Spiderman Productions
Ltd. ("SPL") in Los Angeles County Superior Court alleging claims for breach of 
contract, anticipatory breach of contract and fraud relating to the motion      
picture project Spiderman. Plaintiffs allege that on or about May 19, 1990, 21st
entered into an agreement with Carolco (the "Carolco/21st Agreement") whereby   
21st transferred to Carolco rights relating to the comic book character         
Spiderman, and Carolco agreed, among other things, to accord credit to Golan as 
a producer of the motion picture to be produced by defendants.  Plaintiffs      
further allege that on or about June 19, 1992, the parties entered into a second
agreement settling certain other litigation and wherein it was agreed that      
Carolco and CII could assign the Carolco/21st Agreement to RCS                  
Video Service Antilles N.V. ("RCS NV") and provided that Carolco and CII remain 
jointly and severally liable with RCS NV under the Carolco/21st Agreement.      
Plaintiffs alleged that Carolco and the other defendants breached the foregoing 
agreements by denying any obligation to accord producer credit to Golan, by     
assigning the Carolco/21st Agreement to a party other than RCS NV, and by       
failing to provide plaintiffs with a written document showing that Carolco and  
the other defendants have assumed the obligations of the Carolco/21st Agreement.
Finally, plaintiffs alleged that Carolco and the other defendants entered into  
the foregoing agreements fraudulently in that they did not intend to perform    
their alleged promises at the time they entered into the agreements.            

      Based on the foregoing allegations, plaintiffs sought compensatory damages
in excess of $5,000,000, unspecified punitive damages, attorneys' fees,         
rescission of the Carolco/21st Agreement, a declaration as to the plaintiffs'   
alleged rights and a preliminary and permanent injunction preventing Carolco and
the other defendants from distributing Spiderman upon completion without        
according producer screen credit to Golan and from issuing press releases or    
other information to the media without according producer credit to Golan.      

     On October 22, 1993, the plaintiffs, following several successful demurrers
by the defendants to the plaintiffs' previous complaints, filed a Third Amended 
Complaint against Carolco, CII, SPL and RCS NV. On November 19, 1993, all four  
defendants filed an answer to the Third Amended Complaint in which they agreed  
that the Carolco/21st Agreement had been rescinded, thereby accepting the demand
and offer of rescission contained in the Third Amended Complaint.  The          
defendants also filed a cross-complaint seeking restitution of the more than    
$5,000,000 that plaintiffs were paid under the rescinded agreement. The         
plaintiffs contend that assuming they make such restitution to Carolco and its  
co-defendants and co-cross-complainants, the plaintiffs would be entitled to    
recover the rights, or the monetary value of the rights, that were transferred  
under the Carolco/21st Agreement.                                               

      On December 14, 1993, 21st became a debtor under Chapter 7 of the United
States Bankruptcy Code as a result of petitions for involuntary bankruptcy that 
were filed by various creditors of 21st (other than the parties to the          
above-described litigation). On December 15, 1993, such bankruptcy proceedings  
were converted to voluntary reorganization proceedings under Chapter 11 of the  
Bankruptcy Code. These bankruptcy filings resulted in an automatic stay of the  
Los Angeles Superior Court litigation.  On July 21, 1994, the Chapter 11 Trustee
for 21st and the defendants in this action stipulated to relief from the        
automatic stay as a result of which the litigation resumed.                     

      On February 3, 1994, Carolco, CII, SPL and RCS NV filed declaratory relief
actions against Viacom International Inc., its division, Viacom Enterprises, and
various Doe defendants (collectively "Viacom"), and against CPT Holdings, Inc.  
and Columbia Pictures Home Video, Inc. jointly doing business as Columbia       
Tri-Star Home Video, and various Doe defendants (collectively "Columbia         
Tri-Star"), seeking declarations that such defendants do not have certain motion
picture distribution rights in Spiderman. Both Viacom and Columbia Tri-Star     
contend that they acquired certain distribution rights from 21st prior to       
Carolco's and 21st's entering into the Carolco/21st Agreement, and              
allegedly continue to hold such rights.                                         

  Viacom and Columbia Tri-Star each have answered Carolco's complaints
against them, denying the material allegations of the complaints. In addition,  
on April 8, 1994, Columbia Tri-Star served a cross-complaint on Carolco and its 
co-plaintiffs for anticipatory repudiation of contract, specific performance,   
breach of the implied covenant of good faith and fair dealing, and declaratory  
relief. Columbia Tri-Star is seeking a judicial declaration that Carolco and its
co-plaintiffs are contractually obligated to accord to Columbia Tri-Star the    
home video distribution rights in Spiderman that Columbia                       
Tri-Star alleges it has, an order commanding the performance of those alleged   
obligations, and, alternatively, damages "in a sum not less than $5,000,000" if 
those alleged obligations are not performed.                                    

