2

                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                   FORM 10-KSB

             [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                     THE SECURITIES EXCHANGE ACT OF 1934

                 For the Fiscal Year Ended December 31, 2000

                                       OR

              [ ] TRANSITION REPORT UNDER 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.
                (Name of Small Business Issuer in its charter)


            Delaware                                     95-4622429
(State or other jurisdiction               (I.R.S. Employer Identification No.)
of incorporation or organization)

11111 Santa Monica Blvd., Suite 525, Los Angeles, CA              90025
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:        (310) 996-6800

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class                   Name of each exchange on which registered:
Common Stock, $.01 Par Value                 American Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act:

                 None

Check whether the Registrant  (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 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

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. / /

State issuer's revenues for its most recent fiscal year.   $974,180

As of March 30, 2001,  the aggregate  market value of the voting and  non-voting
common equity,  held by non-affiliates  (assuming for this calculation only that
all officers and directors are affiliates) was  approximately  $419,101 based on
the closing  price of the Common Stock on the American  Stock  Exchange on March
30, 2000.

State the number of shares  outstanding of each of the  Registrant's  classes of
common stock, as of the most recent practicable date.

Class                                            Outstanding at March 30, 2001
Common Stock, par value $.01 per share                 5,371,030 shares

DOCUMENTS INCORPORATED BY REFERENCE:                              NONE


<PAGE>







                               TABLE OF CONTENTS

                                                              Page
PART I

      Item 1. Description of Business............................2

      Item 2. Description of Property...........................17

      Item 3. Legal Proceedings.................................17

      Item 4. Submission of Matters to a Vote of
              Security Holders..................................17

PART II

      Item 5. Market for the Registrant's Common Equity
              and Related Stockholder Matters...................18

      Item 6. Management's Discussion and Analysis of
              Financial Condition and Results of Operations.....18

      Item 7. Financial Statements..............................23

      Item 8. Changes In and Disagreements with Accountants
              on Accounting and Financial Disclosure............42

PART III

      Item 9. Directors, Executive Officers, Promoters
              and Control Persons; Compliance with
              Section 16(a) of the Exchange Act.................43

      Item 10.Executive Compensation............................45

      Item 11.Security Ownership of Certain
              Beneficial Owners and Management..................48

      Item 12.Certain Relationships and Related
              Transactions......................................51

      Item 13.Exhibits and Reports on Form 8-K..................53


<PAGE>


                                     PART I.

ITEM 1.  DESCRIPTION OF BUSINESS

Organization

      Avenue  Entertainment  Group,  Inc. (the "Company") was originally  called
Wombat  Productions  when it was  founded in 1969 by Gene  Feldman and his wife,
Suzette St. John Feldman.  Pursuant to the Business Combination described below,
the Company  acquired  Avenue  Pictures  from Cary  Brokaw.  At the time of this
acquisition, the Company's name was changed to Avenue Entertainment Group. Prior
to the Business Combination, the Company's primary focus had been the production
of  one-hour  profiles  of  Hollywood  Stars.  The  Company  is  an  independent
entertainment company that produces feature films,  television films, series for
televisions, made-for-television/cable movies and one-hour-profiles of Hollywood
stars both domestically and internationally.

Share Exchange and Reincorporation

      Pursuant to a Share Exchange  Agreement (the "Share Exchange  Agreement"),
dated as of September  30, 1996,  among Cary Brokaw,  Avenue  Pictures,  and The
CineMasters  Group,  Inc.  ("CineMasters"),  CineMasters  acquired  all  of  the
outstanding  capital  stock of Avenue  Pictures from Mr.  Brokaw,  then the sole
shareholder of Avenue Pictures,  in exchange for 1,425,000 shares of CineMasters
common stock ("CineMasters Common Stock") (the "Business Combination").

      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  Productions  division  (the  "Wombat  Division")  of
CineMasters   were   transferred,   subject  to  all  related   liabilities  and
obligations,  to its  newly-formed,  wholly-owned  Delaware  subsidiary,  Wombat
Productions  ("Wombat  Productions"),  (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 (the  "Reincorporation"),
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
(the  "Effective  Time").  As a result of the  Reincorporation,  Avenue Pictures
became a wholly-owned subsidiary of the Company.

General

      Mr. Brokaw has extensive  experience in the motion  picture  industry.  He
began his career in the marketing  department at Twentieth  Century Fox. He also
served as executive vice president at Cineplex Odeon and was president and chief
executive  officer of Island Pictures.  Mr. Brokaw has particular  experience in
producing and releasing modestly budgeted  independent films which appeal to the
more sophisticated theatergoer. He has enjoyed success with such films as Choose
Me, El Norte,  Kiss of the Spider Woman,  The Trip to  Bountiful,  Mona Lisa and

<PAGE>

Spike Lee's first film,  She's Gotta Have It. Mr. Brokaw is responsible  for the
production and release of Gus Van Sant's Drugstore  Cowboy,  James Foley's After
Dark, My Sweet,  Michael  Lindsay-Hogg's  The Object of Beauty,  Jane  Campion's
Sweetie,  and Jim  Sheridan's  The Field.  Mr. Brokaw was the producer of Robert
Altman's The Player,  the celebrated  and successful  comedy which was nominated
for five Academy awards, including Best Picture. Mr. Brokaw also produced Robert
Altman's Short Cuts, which was nominated for several Academy Awards.  Mr. Brokaw
also produced  Restoration,  the Academy-Award  winning and critically acclaimed
epic adventure  directed by Michael  Hoffman and released by Miramax  Films.  In
1996, Mr. Brokaw produced Sony Pictures' Voices from a Locked Room,  directed by
Malcolm  Clarke and  starring  Jeremy  Northam.  In February  1998,  the Company
completed  Finding  Graceland  starring Harvey Keitel,  Johnathan  Schaech,  and
Bridget Fonda, which was fully financed by Largo  Entertainment  Corp., a wholly
owned subsidiary of JVC  Entertainment,  Inc. All domestic rights to the picture
were licensed to the  Columbia/TriStar  Motion  Picture Group and Largo licensed
the picture internationally. In 1999, the Company completed Wayward Son starring
Harry  Connick,  Jr., Pete  Postlethwaite,  Patricia  Clarkson and Vanessa Shaw.
Financed by way of an insurance  backed bank loan,  the Company has no financial
exposure  with  respect to the  film's  success.  Subject  to the  bank's  first
position lien,  the Company holds the copyright to the film in  perpetuity.  The
Company is in the process of licensing the distribution rights to the film.

      The Company is in the  business of  producing  feature  films,  television
films,  series for television and  one-hour-profiles  of Hollywood Stars. As set
forth in greater detail below, Avenue Pictures is currently active in developing
and producing projects in each of its three areas of activity.

Feature Films

      Currently,  Mr. Brokaw serves as the producer or executive producer of all
the Company's feature films with overall  responsibility  for their development,
financing, and production arrangements.  The Company is paid a producing fee for
both the services of Mr.  Brokaw and for the  Company's  services in  connection
with the  development  and  production  of each feature  film,  in addition to a
negotiated  profit  participation.  The nature of the profit  participation is a
function of Mr.  Brokaw's  standing  as a producer  and the  Company's  relative
bargaining  position  with  respect to each  project.  As set forth  above,  the
Company's  bargaining position is enhanced by the development and "packaging" of
a project to the fullest possible extent before seeking the financial assistance
of a studio or distributor.

      The Company has  recently  concluded a three year  non-exclusive  multiple
co-financing  agreement with  Intermedia.  Intermedia is one of the  pre-eminent
foreign sales  companies in the film industry.  Intermedia has  co-financed  and
licensed such films as Sliding Doors, Hilary and Jackie, Woody Allen's Sweet and
Lowdown,  The Wedding Planner and the upcoming K-19 starring  Harrison Ford. The
agreement provides Avenue with favorable distribution terms for its films in the
international   market,   co-financing  for  its  feature  films  providing  for
co-ownership  of the  copyright  of most  films,  favorable  producing  fees and

<PAGE>

funding  for  the  film  development   expenses  of  projects   undertaken  with
Intermedia.

      Current  feature film  projects of the Company with  Intermedia  include
the following titles: Mindhunters, Original Sin and Phobic.

      The Company is scheduled to produce Mindhunters which would be co-financed
and licensed  internationally  by Intermedia.  Written by Wayne Kramer and Kevin
Brodbin,  the story  concerns a serial  killer amidst the most elite unit of the
FBI. The Company hopes to commence production in August 2001.

      Original Sin is a highly suspenseful thriller written by William Brown and
Antonella  Osborne  about a  celebrated  defense  attorney  whose life is turned
upside down when he is perfectly  framed for his ex-wife's  murder.  The Company
hopes to commence production late this year or early 2002.

      Phobic  is a highly  charged  and  terrifying  thriller  written  by Chris
Bertolet about a former New York homicide  detective  drawn back into the search
for a serial killer who kills his victims based on their worst feat.  Intermedia
will  co-finance  the  film and  license  it  internationally.  The  Company  is
currently  in  negotiations  with a potential  director.  The  Company  hopes to
commence production in early 2002.

      Although the Company continues to pursue vigorously the development and/or
production of these  projects,  there can be no assurance that each project will
be produced within the indicated time frame and budget due to the  contingencies
of securing talent, financing, and distribution.

      The Company also has  approximately 20 feature film projects  currently in
development including Easy Money Blues, The Judge, The Moveigoer,  Everybody Was
So Young (USA Films) and The Last Good  Feeling.  However,  no assurance  can be
given as to when or if any of these projects will be completed.

      The Company has optioned the original  screenplay Easy Money Blues by John
Cork, a provocative and sweeping  serio-comic  drama set against the excesses of
the late 80's. Keith Gordon  (Midnight  Clear,  Mother Night and his most recent
project Waking the Dead) is attached to direct. Casting efforts are underway and
the Company hopes to commence production in late 2001 or early 2002.

      The  Company is also  developing  The Judge,  an  original  screenplay  by
Gustave Reiniger,  about a New Orleans attorney recruited to a Federal judgeship
only to find  himself a target in the massive  corruption  surrounding  a gaming
empire. The Company hopes to commence production in 2002.


<PAGE>

      TriStar  Pictures has financed  the  development  of a film based upon the
acclaimed  Walker Percy  novel,  The  Moviegoer.  Terrence  Malick,  director of
Badlands,  Days of Heaven and The Thin Red Line,  has  written  the  screenplay.
TriStar has placed this project in turnaround  and the Company is in discussions
with several potential directors and two other studios to finance the film.

      Everybody Was So Young, based on the book by Amanda Vaille (Six Degrees of
Separation) and adapted by the celebrated screenwriter/playwright John Guare, is
in  development  with USA Films.  The Company has  submitted  the  screenplay to
potential directors and hopes to commence production in 2002.

      The Last Good Feeling is an original screenplay by Peter Elkoff which will
be  directed  by James  Merendino.  The  Company  is  currently  casting  and in
negotiation with several  companies to finance the film.  Production is expected
to commence late this year.

Made-for-Television/Cable Movies

      The Company has also successfully produced  made-for-television movies and
movies for cable television. Movies produced for television include: In The Eyes
of a Stranger,  which aired on CBS in the spring of 1992, See Jane Run, based on
the best-selling novel by Joy Fielding,  starring Joanna Kerns (ABC) which aired
in January 1995 and was rebroadcast on ABC in June 1997, and A Stranger in Town,
an adaptation of R.T. Marcus's play starring Jean Smart and Gregory Hines, which
aired on CBS in March of 1996.  More  recently,  Avenue  Pictures  produced  The
Almost Perfect Bank Robbery starring Brooke Shields and Dylan Walsh for CBS, Two
Mothers for Zachary for ABC starring  Valerie  Bertinelli and Vanessa  Redgrave,
and Tell Me No Secrets starring Lori Loughlin and Bruce Greenwood which aired on
ABC in January 1997.

      For cable  television,  the Company  produced  Amelia  Earhart:  The Final
Flight for Turner Network Television,  starring Diane Keaton,  Rutger Hauer, and
Bruce Dern,  and directed by Yves Simoneau which aired in June 1994, and Path To
Paradise:  The Untold Story of the World Trade Center Bombing for HBO,  starring
Peter Gallagher, Marcia Gray Hardin, and Art Malik and directed by Leslie Libman
and Larry Williams. Path to Paradise aired in June 1997.

      In 1999 the Company  produced  The  Timeshifters  as an original  two-hour
movie for TBS  Superstation,  which  premiered in October 1999.  Avenue owns the
film  copyright  and has  licensed  the  film  internationally  through  Carlton
International.

      The Company has recently  completed post production of a cable  television
movie based on this year's  Pulitzer  Prize winning play Wit written by Margaret
Edson for HBO. Directed by the acclaimed and Academy Award winning director Mike
Nichols,  Wit stars Emma Thompson and Christopher  Lloyd. The movie premiered on
HBO in March 2001.


<PAGE>

      With HBO, the Company is developing a two-hour movie based on Stiffed, the
acclaimed  book  by  Susan  Faludi,   which  chronicles  the  state  of  men  in
contemporary America.

      The  Company  intends to produce a six hour  cable  mini-series  Angels in
America,  based on the  Pulitzer  Prize  and  Tony  Award  winning  play by Tony
Kushner.  The Company is in  discussions  with a potential  director and several
major actors, including Al Pacino have expressed ongoing interest to star in the
motion  picture.  Developed at New Line Cinema,  the Company is now  negotiating
with HBO with respect to financing the  mini-series.  The Company hopes to start
filming in fall 2001.

