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 September 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
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 525
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
November 13, 2000:
Common Stock 4,591,030
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page No.
--------
Consolidated Condensed Balance Sheets -
September 30, 2000 (unaudited) and December 31, 1999 1
Unaudited Consolidated Condensed Statements of Operations - 2
Three Months and Nine Months Ended September 30, 2000 and 1999
Unaudited Consolidated Condensed Statements of Cash Flows - 3
Nine Months Ended September 30, 2000 and 1999
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
September 30, December 31,
2000 1999
(unaudited)
Assets
Cash $ 170,386 $ 476,198
Accounts receivable 313,069 652,429
Income tax receivable 29,703 29,703
Film costs, net 714,477 959,850
Property and equipment, net 58,256 72,664
Goodwill 1,683,119 1,893,509
Other assets 16,351 18,169
----------- ----------
Total assets $ 2,985,361 $ 4,102,522
========= =========
Liabilities and Stockholder's Equity
Accounts payable and accrued expenses $ 1,047,056 $ 1,151,045
Deferred income 143,301 149,128
Loan payable 0 277,500
Deferred compensation 468,899 340,783
Due to related party 147,046 99,172
---------- -----------
Total liabilities 1,806,302 2,017,628
--------- -----------
Stockholders' equity
Common stock, par value $.01 per share 45,910 45,890
Additional paid-in capital 6,976,639 6,947,894
Accumulated deficit (5,689,803) (4,755,203)
Treasury stock (3,687) (3,687)
Note receivable for common stock (150,000) (150,000)
--------- ------------
Total stockholders' equity 1,179,059 2,084,894
---------- ----------
Total liabilities and stockholders' equity $ 2,985,361 $ 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 Nine Months
ended September 30, ended September 30,
2000 1999 2000 1999
---- ---- ---- - ----
<S> <C> <C> <C> <C>
Operating revenues $ 621,504 $ 2,876,475 $ 870,439 $ 3,252,880
-------------- --------------- ----------- ------------
Cost and expenses:
Film production costs 131,149 2,685,878 267,214 2,807,450
Selling, general & administrative
expenses 539,758 422,186 1,532,603 1,398,575
--------------------------------------------------------------------------
Total costs and expenses 670,907 3,108,064 1,799,817 4,206,025
--------------------------------------------------------------------------
Unrealized gain(loss) on trading securities 0 17,580 0 (45,708)
Gain(loss) on sale of investments 0 0 0 15,003
--------------------------------------------------------------------------
Loss before income tax (49,403) (214,009) (929,378) (983,850)
Income tax expense (benefit) 4,163 (1,837) 5,222 880
------------------------------------------------------------------------
Net loss $ (53,566) $ (212,172) $ (934,600) $ (984,730)
==========================================================================
Basic and diluted loss per common stock $ (0.01) $ (0.05) $ (0.20) $ (0.23)
==========================================================================
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
UNAUDITED Consolidated CONDENSED StatementS of Cash Flows
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (934,600) $ (984,730)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation 18,246 18,349
Amortization - film production costs 248,142 2,770,391
Amortization - goodwill 210,390 210,390
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 45,708
Proceeds from sale of marketable securities 0 229,901
Deferred compensation 128,116 325,250
Stock compensation 28,125 28,125
Changes in assets and liabilities which affect net income:
Accounts receivable 339,360 (486,454)
Film costs (2,769) (3,824,375)
Other assets 1,818 11,294
Accounts payable and accrued expenses (103,989) (8,754)
Deferred income (5,827) 700,000
Income Taxes 0 25,297
Due to related party 47,874 6,691
------------ -----------
Net cash used for operating activities (25,114) (946,095)
Cash flows from investing activities:
Purchase of equipment (3,838) (3,056)
------------ -----------
Net cash used for investing activities (3,838) (3,056)
------------ ------------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
UNAUDITED CONSOLIDATED CONDENSE STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, September 30,
2000 1999
Cash flows from financing activitied
<S> <C> <C>
Sale of common stock $ 640 $ 500,000
Proceeds from issuance of short term debt 0 715,000
Repayment of long-term debt (277,500) (48,006)
--------- --------
Net cash (used for) provided by financing activities (276,860) 1,166,994
Net (decrease) increase in cash (305,812) 217,843
Cash at beginning of year 476,198 427,240
------------ -----------
Cash at end of period $ 170,386 $ 645,083
================ ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest expense $ 3,598 $ 7,661
============ ============
Income taxes $ 5,222 $ 2,717
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
AVENUE ENTERTAINMENT GROUP, INC.
