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, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 001-12885
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AVENUE ENTERTAINMENT GROUP, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 95-4622429
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
11111 Santa Monica Blvd., Suite 525
Los Angeles, California 90025
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(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 ______
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Number of shares outstanding of each of issuer's classes of common stock as of
August 1, 2000:
Common Stock 4,589,030
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page No.
Consolidated Condensed Balance Sheets -
June 30, 2000 (unaudited) and December 31, 1999 1
Unaudited Consolidated Condensed Statements of
Operations -Three Months and Six Months Ended
June 30, 2000 and 1999 2
Unaudited Consolidated Condensed Statements of
Cash Flows- Six Months Ended June 30, 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>
2
PART I. FINANCIAL INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
Consolidated Condensed Balance Sheets
June 30, December 31,
2000 1999
----- ----------
2000
(unaudited)
Assets
Cash $ 280,709 $ 476,198
Accounts receivable 253,766 652,429
Income tax receivable 29,703 29,703
Film costs, net 917,558 959,850
Property and equipment, net 61,843 72,664
Goodwill 1,753,249 1,893,509
Other assets 16,172 18,169
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Total assets $ 3,313,000 $ 4,102,522
========= =========
Liabilities and Stockholder's Equity
Accounts payable and accrued expenses $ 1,165,888 $ 1,151,045
Deferred income 202,278 149,128
Loan payable 197,500 277,500
Deferred compensation 425,552 340,783
Due to related party 99,172 99,172
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Total liabilities $ 2,090,390 $ 2,017,628
Stockholders' equity
Common stock, par value $.01 per share 45,890 45,890
Additional paid-in capital 6,966,644 6,947,894
Accumulated deficit (5,636,237) (4,755,203)
Treasury stock (3,687)
Note receivable for common stock (150,000) (150,000)
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Total stockholders' equity 1,222,610 2,084,894
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Total liabilities and stockholders'
equity $ 3,313,000 $ 4,102,522
========== ==========
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months Six Months
ended June 30, ended June 30,
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2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $ 149,009 $ 198,736 $ 248,935 $ 376,405
-------- -------- -------
Cost and expenses:
Film production costs 84,682 54,746 136,065 121,572
Selling, general & administrative
expenses 489,820 505,320 992,845 976,389
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Total costs and expenses 574,502 560,066 1,128,910 1,097,961
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Unrealized gain(loss) on trading 0 (93,556) 0 (63,288)
Gain(loss) on sale of investments 0 (9,477) 0 15,003
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Loss before income tax (425,493) (464,363) (879,975) (769,841)
Income tax benefit 931 716 1,059 2,717
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Net loss $ (426,424) $ 465,079) $ (881,034) $(772,558)
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Basic and diluted loss per common stock $ (0.09) $ (0.11) $ (0.19) $ (0.19)
===========================================================
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (881,034) $ (772,558)
Adjustments to reconcile net loss to net cash used for
Depreciation 12,085 12,257
Amortization - film production costs 101,541 118,080
Amortization - goodwill 140,260 140,260
Loss on sale of fixed assets 0 465
Proceeds from sale of marketable securities 0 1,360
Gain on sale of investments 0 (15,003)
Unrealized gain on trading securities 0 63,288
Proceeds from sale of marketable securities 0 229,901
Deferred compensation 84,769 62,500
Stock compensation 18,750 18,750
Changes in assets and liabilities which affect net income:
Accounts receivable 398,663 28,091
Film costs (59,249) (119,355)
Other assets 1,997 (4,288)
Accounts payable and accrued expenses 14,843 113,332
Deferred income 53,150 0
Income Taxes 0 305
Due to related party 0 14,996
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Net cash used for operating activities (114,225) (107,619)
Cash flows from investing activities:
Purchase of equipment (1,264) (1,264)
Net cash used for investing activities (1,264) (3,056)
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</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
CONSOLIDATED CONSENSED STATEMENTS OF CASH FLOWS
(unaudited)
Six months Six months
ended ended
June 30, June 30,
2000 1999
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Cash flows from financing activities:
Repayment of long-term debt $ (80,000) $ -
Net cash used for financing activities (80,000) 0
Net decrease in cash (195,489) (110,675)
Cash at beginning of year $ 476,198 $ 472,240
Cash at end of period
$ 280,709 $ 316,565
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Supplemental cash flow information:
Cash paid during the year for:
Interest expense $ 2,008 $ 4,432
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Income taxes $ 1,059 $ 2,717
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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 June 30, 2000, the
results of operations for the three and six months and its cash flows for the
six months ended June 30, 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:
June 30, December 31,
2000 1999
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In process or development $ 331,798 $ 267,404
Released, net of accumulated amortization 585,760 692,446
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of $16,443,019 and $16,341,477, respectively $ 917,558 $ 959,850
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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 and as of June 30, 2000, $47,500 had been
borrowed under the Note.
