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 June 30, 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 Registrant 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
August 10, 1998.
Common Stock 4,108,838
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
Consolidated Condensed Balance Sheets -
June 30, 1998 (unaudited) and December 31, 1997 1
Consolidated Condensed Statement of Operations -
Three Months and Six Months Ended
June 30, 1998 and 1997 2
Consolidated Condensed Statement of Cash Flows -
Six Months Ended June 30, 1998 and 1997 3
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
1998 1997
Assets (unaudited)
Cash $ 457,677 $ 1,158,347
Marketable Securities 534,628 562,711
Accounts receivable 156,779 126,492
Income tax receivable 208,000 235,000
Films costs, net 1,521,643 1,481,571
Property and equipment, net 92,826 102,356
Other assets 38,310 18,709
Goodwill 2,314,289 2,454,549
----------- -----------
Total assets $5,324,152 $6,139,735
========== ==========
Liabilities and Stockholders' Equity
Accounts payable and accrued expense $ 928,046 916,419
Loan payable 127,500 127,500
Capitalized lease obligations 8,459
Due to related party 94,480 94,480
----------- ----------
Total liabilities 1,150,026 1,146,858
---------- ----------
Stockholders' equity
Common stock, par value $.01 per share 41,088 40,728
Additional paid-in capital 6,396,446 6,232,256
Accumulated deficit (2,113,408) (1,327,818)
Accumulated comprehensive income 197,711
Note receivable for common stock (150,000) (150,000)
------------- ----------
Total stockholders' equity 4,174,126 4,992,877
----------- ----------
Total liabilities and stockholders' equity $5,324,152 $6,139,735
========== ==========
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------- ----------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
Operating revenues $ 170,057 $ 352,151 $ 409,758 $ 2,126,312
----------- ---------- ---------- -----------
Cost and expenses:
Film production costs 140,553 98,201 173,252 1,150,828
Selling, general & administrative
expenses 555,506 634,311 1,220,268 1,339,815
----------- --------- ---------- -----------
Total costs and expenses 696,059 732,512 1,393,520 2,490,643
----------- ---------- ---------- -----------
Unrealized gains on trading securities 205,628 205,628
----------- ---------------- -----------
Loss before income tax (320,374) (380,361) (778,134) (364,331)
Income tax benefit (expense) (2,155) 84,531 (7,456) 72,367
------------ ----------- ------------ -----------
Net loss $ (322,529) $ (295,830) $ (785,590) $ (291,964)
========== ========== ========== ==========
Basic and diluted loss per share $ (.08) $ (.08) $ (.19) $ (.08)
============== ============= ============= ============
Weighted average shares
outstanding 4,090,838 3,735,338 4,083,124 3,719,267
=========== ========== ========== ==========
See accompanying notes to the consolidated condensed financial statements.
</TABLE>
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months
ended June 30,
1998 1997
Cash flows from operating activities:
Net loss $ (785,590) $ (291,964)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 11,893 13,175
Amortization-film production costs 163,039 1,110,382
Amortization-goodwill 140,260 140,260
Unrealized gains on trading securities (205,628)
Stock option compensation 18,750 18,750
Changes in assets and liabilities which
affect net income:
Accounts receivable (30,287) (294,556)
Film costs (203,110) (658,225)
Other assets (19,601) 17,482
Accounts payable and accrued expenses 11,627 297,982
Income taxes payable 27,000 (80,000)
Advances from customers (535,730)
---------- ----------
Net cash used in operating activities (871,647) (262,444)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of marketable securities 36,000
Purchase of equipment (2,364) (16,455)
---------- -----------
Net cash provided by (used in)
investing activities 33,636 (16,455)
---------- -----------
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six months
ended June 30,
1998 1997
Cash flows from financing activities:
Sale of common stock $ 145,800 $
Principal payments of capital lease obligation (8,459) (17,503)
----------- --------
Net cash provided by (used in) financing
activities 137,341 (17,503)
---------- ---------
Net decrease in cash (700,670) (296,402)
Cash at the beginning of period 1,158,347 687,080
---------- ----------
Cash at the end of period $ 457,677 $ 390,678
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 6,638 $ 35,344
========== ==========
Income taxes $ 7,456 $ 191,509
========== =========
