-----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, Sj5JrkcdDQUKtYZyzfJzKNcbqHniXI/ig/GiXFMwQNKNAuk7knR398I1hS78Cant dYpLL6KbOjqgfJDihshc9w== 0001023298-98-000012.txt : 19980817 0001023298-98-000012.hdr.sgml : 19980817 ACCESSION NUMBER: 0001023298-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 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: 98689597 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-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, 1998 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 August 10, 1998. Common Stock 4,108,838 AVENUE ENTERTAINMENT GROUP, INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page No. Consolidated Condensed Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997 1 Consolidated Condensed Statement of Operations - Three Months and Six Months Ended June 30, 1998 and 1997 2 Consolidated Condensed Statement of Cash Flows - Six Months Ended June 30, 1998 and 1997 3 Notes to Consolidated Condensed Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Signatures 11 PART I. FINANCIAL INFORMATION AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS June 30, December 31, 1998 1997 Assets (unaudited) Cash $ 457,677 $ 1,158,347 Marketable Securities 534,628 562,711 Accounts receivable 156,779 126,492 Income tax receivable 208,000 235,000 Films costs, net 1,521,643 1,481,571 Property and equipment, net 92,826 102,356 Other assets 38,310 18,709 Goodwill 2,314,289 2,454,549 ----------- ----------- Total assets $5,324,152 $6,139,735 ========== ========== Liabilities and Stockholders' Equity Accounts payable and accrued expense $ 928,046 916,419 Loan payable 127,500 127,500 Capitalized lease obligations 8,459 Due to related party 94,480 94,480 ----------- ---------- Total liabilities 1,150,026 1,146,858 ---------- ---------- Stockholders' equity Common stock, par value $.01 per share 41,088 40,728 Additional paid-in capital 6,396,446 6,232,256 Accumulated deficit (2,113,408) (1,327,818) Accumulated comprehensive income 197,711 Note receivable for common stock (150,000) (150,000) ------------- ---------- Total stockholders' equity 4,174,126 4,992,877 ----------- ---------- Total liabilities and stockholders' equity $5,324,152 $6,139,735 ========== ========== See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three months Six months ended June 30, ended June 30, ---------------- ---------------- 1998 1997 1998 1997 ------- ------ ------- ------- Operating revenues $ 170,057 $ 352,151 $ 409,758 $ 2,126,312 ----------- ---------- ---------- ----------- Cost and expenses: Film production costs 140,553 98,201 173,252 1,150,828 Selling, general & administrative expenses 555,506 634,311 1,220,268 1,339,815 ----------- --------- ---------- ----------- Total costs and expenses 696,059 732,512 1,393,520 2,490,643 ----------- ---------- ---------- ----------- Unrealized gains on trading securities 205,628 205,628 ----------- ---------------- ----------- Loss before income tax (320,374) (380,361) (778,134) (364,331) Income tax benefit (expense) (2,155) 84,531 (7,456) 72,367 ------------ ----------- ------------ ----------- Net loss $ (322,529) $ (295,830) $ (785,590) $ (291,964) ========== ========== ========== ========== Basic and diluted loss per share $ (.08) $ (.08) $ (.19) $ (.08) ============== ============= ============= ============ Weighted average shares outstanding 4,090,838 3,735,338 4,083,124 3,719,267 =========== ========== ========== ========== See accompanying notes to the consolidated condensed financial statements.
AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended June 30, 1998 1997 Cash flows from operating activities: Net loss $ (785,590) $ (291,964) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 11,893 13,175 Amortization-film production costs 163,039 1,110,382 Amortization-goodwill 140,260 140,260 Unrealized gains on trading securities (205,628) Stock option compensation 18,750 18,750 Changes in assets and liabilities which affect net income: Accounts receivable (30,287) (294,556) Film costs (203,110) (658,225) Other assets (19,601) 17,482 Accounts payable and accrued expenses 11,627 297,982 Income taxes payable 27,000 (80,000) Advances from customers (535,730) ---------- ---------- Net cash used in operating activities (871,647) (262,444) ---------- ---------- Cash flows from investing activities: Proceeds from sale of marketable securities 36,000 Purchase of equipment (2,364) (16,455) ---------- ----------- Net cash provided by (used in) investing activities 33,636 (16,455) ---------- ----------- AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) Six months ended June 30, 1998 1997 Cash flows from financing activities: Sale of common stock $ 145,800 $ Principal payments of capital lease obligation (8,459) (17,503) ----------- -------- Net cash provided by (used in) financing activities 137,341 (17,503) ---------- --------- Net decrease in cash (700,670) (296,402) Cash at the beginning of period 1,158,347 687,080 ---------- ---------- Cash at the end of period $ 457,677 $ 390,678 ========== ========== Supplemental disclosures of cash flow information: Cash paid during the periods for: Interest $ 6,638 $ 35,344 ========== ========== Income taxes $ 7,456 $ 191,509 ========== ========= See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. 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 world-wide television network exhibition or pay television, television syndications 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, 1997. 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, 1998, the results of operations and its cash flows for the six months ended June 30, 1998 and 1997 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 CONDENSED FINANCIAL STATEMENTS (Continued) 2. Film costs Film costs consist of the following: June 30, December 31, 1998 1997 In process or development $ 184,442 $ 47,955 Released, net of accumulated amortization of $11,916,113 and $11,753,074 1,337,201 1,433,616 --------- --------- $1,521,643 $ 1,481,571 ========= ========= 3. Loan payable On May 27, 1997, the Company entered into an unsecured demand note which provided the Company with borrowings (the "Note") in the principal amount of $250,000, at prime plus 1%, with Fleet Bank, National Association ("Fleet"), which was payable on demand, but in any event not later then May 27, 1998. As of June 1, 1998, Fleet extended the Note for an additional one-year period and reduced the available borrowing amount of the Note to $150,000. As of June 30, 1998, $127,500 had been borrowed under the Note at an interest rate of 9.5%. The Note is payable on demand, but in any event not later then May 27, 1999. 4. Comprehensive income The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 130. "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income and its components in general purpose financial statements for the year ended December 31, 1998. The following are the components of comprehensive income: Six months ended June 30, June 30, 1998 1997 --------- ------- Net loss $ (785,590) $ (291,964) Other comprehensive income, net of tax: Unrealized gains on marketable securities 11,269 ----------- ---------- Comprehensive income $ (785,590) $ (280,695) =========== ========== AVENUE ENTERTAINMENT GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) 4. Comprehensive income (Continued) The components of accumulated comprehensive income, net of related tax are as follows: June 30, December 31, 1998 1997 Unrealized gains on marketable securities $ $ 197,711 ------- ---------- Accumulated other comprehensive income $ $ 197,711 ======= ========== In June 1998, the Company made the decision to sell in the short-term its shares of GP Strategies common stock, which are classified on the Consolidated Balance Sheet as a Marketable security, in order to assist in funding its working capital needs. The effect of reclassifying these shares as trading securities from available for sale was a $205,628 decrease in Accumulated other comprehensive income on the Consolidated Balance Sheet and the recognition of an Unrealized gain on trading securities of $205,628 in the Consolidated Statement of Operations for periods ended June 30, 1998. 5. Sale of stock In May 1998, the Company sold 36,000 restricted shares of common stock to certain investors pursuant to a private placement transaction and realized net proceeds of approximately $146,000. The shares of common stock cannot be sold, transferred or assigned for a one-year period. The Company claimed an exemption from the registration requirements of the Securities Act of 1933 (the "Act") pursuant to Rule 506 of Registration D of the Act. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Liquidity and capital resources At June 30, 1998, the Company had approximately $458,000 of cash and approximately $535,000 of short term investments. Of the $458,000 of cash at June 30, 1998, approximately $300,000 has been earmarked for future residual payments which have been accrued in the financial statements. The residual payments would be payable on the earlier of the second air date of certain television productions or September 2000. 