      Typically, the domestic broadcaster of a made-for-television  movie pays a
license fee which entitles it to a limited number of airings of the movie over a
designated  period of time  (generally  2-5 years).  The  initial  network/cable
license  fees  generally  range  from  $2.5  -$3.5  million  dependent  upon the
broadcaster and the nature and content of the programming. Producers such as the
Company have  historically been required to expend production costs in excess of
the initial  domestic  network/cable  broadcast  license  fee.  The  practice of
incurring  production  costs in excess  of the  initial  domestic  network/cable
broadcast  license fee is  generally  referred to as "deficit  financing."  This
deficit    financing   is   generally    recovered    through   sales   of   the
made-for-television   movie  in  media  and  territories   other  than  domestic
network/cable  broadcasting,  such as international  free  television,  domestic
syndication  (post initial  broadcast  license),  domestic and international pay
television,  and domestic and international  home video.  Unlike many television
producers who must seek licensing arrangements on a project-by-project  basis to
cover its deficit  financing,  the Company has historically  entered into output
arrangements  which provide it the ability to assemble financing more easily and
enable it to move forward more  efficiently  with its television  projects.  The
Company  had an  output  agreement  which  expired  in  October  1997  with  RHI
Entertainment,  Inc., a distribution  company which is a wholly owned subsidiary
of Hallmark  Entertainment,  Inc.  ("Hallmark")  and more  recently with Pearson
Television, a division of Pearson Plc.

      The Company does not currently have an output  agreement in effect,  while
much of its current  development in long form  television will be financed under
the Pearson  Agreement.  Until such time as a new output agreement is signed the
Company will pre sell its television movies on a title by title basis.

      On  occasion,  Mr.  Brokaw  or  other  the  Company  executives  produce
pursuant   to   "for   hire"   arrangements   with   programmers.    In   such
producer-for-hire  arrangements,  Mr.  Brokaw  and  the  Company  do not  have
financing  responsibility  or ownership for the films.  Mr. Brokaw  receives a
substantial  producer's  fee for  such  services.  Mr.  Brokaw  provided  such
services to HBO as a producer-for-hire on Wit.

      The Company has  approximately  eleven  television  movies in development,
including a four hour CBS mini-series entitled American Country.  Based upon the
upcoming  book  American  Country  by Bud  Schaetzle,  the  mini-series  will be
accompanied by a three compact disc release featuring the program's  exceptional
country music  soundtrack.  Written by Ronni Kerns,  the  mini-series  tells the
story of four  generations  of one  extended  musical  family  whose  lives  are

<PAGE>

interwoven with the development of country music and the events of the twentieth
century.  It is the story of the  quintessential  American  family with the rich
backdrop  of the  evolution  of country  music from its  pre-radio  roots to its
phenomenal current popularity.

      Other  television  movies  in active  development  include  The  Chimes of
Christmas  (CBS) based on Charles  Dicken's other Christmas story and written by
Mark Medoff  (Children  of a Lesser God),  Special  Occasions  (CBS)  written by
Bernard Slade (Tribute, Same Time, Next Year), The Second Coming (USA), Checking
Out (VH1) and a mini-series  The Twelve Apostles (USA Films) based on the twelve
apostles. Although the Company is actively pursuing these projects, there can be
no  assurance  that each or any project  will be produced  due to the  Company's
reliance upon the network and cable  programmers  who must approve and order the
films in order to provide adequate financing.

Series Television

      The Company is  currently  developing  several  television  series.  These
series  include  The Four  Horsemen  written by Bennett  Graebner  and The Young
Barbarians  created  by Gerald  and  Bridget  Dobson  (General  Hospital,  Santa
Barbara) which is a contemporary Dickenesque one hour drama.

One Hour-Profiles
The Hollywood Collection

      Through its  subsidiary,  Wombat  Productions,  the Company also  produces
one-hour  profiles of Hollywood's  most important stars which have been aired by
PBS and major cable  networks in the United  States and by  television  stations
around the world. With the exception of Vivien Leigh:  Scarlett And Beyond,  all
programs are  copyrighted  and owned by the Company and available for license to
all media worldwide through Janson Associates,  Inc.  ("Janson"),  with whom the
company has entered into a distribution arrangement. Since 1982, the Company has
produced the following hour-length programs known as The Hollywood Collection:

"Hollywood's Children"                    "Audrey Hepburn Remembered"
"The Horror Of It All"                    "Mae  West. And The Men Who Knew Her"
"Ingrid"                                  "The Story Of Lassie"
"Marilyn Monroe: Beyond The Legend"       "Charlton   Heston: For  All Seasons"
"Steve McQueen: Man On The Edge"          "Roger Moore: A Matter Of Class"
"Grace Kelly: The American Princess"      "Yul Brynner:  The Man Who Was King"
"Cary Grant: The Leading Man"             "Ingrid Bergman Remembered"
"Gregory Peck: His Own Man"               "Jack    Lemmon:  America's Everyman"
"Vivien Leigh: Scarlett And Beyond"*      "Joan  Crawford:   Always  The Star"
"Anthony Quinn: An Original"              "Fred MacMurray:  The Guy Next Door"
"Robert Mitchum: The Reluctant Star"      "Shirley MacLaine: Kicking Up Her
                                           Heels"
"Michael Caine: Breaking The Mold"        "Barbara Stanwyck: Straight Down The
                                           Line"

<PAGE>

"Shirley Temple: America's Little         "Gary Cooper:  The Face Of a Hero"
 Darling"                                 "Walter Matthau: Diamond In The Rough"
"Clint Eastwood: the Man From Malpaso"**
"Alan Ladd: The True Quiet Man"

* Copyright Owned by Turner Broadcasting System.
** Licensed to Warner Home Video

Other Entertainment Profiles

      In 1998, a new series of programs was begun by Wombat  Productions for the
Art and  Film  Channel,  Bravo,  profiling  entertainment  figures  outside  the
motion-picture    industry.    The   first   of   these    productions   was   a
performance/profile  of the Broadway diva,  Betty  Buckley:  In Performance & In
Person,  and  presented on the series Bravo  Profiles in the fall of 1999.  Also
produced and presented  the same year on Bravo  Profiles was The Worlds of Harry
Connick,  Jr., an hour-length  profile on the gifted musician,  composer,  actor
Harry Connick, Jr.

      Recently, Wombat completed a program for the series, Bravo Profiles on the
master magician David Copperfield,  with Mr. Copperfield's full cooperation. The
program was titled David Copperfield: The Magic of it All.

Distribution  Arrangement

      Pursuant to a Distribution Agreement (the "Distribution Agreement"), dated
July 1, 1995 and  amended on April 28,  1996,  between  the  Company and Janson,
Janson was  granted  the sole and  exclusive  right,  subject to the  production
arrangement,  to license substantially all of the Company's Hollywood Collection
film library for all forms of television and video worldwide for a period of ten
years, subject to automatic renewals in three-year increments.  In consideration
of Janson's  services under the  Distribution  Agreement,  Janson is entitled to
retain a distribution fee, ranging from 10% to 35%,  depending upon whether such
distribution  is via domestic  television  network,  syndication,  international
television,  or home video,  of the gross  receipts  from the  licensing of each
program. In addition, Janson is reimbursed for certain distribution expenses out
of gross receipts with the remaining  balance remitted to the Company as program
licensor.

Business Approach

      As an independent  producer of feature films and  television  programming,
the Company does not have sufficient  capital to  independently  finance its own
productions.  Accordingly,  most  of its  financial  resources  are  devoted  to
financing  development  activities  which include the  acquisition of underlying
literary works such as books,  plays, or newspaper articles and commissioning of
screenplays  based upon such  underlying  literary  works.  A key element in the
success  of  the  development   process  is  Mr.  Brokaw's   reputation  in  the
entertainment business and his access to and relationships with creative talent.


<PAGE>

      It is the ability to identify and develop  attractive  properties which is
instrumental  to the success of independent  producers  such as the Company.  In
particular, the feature film industry relies heavily on independent producers to
identify  projects which are then developed  further or produced and distributed
by the major  studios.  Independent  producers  serve a similar  function in the
television  industry.  The Company employs a flexible strategy in developing its
motion  picture  and film  properties.  Wherever  possible,  it employs  its own
capital and financial resources in developing a project to the point where it is
ready to go into production.  Typically, this means putting together a "package"
which  consists  of  the  underlying  property,  a  script  that  is  ready  for
production, and key talent, including a director and principal cast. The benefit
of  developing  a project to this  advanced  stage is that the Company will have
maximum  leverage in negotiating  production and financing  arrangements  with a
distributor.  Nevertheless,  there are occasions when the Company  benefits from
the financial assistance of a studio at an earlier stage. These occasions may be
necessary as a result of lengthy  development of a script,  the  desirability of
commissioning a script by a highly paid writer,  the acquisition of an expensive
underlying  work, or a significant  financial  commitment to a director or star.
Moreover,  when  developing  a  property  for  series  television,  it is almost
essential to involve a network at an earlier stage inasmuch as  development  and
production of a television  series requires a much larger  financial  commitment
than production of a television movie.

      In addition to the development and production  strategies described above,
the Company also considers various production  financing  alternatives which are
available  whereby  commitments  from  various  end  users  such as  independent
domestic   distributors,   foreign  distributors,   cable  networks,  and  video
distributors  can be  combined  to  finance  a project  without  a major  studio
financial commitment.

      The  Company's  primary  goal with  respect  to its  documentary  films is
significant  and  sustained  growth  through  production  activity  and  greater
exploitation of its wholly owned programs.  Further  revenues and  profitability
will  depend on the  Company's  ability  to secure  financing  for new  programs
through its present relationship with Bravo or other cable or television entity.
In order to provide maximum exposure of the twenty-eight titles of The Hollywood
Collection  available in the home-video  market in the United States and Canada,
Wombat  entered  into an  agreement  with MPI,  one of the  premiere  home-video
companies for documentary and performance  programs. In June of 2000, the entire
available  collection  was  offered  to the  vast  special-interest  market  via
home-video stores, MPI's 800 number provided on its web sites,  www.mpimedia.com
and www.hollywoodcollection.com, which are also connected through the Yahoo! and
Amazon web sites.


<PAGE>

Competition

      The motion  picture  industry is extremely  competitive.  The  competition
comes  from both  companies  within the same  business  and  companies  in other
entertainment media which create alternative forms of leisure entertainment. The
Company  competes  with several  "major" film studios  which are dominant in the
motion picture industry, as well as with numerous independent motion picture and
television production companies, television networks, and pay television systems
for the acquisition of literary properties,  the services of performing artists,
directors, producers, and other creative and technical personnel, and production
financing.  Many of the  organizations  with  which the  Company  competes  have
significantly greater financial and other resources.  In addition, the Company's
films  compete  for  audience  acceptance  with  motion  pictures  produced  and
distributed  by other  companies.  As a result,  the  success  of the  Company's
production  is  also  heavily   dependent  on  public   taste,   which  is  both
unpredictable and susceptible to change without warning.

      A limited  number of  independent  production  companies  are as  actively
involved  in the  production  of  both  feature  films  and  television  movies.
Management   believes  that  its  established  track  record  of  high  quality,
critically  acclaimed  films attracts some of the best writing,  directing,  and
acting talent in the industry. In addition,  Mr. Brokaw's years of experience in
the business and strong  reputation  further  enhance the Company's  competitive
edge.

      The Company was one of the first production companies  specializing in the
production  of profiles  of movie  stars and for years had been an  acknowledged
quality  producer in this  field.  However,  with the  success of the  biography
format on the cable outlet A&E, other cable  companies have  introduced  similar
programs.  Cable companies,  often in association with major films studios,  are
increasingly  producing  their  own  programs  and  securing  ownership  of each
program's  copyright.  Programs  are being  produced  by staff  producers  or by
producers for hire for a specific  project.  Consequently,  cable  companies are
acquiring  ownership  of the  back end  (income  deriving  from  the  subsequent
licensing of programs) and are now licensing  their  programs to a world market.
Faced with these new  circumstances,  the Company had seen a significant drop in
sales to  overseas  buyers.  This trend now seems to be  reversing.  Part of the
reason for this reversal may be that The Hollywood Collection profiles deal with
stars of special interest to older moviegoers and frequently  involve  on-camera
participation  of the profiled star.  Also, the development of digital video and
the  increasing  number of new  delivery  systems  in new areas of the world are
creating a renewed hunger for this programming.

Major Customers

      The Company's revenue has historically been derived from the production of
a relatively small number of programs and licensing  revenues.  Given this fact,
the  limited  number  of  outlets  for  the  Company's   productions,   and  the
individually  significant  license  fees  generated  from  certain of its sales,
certain customers have historically  accounted for a significant  portion of the
Company's  revenue.  The Company derived  approximately 47% and 13% of its total
revenue for the year ended December 31, 2000 from Janson  Associates  related to
the  licensing  of the  Hollywood  Collection  in  secondary  markets and Bravo,
respectively  and 23% of its total revenue for the year ended  December 31, 2000
from HBO related to the made for cable television movie Wit.


<PAGE>

Employees

      The Company has 7 full time employees.

The Motion Picture Industry

General

      The  motion  picture  industry  consists  of  two  principal   activities:
production, which involves the development,  financing, and production of motion
pictures;  and  distribution,  which involves the promotion and  exploitation of
feature-length  motion  pictures  in a variety  of media,  including  theatrical
exhibition,   home  video,   television,   and  other  ancillary  markets,  both
domestically and  internationally.  The United States motion picture industry is
dominated by the "major" studios,  including The Walt Disney Company,  Paramount
Pictures,   Warner  Brothers,   Universal   Pictures,   Twentieth  Century  Fox,
Columbia/Tri-Star Pictures, and MGM/UA. The major studios are typically parts of
large  diversified  corporations  that have strong  relationships  with creative
talent,  exhibitors, and others involved in the entertainment industry and whose
non-motion  picture operations provide a stable source of earnings and cash flow
which offset the  variations  in the financial  performance  of their new motion
picture releases and other aspects of their motion picture operations. The major
studios have  historically  produced and  distributed  the vast majority of high
grossing theatrical motion pictures released annually in the United States.

