-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQ5wYYf2+1NVZlx//BGNcBKIobYlFbLGyyg87QZrBUNFe67jJIsRIb1Gx6bkHs6G jZ3fMbHHKdxUkHmA4RmdCQ== 0001023298-97-000024.txt : 19971117 0001023298-97-000024.hdr.sgml : 19971117 ACCESSION NUMBER: 0001023298-97-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVENUE ENTERTAINMENT GROUP INC /DE/ CENTRAL INDEX KEY: 0001023298 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 954622429 FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12885 FILM NUMBER: 97717802 BUSINESS ADDRESS: STREET 1: 1111 SANTA MONICA BLVD STREET 2: SUITE 2110 CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 2123152502 MAIL ADDRESS: STREET 1: 9 WEST 57TH ST STREET 2: SUITE 4170 CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: CINEMASTERS GROUP INC DATE OF NAME CHANGE: 19970311 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the quarter ended September 30, 1997 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 November 10, 1997. Common Stock 4,033,838 AVENUE ENTERTAINMENT GROUP, INC. Table of Contents PART I. FINANCIAL INFORMATION Page No. Consolidated Condensed Balance Sheets - September 30, 1997 and December 31, 1996 1 Consolidated Condensed Statement of Operations - Three Months and Nine Months Ended September 30, 1997 and 1996 2 Consolidated Condensed Statement of Cash Flows - Nine Months Ended September 30, 1997 and 1996 3 Notes to Consolidated Condensed Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Signatures 11 PART I. FINANCIAL INFORMATION AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS September 30, December 31, 1997 1996 Assets (unaudited) Cash $ 500,302 $ 687,080 Short-term investments 730,422 696,150 Accounts receivable 422,224 149,483 Films costs, net 1,624,546 1,998,326 Property and equipment, net 113,607 117,492 Other assets 62,165 81,063 Goodwill 2,524,679 2,735,069 ----------- ----------- Total assets $5,977,945 $6,464,663 ========== ========== Liabilities and Stockholders' Equity Accounts payable $ 487,646 $ 284,784 Accrued expenses 577,186 457,426 Loan payable 227,500 Capitalized lease obligations 14,196 40,451 Income taxes payable 330,891 Advance from customers 89,000 577,730 ---------- ----------- Total liabilities 1,395,528 1,691,282 ---------- ---------- Stockholders' equity Common stock, par value $.01 per share 38,478 36,978 Additional paid-in capital 4,985,802 4,631,252 Retained earnings (deficit) (477,285) 224,001 Unrealized gain (loss) on marketable securities 185,422 (118,850) Note receivable for common stock (150,000) _________ ---------- Total stockholders' equity 4,582,417 4,773,381 ---------- ---------- Total liabilities and stockholders' equity $5,977,945 $6,464,663 ========== ========== See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three months Nine months ended September 30, ended September 30, 1997 1996 1997 1996 Operating revenues $ 116,050 $ 568,327 $2,242,362 $1,539,809 ----------- ---------- ---------- ---------- Cost and expenses: Film production costs 26,690 185,888 1,177,518 484,148 Selling, general & administrative expenses 598,682 320,075 1,938,497 1,048,741 ---------- --------- ---------- ---------- Total costs and expenses 625,222 505,963 3,116,015 1,532,889 ---------- ---------- ---------- ----------- Income (loss) before income tax (509,322) 62,364 (873,653) 6,920 Income tax benefit (expense) 100,000 (39,885) 172,367 (47,977) ----------- ---------- ----------- ------------ Net income (loss) $ (409,322) $ 22,479 $(701,286) $ (41,057) ========== ========== ========= ========= Net income (loss) per share $ (.11) $ .01 $ (.19) $ (.02) ============== ============= ============ ============ Weighted average shares outstanding 3,772,838 1,795,000 3,737,838 1,795,000 ========== ========== ========== ========== See accompanying notes to the consolidated condensed financial statements.
AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Nine months ended September 30, 1997 1996 ---------- ------ Cash flows from operating activities: Net loss $ (701,286) $ 188,230 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 20,340 1,553 Gain on disposal of fixed assets (786) Amortization-film production costs 1,136,281 3,524,000 Amortization-goodwill 210,390 Stock option compensation 28,125 Decrease in due to stockholder (61,529) Increase in deferred income 1,981,731 Changes in other operating assets and liabilities: Accounts receivable (194,816) 2,521 Film costs (762,501) (5,197,855) Other assets 31,898 (85,784) Accounts payable and accrued expenses 158,731 266,671 Income taxes payable (180,000) Advances from customers (488,730) ----------- Net cash (used for) provided by operating activities (741,568) 618,752 ---------- --------- Cash flows from investing activities: Proceeds from sale of marketable securities 270,000 Proceeds from sale of fixed assets 2,500 Purchase of equipment (16,455) (11,598) ----------- --------- Net cash (used for) provided by investing activities 253,545 (9,098) ------------ -------- AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) Nine months ended September 30, 1997 1996 --------- -------- Cash flows from financing activities: Proceeds from loan payable $ 227,500 $ Exercise of warrants 100,000 Principal payments of capital lease of obligation (26,255) ----------- Net cash used for financing activities 301,245 ------------ Net increase (decrease) in cash (186,778) 609,654 Cash at the beginning of period 687,080 11,060 ---------- ---------- Cash at the end of period $ 500,302 $ 620,714 ========== ========= Supplemental disclosures of cash flow information: Cash paid during the periods for: Interest $ 40,924 $ 4,097 ========== ========= Income taxes $ 191,628 $ 38,946 ========= ========= See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. NOTES TO CONSOLIDATED 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 world-wide 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-SB and Form 2-SB for the year ended December 31, 1996. 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, 1997, the results of operations and its cash flows for the three months and nine month periods ended September 30, 1997 and 1996 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. AVENUE ENTERTAINMENT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 2. Film Costs Film costs consist of the following: September 30, December 31, 1997 1996 In process or development $ 398,218 $ 224,452 Released, net of accumulated amortization of $7,998,457 and $6,862,176, respectively 1,226,328 1,773,874 ----------- ---------- $1,624,546 $1,998,326 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, 1998. As of September 30, 1997, $227,500 had been borrowed under the Note at an interest rate of 9.50%. 4. Subsequent Event On November 7, 1997, the Company sold 170,000 shares of common stock to an investment group and realized proceeds of $850,000. 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. 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. Pursuant to the Share Exchange Agreement, CineMasters acquired all of the outstanding capital stock of Avenue Pictures from Mr. Brokaw, the sole shareholder of Avenue Pictures, in exchange for 1,425,000 shares of CineMasters Common Stock. In connection with the Business Combination, National Patent made a capital contribution to CineMasters of 90,566 shares of registered National Patent common stock valued at $815,000 in the aggregate based upon the closing price per share of National Patent common stock on the American Stock Exchange on September 30, 1996 in exchange for 407,500 shares of CineMasters Common Stock. Such capital contribution was made by National Patent for investment purposes and was a condition to closing pursuant to the Share Exchange Agreement. Following the Business Combination, the Board of Directors and shareholders of CineMasters approved a transaction pursuant to which (i) all of the assets of the Wombat Division of CineMasters were transferred, subject to all related liabilities and obligations, to its newly-formed, wholly-owned Delaware subsidiary, Wombat, (ii) CineMasters was merged with and into the Company (its newly-formed, wholly-owned Delaware subsidiary) with the Company being the surviving corporation in the merger and (iii) each stockholder of CineMasters received an equal number of shares of the Company in exchange for each share of capital stock of CineMasters held by such stockholder immediately prior to the effective time of the Reincorporation. As a result of the Reincorporation, Avenue Pictures became a wholly-owned subsidiary of the Company. Results of Operations For the quarter and nine months ended September 30,1997 the Company had a loss before income taxes of $509,000 and $874,000 compared to income of $62,000 and $7,000 for the quarter and nine months ended September 30, 1996. The loss for the periods was the result of several factors. For the quarter ended September 30,1997, the Company's licensing revenue decreased significantly at its Wombat division. In addition, for the quarter ended September 30, 1997, the Company recorded $70,000 of amortization of goodwill related to the acquisition of Avenue Pictures, as well as increased expenses related to the operations and the business development of Avenue Pictures. The increased loss before income taxes for the nine months ended September 30, 1997 was the result of increased general and administrative expenses, which were primarily salaries, professional fees, occupancy costs and $210,000 of amortization of goodwill related to the purchase of Avenue Pictures on September 30, 1996. In addition, Wombat experienced reduced revenues for the period which were partially mitigated by the revenue generated by Avenue Pictures for the period. Comparison of Three Months Ended September 30, 1997 and 1996 Revenues Revenues for the three months ended September 30, 1997 were $116,000 compared to $568,000 for the three months ended