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 $250,000, at prime plus 1%, with Fleet Bank, National Association. The Note was payable on demand, but in any event not later then May 27, 1998. As of June 1, 1998, Fleet extended the Note for an additional one-year period and reduced the available borrowing amount of the Note to $150,000. As of June 30, 1998, $127,500 had been borrowed under the Note. The Note is payable on demand, but in any event not later then May 27, 1999. Management believes that the existing marketable securities 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. Results of operations For the quarter and six months ended June 30,1998 the Company had a loss before income taxes of $320,000 and $778,000 compared to a loss of $380,000 and $364,000 for the quarter and six months ended June 30, 1997. The increased loss for the periods was the result of reduced revenues earned by both Wombat and Avenue Pictures partially offset by a $205,000 unrealized gain on the transfer of GP Strategies common stock from available for sale to trading securities in June 1998. Revenues Revenues for the three months ended June 30, 1998 were $170,000 compared to $352,000 for the three months ended June 30, 1997. Revenues from the operations of Avenue Pictures for the three months ended June 30, 1998, were approximately $92,000, which were primarily derived from development fees, as compared to approximately $174,000 in 1997 which were primarily derived from recognition of the production and overhead fees on the feature film "Finding Graceland". Revenues from Wombat's operations for the three months ended June 30, 1998 were approximately $78,000 as compared to $179,000 for the three months ended June 30, 1997. Of the revenues earned by Wombat during the three months ended June 30, 1997, approximately $120,000 was derived from the completion and availability of a one-hour motion picture profile for A&E and the remaining revenue in 1997 and all the revenue in 1998 was derived from licensing of rights for Wombat programming in secondary markets through Janson Associates. Revenues for the six months ended June 30, 1998 were $410,000 compared to $2,126,000 for the six months ended June 30, 1997. Revenues from the operations of Avenue Pictures for the six months ended June 30, 1998 were approximately $112,000 which were primarily derived from development fees as compared to approximately $1,447,000 for the six months ended June 30, 1997 which 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 "Finding Graceland". Revenues from Wombat's operations for the six months ended June 30, 1998 were approximately $297,000, as compared to approximately $680,000 for the six months ended June 30, 1997. Wombat's revenue of $297,000 in 1998 was derived from the licensing of rights to Wombat programming in secondary markets through Janson Associates. Of the revenues earned by Wombat during the six months ended June 30, 1997, approximately $250,000 was derived from the completion and availability of two one-hour motion picture profiles for A&E. The remaining revenue of $430,000 was derived from licensing of rights for Wombat programming in secondary markets through Janson Associates. Film Production Costs Cost of revenues for the three months ended June 30, 1998 was $141,000 compared to $98,000 for the three months ended June 30, 1997. The increase can be primarily attributed to increased amortization costs related to Wombat's film library, despite reduced revenues. Cost of revenues for the six months ended June 30, 1998 was $173,000 compared to $1,151,000 for the six months ended June 30, 1997. The decrease is the result of reduced revenue recognized for the period. Selling, General and Administrative Selling, general and administrative (S,G&A) expenses for the three months ended June 30, 1998 were $636,000 compared to $634,000 for the three months ended June 30, 1997. The reduced S,G&A cost for the period was the results of efforts to reduce expenses and personnel costs due to the reduced revenue level. Selling,general and administrative expenses for the six months ended June 30, 1998 were $1,220,000 compared to $1,340,000 for the six months ended June 30, 1997. The reduced S,G&A cost for the period was the results of efforts to reduce expenses and personnel costs due to the reduced revenue level. Recent accounting developments The Financial Accounting Standards Board issued Accounting Standards (SFAS 130), "Reporting Comprehensive Income", in June 1997 which requires a statement of comprehensive income to be included in the financial statements for fiscal years beginning after December 15, 1997. The Company has included the required information in Note 4 to the Consolidated Financial Statements. In addition, in June of 1997, the FASB issued SFAS 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS 131 requires disclosure of certain information about operating segments and about products and services, geographic areas in which a company operates, and their major customers. The Company is presently in the process of evaluating the effect that this new standard will have on disclosures in the Company's financial statements and the required information will be reflected in the year ended December 31, 1998 financial statements. 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 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. 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; production risks; dependence on contracts with certain customers; future foreign distribution arrangements 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. PART II. OTHER INFORMATION AVENUE ENTERTAINMENT GROUP, INC. June 30, 1998 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, 1998 BY: Gene Feldman Chairman of the Board DATE: August 14, 1998 BY: Cary Brokaw President and Chief Executive Officer, Director DATE: August 14, 1998 BY: Ira J. Sobotko Principal Accounting Officer EX-27 2
5 0001023298 AVENUE ENTERTAINMENT GROUP, INC. 6-MOS DEC-31-1998 JUN-30-1998 457,677 534,628 156,779 0 0 5,324,152 267,479 174,653 5,324,152 1,150,026 0 0 0 41,088 4,133,038 5,324,152 409,758 409,758 173,252 1,393,520 0 0 6,638 (778,134) 7,456 (785,590) 0 0 0 (785,590) (.19) (.19)
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