Independent Film

      At the same time that films released by the major studios have become more
expensive,  currently with average budgets exceeding $40 million (as reported by
the Motion Picture  Association of America  ("MPAA")),  low budget  "independent
films" have  successfully  entered the  market.  Typically,  such films are more
character  driven  than plot driven and  originally  they  lacked  major  stars.
Miramax,  originally an  independent  distributor  (now owned by Disney),  broke
ground in this area with films like My Left Foot and The Piano.

      Over  the   last   several   years   there   have   been   other   notable
"independent-type"  films such as Four  Weddings  and A Funeral,  Pulp  Fiction,
Scream, The Full Monty and The Blair Witch Project. Indeed, given the relatively
small  financial  risk of producing and releasing  such films,  all of the major
studios  have  started  or  are  studying  the  feasibility  of  production  and
distribution units focusing on smaller, independent-type films.

      The growth of this product and market segment should provide opportunities
for the Company which is one of the pioneers in this area.

Motion Picture Production and Financing

      The production of a motion  picture begins with the screenplay  adaptation
of a popular  novel or other  literary  work  acquired  by the  producer  or the
development  of an  original  screenplay  having its  genesis in a story line or
scenario  conceived or acquired by the producer.  In the development  phase, the
producer typically seeks production  financing and tentative  commitments from a
director,  the principal cast members and other creative  personnel.  A proposed
production schedule and budget are also prepared during this phase.


<PAGE>

      Upon  completing  the  screenplay  and  arranging  financing  commitments,
pre-production of the motion picture begins. In this phase, the producer engages
creative personnel to the extent not previously committed; finalizes the filming
schedule  and  production  budget;  obtains  insurance  and  secures  completion
guaranties,  if  necessary;   establishes  filming  locations  and  secures  any
necessary  studio  facilities  and stages;  and prepares for the start of actual
filming.  Principal photography (the actual filming of the screenplay) generally
extends  from  seven to twelve  weeks,  depending  upon such  factors as budget,
location, weather, and complications inherent to the screenplay.

      Following  completion  of  principal  photography  in  what  is  typically
referred  to  as  post-production,  the  motion  picture  is  edited;  opticals,
dialogue,  music,  and any special effects are added;  and voice,  effects,  and
music sound tracks and pictures are synchronized. This results in the production
of a fully edited  negative from which release  prints of the motion picture are
made.

      Production  costs consist of acquiring or developing the screenplay,  film
studio rental, principal photography,  post-production,  and the compensation of
creative and other production personnel.  Distribution  expenses,  which consist
primarily of the costs of  advertising  and preparing  release  prints,  are not
included in direct  production  costs and vary widely depending on the extent of
the release and promotional markets. Average studio budgets currently exceed $40
million. Average independents are far lower and are often less than $10 million.
The major studios  generally fund  production  costs from cash flow generated by
motion  picture  and  related  activities  or,  in some  cases,  from  unrelated
businesses or through  off-balance  sheet methods.  Substantial  overhead costs,
consisting  largely of salaries and related  costs of the  production  staff and
physical  facilities  maintained  by the major  studios,  also  must be  funded.
Independent  production  companies  generally avoid incurring  overhead costs as
substantial as those incurred by the major studios by hiring  creative and other
production   personnel   and   retaining   the  other   elements   required  for
pre-production,  principal  photography,  and  post-production  activities  on a
picture-by-picture  basis. Sources of funds for independent production companies
include bank loans,  "pre-licensing" of distribution  rights,  equity offerings,
and joint ventures. Independent production companies generally attempt to obtain
all or a  substantial  portion of their  financing of a motion  picture prior to
commencement of principal  photography,  at which point  substantial  production
costs begin to be incurred and require payment.

      "Pre-licensing" of film rights is often used by independent film companies
to finance all or a portion of the direct  production costs of a motion picture.
By "pre-licensing" film rights, a producer obtains amounts from third parties in
return for  granting  such  parties a license to exploit  the  completed  motion
picture in various  markets and media.  Production  companies with  distribution
divisions may retain the right to distribute the completed motion picture either
domestically or in one or more international markets. Other production companies
may  separately  license  theatrical,  home  video,  television  and  all  other
distribution rights among several licensees.


<PAGE>

      In connection  with the production and  distribution  of a motion picture,
major studios and independent  production  companies generally grant contractual
rights to actors, directors, screenwriters, owners of rights, and other creative
and  financial  contributors  to share in revenues or net profits (as defined in
their respective  agreements) from a particular  motion picture.  Except for the
most sought-after talent,  these third-party  participants are generally payable
after all distribution fees,  marketing  expenses,  direct production costs, and
financing costs are recouped in full.

      Major studios and independent film companies  typically incur  obligations
to pay residuals to various guilds and unions including the Screen Actors Guild,
the Directors Guild of America, and the Writers Guild of America.  Residuals are
obligations  arising from the  exploitation of a motion picture in markets other
than the primary  intended  market for such  picture.  Residuals  are  primarily
calculated as a percentage of the gross revenues  derived from the  exploitation
of the  picture in these  secondary  markets.  The  guilds and unions  typically
obtain a security  interest in all rights of the producer in the motion  picture
which is usually  subordinate  to the financier of the motion  picture,  and the
completion  bond  company  if  any.  The  producer  may  transfer  the  residual
obligation to a distributor if the distributor  executes the  appropriate  guild
assumption agreement.

Motion Picture Distribution

      General.   Distribution  of  a  motion  picture   involves   domestic  and
international  licensing  of the  picture  for (a)  theatrical  exhibition,  (b)
non-theatrical  exhibition,  which  includes  airlines,  hotels and armed forces
facilities,  (c)  videocassettes  and video  discs,  (d)  television,  including
pay-per-view, pay, network, syndication or basic cable, and (e) marketing of the
other rights in the picture and underlying literary property,  which may include
books, merchandising,  and soundtrack albums. In recent years, revenues from the
licensing of rights to distribute motion pictures in secondary (i.e., other than
domestic  theatrical)   markets,   particularly  home  video  and  international
theatrical pay and free television, have increased significantly.

      The distributor  typically acquires rights from the producer to distribute
a motion  picture in one or more  markets  and/or  media.  For its  distribution
rights,  the  distributor  generally  agrees  to pay to the  producer  a certain
minimum advance or guarantee upon the delivery of the completed  motion picture,
which amount is to be recouped by the distributor out of revenues generated from
the distribution of the motion picture in particular media or territories. After
the  distributor's  distribution  fee is deducted  from the gross receipt of the
picture,  the  distributor  recoups  the  amount  advanced  (if  any)  plus  its
distribution costs.

      Motion  pictures  may  continue to play in  theaters  for up to six months
following their initial release.  Concurrently  with their release in the United
States,  motion  pictures  generally  are  released  in  Canada  and may also be
released  in one or more  other  international  markets.  A  motion  picture  is
typically  available for distribution  during its initial  distribution cycle as
follows:

<PAGE>

                                    Months After Initial           Approximate
Marketplace                     Domestic Theatrical Release     Release Period


Domestic theatrical                       ----                     4-6  months
International theatrical                  ----                    6-12  months
Domestic home video (initial release)     4-6 months                 6  months
Domestic pay-per-view                     6-9 months                 2  months
International Video (initial release)    6-12 months              6-12  months
Domestic pay television                 12-15 months                18  months
International television (pay or free)  18-24 months             12-36  months
Domestic free television*               30-33 months               1-5  years

-----------------------
* Includes network, barter syndication, syndication, and basic cable.

      A  substantial  portion of a film's  ultimate  revenues are generated in a
film's  initial  distribution  cycle  (generally  the first five years after the
film's initial domestic  theatrical  release).  Commercially  successful  motion
pictures,  however,  may continue to generate  revenues after the film's initial
distribution cycle from the relicensing of distribution rights in certain media,
including  television  and home video,  and from the  licensing of  distribution
rights with respect to new media and technologies.

      Theatrical.  The theatrical  distribution of a motion picture involves the
licensing  and  booking of the  motion  picture to  theatrical  exhibitors,  the
promotion of the picture through  advertising and publicity  campaigns,  and the
manufacture of release  prints from the film  negative.  The size and success of
the  promotional  advertising  campaign  can  materially  affect  the  financial
performance  of the  film.  Moreover,  as  the  vast  majority  of  these  costs
(primarily  advertising  costs) are incurred  prior to the first  weekend of the
film's  domestic  theatrical  release,  there is not  necessarily  a correlation
between these costs and the film's ultimate box office performance. In addition,
the ability to distribute a picture during peak  exhibition  seasons,  including
the summer months and the Christmas holidays,  may affect the theatrical success
of the picture.

      The  distributor  and theatrical  exhibitor  generally  enter into license
agreements  providing  for  the  exhibitor's  payment  to the  distributor  of a
percentage of box office receipts after deducting the exhibitor's  overhead or a
flat working amount. The percentage  generally ranges from 45-60% and may change
for each week the film plays in a specific theatre,  depending on the success of
the  picture at the box office  and other  factors.  The  balance  ("gross  film
rentals")  is  remitted  to the  distributor.  The  distributor  then  retains a
distribution  fee  from  the  gross  film  rentals  and  recoups  the  costs  of
distributing the film, which consist  primarily of advertising,  marketing,  and
production  cost, and the cost of manufacturing  release prints.  The balance of
film  rentals,  if  any,  after  recouping  any  advance  or  minimum  guarantee
previously  paid to producer and  interest  thereon is then paid to the producer
based on a predetermined split between the producer and distributor.


<PAGE>

      Home Video. A motion picture typically becomes available for videocassette
distribution  within four to six months  after its initial  domestic  theatrical
release.  Home  video  distribution  consists  of  the  promotion  and  sale  of
videocassettes  to local,  regional and national video  retailers  which rent or
sell  videocassettes  to consumers  primarily for home  viewing.  The market for
videocassettes  for  home use has  expanded  rapidly  over  the past ten  years,
although  the rate of growth in this  market  has slowed in recent  years.  Most
films are initially made available in videocassette form at a wholesale price of
$55 to $60 and are sold at that price  primarily to video rental  stores,  which
rent the  cassettes  to  consumers.  Owners of films  generally  do not share in
rental  income.  Following  the initial  marketing  period,  selected  films are
remarketed  at a  wholesale  price of $10 to $15 or less for sale to  consumers.
These  "sell-through"  arrangements  are used most  often  with  films that will
appeal to a broad  marketplace or to children.  Some films are initially offered
at a price designed for sell-through rather than rental when it is believed that
the ownership  demand by consumers will result in a sufficient level of sales to
justify the reduced margin on each cassette  sold.  Home video  arrangements  in
international  territories are similar to those in domestic  territories  except
that the wholesale prices may differ.

      Television. Television rights are generally licensed first to pay-per-view
for an exhibition  period within six to nine months  following  initial domestic
theatrical  release,  then to pay  television  approximately  twelve to  fifteen
months after initial domestic theatrical release, thereafter in certain cases to
free  television for an exhibition  period,  and then to pay  television  again.
These films are then  syndicated to either  independent  stations or basic cable
outlets.  Pay-per-view  television  allows  subscribers  to pay  for  individual
programs,  including recently released movies and live sporting, music and other
events on a per use basis. Pay television allows cable television subscribers to
view such services as HBO/Cinemax,  Showtime/The Movie Channel, Starz, or Encore
Media  Services   offered  by  their  cable  system   operators  for  a  monthly
subscription  fee.  Since groups of motion  pictures are typically  packaged and
licensed for exhibition on television over a period of time, revenues from these
television  licensing  "packages"  may be received  over a period  that  extends
beyond five years from the initial domestic  theatrical  release of a particular
film. Motion pictures are also "packaged" and licensed for television  broadcast
in international markets.

      Non-Theatrical  and  Other  Rights.  Films  may  be  licensed  for  use by
airlines,   schools,   public  libraries,   community   groups,   the  military,
correctional  facilities,   ships  at  sea,  and  others.  Musical  compositions
contained in a film which have been  commissioned  for that film may be licensed
for sound  recording,  public  performances,  and  sheet  music  publication.  A
soundtrack album may be released  including music contained in a film. Rights in
motion  pictures  may be  licensed  to  merchandisers  for the  manufacturer  of
products such as video games, toys,  T-shirts,  posters,  and other merchandise.
Rights may also be licensed to create  novelizations of the screenplay and other
related book publications.

      International  Markets.  Motion picture  distributors and producers derive
revenue from  international  markets in the same media as domestic markets.  The
growth of foreign  revenues has been dramatic,  now accounting for more than 50%
of the total revenues of many films. The increase in revenues is currently being
driven primarily from the growth of television  abroad.  The increase in foreign
television  values and foreign  revenues  is likely to  continue.  Although  the
increased level of foreign values affects the revenues of most films, the effect
is not  uniform.  Action  films and films with  major  stars  benefit  most from
foreign  revenues;  films with  uniquely  American  themes with  unknown  actors
benefit the least.

<PAGE>

Regulation

      Distribution  rights to motion pictures are granted legal protection under
the copyright laws of the United States and most foreign  countries,  which laws
provide  substantial civil and criminal  sanctions for unauthorized  duplication
and  exhibition  of motion  pictures.  Motion  pictures,  musical  works,  sound
recordings,  art work,  still  photography,  and motion  picture  properties are
separate  works subject to copyright  under most copyright  laws,  including the
United  States  Copyright  Act of 1976,  as amended.  The Company  plans to take
appropriate and reasonable measures to secure,  protect,  and maintain or obtain
agreements to secure, protect, and maintain copyright protection for all Company
pictures under the laws of applicable jurisdictions. Motion picture piracy is an
industry-wide  problem.  The MPAA operates a piracy hotline and investigates all
reports of such  piracy.  Depending  upon the  results  of such  investigations,
appropriate  legal  action may be brought by the owner of the rights.  Depending
upon the extent of the piracy, the Federal Bureau of Investigation may assist in
these investigations and related criminal prosecutions.

