UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the quarter ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
Commission File Number: 001-12885
AVENUE ENTERTAINMENT GROUP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 95-4622429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
11111 Santa Monica Blvd., Suite 2110
Los Angeles, California 90025
(Address of principal executive offices) (Zip Code)
(310) 996-6815
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and 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
Number of shares outstanding of each of issuer's classes of common stock as of
May 12, 1998:
Common Stock 4,108,838
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
Consolidated Condensed Balance Sheets -
March 31, 1998 (unaudited) and December 31, 1997 1
Unaudited Consolidated Condensed Statement of Operations -
Three Months Ended March 31, 1998 and 1997 2
Unaudited Consolidated Condensed Statement of Cash Flows -
Three Months Ended March 31, 1998 and 1997 3
Unaudited Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis or Plan of Operation 8
PART II. OTHER INFORMATION
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, December 31,
1998 1997
Assets (unaudited)
Cash $ 648,694 $ 1,158,347
Short-term investments 702,101 562,711
Accounts receivable 201,276 126,492
Income tax receivable 235,000 235,000
Films costs, net 1,560,378 1,481,571
Property and equipment, net 98,807 102,356
Other assets 32,105 18,709
Goodwill 2,384,419 2,454,549
----------- -----------
Total assets $5,862,780 $ 6,139,735
========== ==========
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $ 957,990 $ 916,419
Loan payable 127,500 127,500
Capitalized lease obligations 4,229 8,459
Due to related party 94,480 94,480
------------ ----------
Total liabilities 1,184,199 1,146,858
---------- ----------
Stockholders' equity
Common stock, par value $.01 per share 40,728 40,728
Additional paid-in capital 6,241,631 6,232,256
Deficit (1,790,879) (1,327,818)
Accumulated comprehensive income 337,101 197,711
Note receivable for common stock (150,000) (150,000)
------------ ----------
Total stockholders' equity 4,678,581 4,992,877
----------- -----------
Total liabilities and stockholders' equity $5,862,780 $ 6,139,735
========== ============
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(unaudited)
Three months Three months
ended March 31, ended March 31,
1998 1997
----------- --------
Operating revenues $ 239,701 $ 1,774,161
----------- ------------
Costs and expenses:
Film production costs 32,699 1,052,627
Selling, general and administrative expenses 664,762 705,504
----------- -----------
Total costs and expenses 697,461 1,758,131
----------- ----------
Income (loss) before income tax (457,760) 16,030
Income tax expense 5,301 12,164
------------ -----------
Net income (loss) $ (463,061) $ 3,866
============ ============
Basic and diluted loss per common stock $ (.11) $ --
============ ============
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Continued)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $(463,061) $ 3,866
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 5,913 12,113
Amortization - film production costs 25,200 1,036,265
Amortization - goodwill 70,130 70,130
Stock option compensation 9,375 9,375
Changes in assets and liabilities which
affect net income:
Accounts receivable (74,784) (449,573)
Film costs (104,007) (472,581)
Other assets (13,396) 27,993
Accounts payable and accrued expenses 41,571 276,194
Income taxes payable (30,315)
Advances from customers (487,730)
--------- ----------
--
Net cash used in operating activities (503,059) (4,263)
--------- ----------
Cash flows from investing activities:
Purchase of equipment (2,364) (1,060)
--------- ------------
Net cash used in investing activities (2,364) (1,060)
--------- -------------
See accompanying notes to the consolidated condensed financial statements.
</TABLE>
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Continued)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1998 1997
Cash flows from financing activities:
<S> <C> <C>
Principal payments of capital lease obligations $ (4,230) $ (8,752)
----------- ---------
Net cash used in financing activities (4,230) (8,752)
----------- ---------
Net decrease in cash (509,653) (14,075)
Cash at beginning of year 1,158,347 687,080
---------- ---------
Cash at end of period $ 648,694 $673,005
========== =========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 3,305 $
------------
--
Income taxes $ 5,301 $ 32,164
============ =========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of significant accounting policies
The Company
Avenue Entertainment Group, Inc. (the "Company") is principally engaged
in the development, production and distribution of feature films, television
series, movies-for-television, mini-series and film star biographies.