      On May 18, 1994, Viacom filed an action in the Superior Court of the State
of California for the County of Los Angeles against Carolco, CII, SPL and RCS NV
alleging, among other things, that Viacom is contractually entitled to all      
rights to produce and exploit the motion picture Spiderman.   Based on this     
claim, Viacom is seeking damages for breach of contract, specific performance,  
declaratory relief, interference with contractual relations and interference    
with prospective economic advantage.  The Court has ordered this action         
consolidated with the action brought by 21st and Golan and with the actions     
brought by Carolco, CII, SPL and RCS NV against Viacom and Columbia Tri-Star.   
Carolco is unable to place a monetary value on the rights claimed by Viacom.    
Viacom asserts that the distribution rights in Spiderman could potentially      
generate distribution fees to Viacom in excess of $2,000,000.                   
Discovery has commenced in all related cases.                                   

     On March 6, 1995, the court granted the motion of Carolco, CII, SPL and
RCS NV for summary adjudication on 21st's and Golan's cause of action for an    
injunction, thereby dismissing those parties' claims for an injunction.  21st   
and Golan's time to seek review of that order by the Court of Appeal has not yet
expired.                                                                        

     MGM, an indirect subsidiary of MGM Holdings, has filed a declaratory relief
action seeking declarations that certain named defendants do not have rights in 
Spiderman.  The named defendants do not include Carolco.                        

   On May 25, 1995, a hearing will be held in the U.S. Bankruptcy Court,
Central District of California upon a motion of the Chapter 11 Trustee for 21st 
to sell all of the rights and interest of 21st in the Spiderman motion picture  
project to a designee of CLBN for $2,000,000 plus 10% of all proceeds realized  
by CLBN or its designee from the sale of such rights in excess of $2,000,000.   
According to the Notice of Hearing filed with the Bankruptcy Court by the       
Chapter 11 Trustee for 21st, CLBN has a secured claim in the 21st bankruptcy    
estate estimated to be $18,000,000.                                             

Class Action Litigation:                                                      

      On January 9, 1992, a purported class action lawsuit was filed in the U.S.
District Court, Central District of California, by alleged stockholders of LIVE 
against Carolco, LIVE and certain of Carolco's and LIVE's past and present      
executive officers and directors. The complaint alleges, among other things,    
that the defendants violated Section 10(b) of the Securities and Exchange Act of
1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder (i) by          
concealing the true value of certain of Carolco's and LIVE's assets, and        
overstating goodwill, stockholders' equity, operating profits and net income in 
Carolco's and LIVE's Forms 10-K for the year ended December 31, 1990, in their  
1990 Annual Reports and in their Forms 10-Q for the quarters ended March 31,    
1991 and June 30, 1991, and (ii) by materially understating the true extent of  
the write-off of goodwill in connection with the sale of Lieberman Enterprises  
Incorporated to Handleman Company in July 1991. In addition, the complaint      
alleges that certain of the defendants are liable as controlling persons under  
Section 20 of the Exchange Act and alleges that certain other defendants are    
liable for aiding and abetting the primary violations. Subsequently, two        
additional lawsuits were filed in the U.S. District Court, Central District of  
California, by alleged stockholders of LIVE against the same persons and        
entities who were defendants in the original action, making substantially the   
same allegations as were made in the first lawsuit. On March 30, 1992, these    
lawsuits were consolidated. Further in April 1992, an amended complaint was     
filed in the consolidated action, (the "Amended Complaint"). The Amended        
Complaint contains substantially the same allegations as the three original     
complaints. In addition, the Amended Complaint lengthened the alleged class     
period and added as defendants certain substantial shareholders (New CIBV,      
Pioneer and Le Studio), directors and former directors of Carolco (Messrs. Frans
Afman, Rene Bonnell, Satoshi Matsumoto, and Ryuichi Noda) and a lender to       
Carolco. In addition to the claims asserted in the individual actions, a claim  
for respondeat superior liability was added. On June 17, 1992, the U.S. District
Court, Central District of California, entered an order conditionally certifying
the class, subject to possible decertification after discovery is completed. On 
or about January 27, 1993, a second amended complaint was filed in the          
consolidated action expanding the allegations against certain directors, a      
lender to Carolco and Pioneer. On April 19, 1993, the Court granted             
Pioneer's Motion to Dismiss the second amended complaint as against Pioneer.    