      Motion picture piracy is an international  as well as a domestic  problem.
Motion picture piracy is extensive in many parts of the world,  including  South
America,  Asia (including Korea, China, and Taiwan), the countries of the former
Soviet Union, and other former Eastern bloc countries.  In addition to the MPAA,
the Motion Picture Export Association,  the American Film Marketing Association,
and the American Film Export  Association  monitor the progress and efforts made
by various  countries to limit or prevent  piracy.  In the past,  these  various
trade associations have enacted voluntary embargoes of motion picture exports to
certain  countries in order to pressure the  governments  of those  countries to
become more  aggressive in preventing  motion picture piracy.  In addition,  the
United  States  government  has  publicly  considered  trade  sanctions  against
specific countries which do not prevent copyright  infringement of United States
produced  motion  pictures.  There can be no assurance that  voluntary  industry
embargoes  or United  States  government  trade  sanctions  will be enacted.  If
enacted,  such  actions  could  impact the amount of  revenue  that the  Company
realizes from the  international  exploitation of its motion pictures  depending
upon the  countries  subject to such action and the duration of such action.  If
not enacted or if other  measures  are not taken,  the motion  picture  industry
(including the Company) may continue to lose an indeterminate amount of revenues
as a result of motion picture piracy.

      The Code and Ratings Administration of the MPAA assigns ratings indicating
age-group  suitability  for  theatrical  distribution  of motion  pictures.  The
Company has followed and will continue to follow the practice of submitting  its
pictures for such ratings.

      United  States  television  stations  and  networks,  as well  as  foreign
governments,  impose  additional  restrictions on the content of motion pictures
which may restrict in whole or in part  theatrical or  television  exhibition in
particular  territories.  Management's  current  policy  is  to  produce  motion
pictures for which there will be no material  restrictions  on exhibition in any
major  territories or media.  This policy often  requires  production of "cover"
shots or different  photography and recording of certain scenes for insertion in
versions of a motion picture  exhibited on television or theatrically in certain
territories.


<PAGE>

      There can be no  assurance  that  current and future  restrictions  on the
content of the Company's  pictures may not limit or affect the Company's ability
to exhibit certain of its pictures in certain territories and media.

ITEM 2.  DESCRIPTION OF PROPERTY

      The Company's  philosophy on real estate  investments is to lease required
properties and invest in the development of film and television properties.  The
Company  presently  leases for itself and Avenue  Pictures  approximately  4,000
square feet of office space at its corporate  headquarters at 11111 Santa Monica
Boulevard,  Suite 525, Los Angeles,  California  90025  pursuant to a lease that
expires October 18, 2004. The rent for such space is  approximately  $11,000 per
month.

      Management believes the properties herein described are adequate to handle
current and short term projected business.

ITEM 3.     LEGAL PROCEEDINGS

    The Company is not involved in any material legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      No matters were submitted to a vote of security  holders during the fourth
quarter of the fiscal year covered by this report.


<PAGE>


                                     PART II

ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

                          MARKET PRICE OF COMMON STOCK

      The Company's Common Stock is traded on the American Stock Exchange,  Inc.
("AMEX") under the symbol "PIX". The following table sets forth the high and low
sales prices for the Common  Stock on the AMEX for the years ended  December 31,
2000 and 1999.

             2000                  High Sale               Low Sale
             ----                  ---------               --------
          1st Quarter                $2.88                   $0.63
          2nd Quarter                $1.88                   $0.63
          3rd Quarter                $2.38                   $0.38
          4th Quarter                $0.75                   $0.13

             1999                  High Sale               Low Sale
             ----                  ---------               --------
          1st Quarter                $3.75                   $1.94
          2nd Quarter                $2.38                   $1.00
          3rd Quarter                $2.12                   $1.00
          4th Quarter                $1.75                   $.375

      As of March 30, 2001, there were 157 holders of record of Common Stock.

      On March 30, 2001,  the closing  price of the Common Stock on the American
Stock Exchange was $0.28.

                                 DIVIDEND POLICY

      The Company  anticipates that, for the foreseeable  future,  earnings,  if
any,  will be retained for the  development  of its business.  Accordingly,  the
Company  does  not  anticipate  paying  dividends  on the  Common  Stock  in the
foreseeable  future.  The  payment  of  future  dividends  will  be at the  sole
discretion of the  Company's  Board of Directors and will depend on, among other
things, future earnings,  capital requirements,  the general financial condition
of the Company, and general business  conditions.  Payment of dividends may also
be limited by the terms of any Preferred  Stock or debt the Company may issue or
incur.  See  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations -- Liquidity and Capital Resources".

ITEM 6.     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 financial statements and related notes thereto.

<PAGE>

Liquidity and Capital Resources

      At December 31, 2000, the Company had approximately  $162,000 of cash. The
accompanying  financial  statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.  However,  revenues have been  insufficient to
cover  costs of  operations  in the past four  years.  The Company has a working
capital deficiency and has an accumulated deficit of $5,732,000 through December
31, 2000.  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 year ended  December 31, 2000 the Company had a loss before income
taxes of  $971,000  as  compared  to a loss of  $1,369,000  for the  year  ended
December 31, 1999. Although the loss remained virtually the same for both years,
operating revenues and film production cost decreased significantly.

Revenues

      Revenues for the year ended December 31, 2000 were approximately  $974,000
as compared to $4,749,000  for the year ended December 31, 1999. The decrease in
revenues for the year were  primarily  the result of license fees related to the
production of The  Timeshifters  recognized in 1999. In 2000, the Company earned
$225,000 in producer fees related to the made for television  movie Wit, as well
as  $585,000  of revenue  from the  licensing  of rights to its  programming  in
secondary markets through Janson Associates and Bravo. In addition,  the Company
received  development  fees during 2000 for various  projects.  Revenues for the
year ended  December 31, 1999 were derived  primarily from the production of The
Timeshifters. In addition, the Company earned $332,000 of revenue from licensing
of rights to its programming in secondary  markets through Janson Associates and
Bravo.


<PAGE>

Film Production Costs

      Film  production  costs for the year ended December 31, 2000 were $207,000
as compared to $4,033,000  for the year ended  December 31, 1999.  The decreased
film production costs were the result of decreased revenue recognized during the
year.  Included in film  production  costs for 2000, is $418,000  related to the
Company's documentary films and licensing activities.  Film production costs for
the year ended  December  31, 1999 can be  attributed  to film  amortization  of
approximately $3,700,000 for The Timeshifters.

Selling, General, and Administrative

      Selling,  general  and  administrative  expenses  ("SG&A")  for the twelve
months  ended  December  31,  2000  and 1999  were  $1,738,000  and  $2,057,000,
respectively.  Included  in SG&A for the  period is  approximately  $280,000  of
amortization of goodwill related to the Avenue Pictures acquisition on September
30, 1996. In addition,  the Company incurred $28,125 and $37,500 of stock option
compensation  expense  relating to  previously  issued stock options in 2000 and
1999,  respectively.  The  remaining  SG&A  costs  for 2000 and 1999  relate  to
salaries, occupancy costs and professional fees.

Income Taxes

      For the years ended  December 31, 2000 and 1999, the Company had an income
tax expense of $5,300 and $1,700, respectively.

Recent Developments

      The  shares of the  Company's  Common  Stock are  currently  listed on the
American  Stock  Exchange  ("AMEX").  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  stating  that they have failed to meet the criteria
of AMEX's continued  listing  guidelines.  The exchange noted that the Company's
operating results have been  unsatisfactory and its financial condition has 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.  The Company has
appealed the AMEX  determination  although  there can be no  assurance  that the
appeal  will be  successful.  Pursuant to the rules of the appeal  process,  the
Company's  Common  Stock will be stayed  pending a hearing by a committee of the
exchange.  A hearing was scheduled  for April 17, 2001.  However the Company has
decided not pursue the appeal. As a result, the Company's failure to meet AMEX's
maintenance  criteria may result in the  discontinuance  of the inclusion of our
shares  in AMEX.  In such  event,  trading,  if any in the  securities  may then
continue to be  conducted in the  non-AMEX  over-the-counter  market in what are
commonly referred to as the electronic bulletin board and the pink sheets.

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

<PAGE>

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 will not have a material effect on our
results of operations.

      In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101") which
summarizes certain of the SEC staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. We
adopted SAB No. 101 during 2000 without a material effect on our results of
operations.

      In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting For Certain Transactions Involving Stock
Compensation" (FIN No. 44) which provides guidance for applying APB Opinion
No. 25, "Accounting For Stock Issued to Employees." With certain exceptions,
FIN No. 44 applies prospectively to new awards, exchanges of awards in a
business combination, modifications to outstanding awards and changes in
grantee status on or after July 1, 2000. The implementation of FIN No. 44 did
not have a material effect on our results of operations.

      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
will 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.


<PAGE>




ITEM 7.                      FINANCIAL STATEMENTS

                                                                  Page

Avenue Entertainment Group, Inc.

     Independent Auditors' Report                                 23

     Consolidated Balance Sheet as of December 31, 2000           24

     Consolidated Statements of Operations for the years ended
       December 31, 2000 and 1999                                 25

     Consolidated Statement of Stockholders' Equity for the
       years ended December 31, 2000 and 1999                     26

     Consolidated Statement of Cash Flows for the years ended
       December 31, 2000 and 1999                                 27

     Notes to Consolidated Financial Statements                   29



<PAGE>


                          INDEPENDENT AUDITORS' REPORT

      The Board of Directors and Stockholders
      Avenue Entertainment Group, Inc.:

      We have  audited the  accompanying  consolidated  balance  sheet of Avenue
      Entertainment  Group,  Inc.  as of  December  31,  2000  and  the  related
      consolidated statements of operations, stockholders' equity and cash flows
      for each of the years in the  two-year  period  ended  December  31, 2000.
      These  consolidated  financial  statements are the  responsibility  of the
      Company's management. Our responsibility is to express an opinion on these
      consolidated financial statements based on our audit.

      We conducted our audit in accordance  with  auditing  standards  generally
      accepted in the United States of America.  Those standards require that we
      plan and perform the audit to obtain  reasonable  assurance  about whether
      the  financial  statements  are free of  material  misstatement.  An audit
      includes examining,  on a test basis,  evidence supporting the amounts and
      disclosures in the financial statements.  An audit also includes assessing
      the  accounting   principles  used  and  significant   estimates  made  by
      management,   as  well  as  evaluating  the  overall  financial  statement
      presentation.  We believe that our audit  provides a reasonable  basis for
      our opinion.

      In our opinion,  the consolidated  financial  statements referred to above
      present fairly, in all material respects, the financial position of Avenue
      Entertainment  Group,  Inc. as of December 31, 2000 and the results of its
      operations and its cash flows for each of the years in the two-year period
      ended December 31, 2000 in conformity with accounting principles generally
      accepted in the United States of America.

      The  accompanying  consolidated  financial  statements  have been prepared
      assuming that Avenue  Entertainment  Group,  Inc. will continue as a going
      concern. As discussed in Note 1 to the consolidated  financial statements,
      the Company has suffered net losses from operations, has a working capital
      deficiency and has incurred  accumulated losses through December 31, 2000.
      These  factors  raise  substantial  doubt about the  Company's  ability to
      continue as a going concern. Management's plans in regard to these matters
      are also  described  in Note 1. The  accompanying  consolidated  financial
      statements  do not  include  any  adjustments  that might  result from the
      outcome of this uncertainty.

                                                /s/  KPMG LLP

      New York, New York
      April 10, 2001


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 2000

                                     Assets

Cash                                                    $  162,369
Accounts receivable                                        113,736
Income tax receivable                                       18,632
Film costs, net                                            676,590
Property and equipment, net                                 52,096
Goodwill                                                 1,612,989
Other assets                                                17,639
                                                   ---------------

Total assets                                           $ 2,654,051
                                                       ===========

                      Liabilities and Stockholders' Equity

Accounts payable and accrued expenses                    $ 707,917
Deferred Income                                            141,999
Deferred compensation                                      519,860
Due to related party                                       147,046
                                                      ------------

Total liabilities                                        1,516,822
                                                       -----------

Commitments and contingencies

Stockholders' Equity:
 Common stock, par value $.01 per share                     45,910
 Additional paid-in capital                              6,976,639
 Accumulated Deficit                                    (5,731,633)
 Treasury Stock                                             (3,687)
 Note receivable for common stock                         (150,000)
                                                    ---------------

Total stockholders' equity                               1,137,229
                                                     -------------

Total liabilities and stockholders' equity             $ 2,654,051
                                                       ===========

         See accompanying notes to consolidated financial statements.


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   Years ended December 31,

                                      2000             1999
                                      ----             ----

Operating revenues               $    974,180    $   4,748,660
                                 ------------    -------------

Costs and expenses:
  Film production costs               207,484        4,033,211
  Selling, general and
   administrative expenses          1,737,846        2,056,838
                                -------------    -------------

Total costs and expenses            1,945,330        6,090,049
                                -------------    -------------

Operating loss                       (971,150)      (1,341,389)

Loss on sale of investments                  0         (27,198)
                           -------------------   --------------

Loss before income taxes             (971,150)      (1,368,587)


Income tax expense                      5,280            1,667
                            -----------------   --------------

Net loss                           $ (976,430)    $ (1,370,254)
                                   ==========     ============

Basic and diluted loss
 per common share         $             (.21)$           (.32)
                          -----------------------------------



         See accompanying notes to consolidated financial statements.