Generally, theatrical films are first distributed in the theatrical and
home video markets. Subsequently, theatrical films are made available for
world-wide television network exhibition or pay television, television
syndication and cable television. Generally, television films are first licensed
for network exhibition and foreign syndication or home video, and subsequently
for domestic syndication on cable television. The revenue cycle generally
extends 7 to 10 years on film and television product.
Basis of presentation
The accompanying interim consolidated financial statements of the
Company are unaudited and have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-KSB for the year ended December 31, 1997. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at March 31, 1998, the
results of operations and its cash flows for the three months ended March 31,
1998 and 1997 have been included. The results of operations for the interim
period are not necessarily indicative of results which may be realized for the
full year.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Film costs
Film costs consist of the following:
March 31, December 31,
1998 1997
In process or development $ 438,025 $ 47,955
Released, net of accumulated amortization
of $11,778,274 and $11,753,074, respectively 1,122,353 1,433,616
----------- ----------
$1,560,378 $1,481,571
3. Loan payable
On May 27, 1997, the Company entered into an unsecured demand note
which provides the Company with borrowings (the "Note") in the principal amount
of $250,000, at prime plus 1%, with Fleet Bank, National Association, which is
payable on demand, but in any event not later than May 27, 1998. As of March 31,
1998, $127,500 had been borrowed under the Note at an interest rate of 9.50%.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Comprehensive income
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130. "Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components in
general purpose financial statements for the year ended December 31, 1998. The
following are the components of comprehensive income:
Three months ended
March 31, March 31,
1998 1997
--------- -------
Net income (loss) $ (463,061) $ 3,866
Other comprehensive income, net of tax:
Unrealized gain (loss) on
marketable securities 139,390 (130,179)
----------- -----------
Comprehensive income $ (323,671) $ (126,313)
=========== ==========
The components of accumulated comprehensive income, net of related tax
are as follows:
March 31, December 31,
1998 1997
Unrealized gain on
marketable securities $ 337,101 $ 197,711
----------- ----------
Accumulated other comprehensive income $ 337,101 $ 197,711
=========== ==========
5. Subsequent event
In May 1998, the Company sold 36,000 restricted shares of common stock
to certain investors pursuant to a private placement transaction and realized
net proceeds of approximately $143,000. The shares of common stock cannot be
sold, transferred or assigned for a one-year period. The Company claimed an
exemption from the registration requirements of the Securities Act of 1933 (the
"Act") pursuant to Rule 506 of Registration D of the Act.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction
with the Company's consolidated condensed financial statements and related notes
thereto.
General
The Company is an independent entertainment company which, through its
two operating subsidiaries, (Avenue Pictures and Wombat Productions) produces
motion pictures for theatrical exhibition, television and other ancillary
markets, both domestically and internationally.
Results of Operations
For the quarter ended March 31, 1998, the Company had a loss before
income taxes of approximately $458,000 compared to income of $16,000 for the
quarter ended March 31, 1997. The loss for the period was primarily the result
of reduced revenues earned by both Wombat and Avenue Pictures, partially
mitigated by reduced selling, general and administrative expenses.
Revenues
Revenues for the three months ended March 31, 1998 were approximately
$240,000 compared to $1,774,000 for the three months ended March 31, 1997. The
revenues for the three months ended March 31, 1998 were primarily derived from
the operations of Wombat and were approximately $219,000, as compared to
$371,000 for the three months ended March 31, 1997. The revenues earned by
Wombat in 1998 and 1997 were derived from the licensing of rights to Wombat
programming in secondary markets through Janson Associates. For the three months
ended March 31, 1998, Avenue Pictures had revenues of $20,000, compared to
revenues of $1,273,000 for the three months ended March 31, 1997. In 1998,
Avenue Pictures' revenues were derived from development fees, while for the
three months ended March 31, 1997, Avenue's revenues were primarily derived from
the delivery to Hallmark of the made-for-television movie "Tell Me No Secrets"
($1,000,000) and the recognition of the producing and overhead fees on the
feature film "Finding Graceland."
