10QSB 1 tenq601.txt JUNE 30, 2001 AVENUE 10-Q 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, 2001 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 August 10, 2001: Common Stock 5,371,030 AVENUE ENTERTAINMENT GROUP, INC. Table of Contents PART I. FINANCIAL INFORMATION Page No. -------- Unaudited Consolidated Condensed Balance Sheet - June 30, 2001 1 Unaudited Consolidated Condensed Statements of Operations - Three Months and Six Months Ended June 30, 2001 and 2000 2 Unaudited Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 2001 and 2000 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 PART I. FINANCIAL INFORMATION AVENUE ENTERTAINMENT GROUP, INC. UNAUDITED Consolidated Condensed Balance Sheet June 30, 2001 Assets Cash $ 100,022 Accounts receivable 86,371 Income tax receivable 18,632 Film costs, net 605,561 Property and equipment, net 45,550 Goodwill 1,620,314 Other assets 17,357 ----------- Total assets $ 2,493,807 ========= Liabilities and Stockholder's Equity Accounts payable and accrued expenses $ 657,133 Deferred income 241,075 Loan payable 18,000 Deferred compensation 749,199 Due to related party 146,597 ---------- Total liabilities 1,812,004 --------- Stockholders' equity Common stock, par value $.01 per share 53,710 Additional paid-in capital 7,172,839 Accumulated Deficit (6,391,059) Treasury Stock (3,687) Note receivable for common stock (150,000) ----------- Total stockholders' equity 681,803 ----------- Total liabilities and stockholders' equity $ 2,493,807 ========== See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three months Six Months ended June 30, ended June 30, -------------- -------------- 2001 2000 2001 2000 ----- ----- ----- ---- Operating revenues $ 258,798 $ 149,009 $ 330,895 $ 248,935 --------------- ----------------- ---------------- --------------- Cost and expenses: Film production costs 87,001 84,682 105,387 136,065 Selling, general & administrative expenses 389,631 489,820 883,284 992,845 ------------------------------------------------------------------------ Total costs and expenses 476,632 574,502 988,671 1,128,910 ------------------------------------------------------------------------ Loss before income tax (217,834) (425,493) (657,776) (879,975) Income tax expense 1,600 931 1,650 1,059 ------------------------------------------------------------------------ Net loss $ (219,434) $ (426,424) $ (659,426) $ (881,034) ======================================================================== Basic and diluted loss per common stock $ TBD $ (0.05) $ TBD $ (0.19) ========================================================================
See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six months ended Six months June 30, ended 2001 June 30, ------------- 2000 Cash flows from operating activities: Net loss $ (659,426) $ (881,034) Adjustments to reconcile net loss to net cash (used for) proovided by operating activities: Depreciation 9,813 12,085 Amortization - film production costs 91,946 101,541 Amortization - goodwill 146,675 140,260 Deferred compensation 229,339 84,769 Stock compensation 0 18,750 Changes in assets and liabilities which affect net income: Accounts receivable 27,365 398,663 Film costs (20,917) (59,249) Other assets 282 1,997 Accounts payable and accrued expenses (50,784) 14,843 Deferred income 99,076 53,150 Loan payable 18,000 0 Due to related party --------- (449) 0 ------ - Net cash used for by operating activities (109,080) (114,225) Cash flows from investing activities: Purchase of equipment (3,267) (1,264) ------------- ---------- Net cash used in investing activities (3,267) ------------- (1,264)
See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six months ended Six months June 30, ended 2001 June 30, ------------- 2000 Cash flows from financing activities: Issuance of common stock (repayment of long term debt) $ 50,000 $ (80,000) ------------- ----------- Net cash provided by (used for) financing activities 50,000 (80,000) Net decrease in cash (63,347) (195,489) Cash at beginning of year 162,369 476,198 ----------- ---------- Cash at end of period $ 100,022 $ 280,709 =========== ========== Supplemental cash flow information: Cash paid during the year for: Interest $ $ 2,008 ========== =========== 685 Income taxes $ 1,650 $ 1,059 ============= ===========
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, 2000. The Independent Auditor's Report dated April 10, 2001 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. 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, 2001, the results of operations and its cash flows for the six months ended June 30, 2001 and 2000 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: June 30, 2001 In process or development $ 288,104 Released, net of accumulated amortization 317,457 of $16,600,950 ------- $ 605,561 ========== 3. Loan Payable On April 9, 2001 the Company entered into an unsecured loan for $100,000 at prime plus 1% with City National Bank which matures January 1, 2002. As of June 30, 2001 $18,000 had been borrowed under the loan. 4. Acquisition On February 8, 2001, the Company concluded a merger with Double Bay Entertainment, Inc. ("DBE") for the purchase of LCA Productions, Inc. ("LCA"). In connection with the merger 400,000 shares of the Company's common stock were exchanged on closing and an additional 330,000 shares were exchanged in March 2001. In connection with this transaction, the Company recorded $154,000 in goodwill which represents the excess of the purchase price over the fair value of the Company. The goodwill is being amortized over ten years. 