      In February 1992, a purported class action lawsuit was filed in the U.S.
District Court, District of Delaware, by an alleged holder of Carolco's public  
debt, against Carolco, LIVE and certain executive officers and directors of     
Carolco and LIVE. The Delaware complaint alleges, among other things, that the  
defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder by concealing the true value of certain of LIVE's assets, and        
overstating goodwill, stockholders' equity, operating profits and net income in 
LIVE's Form 10-K for the year ended December 31, 1990 and in its Forms 10-Q for 
the quarters ended March 31, 1991 and June 30, 1991. In April 1992, this lawsuit
was transferred to the U.S. District Court, Central District of California. The 
proceedings are being coordinated with the consolidated action described in the 
preceding paragraph. On June 17, 1992, the U.S. District Court, Central District
of California, entered an order conditionally certifying the class, subject to  
possible decertification after discovery is completed. The purported class      
action complaints do not contain a damage  claim of any specific dollar amount. 
Discovery has commenced, including the taking of depositions.                   

Cliffhanger Litigation:                                                         

       On October 27, 1993, Gene P. Hines and James R. Zatolokin filed an action
in Los Angeles Superior Court against Michael Anthony France, Jr. ("France"),   
one of the writers for the motion picture Cliffhanger.  The plaintiffs alleged  
various causes of action against France based on the theory that the            
plaintiffs have legal rights in some of the literary material contributed by    
France to the Cliffhanger screenplay.                                           

    On September 9, 1994, the plaintiffs filed a first amended complaint whereby
they added claims against, among other defendants, Carolco, CII (erroneously    
sued as its predecessor, CINV), and Cliffhanger B.V. (collectively, the "Carolco
Entities"). The claims against the Carolco Entities are based upon the theory   
that the Carolco Entities breached certain alleged obligations to the plaintiffs
under an agreement whereby the Carolco Entities settled claims by the plaintiffs
arising out of the plaintiffs' contention that the Cliffhanger screenplay       
contained material in which the plaintiffs had legal rights.  The plaintiffs    
alleged that under that settlement agreement, the Carolco Entities were         
obligated and failed to pay the plaintiffs certain contingent                   
compensation from the proceeds of Cliffhanger, to cooperate with the plaintiffs 
in attempting to obtain for plaintiff Hines a screen credit on the picture,     
to provide the plaintiffs with certain sequel rights, to cause various assignees
of the Carolco Entities to assume the obligations of the Carolco Entities, to   
act in the plaintiffs' best interests, not to enter into agreements with        
individuals having interest adverse to the plaintiffs,                          
and to disclose to the plaintiffs the fact that the Carolco Entities entered    
into agreements with individuals having interests adverse to the plaintiffs.    

     The plaintiffs do not allege any specific monetary amount by which they
allegedly were damaged, except that they alleged in their cause of action       
against France for breach of oral contract that France should have known that   
his actions would damage the plaintiffs' reputation, career and future earning  
capacity in a sum not less that $1,000,000.  The plaintiffs have not alleged any
specific amount of damage against the Carolco Entities.  However, the Carolco   
Entities have agreed to indemnify France in connection with any judgement that  
might be entered against him in the action.                                     

       On December 9, 1994, the trial court sustained without leave to amend the
demurrers of France and the Carolco Entities to all of the plaintiffs' causes of
action. On January 19, 1995, the court denied plaintiffs' motion for            
reconsideration of that order.  The plaintiffs have not appealed from these     
rulings but their time to do so has not yet expired.                            

       On December 29, 1994, the plaintiffs filed an action in the United States
District Court for the Central District of California that is virtually         
identical to their state court action.  The named defendants are identical, as  
are the claims alleged, with the exception that the federal action includes a   
federal copyright infringement claim and an accompanying accounting claim, and  
does not include a purported common law copyright infringement claim.  The      
complaint in that case was served on Carolco and France on April 22, 1995.      