UNAUDITED 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
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 September 30, 2000, the
results of operations for the three and nine months and its cash flows for the
nine months ended September 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.
UNAUDITED NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
2. Film costs
Film costs consist of the following:
September 30, December 31,
2000 1999
In process or development $ 285,404 $ 267,404
Released, net of accumulated amortization 429,073 692,446
of $16,589,619 and $16,341,477, respectively
Film costs, net $ 714,477 $ 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 balance
of $47,500 at June 30, 2000 was paid in full in August 2000.
On June 3, 1999, the Company entered in to an unsecured loan for
$1,000,000 at prime plus 1% with City National Bank which matured on October 1,
1999 and was extended through September 1, 2000. The balance of $150,000 at June
30, 2000 was paid in full in August 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 September 30, 2000, the Company had approximately $170,000 of cash.
Revenues have been insufficient to cover costs of operations for the quarter
ended September 30, 2000. The Company has a working capital deficiency and has
an accumulated deficit of $5,690,000 through September 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 nine months ended September 30, 2000, the Company
had a loss before income taxes of approximately $49,000 and $929,000 compared to
a loss of $214,000 and $984,000 for the quarter and nine months ended September
30, 1999. The reduced loss for the period was primarily the result of less
revenues earned offset by a decrease in Film Production costs. Film Production
costs for 1999 included the amortization of the production costs for "The
Timeshifters."
Revenues
Revenues for the three and nine months ended September 30, 2000 were
approximately $622,000 and $870,000 compared to $2,876,000 and $3,253,000 for
the three and nine months ended September 30, 1999. The Revenues earned during
the three and nine months ended September 30, 2000 were primarily derived from
the licensing of rights of the "Hollywood Collection" in secondary markets
through Janson Associates, from producer and development fees for the HBO
project, "Wit", and from the licensing of "David Copperfield" to Bravo. In
addition, the Company received $50,000 in nonrefundable supervisory development
fees related to the setup of two motion pictures with a third party financier.
The revenues earned in 1999 were primarily derived from delivery to TBS of the
"The Timeshifters."
<PAGE>
Film production costs
Film production costs for the three months ended September 30, 2000
were $131,000 compared to $2,686,000 for the three months ended September 30,
1999. The Film Production costs for the three months ended September 30, 1999
primarily represent the cost associated with the delivery of "The Timeshifters"
to TBS.
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses for the three
months ended September 30, 2000 were $540,000 compared to $422,000 for the three
months ended September 30, 1999. Selling, general and administrative (S,G&A)
expenses for the nine months ended September 30, 2000 were $1,533,000 compared
to $1,399,000 for the nine months ended September 30, 1999. The increase for the
three and nine month periods are primarily attributable to increased commission
on sales of the "Hollywood Collection" as well as professional fees in
connection with the Company's efforts to raise additional financing.
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 No. 133, effective January 1, 2001.
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 implementation of this standard did
not have a significant effect on our 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
fourth quarter of 2000. The Company does not believe that the implementation of
SAB No. 101 will have a significant effect on its results of operations.
<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; 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.
<PAGE>
PART II. OTHER INFORMATION
AVENUE ENTERTAINMENT GROUP, INC.
September 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: November 14, 2000 BY: Gene Feldman
Chairman of the Board
DATE: November 14, 2000 BY: Cary Brokaw
President and Chief Executive
Officer, Director
DATE: November 14, 2000 BY: Sheri L. Halfon
Senior Vice President,
Chief Financial Officer
