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, 2000
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
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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 525
Los Angeles, California 90025
- -------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(310) 996-6815
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(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 4, 2000:
Common Stock 4,589,030
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page No.
--------
Consolidated Condensed Balance Sheets -
March 31, 2000 (unaudited) and December 31, 1999 1
Unaudited Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 2000 and 1999 2
Unaudited Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 3
Unaudited Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Signatures 10
<PAGE>
PART I. FINANCIAL INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
Consolidated Condensed Balance Sheets
March 31, December 31,
2000 1999
-------- ----------
(unaudited)
Assets
Cash $ 534,231 $ 476,198
Accounts receivable 268,099 652,429
Income tax receivable 29,703 29,703
Film costs, net 949,106 959,850
Property and equipment, net 67,885 72,664
Goodwill 1,823,379 1,893,509
Other assets 16,774 18,169
----------- ----------
Total assets $ 3,689,177 $ 4,102,522
========= =========
Liabilities and Stockholder's Equity
Accounts payable and accrued expenses $ 1,138,362 $ 1,151,045
Deferred income 202,278 149,128
Loan payable 277,500 277,500
Deferred compensation 332,206 340,783
Due to related party 99,172 99,172
----------- -----------
Total liabilities
Stockholders' equity
Common stock, par value $.01 per share 45,890 45,890
Additional paid-in capital 6,957,269 6,947,894
Deficit (5,209,813) (4,755,203)
Treasury Stock (3,687) (3,687)
Note receivable for common stock (150,000) (150,000)
--------- ----------
Total stockholders' equity 1,639,659 2,084,894
---------- ---------
Total liabilities and stockholders'
equity $ 3,689,177 $ 4,102,522
========== =========
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 ended
March 31, March 31,
2000 1999
----------- ----------
Operating revenues $ 99,926 $ 177,669
---------- ----------
Costs and expenses:
Film production costs 51,383 66,826
Selling, general and administrative expenses 503,025 471,069
---------- ----------
Total costs and expenses 554,408 537,895
---------- ----------
Unrealized gain on trading securities 0 30,268
Gain on sale of investments 24,480
-------------- -----------
0
Loss before income tax (454,482) (305,478)
Income tax expense 128 2,001
------------- ------------
Net loss $ (454,610) $ (307,479)
=========== ==========
Basic and diluted loss per common stock $ (.10) (.07)
===== =====
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,
2000 1999
------------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (454,610) $ (307,479)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 6,043 6,124
Amortization - film production costs 23,321 60,396
Amortization - goodwill 70,130 70,130
Gain on sale of investments 0 (24,480)
Unrealized gain on trading securities 0 (30,268)
Proceeds from sale of marketable securities 0 142,574
Deferred compensation (8,577) 38,500
Stock compensation 9,375 9,375
Changes in assets and liabilities which affect net income:
Accounts receivable 384,330 29,896
Film costs (12,577) (18,373)
Other assets 1,395 (6,488)
Accounts payable and accrued expenses (12,683) (10,848)
Deferred income 53,150 0
Due to related party 4,996
-------------- ------------
0
Net cash used in operating activities 59,297 (35,945)
Cash flows from investing activities:
Purchase of equipment (1,264) (1,231)
------------ -----------
Net cash used in investing activities (1,264) (1,231)
------------ ------------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
Three months Three months
ended ended
March 31, March 31,
2000 1999
------------- ----------
Net increase (decrease) in cash 58,033 (37,176)
Cash at beginning of year 476,198 427,240
------- ----------
Cash at end of period $ 534,231 $ 390,064
========== ==========
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 403 $ 2,707
========== ============
Income taxes $ 128 $ 2,001
========== ============
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, 1999. 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, 2000, the
results of operations and its cash flows for the three months ended March 31,
2000 and 1999 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,
2000 1999
-------- ------ ----
In process or development $ 280,700 $ 267,404
Released, net of accumulated amortization 668,406 692,446
---------- ---------
of $16,364,798 and $16,341,477, respectively 949,106 $ 959,850
========== ==========
3. Loan payable
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 $150,000, at prime plus 1%, with Fleet Bank, National
Association. The Note is payable on demand, but in any event not later
than May 27, 2000. As of March 31, 2000, $47,500 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 such loan will be extended.
