-----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, WfEUVNJ7IiF1B3yminP4952gvgf/SZwbgSN3Bjjjg4nhrku2+UH5deiKlhA6KWdF ZDJCSLA8r/kdVFItcJ+HlA== 0001023298-02-000022.txt : 20020814 0001023298-02-000022.hdr.sgml : 20020814 20020814140049 ACCESSION NUMBER: 0001023298-02-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 1934 Act SEC FILE NUMBER: 001-12885 FILM NUMBER: 02734294 BUSINESS ADDRESS: STREET 1: 11111 SANTA MONICA BLVD STREET 2: SUITE 2110 CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 3109966800 MAIL ADDRESS: STREET 1: 9 WEST 57TH ST STREET 2: SUITE 4170 CITY: NEW YORK STATE: NY ZIP: 10019 10-Q 1 av10q602.txt AVENUE ENTERTAINMENT SECOND QUARTER 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, 2002 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, 2002: 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, 2002 1 Unaudited Consolidated Condensed Statements of Operations - Three and Six Months Ended June 30, 2002 and 2001 2 Unaudited Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 3 Unaudited Notes to Consolidated Condensed Financial Statements 5 Management's Discussion and Analysis or Plan of Operation 8 PART II. OTHER INFORMATION Signatures 12 PART I. FINANCIAL INFORMATION AVENUE ENTERTAINMENT GROUP, INC. UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET June 30, 2002 (unaudited) Assets Cash $ 481,529 Accounts receivable, net of allowance of $10,000 104,907 Film costs, net 352,879 Property and equipment, net 30,345 Goodwill, net of accumulated amortization of $2,049,200 909,999 Other assets 17,511 ---------- Total assets $ 1,897,170 ========= Liabilities and Stockholders' Deficit Accounts payable and accrued expenses $ 466,356 Deferred income 451,640 Deferred compensation 872,679 Due to related party 146,597 ---------- Total liabilities 1,937,272 --------- Stockholders' deficit Common stock, par value $.01 per share, $15,000,000 shares authorized, 5,371,030 shares issued and outstanding 53,710 Additional paid-in capital 7,172,839 Accumulated deficit (7,112,964) Treasury stock, at cost (3,687) Note receivable for common stock (150,000) ----------- Total stockholders' deficit (40,102) ----------- Total liabilities and stockholders' deficit $ 1,897,170 ========== See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three months Three months Six months ended ended Six months ended ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------- ------------- ------------- ------------- (unaudited) (unaudited) (unaudited) (unaudited) ----------- ----------- Operating revenues $ 494,663 $ 258,798 $ 1,010,908 $ 330,895 --------- ----------------- ---------------- ---------------- Cost and expenses: Film production costs 34,146 87,001 57,137 105,387 Selling, general & administrative expenses 316,478 389,631 638,883 883,284 Impairment loss on goodwill 0 0 0 0 ----------------------------------------------------------------------- Total costs and expenses 350,624 476,632 696,020 988,671 ----------------------------------------------------------------------- Income (loss) before income tax 144,039 (217,834) 314,888 (657,776) Income tax expense 0 1,600 460 1,650 ----------------------------------------------------------------------- Net income (loss) $ 144,039 $ (219,434) $ 314,428 $ (659,426) ======================================================================= Basic and diluted income (loss) per common stock $ .03 $ (.01) $ .06 $ (.13) === ===== === ===== Weighted average common shares outstanding 5,371,003 5,183,141 5,371,003 5,183,141 =======================================================================
See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Six months Six months ended ended June 30, June 30, 2002 2001 (unaudited) (unaudited) Cash flows from operating activities: Net profit (loss) $ 314,428 $ (659,426) Adjustments to reconcile net loss to net cash (used for) provided by operating activities: Depreciation 6,993 9,813 Amortization - film production costs 45,515 91,946 Amortization - goodwill 0 146,675 Deferred compensation 59,720 229,339 Changes in assets and liabilities which affect net income: Accounts receivable 122,887 27,365 Film costs (21,282) (20,917) Other assets 829 282 Accounts payable and accrued expenses (143,222) (50,784) Deferred income 102,932 99,076 Due to related party 0 (449) -------------- ------------ Net cash provided by (used for) operating activities 488,800 (127,080) Cash flows from investing activities: Purchase of equipment 0 (3,267) ------------- ----------- Net cash used for investing activities 0 (3,267) ------------- -----------
See accompanying notes to the consolidated condensed financial statements. AVENUE ENTERTAINMENT GROUP, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six months Six months ended ended June 30, June 30, 2002 2001 ---------- --------- (unaudited) (unaudited) Cash flows from financing activities: Issuance of common stock $ 50,000 - Repayment of loan payable (80,000) 18,000 ------------- ----------- Net cash provided by (used for) financing activities (80,000) 68,000 Net increase (decrease) in cash 408,800 (62,347) Cash at beginning of year 72,729 162,369 ----------- ---------- Cash at end of period $ 481,529 $ 100,022 ========== ========== Supplemental cash flow information: Cash paid during the year for: Interest $ 674 $ 685 =========== ============= Income taxes $ 460 $ 1,650 =========== ============