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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
syndications 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 June 30, 1998, the
results of operations and its cash flows for the six months ended June 30, 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)
2. Film costs
Film costs consist of the following:
June 30, December 31,
1998 1997
In process or development $ 184,442 $ 47,955
Released, net of accumulated amortization of
$11,916,113 and $11,753,074 1,337,201 1,433,616
--------- ---------
$1,521,643 $ 1,481,571
========= =========
3. Loan payable
On May 27, 1997, the Company entered into an unsecured demand note
which provided the Company with borrowings (the "Note") in the principal amount
of $250,000, at prime plus 1%, with Fleet Bank, National Association ("Fleet"),
which was payable on demand, but in any event not later then May 27, 1998. As of
June 1, 1998, Fleet extended the Note for an additional one-year period and
reduced the available borrowing amount of the Note to $150,000. As of June 30,
1998, $127,500 had been borrowed under the Note at an interest rate of 9.5%. The
Note is payable on demand, but in any event not later then May 27, 1999.
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:
Six months ended
June 30, June 30,
1998 1997
--------- -------
Net loss $ (785,590) $ (291,964)
Other comprehensive income, net of tax:
Unrealized gains on
marketable securities 11,269
----------- ----------
Comprehensive income $ (785,590) $ (280,695)
=========== ==========
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
4. Comprehensive income (Continued)
The components of accumulated comprehensive income, net of related tax
are as follows:
June 30, December 31,
1998 1997
Unrealized gains on
marketable securities $ $ 197,711
------- ----------
Accumulated other comprehensive income $ $ 197,711
======= ==========
In June 1998, the Company made the decision to sell in the short-term
its shares of GP Strategies common stock, which are classified on the
Consolidated Balance Sheet as a Marketable security, in order to assist in
funding its working capital needs. The effect of reclassifying these shares as
trading securities from available for sale was a $205,628 decrease in
Accumulated other comprehensive income on the Consolidated Balance Sheet and the
recognition of an Unrealized gain on trading securities of $205,628 in the
Consolidated Statement of Operations for periods ended June 30, 1998.
5. Sale of stock
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 $146,000. 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 OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
Liquidity and capital resources
At June 30, 1998, the Company had approximately $458,000 of cash and
approximately $535,000 of short term investments. Of the $458,000 of cash at
June 30, 1998, approximately $300,000 has been earmarked for future residual
payments which have been accrued in the financial statements. The residual
payments would be payable on the earlier of the second air date of certain
television productions or September 2000.
On May 27, 1997, the Company entered into an unsecured demand note (the "Note"),
which provided the Company with borrowings in the principal amount of $250,000,
at prime plus 1%, with Fleet Bank, National Association. The Note was payable on
demand, but in any event not later then May 27, 1998. As of June 1, 1998, Fleet
extended the Note for an additional one-year period and reduced the available
borrowing amount of the Note to $150,000. As of June 30, 1998, $127,500 had been
borrowed under the Note. The Note is payable on demand, but in any event not
later then May 27, 1999.
Management believes that the existing marketable securities are adequate to
fund the Company's operations, however, management may seek to raise additional
funds, through the issuance of common stock or issuance of debt, to expand the
Company's business at a greater rate. However, 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.
Results of operations
For the quarter and six months ended June 30,1998 the Company had a loss before
income taxes of $320,000 and $778,000 compared to a loss of $380,000 and
$364,000 for the quarter and six months ended June 30, 1997. The increased loss
for the periods was the result of reduced revenues earned by both Wombat and
Avenue Pictures partially offset by a $205,000 unrealized gain on the transfer
of GP Strategies common stock from available for sale to trading securities in
June 1998.