      Management and counsel to the Company are unable to predict the ultimate
outcome of these actions at this time. However, the Company and the other       
defendants believe that these lawsuits are without merit and are defending them 
vigorously. Accordingly, no provision for any liability which may result has    
been made in the Company's consolidated financial statements. In the opinion of 
management, these actions, when finally concluded and determined, will not have 
a material adverse effect upon the Company's financial position or results of   
operations.                                                                     

Tax Matters:                                                                    

 The Company's tax position for prior taxable years may be adversely
affected by an audit presently being conducted by the Internal Revenue Service  
("IRS") for the Company's 1988 through 1993 federal income tax returns.  In     
addition, the California Franchise Tax Board ("FTB") is conducting an           
examination of the Company's 1988 and 1989 State income tax returns.  The       
Company has received notices from the IRS regarding proposed adjustments        
("Proposed Adjustments") to the Company's income tax returns for the 1988, 1989 
and 1990 taxable years.  As of March 31, 1995, the Company has responded or is  
in the process of preparing responses to all of the Proposed Adjustments by     
supplying the IRS with additional facts and technical analyses which will be    
considered by the IRS before it makes a decision whether to propose to assess   
deficiencies attributable to the Proposed Adjustments.  It is                   
anticipated that the IRS will issue additional proposed adjustments.            

       Several of the Proposed Adjustments would disallow deductions or increase
income for certain of the Company's taxable years.  Many of these Proposed      
Adjustments affect the timing of income and deductions, i.e., the Company would 
be required to include income in an earlier taxable year than originally        
reported or take deductions in a later taxable year than originally reported.   
Other Proposed Adjustments would reallocate various items of income and         
deductions between Carolco and CINV (which the Company believes is not subject  
to federal income taxation), and would include in Carolco's income certain      
deemed dividends from CINV (the "Carolco/CINV Adjustments").                    

   One of the Proposed Adjustments would subject CINV's income to United
States federal income taxation on the basis that Carolco and CINV were engaged  
in a partnership for income tax purposes and CINV's share of the "partnership"  
income was foreign source income that was effectively connected with a trade or 
business conducted in the United States and therefore subject to United States  
federal income taxation.  If the IRS were successful in asserting this theory,  
most of the Proposed Adjustments relating to the Carolco/CINV Adjustments would 
be duplicative, and therefore could not be asserted.                            

    The Company believes that a number of the Proposed Adjustments are without
merit.  Because the examination is at an early stage, and because many of the   
issues dealt with in the Proposed Adjustments are highly complex and unresolved 
under the current state of the law, the Company cannot predict with any         
reasonable degree of accuracy the actual tax liabilities that may result from   
the IRS and FTB  examinations. The Company believes its current and non-current 
deferred income tax liability as of March 31, 1995 is adequate to cover any     
potential tax liability from such examinations.  However, the ultimate tax      
liability may be substantially higher or lower.                                 

Note G - Stockholders' Deficiency                                               

    In October 1993, Pioneer, Cinepole and MGM Holdings purchased from the
Company 40,000, 12,500 and 30,000 shares, respectively, of Series A Convertible 
Preferred Stock ("New Preferred"), in exchange for cash payments of $40,000,000,
$12,500,000 and $30,000,000, respectively.  The New Preferred bears an annual   
dividend rate of 5%. Cumulative dividends are payable when and if declared by   
the Company's Board of Directors, either (a) out of any funds legally available 
therefore, or (b) for the first five years after issuance, to the extent legally
available therefore, in additional shares of New Preferred equal to 1.25%       
multiplied by the liquidation preference of the New Preferred on the first day  
of the next succeeding quarterly dividend period.  Through March 31, 1995,      
approximately $5,063,000 in dividends had been accrued, thereby increasing the  
aggregate liquidation preference of the New Preferred to $87,563,000.           
In addition, dividends of $1,095,000 payable on April 1, 1995 were accrued.     
However, since the Company did not have sufficient "surplus" as defined in the  
provisions of the General Corporation Law of the State of Delaware,             
the Company was unable to pay such dividends.  Each share of New Preferred, when
issued, is convertible at the option of the holder into Common Stock of the     
Company at $.60 per share.  As of March 31, 1995, 145,938,000 shares of Common  
Stock of the Company would be issuable upon conversion of the New Preferred.    
Holders of the New Preferred will be entitled to the same voting rights as such 
holders would be entitled to if they had converted their New Preferred to Common
Stock.  The holders of the New Preferred will also be entitled to vote as a     
class on certain matters.                                                       

