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, 1999
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.)
11755 Wilshire Blvd., Suite 2200
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, 1999:
Common 4,108,838
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page No.
Consolidated Condensed Balance Sheets -
March 31, 1999 (unaudited) and December 31, 1998 1
Unaudited Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 1999 and 1998 2
Unaudited Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 3
Unaudited Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
Consolidated Condensed Balance Sheets
March 31, December 31,
1999 1998
Assets (unaudited)
Cash $ 390,064 $ 427,240
Marketable securities 251,890 339,716
Accounts receivable 78,619 108,515
Income tax receivable 55,000 55,000
Films costs, net 1,049,623 1,091,646
Property and equipment, net 82,379 87,272
Other assets 36,254 29,766
Goodwill 2,103,899 2,174,029
----------- -----------
Total assets $4,047,728 $4,313,184
========== ==========
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $ 1,014,014 $ 1,024,862
Loan payable 127,500 127,500
Deferred compensation 183,506 145,006
Due to related party 99,477 94,481
----------- ----------
Total liabilities 1,424,497 1,391,849
----------- ----------
Stockholders' equity
Common stock, par value $.01 per share 41,088 41,088
Additional paid-in capital 6,424,571 6,415,196
Deficit (3,692,428) (3,384,949)
Note receivable for common stock (150,000) (150,000)
---------- ----------
Total stockholders' equity 2,623,231 2,921,335
---------- ----------
Total liabilities and stockholders' equity $4,047,728 $4,313,184
========== ==========
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three months Three months
ended March 31, ended March 31,
1999 1998
----------- ----------
Operating revenues $ 177,669 $ 239,701
----------- ----------
Costs and expenses:
Film production costs 66,826 32,699
Selling, general and administrative expenses 471,069 664,762
----------- ----------
Total costs and expenses 537,895 697,461
----------- ----------
Unrealized gain on trading securities 30,268
Gain on sale of investments 24,480
Loss before income tax (305,478) (457,760)
Income tax expense 2,001 5,301
----------- ---------
Net loss $ (307,479) $(463,061)
=========== ==========
Basic and diluted loss per common stock $ (.07) $ (.11)
=========== ==========
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
March 31, March 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (307,479) $ (463,061)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 6,124 5,913
Amortization - film production costs 60,396 25,200
Amortization - goodwill 70,130 70,130
Gain on sale of investments (24,480)
Unrealized gain on trading securities (30,268)
Proceeds from sale of marketable securities 142,574
Deferred compensation 38,500
Stock compensation 9,375 9,375
Changes in assets and liabilities which affect net income:
Accounts receivable 29,896 (74,784)
Film costs (18,373) (104,007)
Other assets (6,488) (13,396)
Accounts payable and accrued expenses (10,848) 41,571
Due to related party 4,996
-----------
-
Net cash used in operating activities (35,945) (503,059)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (1,231) (2,364)
----------- ------------
Net cash used in investing activities (1,231) (2,364)
------------ -------------
See accompanying notes to the consolidated condensed financial statements.
</TABLE>
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
Three months Three months
ended Ended
March 31, March 31,
1999 1998
Cash flows from financing activities:
Principal payments of capital lease obligations - (4,230)
--------- ----------
Net decrease in cash (37,176) (509,653)
Cash at beginning of year 427,240 1,158,347
------- ----------
Cash at end of period $390,064 $ 648,694
======= ==========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 2,707 $ 3,305
------- ----------
Income taxes $ 2,001 $ 5,301
======== ==========
See accompanying notes to consolidated condensed financial statements.
<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
worldwide 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, 1998. 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, 1999, the
results of operations and its cash flows for the three months ended March 31,
1999 and 1998 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,
1999 1998
In process or development $ 13,684 $ 2,076
Released, net of accumulated amortization
of $12,515,642 and $12,455,246, respectively 1,035,939 1,089,570
----------- ----------
$1,049,623 $1,091,646
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, 1999. The Company
believes that it will be able to extend the note for an additional period on
similar terms and conditions. At March 31, 1999, $127,500 was outstanding.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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.
Liquidity and Capital Resources
At March 31, 1999, the Company had approximately $390,000 of cash and
approximately $252,000 of marketable securities.Revenues have been insufficient
to cover costs of operations for the quarter ended March 31, 1999. The Company
has a working capital deficiency and has an accumulated deficit of $3,692,428
through March 31, 1999. The Company's continuation as a going concern is
dependent on its ability to ultimately attain profitable operations and
positive cash flows from operations. The Company's management believes
that it can satisfy its working capital needs based on its estimates of
revenues and expenses, together with improved operating cash flows, as well
as additional funding whether from financial markets, other sources or other
collaborative arrangements. The Company believes it will have sufficient funds
available to continue to exist through the next year, although no assurance
can be given in this regard. Insufficient funds will require the Company
to scale back its operations. The Independent Auditor's Report dated April
14, l999 on the Company's consolidated financial statements states that the
Company has suffered losses from operations, has a working capital deficiency
and has an accumulated deficit that raises substantial doubt about its ability
to continue as a going concern. The accompanying financial statements do not
include any adjustments that may result from the Company's inability to
continue as a going concern.
Results of Operations
For the quarter ended March 31, 1999, the Company had a loss before
income taxes of approximately $305,000 compared to a loss of $458,000 for the
quarter ended March 31, 1998. The loss for the period was primarily the result
of reduced revenues earned, partially mitigated by reduced selling, general and
administrative expenses as well as unrealized gains on trading securities and
gains on sales of investments, both relating to the common stock of GP
Strategies Corporation.