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, 2001, the Company had approximately $100,000 of cash. Revenues have been insufficient to cover costs of operations for the quarter ended June 30, 2001. The Company has a working capital deficiency and has an accumulated deficit of $6,391,000 through June 30, 2001. 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 10, 2001 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, 2001, the Company had a loss before income taxes of approximately $218,000 and $658,000 compared to a loss of $425,000 and $880,000 for the quarter and six months ended June 30, 2000. The loss for the period was primarily the result of reduced revenues earned. Revenues Revenues for the three months ended June 30, 2001 were approximately $259,000 compared to $149,000 for the three months ended June 30, 2000. The revenues earned in 2001 were derived from the licensing of rights of the "Hollywood Collection" in secondary markets through Janson Associates and for the movie, "Danny" through Monterey Video. The revenues earned in 2000 included a nonrefundable $50,000 supervisory development fee related to the setup of two motion pictures with a third party financier. Revenues for the six months ended June 30, 2001 were approximately $331,000 compared to $249,000 for the six months ended June 30, 2000. Film production costs Film production costs for the quarter and six months ended June 30, 2001 were $87,000 and $105,000 compared to $85,000 and $136,000 for the quarter and six months ended June 30, 2000. Selling, General and Administrative Selling, general and administrative (S,G&A) expenses for the quarter and six months ended June 30, 2001 were $390,000 and $883,000 compared to $490,000 and $993,000 for the quarter and six months ended June 30, 2000. Recent Developments Due to the Company's failure to meet the American Stock Exchange's ("AMEX") maintenance criteria, the Company listing on the AMEX was discontinued on April 25, 2001. The shares of the Company's Common Stock which were previously listed on the AMEX are currently listed on the over-the-counter market on the Nasdaq Electronic Bulletin Board. Pursuant to a stock subscription agreement between the Company and Robison Enterprises, Inc ("REI"), upon closing in February 2001 REI received 50,000 shares of the Company's Common Stock (the "Subscription Shares") in exchange for $50,000. On or before the last day of each month, commencing on the month following the month of the closing, REI shall purchase at least 50,000 shares at $1.00 per share of the remaining 550,000 shares until such time as all such remaining shares have been purchased by REI. In addition, REI was issued a Warrant to purchase an additional 600,000 shares at $2.00 per share, which may only be exercised after all of the Subscription Shares have been purchased by REI. No additional purchases under the stock subscription agreement have been made subsequent to the closing. Pursuant to an Agreement and Plan of Merger the Company acquired LCA Productions, Inc. ("LCA") in exchange for up to 800,000 shares of the Company's Common Stock of which 400,000 was exchanged at closing in February 2001. Upon the first draw down of the production financing, or such earlier date depending on certain criteria being met, Double Bay Entertainment, Inc. ("DBE") will have a right to receive an additional 400,000 shares of the Company's Common Stock. As of June 30, 2001, DBE received 330,000 of the additional 400,000 shares of the Company's common stock. Recent Accounting Developments In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. During June 1999, SFAS No. 137 was issued which delayed the effective date of SFAS No. 133 to January 1, 2001. In June 2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133," which intended to simplify the accounting for derivative under SFAS No. 133 and is effective upon the adoption of SFAS No. 133. The adoption of SFAS No. 133 did not have an effect on the results of operations, as the Company does not use derivative instruments. In June 2000, the Financial Accounting Standards Board issued SFAS No. 139, "Recission of FASB Statement No. 53 and amendments to FASB Statements No. 63, 89 and 121" which rescinds FASB No. 53, "Financial Reporting by Producers and Distributors of Motion Picture Films." An Entity that was previously subject to the requirements on SFAS No. 53 shall follow the guidance in AICPA Statement of Position 00-2, "Accounting by Producers or Distributors of Films. This statement is effective for financial statements for fiscal years beginning after December 15, 2000. The adoption of SOP 00-2 did not have a material effect on our results of operations. 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; 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, 2001 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 15, 2001 Gene Feldman Chairman of the Board DATE: August 15, 2001 Cary Brokaw President and Chief Executive Officer, Director DATE: August 15, 2001 Sheri L. Halfon Senior Vice President, Chief Financial Officer