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                     YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>

<CAPTION>
                                             Common Stock                    Additional                   Stock
                                              Number of            Treasury     Paid-in   Accumulated   subscription
                                        Shares           Amount       Stock     capital     Deficit     receivable        Total
----------------------------------------------------------------------------------------------------------------------------------
<S>              <C>                    <C>            <C>                   <C>          <C>           <C>            <C>
Balance, January 1, 1999                4,108,838      $ 41,088              $ 6,415,196  $(3,384,949)  $  (150,000)   $ 2,921,335
-----------------------------------------------------------------------------------------------------------------------------------

Net loss                                                                                   (1,370,254)                  (1,370,254)
Stock option compensation expense                                                 37,500                                    37,500
Issuance of common stock                  480,192         4,802                  495,198                                   500,000
Purchase of treasury stock                                           (3,687)                                                (3,687)

Balance, December 31, 1999              4,589,030        45,890      (3,687)   6,947,894   (4,755,203)     (150,000)     2,084,894
----------------------------------------------------------------------------------------------------------------------------------

Net loss                                                                                     (976,430)                    (976,430)
Stock option compensation expense                                                 28,125                                    28,125
Exercise of option                          2,000            20                      620                                       640
----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000             4,591,030         45,910      (3,687)   6,976,639   (5,731,633)     (150,000)     1,137,229

</TABLE>

         See accompanying notes to consolidated financial statements.


<PAGE>




                        AVENUE ENTERTAINMENT GROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                   Years ended December 31,
                                                      2000           1999
                                                      ----           ----

Cash flows from operating activities
   Net loss                                    $  (976,430)    (1,370,254)
Adjustments to reconcile net loss to net
   cash used in operating activities:
   Depreciation                                     24,406         23,864
   Amortization - film production costs            167,527      3,886,231
   Amortization - goodwill                         280,520        280,520
   Stock compensation                               28,125         37,500
   Proceeds from sale of marketable securities           0        312,518
   Loss on disposal of fixed assets                      0            465
   Loss on sale of investments                           0         27,198


Changes in assets and liabilities affecting net loss:
   Accounts receivable                             538,693       (518,617)
   Film costs                                      115,733     (3,754,435)
   Other assets                                        530         11,597
   Accounts payable and accrued expenses          (443,128)       126,183
   Deferred compensation                           179,077        195,777
   Deferred Income                                  (7,129)       149,128
   Due to related party                             47,874          4,691
   Income tax receivable                            11,071           -

         Net cash used in operating
          expenses                                 (33,131)      (587,634)

Cash flows from investing activities:

   Purchase of equipment                            (3,838)       (11,081)
   Proceeds from disposal of fixed assets              0            1,360
                                                  ----------     --------

   Net cash used in investing activities            (3,838)       (9,721)
                                                  ----------     ---------

                                   (Continued)


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

              CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                                  Years ended December 31,

                                                     2000           1999
                                                      ----           ----

Cash flows from financing activities:
  Proceeds from the issuance of
   common stock                                  $     640  $     500,000
  Treasury stock                                         0         (3,687)
  Proceeds from issuance of short term
    debt, net                                            0        150,000
  Repayment of long term debt                     (277,500)             0
                                                   -------    -----------

     Net cash (used in) provided by
        financing activities                      (276,860)       646,313

     Net (decrease) increase in cash              (313,829)        48,958

Cash at beginning of year                           476,198       427,240
                                                 ----------     ----------

Cash at end of year                             $   162,369   $   476,198
                                                 ==========   ============

Supplemental cash flow information: Cash paid during the year for:

   Interest                                          $3,647  $     10,335
   Income taxes                                      $5,429  $      1,667





         See accompanying notes to consolidated financial statements.


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (1) Summary of Significant Accounting Policies

     Description of Business

     Avenue   Entertainment  Group,  Inc.  (the  "Company")  is  an  independent
     entertainment  company,  that produces  feature  films,  television  films,
     series    for    television,     made-for-television/cable    movies    and
     one-hour-profiles  of Hollywood  Stars.  The Company  develops and produces
     motion pictures for theatrical exhibition,  television, and other ancillary
     markets, both domestically and internationally.

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplates the realization of assets and the satisfaction of
     liabilities   in  the  normal  course  of  business.   Revenues  have  been
     insufficient  to cover costs of operations  for the year ended December 31,
     2000. The Company has a working  capital  deficiency and has an accumulated
     deficit of $5,731,633 through December 31, 2000. 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 or other  sources.  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.  The  accompanying   financial
     statements  do not  include  any  adjustments  that  may  result  from  the
     Company's inability to continue as a going concern.

     Principles of Consolidation

     The Company's financial statements include the accounts of all wholly owned
     subsidiaries.  All significant  intercompany accounts and transactions have
     been eliminated in consolidation.

     Cash and Cash Equivalents

     Cash and cash  equivalents  include all highly liquid debt instruments with
     original  maturities  of three  months or less.  Included  in cash and cash
     equivalents is restricted cash amounting to $82,000 at December 31, 2000.

     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,  certain  exploitation costs
     and production  overhead.  Capitalized  exploitation or distribution  costs
     include those costs that clearly benefit future periods such as film prints
     and  prerelease and early release  advertising  that is expected to benefit
     the film in future  markets.  These costs,  as well as expected  revenue or
     profit participations and talent residuals, are amortized each period on an

<PAGE>

     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.

     Property, Equipment and Depreciation

     Property and equipment are stated at cost. Major  expenditures for property
     and those  which  substantially  increase  useful  lives  are  capitalized.
     Maintenance,  repairs and minor  renewals are  expensed as  incurred.  When
     assets are  retired or  otherwise  disposed  of,  their  costs and  related
     accumulated  depreciation are removed from the accounts and resulting gains
     or  losses  are  included  in  income.  Depreciation  is  provided  by  the
     straight-line method over the estimated useful lives of the assets.

     Goodwill

     Goodwill, representing the excess of the purchase price of Avenue Pictures,
     Inc. over its net assets,  is being  amortized over a ten-year  period on a
     straight-line basis. Accumulated amortization at December 31, 2000 and 1999
     was $1,192,210 and $911,690.

     The carrying  value of intangible  assets is  periodically  reviewed by the
     Company based on the expected future  undiscounted  operating cash flows of
     the related business unit. Based upon its most recent analysis, the Company
     believes that no material impairment of intangible assets exists.

     Fair Value of Financial Instruments

     The Company's  carrying  value of cash,  accounts  receivable  and accounts
     payable and accrued  expenses  and due to related  party  approximate  fair
     value because of the short-term maturity of these instruments.

     Revenue and Cost Recognition

     Revenues from feature film and television  program  distribution  licensing
     agreements  are  recognized  on the date the  completed  film or program 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
     specified by Statement of  Financial  Accounting  Standards  (SFAS) No. 53,
     "Financial Reporting By Producers-Distributors of Motion Picture Films."

     Production  costs of  released  films are  amortized  based on the ratio of
     revenues earned during the current period to management's estimate of total
     revenues to be derived from the related productions. It is anticipated that
     production  costs will be amortized over various periods of generally up to
     15 years although for certain films, the amortization  period may be longer
     or shorter based upon most recent revenue forecasts.

<PAGE>

     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.

     Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosures  of  contingent  assets  and  liabilities  at the  date  of the
     financial  statements  and the  reported  amounts of revenues  and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

     Significant  estimates  include  those  related to  valuation  of  accounts
     receivable  and  inventories  of  released  productions.  It  is  at  least
     reasonably possible that the significant  estimates used will change within
     the next year.

     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 for
     all dilutive potential common shares outstanding.  At December 31, 2000 and
     1999,  the  Company  did not  include  any  potential  common  stock in its
     calculation   of  diluted  EPS,   because  all  options  and  warrants  are
     anti-dilutive.

     Concentration of Credit Risk

     The  Company's   accounts   receivable   are  due  from  companies  in  the
     entertainment industry (see Note 10).

     Stock Option Plan

     Prior to January 1, 1996,  the Company  accounted for its stock option plan
     in accordance  with the  provisions of  Accounting  Principles  Board (APB)
     Opinion No. 25,  "Accounting  for Stock Issued to  Employees,"  and related
     interpretations.  As such,  compensation  expense  would be recorded on the
     date of grant only if the  current  market  price of the  underlying  stock
     exceeded the exercise  price.  On January 1, 1996, the Company adopted SFAS
     No. 123, "Accounting for Stock-Based  Compensation," which permits entities
     to  recognize  as  expense  over the  vesting  period the fair value of all
     stock-based awards on the date of grant.  Alternatively,  SFAS No. 123 also
     allows  entities to continue to apply the  provisions of APB Opinion No. 25

<PAGE>

     and  provide  pro  forma  net  income  and pro  forma  earnings  per  share
     disclosures  for employee stock option grants made in 1995 and future years
     as if the fair-value-based method defined in SFAS No. 123 had been applied.
     The Company has elected to continue to apply the  provisions of APB Opinion
     No. 25 and provide  the pro forma  disclosure  provisions  of SFAS No. 123.
     (See Note 5)

(2)  Film Costs

     Film costs consist of the following:

                                                                    December 31,
                                                                           2000

     In process or development                                      $   267,187
     Released, net of accumulated amortization of $16,509,004           409,403
                                                                    -----------
                                                                    $   676,590

     Based upon the Company's present  estimates of anticipated  future revenues
     at December 31, 2000,  approximately  75% of the net film costs  related to
     released  product  will be amortized  during the  five-year  period  ending
     December 31, 2004.

 (3) Property and Equipment

     The major classes of property and equipment consist of the following:

                                               Useful         December 31,
                                                 life              2000

     Machinery and equipment              4 to 5 years         $ 233,207
     Furniture and fixtures                   10 years            29,495
                                                                --------
                                                                 262,702
     Less accumulated depreciation                              (210,606)
                                                              $   52,096

     Depreciation  expense was  $24,406 and $23,864 for the year ended  December
     31, 2000 and 1999, respectively.

 (4) Commitments and Contingencies

     Leases

     The Company is obligated  under a lease for office  space,  which  requires
     minimum  annual  rentals,  plus  increases  based on real estate  taxes and
     operating costs. In addition to a security deposit of $12,061,  the Company
     delivered  a letter  of  credit in the  amount  of  $82,000  issued by City
     National Bank.

<PAGE>

     Rent expense was  $135,137  and  $116,793 for the years ended  December 31,
     2000 and 1999, respectively.

     Minimum   annual  rental   commitments  at  December  31,  2000  under  the
     noncancelable operating leases are as follows:

      2001                                         131,568
      2002                                         131,568
      2003                                         131,568
      2004                                          98,676
                                                   -------
      Total minimum obligations                   $493,380
                                                  ========


     Employment Agreements

     Effective   September  30,  1996,  the  Company   entered  into  employment
     agreements  with its  President  and its Chairman  providing  for an annual
     salary  of  $450,000,   plus   benefits  and   $150,000,   plus   benefits,
     respectively.  Increases to base salaries and bonuses (limited to twice the
     base salary)  will be  determined  at the  discretion  of the  Compensation
     Committee  of the  Board of  Directors.  In 2000 and  1999,  the  President
     deferred $248,000 and $100,000 of his compensation, respectively.

 (5) Common Stock and Stock Option Plan

(a)  In March 1997, the Company  adopted The Avenue  Entertainment  Group,  Inc.
     Stock Option and Long Term Incentive  Compensation  Plan which provides for
     the grant of an  aggregate  of  1,750,000  shares  of  common  stock of the
     Company.  The options may be exercised subject to continued  employment and
     certain  other  conditions.  The options  vest over a five-year  period and
     expire five to ten years from the date of grant.  At December  31, 2000 and
     1999, 896,000 and 1,028,500 options were exercisable, respectively.


<PAGE>


     Option activity was as follows:

                                                                       Weighted
                                                                        average
                                       Number of    Price range     exercisable
                                         shares      per share           price

     Options Outstanding at
       January 1, 1999                 1,411,500    .31 - 1.81            1.50

     Options Cancelled                   (55,000)   .32 - 1.81            1.67


     Options Outstanding at
       December 31, 1999                1,356,500   .32 - 1.81            1.45

     Options Exercised                    (2,000)   .32                    .32

     Options Cancelled                  (369,500)   .32 - 1.81             .66

     Options Outstanding at
       December 31, 2000                 985,000     1.70-1.81            1.75

     The Company recorded  compensation  expense related to stock option granted
at prices  less than  market  value  totaling  $28,125 and $37,500 for the years
ended December 31, 2000 and 1999.

     At December 31, 2000, the weighted  average  remaining  contractual life of
all outstanding options was 5.9 years.


<PAGE>


     The  following  table  summarizes  information  about  the  Plan's  options
     outstanding at December 31, 2000:

Weighted

                                          Weighted         average
        Number          Range of           average          years      Number
      Outstanding    exercise prices   exercise price     remaining  exercisable

        500,000            $1.70          $1.70              5         500,000
        485,000             1.81           1.81              7         388,000
      --------------------------------------------------------------------------
        985,000      1.70 - 1.81           1.75            5.9         888,000
      --------------------------------------------------------------------------

     Prior to January 1, 1996,  the Company  accounted for its stock option plan
     in accordance  with the  provisions of  Accounting  Principles  Board (ABP)
     Option No. 25,  "Accounting  for Stock  Issued to  Employees,"  and related
     interpretations.  As such,  compensation  expense  would be recorded on the
     date of grant only if the  current  market  price of the  underlying  stock
     exceeded the exercise price.

     In 1996,  the Company  adopted SFAS No. 123,  "Accounting  for  Stock-Based
     Compensation,"  which  permits  entities to  recognize  as expense over the
     vesting  period  the fair  value of all  stock-based  awards on the date of
     grant.  Alternatively,  SFAS No. 123 also  allows  entities  to continue to
     apply the provisions of APB Opinion No. 25 and provide pro forma net income
     and pro forma  earnings per share  disclosures  for  employee  stock option
     grants  made in 1995 and  future  years as if the  fair-value-based  method
     defined  in SFAS No.  123 had been  applied.  The  Company  has  elected to
     continue to apply the  provisions of APB Opinion No. 25 in  accounting  for
     its Plan, and accordingly, no compensation cost has been recognized for its
     stock options  granted at fair market value in the  consolidated  financial
     statements.  Compensation  cost will  continue to be  recorded  for options
     granted below fair market value.