Note H - Other Income                                                           

Other income in 1994 includes  revenues from the operations of the
Company's film studio in North Carolina ("Carolco Studios"), interest income,   
rental income and a gain of $1,275,000 recognized upon the sale of the Company's
aircraft. Other income in the first quarter of 1994 also includes producers fees
of approximately $500,000 related to the motion picture Stargate, paid to the   
Company pursuant to an agreement entered into with Hexagon Films (U.S.), an     
indirect, wholly-owned subsidiary of Le Studio.  Other income in the first      
quarter of 1995 includes interest income, rental income and producers fees      
related to the motion picture Last of the Dogmen, paid to the Company pursuant  
to an agreement entered into with Last of the Dogmen, Inc.                      

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

     Carolco is an entertainment company which finances, produces and leases
motion pictures for exhibition in domestic and foreign theatrical markets and   
for later worldwide release in other media including home video and pay and free
television. In 1993, the Company released one film, Cliffhanger, which was      
produced through a joint venture with Pioneer, Cinepole and RCS.  In 1994,      
Carolco had no theatrical releases.  Feature film revenues are derived primarily
from the distribution of feature films in both domestic and foreign markets. The
Company recognizes minimum guaranteed amounts from theatrical exhibition and    
revenues from home video and pay television license agreements when the license 
period begins for each motion picture and such motion pictures  are available   
pursuant to the terms of the license agreement. Revenues from theatrical        
exhibition in excess of minimum guaranteed amounts ("overages") are recognized  
as they are reported by the distributor.                                        

Results of Operation                                                            

Three Months Ended March 31, 1995 as Compared to Three Months Ended March 31,   
1994                                                                        

     Feature film revenues decreased from $20,279,000 for the three months ended
March 31, 1994 to $5,778,000 for the three months ended March 31, 1995. This    
represents a decrease of $14,501,000, or approximately 71.5%. The Company had no
theatrical releases during the first quarter of 1995 or the first quarter of    
1994.  Therefore, revenues for both periods principally represent license fees  
from exploitation in secondary markets (i.e. pay television, video, free        
television, etc.) of films released theatrically in prior years. Feature film   
revenues for the three months ended March 31, 1995 include approximately        
$1,091,000 in foreign theatrical and video overages related to the 1992         
theatrical release of Basic Instinct; approximately $651,000 in foreign         
theatrical and video overages related to the 1991 theatrical release            
of Terminator 2:Judgment Day; and approximately $2,050,000 in foreign theatrical
and video overages related to the 1992 theatrical release of Universal Soldier. 
Feature film revenues for the three months ended March 31, 1994 include         
approximately $8,250,000 from the domestic network television availability of   
Terminator 2: Judgment Day; $2,984,000 from the domestic syndication television 
availability of Rambo III, released theatrically in 1988; and $1,417,000 in     
foreign theatrical overages related to Basic Instinct.                          

   Amortization of film costs, residuals and participations decreased by
$10,604,000, or 66.1%, from $16,046,000 for the three months ended March 31,    
1994 to $5,442,000 for the comparable period in 1995. Amortization of film      
costs, as a percentage of the Company's feature film revenues, increased        
to 94.2% for the three months ended March 31, 1995 from 79.1% for the three     
months ended March 31, 1994.  This increase is due to the fact that in 1995 the 
Company recorded additional amortization of film costs of $1,295,000 as a result
of the abandonment of certain development projects.                             

      Selling general and administrative ("SG&A") expenses (which caption also
includes production overhead costs), before capitalization of production        
overhead to film costs, decreased by $73,000 during the first quarter of 1995 as
compared to the first quarter of 1994.  In 1995, the Company capitalized        
approximately $912,000 of production overhead to film costs and in 1994, the    
Company capitalized $833,000 of production overhead to film costs.  The amounts 
for 1995 include a reduction in SG&A expenses of $887,000 as a result of        
reductions in the Company's work force and the downsizing of the                
operations of the Company.  This reduction is offset in 1995 by $1,265,000 in   
costs relating to the Company's possible plan of reorganization (see Note B).   
Amounts in 1994 included $305,000 of costs related to the Company's October 1993
restructuring.                                                                  

      Interest expense decreased by $775,000, or 19.5%, from $3,981,000 during
the first quarter of 1994 to $3,206,000 during the first quarter of 1995.  This 
decrease is the result of lower debt levels in 1995, combined with the          
capitalization of $297,000 of interest expense to film costs in the first       
quarter of 1995, as compared to $156,000 in the first quarter of 1994.          

