-----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, OAP1Kwj7+HArKl9XtW16xrqCAsCadjiWRjAAAxd3xD5beR/c2YZBDhAHddOvGW0Y dGtvD+Dirw/XFXyW14im6g== 0001023298-99-000009.txt : 19990519 0001023298-99-000009.hdr.sgml : 19990519 ACCESSION NUMBER: 0001023298-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990518 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: 99629726 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 March 31, 1999 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.) 11755 Wilshire Blvd., Suite 2200 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 May 12, 1999: Common 4,108,838 AVENUE ENTERTAINMENT GROUP, INC. Table of Contents PART I. FINANCIAL INFORMATION Page No. Consolidated Condensed Balance Sheets - March 31, 1999 (unaudited) and December 31, 1998 1 Unaudited Consolidated Condensed Statements of Operations - Three Months Ended March 31, 1999 and 1998 2 Unaudited Consolidated Condensed Statements of Cash Flows - Three Months Ended March 31, 1999 and 1998 3 Unaudited Notes to Consolidated Condensed Financial Statements 5 Management's Discussion and Analysis or Plan of Operation 7 PART II. OTHER INFORMATION Signatures 11 PART I. FINANCIAL INFORMATION AVENUE ENTERTAINMENT GROUP, INC. Consolidated Condensed Balance Sheets March 31, December 31, 1999 1998 Assets (unaudited) Cash $ 390,064 $ 427,240 Marketable securities 251,890 339,716 Accounts receivable 78,619 108,515 Income tax receivable 55,000 55,000 Films costs, net 1,049,623 1,091,646 Property and equipment, net 82,379 87,272 Other assets 36,254 29,766 Goodwill 2,103,899 2,174,029 ----------- ----------- Total assets $4,047,728 $4,313,184 ========== ========== Liabilities and Stockholders' Equity Accounts payable and accrued expenses $ 1,014,014 $ 1,024,862 Loan payable 127,500 127,500 Deferred compensation 183,506 145,006 Due to related party 99,477 94,481 ----------- ---------- Total liabilities 1,424,497 1,391,849 ----------- ---------- Stockholders' equity Common stock, par value $.01 per share 41,088 41,088 Additional paid-in capital 6,424,571 6,415,196 Deficit (3,692,428) (3,384,949) Note receivable for common stock (150,000) (150,000) ---------- ---------- Total stockholders' equity 2,623,231 2,921,335 ---------- ---------- Total liabilities and stockholders' equity $4,047,728 $4,313,184 ========== ========== See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited) Three months Three months ended March 31, ended March 31, 1999 1998 ----------- ---------- Operating revenues $ 177,669 $ 239,701 ----------- ---------- Costs and expenses: Film production costs 66,826 32,699 Selling, general and administrative expenses 471,069 664,762 ----------- ---------- Total costs and expenses 537,895 697,461 ----------- ---------- Unrealized gain on trading securities 30,268 Gain on sale of investments 24,480 Loss before income tax (305,478) (457,760) Income tax expense 2,001 5,301 ----------- --------- Net loss $ (307,479) $(463,061) =========== ========== Basic and diluted loss per common stock $ (.07) $ (.11) =========== ========== See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued) (unaudited)
Three months Three months Ended Ended March 31, March 31, 1999 1998 Cash flows from operating activities: Net loss $ (307,479) $ (463,061) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 6,124 5,913 Amortization - film production costs 60,396 25,200 Amortization - goodwill 70,130 70,130 Gain on sale of investments (24,480) Unrealized gain on trading securities (30,268) Proceeds from sale of marketable securities 142,574 Deferred compensation 38,500 Stock compensation 9,375 9,375 Changes in assets and liabilities which affect net income: Accounts receivable 29,896 (74,784) Film costs (18,373) (104,007) Other assets (6,488) (13,396) Accounts payable and accrued expenses (10,848) 41,571 Due to related party 4,996 ----------- - Net cash used in operating activities (35,945) (503,059) ----------- ----------- Cash flows from investing activities: Purchase of equipment (1,231) (2,364) ----------- ------------ Net cash used in investing activities (1,231) (2,364) ------------ ------------- See accompanying notes to the consolidated condensed financial statements.