     Had the Company determined compensation cost based on the fair value at the
     grant date for its stock options under SFAS No. 123, the Company's net loss
     would have been or increased to the pro forma amounts indicated below:

                                       December 31,   December 31,
                                           2000           1999
                                           ----           ----

      Net loss                        $ (976,430)    $(1,370,254)
                          Pro forma   $ (1,064,627)   (1,515,283)

      Basic and diluted
        loss per share    As reported       (.21)        (.32)
                          Pro forma         (.23)        (.35)


<PAGE>


     Pro  forma net loss  reflects  only  options  granted  in the  years  ended
     December  31,  2000 and 1999.  Therefore,  the full  impact of  calculating
     compensation  cost for stock options under SFAS No. 123 is not reflected in
     the pro forma net loss amounts presented above because compensation cost is
     reflected over the options'  vesting period of five years and  compensation
     cost for options granted prior to August 1, 1994 is not considered.

 (b) In the fourth  quarter of 1997,  the  Company  adopted  the  provisions  of
     Statement of Financial  Accounting  Standards No. 128, "Earning per Share".
     (SFAS 128), as required,  and restated the previously reported earnings per
     share  in  conforming  with  SFAS  128.  The  new  standard  specifies  the
     computation,  presentation  and  disclosure  requirements  for earnings per
     share.

     Loss per  share  for the  years  ended  December  31,  2000 and 1999 are as
     follows (in thousands, except per share amounts):

                                                   December 31,   December 31,
                                                       2000           1999
                                                      ----           ----

      Basic and diluted loss per share

        Net loss                                  $  (976,430)   $ (1,370,254)
        Weighted average shares outstanding         4,589,808       4,298,284
        Basic and diluted loss per share$                (.21)   $       (.32)


     Basic  earnings  per share are based upon the  weighted  average  number of
     common shares outstanding during the period. Diluted earnings per share are
     based upon the weighted average number of common shares  outstanding during
     the  period,  assuming  the  issuance  of common  shares  for all  dilutive
     potential  common  shares  outstanding.  The  options  outstanding  are not
     dilutive.

 (c) In August  1999,  the Company  sold  480,192  shares of Common  Stock and a
     Warrant to purchase  500,000  shares of Common Stock which  expires  August
     2002 (the "Warrant") to certain  investors  pursuant to a private placement
     transaction.  The Warrant is  exercisable at an exercise price of $2.00 per
     share.  The shares of Common Stock and the shares of Common Stock  issuable
     upon  exercise  of the  Warrant  cannot be sold,  transferred,  pledged  or
     assigned for a one-year  period.  The Company  claimed  exemption  from the
     registration  requirements  of the  Securities  Act  of  1933  (the  "Act")
     pursuant to Rule 506 of Regulation D. of the Act.

(6)   Income Taxes

     Components of income tax expense (benefit) are as follows:

                                          December 31,     December 31,
                                              2000             1999

        Federal
        State and local                   $    5,280           $ 1,667
                                          ----------           -------
                                          $    5,280           $ 1,667
                                          ==========           =======
<PAGE>


     Reconciliation  of the statutory  Federal  income tax rate to the Company's
     effective tax rate is as follows:

                                                  December 31,  December 31,
                                                      2000         1999

     Tax (benefit)
       at Federal statutory rate of 34%         $    (330,191)  $ (465,320)
     Increase (decrease) in taxes resulting from:
     State and local income taxes, net of
       federal income tax benefit                     (10,810)     (50,023)
     Nondeductible goodwill amortization                95,377      95,377
     Other                                               1,266       1,266
     Change in valuation allowance                     249,638     420,367
                                                 -------------    ---------
     Total                                      $        5,280     $ 1,667
                                                ==============      =======

     The tax effects of temporary  differences  between the financial  reporting
     and tax bases of assets and liabilities are as follows:

                                              2000

     Deferred tax assets

     Accrued expenses and other            $ 86,704
     Stock options                          107,500
     Film cost write-down                    37,840
     NOLs                                 1,588,547
                                          ---------
                                          1,820,591

     Valuation allowance                 (1,681,394)
                                         ----------
     Net assets                             139,197
                                       ------------

     Deferred tax liabilities

     Unrealized gains
     State liabilities                      (93,216)
     Production Costs                       (45,981)
                                        -----------
     Net liabilities                       (139,197)
                                         ----------
     Net tax assets                  $==============



For  Federal and State income tax purposes, the Company has unused net operating
     loss carryforwards of approximately $3,693,000 and 2,351,000,  respectively
     expiring through 2020.


<PAGE>






(7)  Related Party Transactions

     Transactions with GP Strategies

     At December 31, 2000, the Company owed GP Strategies, an affiliated company
     and major stockholder,  $147,046 related to the payment of certain expenses
     of the Company by GP Strategies.

     Transaction with Michael Hammer

     In August  1999,  the Company  sold  480,192  shares of Common  Stock and a
     Warrant to purchase  500,000  shares of Common Stock which  expires  August
     2002 (the  "Warrant")  to Hammer  International  Foundation.  Pursuant to a
     private  placement  transaction  Michael Hammer is the President and CEO of
     the Hammer  International  Foundation and is a Director of the Company. The
     Warrant is exercisable at an exercise price of $2.00 per share.  The shares
     of Common Stock and the shares of Common Stock  issuable  upon  exercise of
     the Warrant cannot be sold, transferred, pledged or assigned for a one-year
     period. The Company claimed exemption from the registration requirements of
     the Securities  Act of 1933 (the "Act")  pursuant to Rule 506 of Regulation
     D. of the Act.

     Distribution Agreement

     On March 1,  1994,  the  Company  entered  into an  agreement  with  Janson
     Associates whereby Janson Associates (the distributor) was granted sole and
     exclusive  rights to license  essentially all the programs of the Company's
     "Hollywood Collection" for all forms of television and video worldwide. The
     Hollywood  Collection is a series of one-hour  motion  picture  profiles of
     Hollywood's  biggest star,  which are aired by a major cable  network.  The
     distributor  also gained the  exclusive  right to execute all contracts for
     the  exploitation  of these  rights.  Revenues  earned for the years  ended
     December  31,  2000 and 1999  were  $462,000  and  $162,000,  respectively.
     Included in operating expenses was $170,000 and $60,400,  of commissions to
     Janson  Associates  incurred in the years ended December 31, 2000 and 1999,
     respectively.  The  President  of  Janson  Associates  is  related  to  the
     Company's Chairman through marriage.


<PAGE>

(8)  Loan Payable

     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 $150,000, at prime plus 1%, with Fleet Bank, National  Association.  The
     Note is payable on  demand,  but in any event not later than May 27,  2000.
     The balance of $47,500 as of  December  31, 1999 was paid in full in August
     2000.

     On June 3, 1999, the Company  entered into an unsecured loan for $1,000,000
     at prime plus 1% with City  National  Bank which matured on October 1, 1999
     and was extended  through  September 1, 2000. The balance of $230,000 as of
     December 31, 1999 was paid in full in August 2000.

(9)   Postretirement Benefit

     Pursuant to an agreement dated September 30, 1996, the Company is obligated
     to pay its Chairman,  his spouse, or estate, as the case may be, commencing
     upon the termination of his employment,  the lesser of monthly  payments of
     $8,333 or an amount  based on net income,  for the greater of five years or
     the remainder of his life.  Under certain  circumstance,  a reduced benefit
     may be payable to the Chairman's wife for a period not to exceed five years
     from the date of his death, based upon an actuarial  valuation performed in
     1999.

     In the prior years the Company had determined that $640,000 was the present
     value of the expected  benefit  payments and was accruing  such amount on a
     straight-line  basis over the term of the Chairman's  employment  contract,
     which covers the period from  September 30, 1996 to December 31, 2001. As a
     result of significant  changes in the actual results of operations from the
     projected results which were utilized in the initial  actuarial  valuation,
     the  Company  had  a  new  valuation  performed  in  2001.  This  valuation
     determined  that the  liability  at December  31,  2001 would be  $163,000.
     Accordingly,  the  Company  has  adjusted  their  liability  to reflect the
     accrued balance based on the revised estimates.

     This  agreement  also gives the  Chairman  the option to  purchase  certain
     assets  of the  Wombat  Product  Division  of the  Company  at  book  value
     following the termination of his  employment,  and a right of first refusal
     if  the  Company  wishes  to  sell  the  Wombat  film  Library  for  normal
     consideration, subject to reasonable producer fees, rights of licensees and
     existing distribution rights.


<PAGE>

 (10) Significant Customers

     Significant  customers,  exceeding  10% of  revenue,  were as  follows  (in
     percents):

                                  Year ended     Year ended
                                 December 31,   December 31,

                                     2000          1999
                                     ----          ----

     Janson Associates                47
     HBO                              23
     BRAVO                            13
     TBS                                             58
     Carlton                                         27

As of  December  31,  2000,  3  customers  represented  78%  of  gross  accounts
receivable.

(11)  Recent Development

      The Company  received a letter from the American Stock  Exchange  ("AMEX")
notifying  the  Company  that it has fallen  below  certain of AMEX's  continued
listing  guidelines  because of the  Company's  recurring  losses.  The  Company
attended  a meeting  with AMEX on  November  16,  1999 to  discuss  its  listing
eligibility.  As a result of this  meeting  AMEX  informed the Company that they
would be granted an extension  until after the filing of the Company's  December
31,  1999  year-end  financial  statements  to enable the Company to satisfy the
listing  criteria.  Due to the  continued  decline  in the  share  price  of the
Company's  common stock and continued  operating  losses,  the Company  recently
received a follow up letter  stating  that they have failed to meet the criteria
of AMEX's  continued  listing  guideline.  The  Company  had  appealed  the AMEX
determination  and a hearing  was  scheduled  for April 17,  2001.  However  the
Company has decided not to pursue the appeal. As a result, the Company's failure
to  meet  AMEX's  maintenance  criteria  may  result  in  discontinuance  of the
inclusion of the Company's shares in AMEX.


<PAGE>



ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

           None


<PAGE>



                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors and Executive Officers

      The  following  table  sets  forth  certain  information   concerning  the
directors and officers of the Company:

Name                      Age     Position

Gene Feldman              74      Chairman of the Board, President of Wombat
Cary Brokaw               49      President,   Chief  Executive   Officer  and
                                   Director
Michael Feldman           33      Executive Vice President and Director
Sheri L. Halfon           44      Senior  Vice   President,   Chief  Financial
                                    Officer and Director
Doug Rowan                62      Director
Michael Hammer            45      Director

      Gene  Feldman  has  served as  Chairman  of the Board of the  Company  and
President of Wombat since their respective formations on March 7, 1997. Prior to
the Reincorporation, Gene Feldman served as Chairman of the Board of CineMasters
and  President of the Wombat  Division  for more than the past five years.  Gene
Feldman is a Class III Director.

      Cary Brokaw has served as President,  Chief Executive Officer and Director
of  the  Company   since  its   formation  on  March  7,  1997.   Prior  to  the
Reincorporation,  Mr. Brokaw served as President,  Chief  Executive  Officer and
Director of CineMasters from September 30, 1996 and Chairman and Chief Executive
Officer of Avenue  Pictures  since its formation in 1991.  Mr. Brokaw is a Class
III Director.

      Michael Feldman has served as Executive Vice President and Director of the
Company  since its  formation  on March 7, 1997.  Prior to the  Reincorporation,
Michael  Feldman  had  served  as  Executive  Vice  President  and  Director  of
CineMasters  from  September 30, 1996.  Michael  Feldman served as an officer of
General  Physics  Corporation  from  1991 to 1996  and has  been a  Director  of
International  Business Development at GP Strategies since 1995. Michael Feldman
is a Class II Director.

      Sheri L.  Halfon  has served as Senior  Vice  President,  Chief  Financial
Officer and Director of the Company since its formation on March 7, 1997.  Prior
to the  Reincorporation,  Ms.  Halfon  served as Senior  Vice  President,  Chief
Financial Officer and Director of CineMasters from September 30, 1996 and Senior
Vice  President  and  Chief  Financial  Officer  of  Avenue  Pictures  since its
formation in 1991. Ms. Halfon is a Class II Director.


<PAGE>

      Doug  Rowan  served as  President  and Chief  Executive  Officer of Corbis
Corporation, a company which is building a library of digital images, from April
1994 to July 1997.  Prior to his position at Corbis,  Mr. Rowan served as Senior
Vice  President of Worldwide  Customer  Operations  of  Ungermann-Bass,  Inc., a
networking  product company,  from November 1993 to April 1994, and President of
AXS, a software corporation for the new digital content industry,  from April 1,
1991 through December 31, 1992. Mr. Rowan is a Class I Director.

      Michael  Armand  Hammer  is  Chairman  and  CEO  of  The  Armand  Hammer
Foundation and President and CEO of the Hammer International  Foundation.  Mr.
Hammer is  Chairman  of the  Board  and  President  of  Hammer  Galleries  and
Knoedler  Galleries in New York City. In Los Angeles,  he is a director of the
Armand Hammer  Museum of Art and Cultural  Center and a Director of The Armand
Hammer United World  College of the American  West in  Montezuma,  New Mexico.
Mr.  Hammer  joined  Occidental  Petroleum  Corporation  in 1982 and served in
various   positions  in  the  company's  foreign  and  domestic  oil  and  gas
subsidiaries.  Prior to joining Occidental, Mr. Hammer worked in the Corporate
Finance  Department  of Kidder  Peabody,  an  investment  banking  firm in New
York.  Mr. Hammer is a Class I Director.

      Directors  of the Company are divided into three  classes.  At each annual
meeting of stockholders,  directors are elected to succeed those directors whose
terms  expire  and are  elected  for a term of  office  to  expire  at the third
succeeding  annual  meeting of  stockholders  after  their  election.  Under the
Company's  bylaws,  the number of  directors  constituting  the entire  Board of
Directors  shall be fixed,  from time to time, by the directors  then in office,
who may decrease or increase the number of directors by majority  action without
soliciting stockholder approval. The Company does not currently pay compensation
to directors for service in that capacity.