       On February 3, 1994, the Company sold its aircraft for $1,925,000 and the
remaining loan balance of $900,000, including accrued interest, was paid in     
full.  The Company recognized a gain of $1,275,000 in 1994 as a result of the   
sale of the aircraft.                                                           

     The Company incurred a consolidated net loss for the three months ended
March 31, 1994 of $2,031,000. The Company incurred a consolidated net loss for  
the three months ended March 31, 1995 of $5,569,000.  At March 31, 1995, the    
Company had a deficiency in assets of $70,090,000.                              

Liquidity and Capital Resources                                                 

      Carolco currently has one motion picture in production: Cutthroat Island
starring Geena Davis and Matthew Modine and directed by Renny Harlin.  Cutthroat
Island completed principal photography in March 1995 and is scheduled to be     
completed and available for release in the fourth quarter of 1995. However,     
there can be no assurance that the film will be completed or released on        
schedule or that it will be completed and released.  The direct negative cost of
Cutthroat Island is expected to be in excess of $80,000,000.  Carolco has       
completed certain financing arrangements in connection with Cutthroat Island.   
On February 6, 1995, Cutthroat Productions L.P. satisfied the conditions        
necessary for it to draw funds under the Production Loan.                       
The Production Loan provides for financing of up to $60,238,000 in direct       
negative costs, including completion bond fees, certain contingencies and other 
financing related expenses.  In February and March 1995, Carolco received       
approximately $25,031,000 in proceeds from the Production Loan, representing    
reimbursement of a portion of the approximately  $80,007,000, including         
capitalized interest and overhead, Carolco had spent in 1994 and 1995 to develop
and begin production of Cutthroat Island.  In addition, through March 1995,     
$13,126,000 in proceeds from the Production Loan were provided directly to      
Cutthroat Productions L.P.  The Production Loan  is collateralized by certain   
pre-sales of foreign and domestic licensing rights of                           
Cutthroat Island.  Initial proceeds from the distribution of Cutthroat Island   
will be used exclusively to repay the Production Loan.  In addition, in 1994 the
Company received $7,500,000 in co-production investments from TCI, LSC+         
Investments Inc., a wholly owned subsidiary of Le Studio Canal+ (U.S.), and RCS.
These funds, together with the proceeds of the Production Loan, reduced         
Carolco's contribution to the negative cost of the film to approximately        
$47,500,000.                                                                    

    CII, with Carolco as principal guarantor, has $14,000,000 in principal
amount outstanding under the Existing Carolco Credit Facility as of the date    
hereof.  The maturity date of the loan under the Existing Carolco Credit        
Facility, which is secured by substantially all of Carolco's assets, is         
September 30, 1995, provided certain events of default do not occur.            
CLBN has agreed to remit to CII all collections from accounts receivable pledged
to CLBN, so long as certain defaults do not occur.  No amounts are available    
for borrowing under the Existing Carolco Credit Facility.  Repayment of the     
Existing Carolco Credit Facility, without a replacement facility, would have a  
severe adverse effect on the operations and financial viability of Carolco.     

    In August 1992, Carolco entered into an agreement with the Guilds with
respect to amounts owed to the Guilds under certain collective bargaining       
agreements.  As of  March 31, 1995, the balance due the Guilds pursuant to the  
Guild Note was $7,485,000, including accrued interest at 3-month LIBOR plus 1%  
per annum.  The balance of the Guild Note is due in two remaining installments  
of $3,000,000 each, plus interest, on October 1, 1995 and October 1, 1996, with 
an additional $600,000 due on October 1, 1996.  The Guild Note is secured by a  
lien on substantially all of the Company's assets, which lien is subordinated to
the Existing Carolco Credit Facility.                                         

      In addition to the Guild Note, the Company has on-going obligations to the
Guilds, the AFM and IATSE for amounts owed under similar collective bargaining  
agreements.  In February 1995, the Company paid approximately $3,000,000 to the 
Guilds, AFM and IATSE representing residual obligations arising from cash       
received by the Company in the fourth quarter of 1994. The Company estimates    
that its residual obligations for the first quarter of 1995 will be $1,500,000. 
The amount of residual obligations to be paid for future period will be         
determined by the amount of cash receipts received by the Company in each       
quarter of 1995.  As long as the Guild Note is outstanding, the on-going        
obligations of Carolco under collective bargaining agreements with the Guilds   
are secured by the same lien as the Guild Note.                                 