AVENUE ENTERTAINMENT GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued) (unaudited) Three months Three months ended Ended March 31, March 31, 1999 1998 Cash flows from financing activities: Principal payments of capital lease obligations - (4,230) --------- ---------- Net decrease in cash (37,176) (509,653) Cash at beginning of year 427,240 1,158,347 ------- ---------- Cash at end of period $390,064 $ 648,694 ======= ========== Supplemental cash flow information: Cash paid during the year for: Interest $ 2,707 $ 3,305 ------- ---------- Income taxes $ 2,001 $ 5,301 ======== ========== See accompanying notes to consolidated condensed financial statements. 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, 1998. 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, 1999, the results of operations and its cash flows for the three months ended March 31, 1999 and 1998 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) (Unaudited) 2. Film costs Film costs consist of the following: March 31, December 31, 1999 1998 In process or development $ 13,684 $ 2,076 Released, net of accumulated amortization of $12,515,642 and $12,455,246, respectively 1,035,939 1,089,570 ----------- ---------- $1,049,623 $1,091,646 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, 1999. The Company believes that it will be able to extend the note for an additional period on similar terms and conditions. At March 31, 1999, $127,500 was outstanding. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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, 1999, the Company had approximately $390,000 of cash and approximately $252,000 of marketable securities.Revenues have been insufficient to cover costs of operations for the quarter ended March 31, 1999. The Company has a working capital deficiency and has an accumulated deficit of $3,692,428 through March 31, 1999. 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 14, l999 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, 1999, the Company had a loss before income taxes of approximately $305,000 compared to a loss of $458,000 for the quarter ended March 31, 1998. The loss for the period was primarily the result of reduced revenues earned, partially mitigated by reduced selling, general and administrative expenses as well as 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, 1999 were approximately $178,000 compared to $240,000 for the three months ended March 31, 1998. The revenues earned in 1998 were derived from the licensing of rights of the "Hollywood Collection" in secondary markets through Janson Associates. 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". Film production costs Film production costs for the three months ended March 31, 1999 were $67,000 compared to $33,000 for the three months ended March 31, 1998 as a result of costs associated with the feature sold to Bravo, "Betty Buckley, In Performance and In Person". Selling, General and Administrative Selling, general and administrative (S,G&A) expenses for the three months ended March 31, 1999 were $471,000 compared to $665,000 for the three months ended March 31, 1998. The reduced S,G&A in 1999 is the result of efforts to reduce expenses and personnel costs due to the reduced level of revenue. 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 instru- ments 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. Year 2000 The Company is aware of the issues associated with the programming code in existing computer systems as the millennium (year 2000) approaches.The "year 2000" problem is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two digit year value to 00. The issue is whether computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company is utilizing both internal and external resources to identify, correct or reprogram and test systems for year 2000 compliance. The Company operates its financial reporting systems through a personal computer based accounting and general ledger package. The Company is in the process of installing the required updates to the system to make the system year 2000 compliant. The Company believes that these updates will cost approximately $5,000 and be complete by the end of the second quarter of 1999. The Company has also identified various ancillary programs that need to be updated and has contracted with third parties for this work to be completed within the next six months. It is expected that the cost of these modifications will be approximately $5,000. In addition, the Company is examining their exposure to the year 2000 in other areas of technology. These areas include telephone and E-mail systems, operating systems and applications in free standing personal computers, local area networks and other areas of communication. A failure of these systems, which may impact the ability of the Company to service their customers which could have a material effect on their results of operations. These issues are being handled by the finance team at the Company by identifying the problems and obtaining from service providers either the necessary modifications to the software or assurances that the systems will not be disrupted. The Company believes that the cost of the programming and equipment upgraded will not be in excess of $7,500. In addition, certain personnel computers and other equipment that is not year 2000 compliant will be upgraded through the Company's normal process of equipment upgrades. The Company believes that the evaluation and implementation process will be complete no later than the second quarter of 1999. Over the next year, the Company plans to continue to develop and implement other information technology projects needed in the ordinary course of business. The Company expects to finance these expenditures from working capital. Therefore, the Company does not expect the year 2000 issue to have a material adverse impact on its financial position or results of operations. Like other companies, the Company relies on its customers for revenues and on its vendors for products and services of all kinds; these third parties all face the year 2000 issue. An interruption in the ability of any of them to provide goods or services, or to pay for goods or services provided to them, or an interruption in the business operations of our customers causing a decline in demand for services, could have a material adverse effect on the Company in turn. In addition, there is a risk, the probability of which the Company is not in a position to estimate, that the transition to the year 2000 will cause wholesale, perhaps prolonged, failures of electrical generation, banking, telecommunications or transportation systems in the United States or abroad, disrupting the general infrastructure of business and the economy at large. The effect of such disruptions on the Company could be material. The Company's various departments will communicate with their principal customers and vendors about their year 2000 readiness, and expect this process to be completed no later than the third quarter of 1999. None of the responses received to date suggests that any significant customer or vendor expects the year 2000 issue to cause an interruption in its operations which would have a material adverse impact on the Company. However, because so many firms are exposed to the risk of failure not only of their own systems, but of the systems of other firms, the ultimate effect of the year 2000 issue is subject to a very high degree of uncertainty. The Company believes that its preparations currently under way are adequate to assess and manage the risks presented by the year 2000 issue, and does not have a formal contingency plan at this time. The statements in this section regarding the effect of the year 2000 and the Company's responses to it are forward-looking statements.They are based on assumptions that the Company believes to be reasonable in light of its current knowledge and experience. A number of contingencies could cause actual results to differ materially from those described in forward-looking statements made by or on behalf of the Company. 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. PART II. OTHER INFORMATION AVENUE ENTERTAINMENT GROUP, INC. March 31, 1999 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 18, 1999 Gene Feldman Chairman of the Board DATE: May 18, 1999 Cary Brokaw President and Chief Executive Officer, Director DATE: May 18, 1999 Ira J. Sobotko Principal Accounting Officer EX-27 2
5 0001023298 AVENUE ENTERTAINMENT GROUP, INC. 3-MOS DEC-31-1999 MAR-31-1999 390,064 251,890 78,619 0 1,049,623 0 251,445 169,066 4,047,728 1,424,497 0 0 0 41,088 2,582,143 4,047,728 177,669 177,669 66,826 537,895 471,069 0 0 (305,478) 2,001 (307,479) 0 0 0 (307,479) (.07) (.07)
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