Section 16(a) Beneficial Ownership Reporting Compliance

      The Company  believes that during the most recent fiscal year,  all filing
requirements  applicable  to  its  officers,  directors  and  greater  than  10%
beneficial owners were complied with.


<PAGE>


ITEM 10. EXECUTIVE COMPENSATION

Executive Compensation

      The following table sets forth the aggregate  compensation paid or accrued
to the Company's executive officers for the services rendered in 2000, 1999, and
1998.

                           SUMMARY COMPENSATION TABLE

                                                             Long-Term
                                                            Compensation
                                                              Awards
                                       Annual Compensation   Stock    All Other
                                       Salary     Bonus     Options Compensation
Name and Principal Position    Year     ($)        ($)         (#)       ($)

Cary Brokaw                    2000   450,000(1)
President, Chief Executive     1999   450,000
Officer and Director           1998   450,000       -0-     80,000(2)(3)  --

Gene Feldman                   2000   150,000
Chairman of the Board,         1999   150,000
President of Wombat            1998   150,000       -0-     60,000(3)(5)   --


-------------------
(1)   Mr.  Brokaw's  salary for the year pursuant to his employment  agreement
      was $450,000, of which $248,000 has been deferred by Mr. Brokaw.

(2)   Of the 100,000 stock options  granted to Mr. Brokaw in 1998, only 80,000
      are currently vested.

(3)   On December 10, 1998, the Board of Directors of the Company  determined to
      cancel  certain  options  which had an exercise  price of $3.00 per share,
      previously  granted to the named  executive  officers in 1997 and to grant
      new  options at the  exercise  price of $1.8125  per share,  which was the
      market  price on December 10, 1998.  The vesting  schedule and  expiration
      date remained the same.

(4)   Mr. Feldman's salary for the year was $150,000.

(5)   Of the 75,000 stock options  granted to Mr. Feldman in 1998, only 60,000
      are currently vested.

<PAGE>

Option Grants in 2000

No options were granted in 2000 to the named executive officers.

      The  following  table  sets  forth  information  concerning  the  value of
unexercised  options as of December 31, 2000 held by the executives named in the
Summary Compensation Table above. No options were exercised during 2000.

               AGGREGATED OPTION EXERCISES AT DECEMBER 31, 2000

                           AND YEAR-END OPTION VALUES

                Number of Securities             Value of Unexercised
               Underlying Unexercised           In-the-Money Options at
             Options at Fiscal Year End             Fiscal Year End
Name     Exercisable (E)/ Unexercisable (U)Exercisable (E)/ Unexercisable (U)(1)
----     -----------------------------------------------------------------------
Gene Feldman     60,000(E)     15,000(U)              0(E)         $0(U)
Cary Brokaw     380,000(E)     20,000(U)              0(E)          0(U)
Sheri Halfon     60,000(E)     15,000(U)              0(E)          0(U)
----------
(1) Calculated  based on the closing price of the Common Stock $0.22 as reported
by the American Stock Exchange on December 29, 2000.

Employment  Contracts  and  Termination  of  Employment  and Change in Control
Arrangements

      Brokaw Employment Agreement.  In connection with the Business Combination,
Mr. Brokaw entered into a five-year employment agreement (the "Brokaw Employment
Agreement") with the Company pursuant to which,  among other things,  Mr. Brokaw
became the  President  and Chief  Executive  Officer of the Company.  The Brokaw
Employment  Agreement provides Mr. Brokaw with an annual base salary of $450,000
(which base salary may be paid from any Company  source other than net cash flow
generated  by  Wombat),  subject  to  such  increases  as  may  be  made  by the
Compensation  Committee of the Board of  Directors.  Mr. Brokaw is also eligible
for annual  bonuses  based upon the  performance  of Mr.  Brokaw and the Company
during the previous  fiscal year.  Such annual bonuses will be determined in the
discretion of the Compensation Committee.  The dollar amount of the annual bonus
will not  exceed  two  times the  annual  base  salary.  The  Brokaw  Employment
Agreement  provides that the Company may only terminate Mr. Brokaw's  employment
with the Company for "cause." If Mr.  Brokaw's  employment is terminated  due to
death or  disability,  he will  receive  his  base  salary  through  the date of
termination  of  employment.  Any  vested  options  not  exercised  prior to the
termination  of employment for this reason will remain  exercisable  for the six
month  period  beginning  on the  date  of  termination.  If his  employment  is
terminated for "Cause" as defined in the Brokaw Employment Agreement, he will be
entitled  to the  base  salary  and any  accrued  annual  bonus  that  has  been
determined  and awarded,  but not paid,  through the date of  termination of his
employment.  Any  vested  options  not  exercised  prior to the  termination  of
employment for Cause will remain  exercisable until the end of the ninetieth day
following the date of  termination.  If Mr.  Brokaw  terminates  his  employment
following a "Change of Control" as defined in the Brokaw  Employment  Agreement,
he will  receive  (i) his earned but unpaid  compensation  as of the date of the
Change  of  Control;   (ii)  continued  benefits  for  the  remaining  unexpired
employment  term;  (iii) a lump sum payment on the date of the Change of Control
equal to the future base  salary  that he would have earned if he had  continued

<PAGE>

working for the remaining  unexpired  employment  term;  and (iv) bonus payments
that  would have been made to Mr.  Brokaw if he had  continued  working  for the
Company during the remaining unexpired  employment term. The Company is entitled
to seek to obtain,  and has obtained,  $2,000,000 in "key-man" life insurance on
his life.  Pursuant to the Brokaw Employment  Agreement,  Mr. Brokaw was granted
options to purchase up to 300,000  shares of Common Stock for an exercise  price
of $1.70 per share. Such stock options will vest in equal  installments over the
first  five  years  of Mr.  Brokaw's  employment  with the  Company  and will be
exercisable  for a  period  of ten  years  from the date of  grant.  The  Brokaw
Employment  Agreement  provides for  accelerated  vesting of all of Mr. Brokaw's
stock  options  upon a "change  of  control"  of the  Company or upon a material
breach of the Brokaw Employment Agreement by the Company. As President and Chief
Executive  Officer of the Company,  Mr. Brokaw is entitled to certain  customary
perquisites,   including,   without  limitation,  a  car  allowance,  term  life
insurance,   and  reimbursement  of  all  reasonable  travel  and  entertainment
expenses.  In addition,  Mr. Brokaw is entitled to  participate  in all employee
benefit plans offered to executive officers of the Company.

      Gene  Feldman  Employment  Agreement.  In  connection  with  the  Business
Combination,  Gene Feldman  entered into a five-year  employment  agreement (the
"Feldman Employment  Agreement") with CineMasters pursuant to which, among other
things,  Gene Feldman  became the Chairman of  CineMasters  and President of its
Wombat Division.  The Feldman Employment Agreement provides Gene Feldman with an
annual base salary of $150,000  (provided that such base salary is funded solely
out of net cash flow generated by the Wombat Division of  CineMasters),  subject
to such increases as may be made by the  Compensation  Committee of the Board of
Directors.  Gene  Feldman is also  eligible  for annual  bonuses  based upon the
performance  of Gene Feldman and  CineMasters  during the previous  fiscal year.
Such annual  bonuses will be  determined in the  discretion of the  Compensation
Committee.  The dollar  amount of the annual bonus will not exceed two times the
annual base salary. The Feldman  Employment  Agreement provides that CineMasters
may only terminate Gene Feldman's  employment  with  CineMasters for "cause." If
Mr.  Feldman's  employment is  terminated  due to death or  disability,  he will
receive his base salary through the date of termination of employment.

Any vested options not exercised prior to the termination of employment for this
reason will remain exercisable for the six month period beginning on the date of
termination.  If his  employment  is  terminated  for  "Cause" as defined in the
Feldman  Employment  Agreement,  he will be  entitled to the base salary and any
accrued annual bonus that has been determined and awarded, but not paid, through
the date of  termination  of his  employment.  Any vested  options not exercised
prior to the termination of employment will remain  exercisable until the end of
the ninetieth day following the date of termination.  If Mr. Feldman  terminates
his  employment  following  a "Change of  Control"  as  defined  in the  Feldman
Employment Agreement,  he will receive (i) his earned but unpaid compensation as
of the date of the Change of Control;  (ii) continued benefits for the remaining
unexpired employment term; (iii) a lump sum payment on the date of the Change of
Control  equal to the future  base  salary  that he would have  earned if he had
continued  working for the remaining  unexpired  employment term; and (iv) bonus

<PAGE>

payments that would have been made to Mr.  Feldman if he had  continued  working
for the Company during the remaining  unexpired  employment term. As chairman of
CineMasters  and President of the Wombat  Division,  Gene Feldman is entitled to
certain customary perquisites,  including,  without limitation, a car allowance,
term  life  insurance,   and   reimbursement   of  all  reasonable   travel  and
entertainment  expenses. In addition, Gene Feldman is entitled to participate in
all employee  benefit plans  offered to executive  officers of  CineMasters.  In
connection with the  Reincorporation,  the Gene Feldman Employment Agreement was
amended  to  indicate  that Gene  Feldman  is the  Chairman  of the Board of the
Company and the President of Wombat.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                             PRINCIPAL STOCKHOLDERS

      The only  persons  known by the Board of  Directors  to be the  beneficial
owner of more than five percent of the outstanding shares of Common Stock of the
Corporation, as of March 30, 2001, are indicated below:

Name and Address                       Amount and Nature
of Beneficial Owner                of Beneficial Ownership*    Percent of Class
-------------------                -----------------------     ----------------

Cary Brokaw                              1,811,350(1)                 31%
c/o Avenue Pictures, Inc.
11111 Santa Monica Boulevard
Suite 525
Los Angeles, CA 90025

GP Strategies Corporation                1,067,900                    20%
9 West 57th Street
New York, New York 10019

Gene Feldman                               426,700(2)                  4%
c/o Avenue Entertainment Group, Inc.
9 West 57th Street
Suite 4170
New York, New York 10019

Hammer International Foundation            980,192(3)                 17%
2425 Olympic Blvd., Suite140E
Santa Monica, CA  90404

Double Bay Entertainment                   800,000(4)                 15%
c/o the Law Offices of A. Chandler Warren
7715 Sunset Blvd., Suite 208
Los Angeles, CA 90046
---------------------
* As used in this  Proxy  Statement,  "beneficial  ownership"  means the sole or
shared power to vote, or to direct the voting of the Corporation's  Common Stock
of the sole or shared investment power with respect to such Common Stock.

<PAGE>

(1) Includes  vested options to purchase up to 300,000 shares of Common Stock of
the Corporation at a price of $1.70 per share,  exercisable  until September 30,
2006 and vested  options to purchase up to 100,000 shares of Common Stock of the
Corporation  at a price of $1.8125 per share,  exercisable  until  February  19,
2007.

(2) Does not include 17,500 shares of Common Stock of the Corporation  which are
owned by Mr. Feldman's wife,  Suzette St. John Feldman,  as to which Mr. Feldman
disclaims beneficial ownership. Includes vested options to purchase up to 75,000
shares of Common  Stock of the  Corporation  at a price of  $1.8125  per  share,
exercisable until February 19, 2007.

(3)  Includes  Warrants  to  purchase  500,000  shares  of  Common  Stock of the
Corporation  at an exercise  price of $2.00 per share until August 9, 2002.  Mr.
Hammer,  a director of the  Company,  disclaims  beneficial  ownership  of these
shares, except to the extent of his pecuniary interest in these shares.

(4) Includes the right to receive an  additional  70,000  shares  pursuant to an
existing contractual arrangement.


<PAGE>



         SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS

      The following table sets forth, as of March 30, 2001, beneficial ownership
of shares of Common  Stock of the  Company by each  director,  each of the named
executive officers and all directors and executive officers as a group:

                        Total Number of Shares                   Percent of
                             of Common Stock                     Common
Name                       Beneficially Owned                    Stock(1)
----                     ------------------                      --------

Gene Feldman                      241,700(2)                           4

Cary Brokaw                     1,811,350(3)                          31

Michael Feldman                   242,000(4)(5)                        4

Sheri L. Halfon                    75,100(6)                           1

Doug Rowan                         11,000(7)                           *

Michael Hammer                    980,192(8)                          17

Directors and Executive         3,361,342(9)                          57
  Officers as a Group
  (6 persons)
----------
* The number of shares owned is less than one percent of the outstanding shares.

(1) The percentage of class  calculation  assumes for each beneficial owner that
all of the  options  are  deemed  to be  exercised  in full  only  by the  named
beneficial  owner and that no other  options are deemed to be  exercised  by any
other stockholder.

(2)   See footnote 2 to Principal Stockholders table.

(3)   See footnote 1 to Principal Stockholders table.

(4) Includes  vested options to purchase up to 150,000 shares of Common Stock of
the Company at a price of $1.70 per share,  which  option is  exercisable  until
September 30, 2006 and vested  options to purchase up to 75,000 shares of Common
Stock of the Company at a price of $1.8125 per share, exercisable until February
19, 2007.

(5)   Michael Feldman is Gene Feldman's nephew.

(6) Includes  vested  options to purchase up to 75,000 shares of Common Stock of
the Corporation at a price of $1.8125 per share,  exercisable until February 19,
2007.

<PAGE>

(7) Includes  vested  options to purchase up to 10,000 shares of Common Stock of
the Corporation at a price of $1.8125 per share,  exercisable until February 19,
2007.

(8)   See footnote 3 to Principal Stockholders table.

(9) Includes  785,000 shares of Common Stock issuable upon exercise of currently
exercisable  stock options,  and a warrant to purchase  500,000 shares of Common
Stock.