See accompanying notes to 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 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, 2001. The Independent Auditor's Report dated March 28, 2002 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, 2002, and the results of its operations and its cash flows for the six months ended June 30, 2002 and 2001 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) Earnings (Loss) per Common Share The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which established standards for computing and presenting earnings per share (EPS). The statement simplifies the standards for computing EPS, replaces the presentation of primary EPS with a presentation of basic EPS and requires a dual presentation of basic and diluted EPS on the face of the income statement. Basic EPS are based upon the weighted average number of common shares outstanding during the period. Diluted EPS are based upon the weighted average number of common shares if all dilutive potential common shares had been outstanding. The following potential common shares have been excluded from the computation of diluted net income (loss) per share for all periods presented because the effect would have been anti-dilutive: Six months ended June 30, 2002 2001 Options outstanding under the Company's stock option plan 985,000 985,000 Warrant issued in conjunction with a private placement 500,000 500,000 2. Film costs Film costs consist of the following: June 30, 2002 In process or development $ 96,992 Released, net of accumulated amortization 255,887 ---------- of $16,934,265 $ 352,879 ========== 3. Property and Equipment The major classes of property and equipment consist of the following: Useful June 30, life 2002 Machinery and equipment 4 to 5 years $ 233,207 Furniture and fixtures 10 years 29,495 Leasehold improvements 3 to 4 years 3,267 ---------- 265,969 Less accumulated depreciation (235,624) ---------- $ 30,345 Depreciation expense was $6,993 and $9,813 for the six months ended June 30, 2002 and 2001, respectively. 4. Change in Accounting Principle In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective for fiscal years beginning after December 15, 2001. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives but requires that these assets be reviewed for impairment at least annually or on an interim basis if an event occurs or circumstances change that could indicate that their value has diminished or been impaired. Other intangible assets will continue to be amortized over their estimated useful lives. Pursuant to SFAS 142, amortization of goodwill and assembled workforce intangible assets recorded in business combinations prior to June 30, 2001 ceased effective January 1, 2002. Goodwill resulting from business combinations completed after June 30, 2001 will not be amortized. The Company recorded amortization expense of $294,633 on goodwill during the fiscal year ended December 31, 2001. The Company currently estimates that application of the non-amortization provisions of SFAS 142 will reduce amortization expense and increase net income by approximately $294,000 in fiscal 2002. The Company will test goodwill and intangible assets with indefinite lives for impairment during the fiscal year beginning January 1, 2002 and any resulting impairment charge will be reflected as a cumulative effect of a change in accounting principle item 2. MANAGE,EMT'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. Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements require management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expense and disclosures at the date of the financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition, accounts receivables, inventories and impairment of intangibles. We use authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our consolidated financial statements. Revenue Recognition. The Company recognizes revenue in accordance with the provisions of Statement of Financial Accounting Standards No. 139 and American Institute of Certified Public Accountants Statement of Position 00-2 (collectively referred to as "SOP 00-2"). Revenues from feature film distribution licensing agreements are recognized on the date the completed film is delivered or becomes available for delivery, is available for exploitation in the relevant media window purchased by that customer or licensee and certain other conditions of sale have been met pursuant to criteria set by SOP 00-2. Revenues from domestic television and video licensing contracts, which provide for the receipt of non-refundable guaranteed amounts, are recognized when the film is available for exhibition, provided that the other conditions of sale required by SOP 00-2 have been met. Until all conditions of sale have been met, amounts received on such licensing contracts are reflected in the accompanying financial statements as deferred income. International sales and other sales in the United States are recognized in the period in which payment is received. The market trend of each film is regularly examined to determine the estimated future revenues and corresponding lives. Due to the nature of the industry, management's estimates of future revenues may change within the next year and the change could be material. Revenues from producer-for-hire contracts are recognized on a percentage-of-completion method, measured by the percentage of costs completed to date to estimated total cost for each contract. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Film Costs. The Company capitalizes costs incurred to produce a film project, including the interest expense funded under the production loans. Such costs also include the actual direct costs of production and production overhead. These costs are amortized each period on an individual film program basis in the ratio that the current period's gross revenues from all sources for the program bear to management's estimate of anticipated total gross revenues for such film or program from all sources. Revenue estimates are reviewed periodically and adjusted where appropriate and the impact of such adjustments could be material. Film property costs are stated at the lower of unamortized cost or estimated net realizable value. Losses which may arise because unamortized costs of individual films exceed anticipated revenues are charged to operations through additional amortization. Advertising costs for theatrical and television product are expensed as incurred. Revenue associated with the home video market is recognized upon availability to customers (street date). Liquidity and Capital Resources At June 30, 2002, the Company had approximately $482,000 of cash. Revenues were sufficient to cover costs of operations for the quarter ended June 30, 2002. The Company has a working capital deficiency and has an accumulated deficit of $7,113,000 through June 30, 2002. 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 March 28, 2002 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. The six months ended June 30, 2002 as compared to the six months ended June 30, 2001. Revenues Revenues for the three months ended June 30, 2002 were approximately $495,000 compared to $259,000 for the three months ended June 30, 2001. Revenues earned in 2002 were derived primarily from producing fees for the HBO projects "Angels in America", "Normal" and "Path to War." The revenues earned in 2001 were primarily derived from the licensing of the rights of the "Hollywood Collection" in secondary markets through Janson Associates. Revenues for the six months ended June 30, 2002 were approximately $1,011,000 compared to $331,000 for the six months ended June 30, 2001. The revenues earned in 2002 included producing fees for the feature film, "Mindhunters", a nonrefundable fee for "Guilty", overhead fees for the HBO First Look Deal, and producing fees for the HBO projects, "Angels in America", "Normal" and "Path to War." 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. Film Production Costs Film production costs for the quarter and six months ended June 30, 2002 were $34,000 and $57,000 compared to $87,000 and $105,000 for the quarter and six months ended June 30, 2001. The decrease in film costs is related to the decrease in revenues derived from the licensing of the "Hollywood Collection." Selling, General and Administrative Selling, general and administrative (S,G&A) expenses for the quarter and six months ended June 30, 2002 were $316,000 and $639,000 compared to $390,000 and $883,000 for the quarter and six months ended June 30, 2001. The decrease in S,G&A is primarily due to the elimination of the quarterly goodwill amortization in addition to decreases in professional fees and salaries. Recent Developments The shares of the Company's Common Stock are currently listed on the OTC Bulletin Board ("OTCBB"). Due to the continued decline in the share price of the Company's Common Stock and continued operating losses, the Company received a letter from AMEX dated February 2001, stating that they had failed to meet the criteria of AMEX's continued listing guidelines. The exchange noted that the Company's operating results had been unsatisfactory and its financial condition had been impaired, that they have had losses in two of its three most recent fiscal years and losses in three of its four most recent fiscal years. In addition, the exchange noted that the Company's public float is below the exchange's minimum requirements, that they have not complied with the annual shareholders' meeting requirements and have not paid the exchange's listing fees. As a result, the Company's failure to meet AMEX's maintenance criteria resulted in the discontinuance of the inclusion of its shares in the AMEX in April 2001. Recent Accounting Pronouncements In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in APB No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The Company does not expect adoption of SFAS No. 145 to have a material impact, if any, on its financial position or 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. AVENUE ENTERTAINMENT GROUP, INC. June 30, 2002 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 99.1 Written Statement of the President and Chief Executive Officer pursuant 18 U.S.C. 1350. 99.2 Written Statement of the Vice President and Chief Financial Officer pursuant 18 U.S.C. 1350. (b) Form 8-K There were no reports filed under Form 8-K during the quarter ended June 30, 2002. 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, 2002 BY: Gene Feldman Chairman of the Board DATE: August 14, 2002 BY: Cary Brokaw President and Chief Executive Officer, Director DATE: August 14, 2002 BY: Sheri L. Halfon Senior Vice President, Chief Financial Officer EX-99 3 ex99-1.txt CEO WRITTEN STATEMENT Exhibit 99.1 Written Statement of the President and Chief Executive Officer Pursuant to 18 U.S.C. ss.1350 Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned President and Chief Executive Officer of Avenue Entertainment Group, Inc. (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Cary Brokaw August 15, 2002 EX-99 4 ex99-2.txt CFO WRITTEN STATEMENT Exhibit 99.2 Written Statement of the Senior Vice President and Chief Financial Officer Pursuant to 18 U.S.C. ss.1350 Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Senior Vice President and Chief Financial Officer of Avenue Entertainment Group (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Sheri Halfon August 15, 2002 -----END PRIVACY-ENHANCED MESSAGE-----