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, 1998

                                       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)

11755 Wilshire Blvd., Suite 2250, 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.   $829,000

As of March 15, 1999,  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 $3,070,175 based on
the closing  price of the Common Stock on the American  Stock  Exchange on March
15, 1999.

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 15, 1999
-----                                          -----------------------------
Common Stock, par value $.01 per share              4,108,838 shares

DOCUMENTS INCORPORATED BY REFERENCE:      NONE


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                                TABLE OF CONTENTS
                                                                         Page
PART I

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

         Item 2.    Description of Property................................16

         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........................17

         Item 6.    Management's Discussion and Analysis of
                    Financial Condition and Results of Operations..........19

         Item 7.    Financial Statements...................................24

         Item 8.    Changes In and Disagreements with Accountants
                    on Accounting and Financial Disclosure.................43

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.......................49

         Item 12.   Certain Relationships and Related
                    Transactions...........................................52

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


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ITEM 1.       DESCRIPTION OF BUSINESS

Organization

         Avenue Entertainment Group, Inc. (the "Company") 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. 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, (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
Spike Lee's first film,  She's Gotta Have It. Mr. Brokaw is responsible  for the
production and release of Gus Van Sant's Drug Store Cowboy,  James Foley's After

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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 and Tushka Bergen.  In February 1998,
the Company  completed  Finding  Graceland  starring  Harvey  Keitel,  Johnathan
Schaech,  and Bridget  Fonda based on an original  screenplay  developed  by the
Company,  which was fully financed by Largo Entertainment  Corp., a wholly owned
subsidiary of JVC Entertainment,  Inc. ("Largo"), being licensed internationally
by Largo  Entertainment.  All  domestic  rights  to the  picture  were  recently
licensed to the Columbia/TriStar Motion Picture Group.

         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

      The Company is  currently  completing  production  of Wayward Son starring
Harry Connick, Jr., Pete Postlethwaite,  Patricia Clarkson and Vinessa Shaw. The
film is an epic  drama  set in the  depression  era in the  south,  written  and
directed by Randall  Harris,  produced by Cary Brokaw and executive  produced by
Michael  Hammer and Steve  Tisch.  The film is financed  by way of an  insurance
backed bank loan and third party equity investment.  Subject to the bank's first
position lien, the Company holds the copyright to the film in perpetuity.

         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.

         Current  feature film  projects for the Company  include the  following
titles: The Courier,  Angels in America,  Easy Money Blues, Michigan at Madison,
The Moviegoer, Mindhunters and Stand by Your Man.

         The  Company  is  schedule  to  produce  The  Courier  which  would  be
co-financed and licensed  internationally by Intermedia  (Sliding Doors,  Hilary
and Jackie). Developed by the Company, the original screenplay by Michael Brandt
and  Derek  Haas,  concerns  a  courier  hired  to make the  ultimate  drop to a

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mysterious and exceptionally powerful man who is considered  `unfindable'.  Brad
Pitt is attached to star subject to his approval of the film's director. Several
studios have expressed an interest in co-financing  and  distributing the motion
picture domestically. The Company hopes to start filming in September 1999.

         The Company intends to produce the film Angels in America, based on the
Pulitzer  Prize and Tony Award winning play by Tony  Kushner.  The Company is in
discussions  with William Condon,  the Academy Award winning writer and director
of Gods and  Monsters,  about his  directing  the film.  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
several companies with respect to financing the film.
The Company hopes to start filming in late 1999.

         The Company has recently  optioned the original  screenplay  Easy Money
Blues by John Cork, a provocative and sweeping drama set against the excesses of
the late 80's.  Keith  Gordon  (Midnight  Clear,  Mother  Night and the upcoming
Waking the Dead) is attached to direct.  Casting  efforts are  underway  and the
Company hopes to commence production in late 1999 or early 2000.