Film production costs
Film production costs for the three months ended March 31, 1998 were
$33,000 compared to $1,053,000 for the three months ended March 31, 1997 as a
result of reduced revenues recognized by Avenue Pictures for the three months
ended March 31, 1998.
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses for the three
months ended March 31, 1998 were $665,000 compared to $706,000 for the three
months ended March 31, 1997. The reduced S,G&A in 1998 is the result of reduced
commissions paid by Wombat, due to reduced licensing revenues, partially offset
by increased personnel costs incurred by Avenue Pictures in order to develop its
business.
Liquidity and Capital Resources
At March 31, 1998, the Company had approximately $649,000 of cash and
approximately $702,000 of short term investments.
On May 27, 1997, the Company entered into an unsecured demand note (the
"Note") which provides the Company with borrowings in the principal amount of
$250,000, at prime plus 1%, with Fleet Bank, National Association. The Note is
payable on demand, but in any event not later than May 27, 1998. As of March 31,
1998, $127,500 had been borrowed under the Note. The Company believes that it
will be able to extend the Note for an additional period on similar terms and
conditions, however there can be no assurance that the Company will be able to
extend this Note.
The Company believes it has adequate capital resources to meet its
short-term needs covering at least twelve months. The Company expects to expand
its production activities. Management believes that the existing cash and short
term investments are adequate to fund the Company's operations. However,
management may seek to raise additional funds, through the issuance of Common
Stock or debt, to expand the Company's business at a greater rate. There is no
guarantee that such funding will be available, or available under terms which
are acceptable to the Company. The Company's rate of growth and investment in
projects will be adjusted as necessary based on available financing and existing
capital resources.
Recent Accounting Developments
The Financial Accounting Standards Board issued Accounting Standards
(SFAS 130), "Reporting Comprehensive Income", in June 1997 which requires a
statement of comprehensive income to be included in the financial statements for
fiscal years beginning after December 15, 1997. The Company has included the
required information in Note 4 to the Consolidated Financial Statements.
In addition, in June of 1997, the FASB issued SFAS 131, "Disclosures
About Segments of an Enterprise and Related Information". SFAS 131 requires
disclosure of certain information about operating segments and about products
and services, geographic areas in which a company operates, and their major
customers. The Company is presently in the process of evaluating the effect that
this new standard will have on disclosures in the Company's financial statements
and the required information will be reflected in the year ended December 31,
1998 financial statements.
<PAGE>
Forward-Looking Statements
This report contains certain forward-looking statements reflecting
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, including, but not limited to, the ability of
the Company to reverse its history of operating losses; production risks;
dependence on contracts with certain customers; future foreign distribution
arrangements and dependence on certain key management personnel. All of these
above factors are difficult to predict, and many are beyond the control of the
Company.
<PAGE>
PART II. OTHER INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
March 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
AVENUE ENTERTAINMENT GROUP, INC.
DATE: May 15, 1998 BY: Gene Feldman
Chairman of the Board
DATE: May 15, 1998 BY: Cary Brokaw
President and Chief Executive
Officer, Director
DATE: May 15, 1998 BY: Ira J. Sobotko
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001023298
<NAME> AVENUE ENTERTAINMENT GROUP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 648,694
<SECURITIES> 702,101
<RECEIVABLES> 201,276
<ALLOWANCES> 0
<INVENTORY> 1,560,378
<CURRENT-ASSETS> 0
<PP&E> 267,479
<DEPRECIATION> 168,672
<TOTAL-ASSETS> 5,862,780
<CURRENT-LIABILITIES> 1,184,199
<BONDS> 0
0
0
<COMMON> 40,728
<OTHER-SE> 4,637,853
<TOTAL-LIABILITY-AND-EQUITY> 5,862,780
<SALES> 239,701
<TOTAL-REVENUES> 239,701
<CGS> 32,699
<TOTAL-COSTS> 697,461
<OTHER-EXPENSES> 664,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (457,760)
<INCOME-TAX> 5,301
<INCOME-CONTINUING> (463,061)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (463,061)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