   In connection with the production of its motion pictures, the Company entered
into certain contingent compensation agreements with Participants whereby the   
Company is obligated to pay to the Participants a share of the Company's        
receipts from the distribution of its released motion pictures.  At March 31,   
1995, the Company had recorded a liability for present and future obligations of
approximately $24,599,000 in connection with various Participants' contingent   
compensation arrangements.  In April 1995, the Company reached settlements with 
certain Participants, whereby each such Participant agreed to accept a portion  
of the amount due at March 31, 1995 in exchange for the release of all claims   
against the Company for current and future participation obligations, subject to
certain adjustments under certain circumstances.  As a result of these          
settlement agreements, in April and May 1995 the Company paid approximately     
$4,800,000 to certain Participants and reduced its liability for current and    
future contingent compensation obligations. This will result in an extraordinary
gain of $3,663,000 in the second quarter of 1995. Additional contingent         
compensation obligations will be recorded in 1995 based on the film             
revenues recognized by the Company in 1995.                                     

      Semi-annual interest of approximately $3,261,000 on the New Senior Notes
and the New Senior Subordinated Notes is due on April 15 and October 15 of each 
year.  Semi-annual interest of approximately $224,000 on the 13% Notes is due on
June 1 and December 1 of each year. On May 2, 1995, the Company paid            
approximately $3,279,000 representing the semi-annual interest due on the New   
Senior Notes and New Senior Subordinated Notes. Such interest payments were made
prior to the end of the 30-day grace period provided in the indentures governing
such issues of indebtedness.                                                    

Pursuant to certain distribution agreements with Tri-Star Pictures Inc.,
("Tri-Star"), certain payments were due to the Company or its affiliates from   
Tri-Star at December 31, 1994.  In February and March of 1995, Tri-Star paid    
approximately $14,147,000 pursuant to these distribution agreements.  Of        
this amount, $9,176,000 related to the distribution of Cliffhanger, which was   
produced through a less -than- 50%-owned joint venture with Pioneer, Cinepole   
and RCS, and is, therefore, not included in the financial statements of the     
Company.                                                                        

     Pursuant to the Domestic Video Output Agreement, the Company granted to
LHV, domestic home video rights to the Company's feature films (except          
Cliffhanger and Iron Eagle III) on which principal photography commenced prior  
to July 31, 1995 or for which LHV has paid an advance to the Company prior to   
such date.  Canadian home video rights were not granted to LHV in the case of   
several films produced by the Company.  In consideration for the rights granted 
by the Company, LHV agreed to pay the Company certain advances for each picture.

  CINV entered into the German Output Agreement pursuant to which LIVE's
affiliates acquire home video rights in the German-speaking European markets for
most of the Company's films for which principal photography has commenced or for
which LHV paid an advance prior to July 31, 1995. In consideration for the      
rights granted by the Company, the LIVE affiliate agreed to pay CINV certain    
advances for each picture.                                                      

   In January 1995, in order to settle disputes between them with respect to the
United States and Canadian video distribution rights to the film Cutthroat      
Island, LIVE and the Company agreed that Cutthroat Island would not be subject  
to the Domestic Video Output Agreement or the German Output Agreement.  Pursuant
to a separate agreement, LIVE obtained the video distribution rights to         
Cutthroat Island in the United States and Canada for a video advance to be paid 
by LIVE.  In addition, LIVE agreed to certain amendments to the Domestic Video  
Output Agreement, whereby LIVE would no longer have certain rights of offset    
between prior films distributed pursuant to such agreement.  In exchange for the
aforementioned arrangements and resolution, the Company paid $3,500,000 to LIVE 
against accrued liabilities of approximately $5,600,000 and recognized an       
extraordinary gain of approximately $2,100,000.                                 
Going Concern Issues                                                            

      As a result of its reduced production schedule, Carolco did not generate
revenues from new production  in 1994 and anticipates that it will continue to  
experience losses through 1995.  During the next 12 months, the Company will not
have sufficient cash resources and existing financing sources to meet its       
operating expenses and scheduled debt service obligations, and to continue to   
fund its principal business activity -- the development, production and         
exploitation of motion pictures. Therefore, the Company is currently considering
a plan which will allow it to continue to operate as a going concern.           