September 30, 1996. The revenues for the three months ended September 30, 1997 were primarily derived from the operations of Wombat and were approximately $106,000, a decrease of $462,000 from the comparable period of the prior year. Of the revenues earned by Wombat during the three months ended September 30, 1997, approximately $64,000 was derived from licensing of rights to Wombat programming in secondary markets (Janson Associates), which accounted for 61% of revenues in 1997, as compared to 5% of revenues in 1996. Film Production Costs Film production costs for the three months ended September 30, 1997 was $27,000 compared to $186,000 for the three months ended September 30, 1996 as a result of reduced revenues recognized by Wombat for the 1997 period. Selling, General and Administrative Selling, general and administrative (S,G&A) expenses for the three months ended September 30, 1997 were $599,000 compared to $320,000 for the three months ended September 30, 1996. Included in the three months ended September 30, 1997 expenses are $325,000 of S,G&A expenses relating to Avenue Pictures' operations and were principally salaries and related benefits, professional fees and occupancy expenses. In addition, the Company recognized approximately $70,000 amortization of goodwill related to the Avenue acquisition on September 30, 1996. Comparison of Nine Months Ended September 30, 1997 and 1996 Revenues Revenues for the nine months ended September 30, 1997 were $2,242,000 compared to $1,540,000 for the nine months ended September 30, 1996. The revenues for the nine months ended September 30, 1997 were derived from revenues generated by Avenue Pictures which was acquired on September 30, 1996 and the operations of Wombat. Revenues from the operations of Avenue Pictures for the nine months ended September 30, 1997 amounted to approximately $1,457,000 and 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 "The Road to Graceland", which accounted for approximately 61% of the consolidated revenues for the nine months ended September 30, 1997. Revenues from Wombat operations for the nine months ended September 30, 1997 were approximately $785,000, a decrease of $754,000 from the comparable period of the prior year. Of the revenues earned by Wombat during the nine months ended September 30, 1997, approximately $286,000 was derived from the completion and availability of two one-hour motion picture profiles to A&E. The remaining revenue was derived from licensing of rights to Wombat programming in secondary markets (Janson Associates), which accounted for 63% of revenues in 1997, as compared to 43% of revenues in 1996. Film Production Costs Film production costs for the nine months ended September 30, 1997 was $1,178,000 compared to $484,000 for the nine months ended September 30, 1996. The increase can be primarily attributed to the film amortization relating to "Tell Me No Secrets" in the amount of $916,000. Selling, General and Administrative Selling, general and administrative (S,G&A) expenses for the nine months ended September 30, 1997 were $1,923,000 compared to $1,049,000 for the nine months ended September 30, 1996. Included in the nine months ended September 30, 1997 expenses are $973,000 of SG&A expenses relating to Avenue Pictures' operations and were principally salaries and related benefits, professional fees and occupancy expenses. Wombat's SG&A expenses decreased by approximately $344,000 primarily as a result of decreased commissions paid to Janson Associates resulting from decreased licensing revenues. In addition, the Company recognized approximately $210,000 amortization of goodwill related to the Avenue acquisition on September 30, 1996. Liquidity and Capital Resources At September 30, 1997, the Company had approximately $500,000 of cash and approximately $730,000 of short term investments. On November 7, 1997, the Company sold 170,000 shares of common stock to an investment group and realized proceeds of $850,000. During the nine months ended September 30, 1997, the Company's cash decreased by $187,000. 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, 1998. As of September 30, 1997, $227,000 had been borrowed under the Note. The Company believes it has adequate capital resources to meet its short-term need covering at least twelve months. The Company expects to expand its production activities. Management believes that the existing cash and short term investments 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. Recent accounting pronouncement In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128), was issued. SFAS No. 128 simplifies the standards for computing earnings per share, and makes the United States standards for computing earnings per share more comparable to international standards. SFAS No. 128 requires presentation of "basic" earnings per share (which excludes dilution) and "diluted" earnings per share. The Company does not believe the adoption of SFAS No. 128 in fiscal 1997 will have a material impact on the Company's reported earnings per share. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997 and requires restatement of all prior period earnings per share presented. 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 Company's ability to generate an operating profit and the Company's ability to secure additional financing on acceptable terms. PART II. OTHER INFORMATION AVENUE ENTERTAINMENT GROUP, INC. September 30, 1997 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, 1997 BY: Gene Feldman Chairman of the Board DATE: November 14, 1997 BY: Cary Brokaw President and Chief Executive Officer, Director DATE: November 13, 1997 BY: Sheri L. Halfon Vice President and Chief Financial Officer, Director EX-27 2
5 0001023298 AVENUE ENTERTAINMENT GROUP, INC. 9-MOS DEC-31-1997 SEP-30-1997 500,302 730,422 422,224 0 0 5,977,945 264,517 150,910 5,977,945 1,395,528 0 0 0 38,478 4,985,802 4,582,417 2,242,362 2,242,362 1,177,518 3,116,015 0 0 40,681 (873,653) 172,367 (701,286) 0 0 0 (701,286) (.19) 0
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