Except for the shares of Avenue Common Stock subject to the options described in
footnotes  1 through 4, and 6 and 7 above,  none of such  shares is known by the
Corporation  to be shares with  respect to which such  beneficial  owner has the
right to acquire beneficial  ownership.  The Corporation believes the beneficial
holders listed above have sole voting and investment  power regarding the shares
shown as being beneficially owned by them.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Transaction With Michael Hammer.  In August 1999, the Company sold 480,192
shares of Common Stock and a Warrant to purchase  500,000 shares of Common Stock
which expires  August 2002 (the  "Warrant") to Hammer  International  Foundation
pursuant to a private placement transaction. Michael Hammer is President and CEO
of the  Hammer  International  Foundation.  The  Warrant  is  exercisable  at an
exercise price of $2.00 per share.  The shares of Common Stock and the shares of
Common Stock issuable upon exercise of the Warrant cannot be sold,  transferred,
pledged or assigned for a one-year period.

      Gene  Feldman  Exit Option  Agreement.  In  connection  with the  Business
Combination, Gene Feldman entered into an exit option agreement with CineMasters
pursuant  to which,  among  other  things,  he was given an option,  exercisable
during  the  six-month  period  commencing  on the  date of  termination  of his
employment, to purchase the production assets of CineMasters for a cash purchase
price equal to the book value of such  assets.  This option does not include the
CineMasters film library. In addition, CineMasters retained the right to acquire
any future production of Mr. Feldman for nominal  consideration,  subject to (i)
the rights of Mr. Feldman to receive commercially reasonable producer fees, (ii)
the rights,  if any, of A&E, as licensee,  consistent  with past  practice,  and
(iii) the distribution rights pursuant to the Distribution Agreement, dated July
1, 1995, as amended,  between Janson and the Wombat Division.  Upon the exercise
of such option,  Gene Feldman will no longer be employed by CineMasters but will
be entitled to receive  annual  payments for the  remainder of his life equal to
the  lesser of (i) 25% of the  annual  net  income  (which  shall be  determined
without   deduction  for  general  and   administrative   expenses)  derived  by
CineMasters from the original CineMasters library and (ii) $100,000 annually. If
Gene  Feldman  shall die prior to the exercise of such  option,  Gene  Feldman's
wife,  Suzette St. John Feldman,  shall  following Gene Feldman's death have the

<PAGE>

right to exercise  such option and to receive such annual  payments for a period
of five years  following  the date of such  exercise.  If Gene Feldman shall die
after the exercise of such option but prior to the fifth anniversary of the date
of such exercise,  Suzette St. John Feldman shall following Gene Feldman's death
be entitled to receive such annual payments for a period of five years following
the date of Gene Feldman's death;  provided,  however, that such annual payments
shall be reduced from $100,000 to $75,000 following the fifth anniversary of the
date of Gene  Feldman's  exercise of such option.  In addition,  if  CineMasters
shall  determine to sell its library  during the first five years  following the
exercise of such option by Gene Feldman,  CineMasters  shall first offer to sell
its library to Gene Feldman based upon a specific price and upon specific terms.
If Gene Feldman  does not accept such offer within a reasonable  period of time,
CineMasters will then have a limited period of time in which to sell its library
to a third  party for a price and upon terms no less  favorable  to  CineMasters
than those offered to Gene Feldman. In connection with the Reincorporation,  the
Gene Feldman Exit Option  Agreement was amended to replace  CineMasters with the
Company.

      Stockholders Agreement.  In connection with the Business Combination,  Mr.
Brokaw entered into a stockholders  agreement  (the  "Stockholders  Agreement"),
amended in connection with the Reincorporation,  with CineMasters and each of GP
Strategies Corporation,  Gene Feldman, Jerome Feldman, Suzette St. John Feldman,
and Michael  Feldman  (collectively,  the "Feldman  Group"),  pursuant to which,
among other things, the Board of Directors of CineMasters was reconstituted such
that Mr. Brokaw and the Feldman Group each have three  designees on a six-person
Board  of  Directors  and,  except  as  may  be  mutually  agreed  upon,   equal
representation  on any  committee of the Board of  Directors.  The  Stockholders
Agreement  provides that all  extraordinary  transactions  (i.e.,  any merger or
consolidation involving CineMasters or any subsidiary,  any public offering, any
sale or other  disposition  of a material  portion of the assets of  CineMasters
and/or its  subsidiaries,  any  acquisition or investment in excess of $250,000,
etc.) shall require the prior approval of the Board of Directors of CineMasters.
In addition,  the  Stockholders  Agreement  provides  that,  except for ordinary
course (i) expenditures for office rent, (ii) expenditures for selling, general,
and administrative  expenses, and (iii) out-of-pocket  development  expenditures
not in excess of $500,000  during each of the first two fiscal  years  following
consummation of the Business  Combination,  aggregate  expenditures in excess of
$250,000  in any fiscal  year will  require  the prior  approval of the Board of
Directors of CineMasters.  The Stockholders  Agreement also provides each of Mr.
Brokaw and the  members of the  Feldman  Group with  reciprocal  rights of first
negotiation  and refusal  and  tag-along  rights in the event that either  party
wishes to dispose of some or all of his, her, or its shares of Common Stock in a
privately-negotiated  transaction.  In connection with the Reincorporation,  the
Stockholders Agreement was amended to replace CineMasters with the Company.

      Distribution  Agreement.  On March 1, July 1, 1995 and April 28, 1996, the
Company  entered into an agreement with Janson whereby Janson (the  distributor)
was granted sole and exclusive rights to license essentially all the programs of
the Company's  documentary  film library for all forms of  television  and video
worldwide.  The  distributor  also  gained the  exclusive  right to execute  all
contracts for the exploitation of these rights. The President of Janson, Stephen
Janson, is related to the Company's Chairman, Gene Feldman, through marriage.


<PAGE>

ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K.

(a)         The Exhibits listed on the accompanying  Index to Exhibits are filed
            as part of this Annual Report.


<PAGE>



                                   SIGNATURES

      In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                   AVENUE ENTERTAINMENT GROUP, INC.

                                   Cary Brokaw
                                   President and Chief Executive Officer

Dated:      April 10, 2001

      In accordance  with the Securities  Exchange Act of 1934,  this report has
been signed below by the following  persons on behalf of the  Registrant  and in
the capacities and on the dates indicated.

Signature                           Title

Gene Feldman                        Chairman of the Board

Cary Brokaw                         President and Chief Executive Officer and
                                    Director

Sheri L. Halfon                     Senior Vice President, Chief Financial
                                     Officer  and Director

Michael D. Feldman                  Executive Vice President and Director

Michael Hammer                      Director

Dated: April 10, 2001


<PAGE>




(a)   INDEX TO EXHIBITS

     3                  Restated  Certificate  of  Incorporation.
                        Incorporated   herein  by   reference  to
                        Exhibit   3   (I)   of   the    Company's
                        Registration  Statement  on  Form  10-SB,
                        as amended, filed on April 9, 1997.

     3.1                By-Laws.     Incorporated    herein    by
                        reference to Exhibit 3(ii) of the Company's Registration
                        Statement on Form 10-SB,  as amended,  filed on April 9,
                        1997.

    10                  Share  Exchange  Agreement,  dated  as of
                        September  30,  1996,  among Cary Brokaw,
                        Avenue    Pictures,    Inc.    and    The
                        CineMasters   Group,  Inc.   Incorporated
                        herein by reference  to Exhibit  10(a)(i)
                        of the Company's  Registration  Statement
                        on  Form  10-SB,  as  amended,  filed  on
                        April 9, 1997.

    10.1                Stockholders Agreement,  dated as of September 30, 1996,
                        among Cary Brokaw, The CineMasters Group, Inc., National
                        Patent  Development  Corporation,  Gene Feldman,  Jerome
                        Feldman,  Suzette St. John Feldman and Michael  Feldman.
                        Incorporated  herein by reference to Exhibit  10(a) (ii)
                        of the Company's  Registration  Statement on Form 10-SB,
                        as amended, filed on April 9, 1997.

    10.2                Exit  Option   Agreement,   dated  as  of
                        September    30,   1996,    between   The
                        CineMasters    Group,   Inc.   and   Gene
                        Feldman.     Incorporated    herein    by
                        reference  to Exhibit  10(a)(iii)  of the
                        Company's   Registration   Statement   on
                        Form 10-SB,  as  amended,  filed on April
                        9, 1997.

    10.3                Distribution  Agreement,  dated April 28,
                        1996,  between  Janson  Associates,  Inc.
                        and   The   CineMasters,    Group,   Inc.
                        Incorporated   herein  by   reference  to
                        Exhibit  10(b)(ii)(1)  of  the  Company's
                        Registration  Statement  on  Form  10-SB,
                        as amended, filed on April 9, 1997.
<PAGE>

    10.4                Output  Agreement,  dated October 1, 1994
                        between  Avenue  Pictures,  Inc.  and RHI
                        Entertainment,      Inc.     Incorporated
                        herein   by    reference    to    Exhibit
                        10(b)(ii)(6)     of     the     Company's
                        Registration  Statement  on  Form  10-SB,
                        as amended, filed on April 9, 1997.

    10.5                Promissory     Note    between     Avenue
                        Entertainment   Group,   Inc.  and  Fleet
                        Bank,        National        Association.
                        Incorporated   herein  by   reference  to
                        Exhibit  10(b)(ii)(7)  of  the  Company's
                        Registration  Statement  on  Form  10-SB,
                        as amended, filed on April 9, 1997.

    10.6                Avenue  Entertainment  Group,  Inc. Stock
                        Option    and   Long    Term    Incentive
                        Compensation  Plan.  Incorporated  herein
                        by reference  to Exhibit  10(c)(i) of the
                        Company's   Registration   Statement   on
                        Form 10-SB,  as  amended,  filed on April
                        9, 1997.

    10.7                Employment   Agreement,   dated   as   of
                        September    30,    1996,    among    The
                        CineMasters     Group,    Inc.,    Avenue
                        Pictures,    Inc.    and   Cary   Brokaw.
                        Incorporated   herein  by   reference  to
                        Exhibit   10(c)(ii)   of  the   Company's
                        Registration  Statement  on  Form  10-SB,
                        as amended, filed on April 9, 1997.

    10.8                Employment   Agreement,   dated   as   of
                        September    30,    1996,    among    The
                        CineMasters     Group,    Inc.,    Avenue
                        Pictures,    Inc.   and   Gene   Feldman.
                        Incorporated   herein  by   reference  to
                        Exhibit   10.(c)(iii)  of  the  Company's
                        Registration  Statement  on  Form  10-SB,
                        as amended, filed on April 9, 1997.

    10.9                Option  Agreement,  dated as of September
                        30,   1996,   between   The   CineMasters
                        Group,     Inc.    and    Cary    Brokaw.
                        Incorporated   herein  by   reference  to
                        Exhibit   10(c)(iv)   of  the   Company's
                        Registration  Statement  on  Form  10-SB,
                        as amended, filed on April 9, 1997.
<PAGE>

    10.10               Form of  Option  Grant  Agreement,  dated
                        as  of  September   30,   1996,   between
                        Avenue   Entertainment  Group,  Inc.  and
                        the  Optionee.   Incorporated  herein  by
                        reference  to  Exhibit  10(c)(v)  of  the
                        Company's   Registration   Statement   on
                        Form 10-SB,  as  amended,  filed on April
                        9, 1997.

    10.11               Form of  Option  Grant  Agreement,  dated
                        as  of  March  10,  1997  between  Avenue
                        Entertainment   Group,   Inc.   and   the
                        Optionee.    Incorporated    herein    by
                        reference  to  Exhibit  10(c)(vi)  of the
                        Company's   Registration   Statement   on
                        Form 10-SB,  as  amended,  filed on April
                        9, 1997.

    10.12               Amendment   Number  1  dated  January  8,
                        2001  to  the   Agreement   and  Plan  of
                        Merger dated  November  21, 2000,  by and
                        among  the   Company,   LCA   Acquisition
                        Subsidiary,  Inc.,  LCA Inc.  and  Double
                        Bay  Entertainment,   Inc.   Incorporated
                        herein by  reference  to Exhibit  10.1 of
                        the  Company's  Form 8-K filed on January
                        29, 2001

    10.13               Subscription   Agreement  dated  November
                        15,  2000  between  Robison  Enterprises,
                        Inc.   and  the   Company.   Incorporated
                        herein by  reference  to Exhibit  10.2 of
                        the  Company's  Form 8-K filed on January
                        29, 2001.

    10.14               Amendment   Number  1  dated  January  8,  2001  to  the
                        Subscription  Agreement  dated November 15, 2000 between
                        Robison Enterprises,  Inc. and the Company. Incorporated
                        herein by  reference  to Exhibit  10.3 of the  Company's
                        Form 8-K filed on January 29, 2001.

    10.15               Amendment   Number  2  dated  January  8,  2001  to  the
                        Subscription  Agreement  dated November 15, 2000 between
                        Robison Enterprises,  Inc. and the Company. Incorporated
                        herein by  reference  to Exhibit  10.4 of the  Company's
                        Form 8-K filed on January 29, 2001.


<PAGE>

    10.16               Subscription  Agreement  between  the Company and Hammer
                        International   Foundation   dated   August  10,   1999.
                        Incorporated  herein by  reference to Exhibit 4.4 of the
                        Company's  Registration  Statement  on Form S-3 filed on
                        February 1, 2001.

    10.17               Warrant   issued   by  the   Company   to
                        Robison    Enterprises,     Inc.    dated

                        November  15, 2000.  Incorporated  herein
                        by  reference  to  Exhibit  10.5  of  the
                        Registrant's  Form 8-K  filed on  January
                        29, 2001

    10.18               Warrant  issued by the  Company to Hammer  International
                        Foundation dated August 10, 1999. Incorporated herein by
                        reference to Exhibit 4.6 of the  Company's  Registration
                        Statement on Form S-3 filed on February 1, 2001.

    21                  Subsidiaries of the Company *

    23                  Consent of KPMG LLP*
--------------
* Filed herewith.


(b) There were no Reports on Form 8-K filed by the  Registrant  during the last
quarter of the period covered by this report.