         The  Company  has also  recently  optioned  Michigan at Madison by John
Scott Shepard  (Screenwriter of the upcoming Kill Martin Club to star Jim Carrey
and  Henry's  List of Wrongs).  The  original  screenplay  is a funny and moving
romantic  comedy and the Company is currently in the process of attaching a star
and director before submitting the project to the major studios for financing.

         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 and
may direct.  TriStar has placed this project in turnaround and the Company is in
discussions with several other studios to finance the film.

         Mindhunters  is a  screenplay  developed  by the  Company  and  sold to
Twentieth  Century Fox.  Written by Wayne  Kramer,  the story  concerns a serial
killer  amidst  the most elite  unit of the FBI.  Fox has placed the  project in
turnaround and the Company has reached an agreement  with  Intermedia to further
develop  and  co-finance  the motion  picture.  The  Company  hopes to  commence
production in late 1999 or early 2000.

         The Company is also  developing the original  screenplay  Stand By Your
Man by  Andy  Borowitz,  creator  of  "The  Fresh  Prince  of Bel  Air".  Alicia
Silverstone (Clueless,  Blast From the Past) is attached to star and the Company
is in the process of selecting a director before securing the film's financing.

         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.

<PAGE>

         In addition to these  projects,  the  Company is  currently  developing
approximately fifteen additional projects. However, no assurance can be given as
to when or if any of these projects will be completed.

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.

         The  Company is  currently  in final  negotiations  to produce the time
travel  adventure   Thrillseekers   as  an  original   two-hour  movie  for  TBS
Superstation,  Turner  Broadcasting's  flagship  network  seen in  more  than 76
million  households.  Casting and pre  production  are  currently  underway  and
Thrillseekers  is  scheduled  to premiere in October  1999.  Avenue will own the
films copyright and license the film internationally  through Pearson or another
third party distributor.

         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

<PAGE>

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"). The Company retains 100% ownership
in its made-for-television  movies subject to the rights licensed to the initial
domestic network/cable broadcaster and Hallmark.

         In March  1998,  the  Company  concluded  a new two  year  distribution
agreement  with  Pearson  Television,  a  division  of  Pearson  Plc.  With vast
interests in  publishing,  media and  television,  Pearson is one of the world's
largest and most prestigious  distributors of television  programming.  Like the
Hallmark agreement,  the Company has granted Pearson the right to license Avenue
Pictures Television programs (i) internationally and (ii) in the domestic market
subsequent to the initial network license period. Like the previous  arrangement
with Hallmark,  the Company holds the copyright to its  television  programs and
Pearson will pay the Company a  substantial  predetermined  advance  against its
distribution  rights to all such  movies.  In  addition,  Pearson  provides  the
Company a recoupable  contribution to its operating  overhead on a monthly basis
and a development fund on an annual basis.

         Neither the Hallmark nor Pearson  agreements  cover  television  movies
which 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 has provided services to HBO as a producer-for-hire on Path to Paradise.

         The Company has approximately fifteen television movies in development,
including The  Replacement  Husband (NBC). In March 1998, the Company secured an
order  from CBS to  develop a script  for a three  night,  six hour  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.  The mini-series
tells the story of four  generations of one extended  musical family whose lives
are  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 Masters & Johnson
(Fox) which concerns the relation of the now legendary  pioneer sex  therapists,
Down River (Lifetime) about a harrowing and life altering rafting  expedition in
Borneo,  Second Coming (USA), and Greatest Hits (VH-1).  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

         Currently,  the  Company  is in  development  with  several  television
series.  In conjunction with New Line Television,  Avenue Pictures has developed

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and produced a one-hour pilot for a television  series based upon the movie, The
Player, for which Mr. Brokaw serves as Executive Producer.  ABC has financed the
pilot with New Line Television. The pilot was delivered to ABC in late May 1997,
but ABC has thus far declined to produce a series  based on the pilot.  New Line
Television is currently exploring the interest at other networks.