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 June 30, 2000 $150,000 had been borrowed under the
loan and the loan has been extended through September 1, 2000.
<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.
Liquidity and Capital Resources
At June 30, 2000, the Company had approximately $281,000 of cash.
Revenues have been insufficient to cover costs of operations for the quarter
ended June 30, 2000. The Company has a working capital deficiency and has an
accumulated deficit of $5,636,000 through June 30, 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 and six months ended June 30, 2000, the Company had a
loss before income taxes of approximately $425,000 and $880,000 compared to a
loss of $464,000 and $770,000 for the quarter and six months ended June 30,
1999. The loss for the period was primarily the result of reduced revenues
earned.
Revenues
Revenues for the three months ended June 30, 2000 were approximately
$149,000 compared to $199,000 for the three months ended June 30, 1999. The
Revenues earned during the three and six months ended June 30, 2000 were
primarily 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 producer fees including $95,000 and $50,000 related to
"Wayward Son" and "Time Shifters", respectively and 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.
<PAGE>
Revenues for the six months ended June 30, 2000 were approximately
$249,000 compared to $376,000 for the six months ended June 30, 1999.
Film production costs
Film production costs for the three months ended June 30, 2000 were
$85,000 compared to $55,000 for the three months ended June 30, 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 June 30, 2000 were $490,000 compared to $505,000 for the three
months ended June 30, 1999. Selling, general and administrative (S,G&A) expenses
for the six months ended June 30, 2000 were $993,000 compared to $976,000 for
the six months ended June 30, 1999.
Recent Accounting Developments
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 ("SFAS 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 as amended by SFAS 137 and 138 is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt SFAS 133, when effective, which is currently anticipated
to be by January 1, 2001. The Company is still evaluating its position with
respect to the use of derivative instruments.
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation" ("FIN No. 44") provides guidance for applying APB
Opinion No. 25, "Accounting for Stock Issued to Employees". With certain
exceptions, FIN No. 44 applies prospectively to new awards, exchanges of awards
in a business combination, modifications to outstanding awards and changes in
grantee status on or after July 1, 2000. The Company does not believe that the
implementations of FIN No. 44 will have a significant effect on its results of
operations.
In December 1999, the SEC issued Staff Accounting Bulletin No.101,
"Revenue Recognition in Financial Statements" ("SAB No. 101") which summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. SAB No. 101, amended
by SAB No. 101A issued on March 24, 2000, requires registrants to adopt the
accounting guidance contained therein by no later than the second fiscal quarter
of the fiscal year beginning after December 15, 1999. On June 26, 2000, the SEC
issued SAB No. 101B which postponed the implementation of SAB No. 101 until the
quarter beginning October 1, 2000. The Company is currently assessing the
financial impact of complying with SAB No. 101 and has not yet determined
whether applying the accounting guidance of SAB No. 101 will have a material
effect on its financial position or results of operations.
<PAGE>
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.
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.
June 30, 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: August 14, 2000 Gene Feldman
Chairman of the Board
DATE: August 14, 2000 Cary Brokaw
President and Chief Executive
Officer, Director
DATE: August 14, 2000 Sheri L. Halfon
Senior Vice President,
Chief Financial Officer