Revenues
Revenues for the three months ended March 31, 1999 were approximately
$178,000 compared to $240,000 for the three months ended March 31, 1998. The
revenues earned in 1998 were derived from the licensing of rights of the
"Hollywood Collection" in secondary markets through Janson Associates. The
revenues earned in 1999 were derived from the sale of the domestic rights to
"Betty Buckley, In Performance and In Person" to the Bravo Cable network for
$50,000, as well as licensing of rights of the "Hollywood Collection" in
secondary markets. In addition, the Company received a $44,000 production fee
in 1999, relating to the motion picture "Wayward Son".
<PAGE>
Film production costs
Film production costs for the three months ended March 31, 1999 were
$67,000 compared to $33,000 for the three months ended March 31, 1998 as a
result of costs associated with the feature sold to Bravo, "Betty Buckley, In
Performance and In Person".
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses for the three
months ended March 31, 1999 were $471,000 compared to $665,000 for the three
months ended March 31, 1998. The reduced S,G&A in 1999 is the result of efforts
to reduce expenses and personnel costs due to the reduced level of revenue.
Recent Accounting Developments
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 instru-
ments 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.
Year 2000
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches.The "year
2000" problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value to
00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram and test systems for year 2000 compliance. The
Company operates its financial reporting systems through a personal computer
based accounting and general ledger package. The Company is in the process of
installing the required updates to the system to make the system year 2000
compliant. The Company believes that these updates will cost approximately
$5,000 and be complete by the end of the second quarter of 1999.
The Company has also identified various ancillary programs that need to
be updated and has contracted with third parties for this work to be completed
within the next six months. It is expected that the cost of these modifications
will be approximately $5,000.
<PAGE>
In addition, the Company is examining their exposure to the year 2000
in other areas of technology. These areas include telephone and E-mail systems,
operating systems and applications in free standing personal computers, local
area networks and other areas of communication. A failure of these systems,
which may impact the ability of the Company to service their customers which
could have a material effect on their results of operations. These issues are
being handled by the finance team at the Company by identifying the problems
and obtaining from service providers either the necessary modifications
to the software or assurances that the systems will not be disrupted.
The Company believes that the cost of the programming and equipment upgraded
will not be in excess of $7,500. In addition, certain personnel computers and
other equipment that is not year 2000 compliant will be upgraded through the
Company's normal process of equipment upgrades. The Company believes that
the evaluation and implementation process will be complete no later than
the second quarter of 1999. Over the next year, the Company plans to continue
to develop and implement other information technology projects needed in the
ordinary course of business.
The Company expects to finance these expenditures from working capital.
Therefore, the Company does not expect the year 2000 issue to have a material
adverse impact on its financial position or results of operations.
Like other companies, the Company relies on its customers for revenues
and on its vendors for products and services of all kinds; these third parties
all face the year 2000 issue. An interruption in the ability of any of them to
provide goods or services, or to pay for goods or services provided to them, or
an interruption in the business operations of our customers causing a decline
in demand for services, could have a material adverse effect on the Company
in turn.
In addition, there is a risk, the probability of which the Company is
not in a position to estimate, that the transition to the year 2000 will cause
wholesale, perhaps prolonged, failures of electrical generation, banking,
telecommunications or transportation systems in the United States or abroad,
disrupting the general infrastructure of business and the economy at large.
The effect of such disruptions on the Company could be material.
The Company's various departments will communicate with their principal
customers and vendors about their year 2000 readiness, and expect this process
to be completed no later than the third quarter of 1999. None of the responses
received to date suggests that any significant customer or vendor expects the
year 2000 issue to cause an interruption in its operations which would have a
material adverse impact on the Company. However, because so many firms are
exposed to the risk of failure not only of their own systems, but of the
systems of other firms, the ultimate effect of the year 2000 issue is subject
to a very high degree of uncertainty.
The Company believes that its preparations currently under way are
adequate to assess and manage the risks presented by the year 2000 issue, and
does not have a formal contingency plan at this time.
<PAGE>
The statements in this section regarding the effect of the year 2000
and the Company's responses to it are forward-looking statements.They are based
on assumptions that the Company believes to be reasonable in light of its
current knowledge and experience. A number of contingencies could cause actual
results to differ materially from those described in forward-looking statements
made by or on behalf of the Company.
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; the ability to obtain
additional financing and improved cash flow in order to meet its obligations and
continue to exist as a going concern; production risks; dependence on contracts
with certain customers; future foreign distribution arrangements; the risk that
the Company's preparations with respect to the risks presented by the year 2000
issue will not be adequate; 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.
Market Risk Exposure
The financial position of the Company is subject to market risk associated with
interest rate movements on outstanding debt. The Company has debt obligations
with variable terms. The carrying value of the Company's variable rate debt
obligation approximates fair value as the market rate is based on prime.
<PAGE>
PART II. OTHER INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
March 31, 1999
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 18, 1999 Gene Feldman
Chairman of the Board
DATE: May 18, 1999 Cary Brokaw
President and Chief Executive
Officer, Director
DATE: May 18, 1999 Ira J. Sobotko
Principal Accounting Officer
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<NAME> AVENUE ENTERTAINMENT GROUP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 390,064
<SECURITIES> 251,890
<RECEIVABLES> 78,619
<ALLOWANCES> 0
<INVENTORY> 1,049,623
<CURRENT-ASSETS> 0
<PP&E> 251,445
<DEPRECIATION> 169,066
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<CURRENT-LIABILITIES> 1,424,497
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0
<COMMON> 41,088
<OTHER-SE> 2,582,143
<TOTAL-LIABILITY-AND-EQUITY> 4,047,728
<SALES> 177,669
<TOTAL-REVENUES> 177,669
<CGS> 66,826
<TOTAL-COSTS> 537,895
<OTHER-EXPENSES> 471,069
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (305,478)
<INCOME-TAX> 2,001
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