<PAGE>
Revenues
Revenues for the three months ended June 30, 1998 were $170,000 compared to
$352,000 for the three months ended June 30, 1997. Revenues from the operations
of Avenue Pictures for the three months ended June 30, 1998, were approximately
$92,000, which were primarily derived from development fees, as compared to
approximately $174,000 in 1997 which were primarily derived from recognition of
the production and overhead fees on the feature film "Finding Graceland".
Revenues from Wombat's operations for the three months ended June 30, 1998 were
approximately $78,000 as compared to $179,000 for the three months ended June
30, 1997. Of the revenues earned by Wombat during the three months ended June
30, 1997, approximately $120,000 was derived from the completion and
availability of a one-hour motion picture profile for A&E and the remaining
revenue in 1997 and all the revenue in 1998 was derived from licensing of rights
for Wombat programming in secondary markets through Janson Associates.
Revenues for the six months ended June 30, 1998 were $410,000 compared to
$2,126,000 for the six months ended June 30, 1997. Revenues from the operations
of Avenue Pictures for the six months ended June 30, 1998 were approximately
$112,000 which were primarily derived from development fees as compared to
approximately $1,447,000 for the six months ended June 30, 1997 which were
primarily derived from the delivery to Hallmark of the made-for-television movie
"Tell Me No Secrets" and the recognition of the producing and overhead fees on
the feature film "Finding Graceland". Revenues from Wombat's operations for the
six months ended June 30, 1998 were approximately $297,000, as compared to
approximately $680,000 for the six months ended June 30, 1997. Wombat's revenue
of $297,000 in 1998 was derived from the licensing of rights to Wombat
programming in secondary markets through Janson Associates. Of the revenues
earned by Wombat during the six months ended June 30, 1997, approximately
$250,000 was derived from the completion and availability of two one-hour motion
picture profiles for A&E. The remaining revenue of $430,000 was derived from
licensing of rights for Wombat programming in secondary markets through Janson
Associates.
Film Production Costs
Cost of revenues for the three months ended June 30, 1998 was $141,000 compared
to $98,000 for the three months ended June 30, 1997. The increase can be
primarily attributed to increased amortization costs related to Wombat's film
library, despite reduced revenues.
Cost of revenues for the six months ended June 30, 1998 was $173,000 compared to
$1,151,000 for the six months ended June 30, 1997. The decrease is the result of
reduced revenue recognized for the period.
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses for the three months ended
June 30, 1998 were $636,000 compared to $634,000 for the three months ended June
30, 1997. The reduced S,G&A cost for the period was the results of efforts to
reduce expenses and personnel costs due to the reduced revenue level.
<PAGE>
Selling,general and administrative expenses for the six months ended June 30,
1998 were $1,220,000 compared to $1,340,000 for the six months ended June 30,
1997. The reduced S,G&A cost for the period was the results of efforts to reduce
expenses and personnel costs due to the reduced revenue level.
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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company will adopt SFAS No. 133 by
January 1, 2000. The Company is currently evaluating the impact the adoption of
SFAS No. 133 will have on the consolidated financial statements.
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.
June 30, 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: August 14, 1998 BY: Gene Feldman
Chairman of the Board
DATE: August 14, 1998 BY: Cary Brokaw
President and Chief Executive
Officer, Director
DATE: August 14, 1998 BY: Ira J. Sobotko
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001023298
<NAME> AVENUE ENTERTAINMENT GROUP, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 457,677
<SECURITIES> 534,628
<RECEIVABLES> 156,779
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,324,152
<PP&E> 267,479
<DEPRECIATION> 174,653
<TOTAL-ASSETS> 5,324,152
<CURRENT-LIABILITIES> 1,150,026
<BONDS> 0
0
0
<COMMON> 41,088
<OTHER-SE> 4,133,038
<TOTAL-LIABILITY-AND-EQUITY> 5,324,152
<SALES> 409,758
<TOTAL-REVENUES> 409,758
<CGS> 173,252
<TOTAL-COSTS> 1,393,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,638
<INCOME-PRETAX> (778,134)
<INCOME-TAX> 7,456
<INCOME-CONTINUING> (785,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (785,590)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