On June 3, 1999, the Company entered into an unsecured loan for
$1,000,000 at prime plus 1% with City National Bank which matured on
October 1, 1999. As of March 31, 2000 $230,000 had been borrowed under
the loan of which $80,000 was prepaid on April 3, 2000 and the loan has
been extended through June 1, 2000.
<PAGE>
Item 2. MANAGEEMENT'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.
Liquidity and Capital Resources
At March 31, 2000, the Company had approximately $534,000 of cash.
Revenues have been insufficient to cover costs of operations for the quarter
ended March 31, 2000. The Company has a working capital deficiency and has an
accumulated deficit of $5,210,000 through March 31, 2000. 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 12, 2000 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, 2000, the Company had a loss before
income taxes of approximately $454,000 compared to a loss of $305,000 for the
quarter ended March 31, 1999. The loss for the period was primarily the result
of reduced revenues earned as well as a small increase in selling, general and
administrative expense. Included in the quarter ended March 31, 1999 was 30,268
and 24,480, respectively of 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, 2000 were approximately
$100,000 compared to $178,000 for the three months ended March 31, 1999. The
revenues earned in 2000 were derived from the licensing of rights of the
"Hollywood Collection" in secondary markets through Janson Associates. In
addition, the Company received a nonrefundable $50,000 in supervisory
development fees related to the setup of two motion pictures with a third party
financier. 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, 2000 were
$51,000 compared to $67,000 for the three months ended March 31, 1999 and
included additional costs of $25,000 associated with the "Timeshifters."
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses for the three
months ended March 31, 2000 were $503,000 compared to $471,000 for the three
months ended March 31, 1999. The increased in S,G&A during 2000 is the result of
salary expenses which were covered by a production during the three months ended
March 31, 1999.
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 instruments
at fair value. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company has adopted 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
During 1999, the Company completed any required modifications to its
critical systems and applications relating to year 2000 issues. The Company also
completed a survey of its significant suppliers to assess their vulnerability if
these companies were to fail to remediate their year 2000 issues. The responses
received indicated that the Company's suppliers were aware of the year 2000
issue and were implementing all necessary changes prior to the end of calendar
year 1999. The Company also formulated contingency plans to ensure that
business-critical processes were protected from disruption and will continue to
function during and after the year 2000. During 1999, the Company did not incur
any material costs in connection with identifying, evaluating or remediating
year 2000 issues.
The Company's business and operations experienced no material adverse
effects from the calendar change to the year 2000 or from the leap year that
occurred in 2000, and we have not been notified of any disruptions to or
failures in the systems of any of our suppliers.
<PAGE>
The Company will continue to monitor our information technology and
non-information technology systems and those of third parties with whom we
conduct business throughout the year 2000 to ensure that any latent year 2000
issues that may arise are addressed promptly. Although we do not anticipate any
additional expenditures relating to year 2000 compliance, we cannot provide any
assurance as to the magnitude of any future costs until significant time has
passed.
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, 2000
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, 2000 BY: Gene Feldman
Chairman of the Board
DATE: May 15, 2000 BY: Cary Brokaw
President and Chief Executive
Officer, Director
DATE: May 15, 2000 BY: Sheri L. Halfon
Senior Vice President,
Chief Financial Officer
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<NAME> AVENUE ENTERTAINMENT GROUP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 534,231
<SECURITIES> 0
<RECEIVABLES> 268,099
<ALLOWANCES> 0
<INVENTORY> 949,106
<CURRENT-ASSETS> 0
<PP&E> 67,885
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,689,177
<CURRENT-LIABILITIES> 2,049,518
<BONDS> 0
0
0
<COMMON> 45,890
<OTHER-SE> 1,593,769
<TOTAL-LIABILITY-AND-EQUITY> 3,689,177
<SALES> 99,926
<TOTAL-REVENUES> 99,926
<CGS> 51,383
<TOTAL-COSTS> 554,408
<OTHER-EXPENSES> 503,025
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (454,482)
<INCOME-TAX> 128
<INCOME-CONTINUING> (454,610)
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<EXTRAORDINARY> 0
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