    The plan being considered by the Company includes a combination of the
following: the sale of certain assets; identifying and securing new equity      
investments and/or sources of financing; negotiating more advantageous          
distribution arrangements which would finance at least 100% of the development, 
production and distribution of new films; and restructuring the Company's       
outstanding obligations either outside of a Chapter 11 Bankruptcy filing, or    
within a Chapter 11 Bankruptcy filing (including a possible prenegotiated plan).

    If the Company is unable to successfully accomplish the aforementioned plan,
or implement other similar strategies, the Company will be unable to continue as
a going concern. The consolidated financial statements as of and for the three  
months ended March 31, 1995 do not include any adjustments to reflect the       
possible future effects on the recoverability of assets or amounts of           
liabilities that may result from the inability of the Company to continue as a  
going concern.                                                                  

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CAROLCO PICTURES INC. AND SUBSIDIARIES                            

PART II - OTHER INFORMATION                           

Item 1.     Legal Proceedings                                                   

Reference is made to PART I - FINANCIAL INFORMATION, Item 1.      
    Financial Statements,  Note F - Commitments and Contingencies which is
incorporated herein by reference.                                 

Item 3.     Defaults Upon Senior Securities                                     

     Because the Company did not have sufficient "surplus" as defined in and
computed in accordance with the provisions of  the General Corporation Law of   
the State of Delaware, the Company was unable to pay  dividends in the amount of
$818,000, $1,042,000, $1,061,000, $1,061,000 and $1,081,000, due January 1,     
1994, April 1, 1994, July 1, 1994, October 1, 1994 and January 1, 1995,         
respectively, on its Series A Convertible Preferred Stock.  As a result, as of  
March 31, 1995, approximately $5,063,000 in unpaid dividends had been added to  
the liquidation preference of the Series A Convertible Preferred Stock.         
In addition, at March 31, 1995, $1,095,000 in accrued dividends payable had been
recorded. On April 1, 1995, these upaid dividends were also added to the        
liquidation preference of the Series A Convertible Preferred Stock.             

Item 6. Exhibits and Reports on Form 8-K                                        

(a)  Exhibits.                                                  

     The Exhibits listed below are filed as part of this Report.

                                                      Sequentially
       Exhibit No.    Description of Exhibit           Numbered Page

  10.1           Release and Quitclaim Agreement        26
     dated as of March 28, 1995 by
        and among Carolco Pictures Inc.,
   Carolco International Inc.,
       Spiderman Productions Ltd., RCS
        Video Services Antilles N.V. and
             RCS Video International Services B.V.
Filed herewith.         

  11.1           Computation of Loss per                37
Common Share            

  27             Financial Data Schedule                38

       (b)  No Reports on Form 8-K were filed during the quarter ended
March 31, 1995.                               

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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.                                          

                  CAROLCO PICTURES
INC.                                                                            
            Registrant

Date: May 15, 1994                          /s/ Karen A. Taylor                 

                        Karen A. Taylor,
                                 Senior Vice President and
                                      Acting Chief Financial Officer

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	3/1/97	6
	10/1/96	6	7
	12/31/95	6
	10/1/95	6	7
	9/30/95	6	7
	7/31/95	6	7
	6/30/95	6		10-Q, NT 10-Q
	5/25/95	6
Filed on:	5/15/95	1
	5/2/95	6	7
	4/22/95	6
	4/1/95	6	8
For Period End:	3/31/95	1	8	10-Q/A, NT 10-K
	3/29/95	5	6
	3/28/95	8
	3/6/95	6
	3/1/95	5	6
	2/6/95	6	7
	1/19/95	6
	1/1/95	6	8
	12/31/94	2	7	10-K405, NT 10-K
	12/29/94	6
	12/9/94	6
	10/1/94	8
	9/9/94	6
	7/21/94	6
	7/1/94	8
	5/18/94	6
	5/15/94	9
	4/8/94	6
	4/1/94	8
	3/31/94	2	7	10-Q, NT 10-K
	2/3/94	6	7
	1/1/94	8
	12/31/93	6		10-K, 10-K/A, NT 10-K
	12/15/93	6
	12/14/93	6
	11/19/93	6
	10/27/93	6
	10/22/93	6
	10/18/93	6
	4/20/93	6
	4/19/93	6
	1/27/93	6
	1/1/93	6
	6/19/92	6
	6/17/92	6
	3/30/92	6
	1/9/92	6
				List all Filings

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Carolco Pictures Inc – ‘10-Q’ for 3/31/95

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