         The Company is also working on three other television  series which are
in the  developmental  stage,  including  Weird Tales based on the acclaimed and
long  running,  science  fiction  and  suspense  magazine,  Emily  Undercover  a
detective show conceived by Stanley Wilson, Morons and Sports Freaks.

One Hour-Profiles
The Hollywood Collection

         The  Company  also  produces  one-hour  profiles  of  Hollywood's  most
important  stars  which have been aired by PBS and major  cable  networks.  Gene
Feldman and Suzette  Winter have produced  films  together for over  twenty-five
years. The Company has produced the following  hour-length  programs since 1982.
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
world-wide and in perpetuity. These titles form 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"
"Shirley Temple: America's Little     "Gary Cooper: The Face Of A Hero"
  Darling"                            "Walter Matthau: Diamond In The Rough"
"Clint Eastwood: the Man From         "Alan Ladd:  The True Quiet Man"
  Malpaso"

* Copyright Owned by Turner Broadcasting System.

The Broadway Collection

         In 1998, a new series of programs  was begun by the Company  called The
Broadway Collection. The divas, directors,  composers, recording artists, actors
who make  Broadway the center of show  business -- these will be the subjects of
the profiles.  Completed in 1998, Betty Buckley: In Performance & In Person is a
ninety-minute television Special licensed by the Art and Film Channel, Bravo, to

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be premiered in the fall of 1999.  Also started in the same year is a program on
musician,  composer,  actor Harry  Connick,  Jr. for the on-going  cable series,
Bravo Profiles.  It is anticipated that the program will air in conjunction with
the theatrical release of Wayward Son, produced by the Company.

         The Company hopes to maximize the potential to be derived from programs
it owns  through  its  newly-formed  Wombat  Home Video  division.  The  Company
anticipates  bringing to home-video outlets its star profiles at the rate of two
every  other  month.  Eighteen  of these  programs  have never had a  commercial
home-video  release  before.  In  addition  to being  sold  through  established
distributors to home-video stores nationwide,  Wombat Home Video will also offer
its  titles  via the  internet.  The  Company  will  seek to link its web  site,
http://hollywood-collection.com  to other web sites  catering  to movie fans and
other  special-interest  groups. Because the collection is composed primarily of
film stars from the 'fifties and  'sixties,  older  movie-goers  are viewed as a
specially  significant  group  to be  reached.  It is  anticipated  that  as The
Hollywood Collection builds its client base via the internet,  the Company's web
site will be able to interest potential buyers in related fan-oriented  products
such as books,  posters,  stills that will be sold via another company web site,
http://hollywoodmall.com

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
Associates,  Inc.  ("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.

         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

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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.
Also Wombat Home Video, as a start-up division, will require investment before a
significant  return  can be  anticipated.  The  Company  also is  exploring  the
possibility  of selling  home-video  cassettes  via the  Internet.  However,  an
effective  web site  requires  investment  capital,  time and  highly  competent
personnel.  No  assurance  can be given that  additional  funding,  whether from
financial markets or other  arrangements  with corporate  partners or from other
sources, will be available when needed or on terms acceptable to the Company.

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.


<PAGE>

         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 has seen a significant drop in
sales to overseas buyers. However, because the profiles in the Company's library
deal with stars of special  interest to older  moviegoers  and with new delivery
systems being created,  it is hoped that niche interest will  eventually  enable
the Company to reestablish itself in the world market.

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 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 39% of its total revenue
for the year ended December 31, 1998 from Janson Associates and 26% of its total
revenue for the year ended  December 31, 1998 from  producer fees related to the
feature film "Wayward Son".

Employees

         The Company has 12 full time employees and one part time employee.

International Sales & Distribution

         As the global market for entertainment programming continues to expand,
the Company  foresees real  opportunity  in developing  an  international  sales
division.  With its own sales  organization the Company believes it can optimize
revenues  from  programming  both  produced  and  acquired by the  Company.  The
practice of pre-selling films  internationally  significantly  reduces financial
risk and  increases  both the cash flow and ability to finance  this area of the
Company's  business  activity.  Direct  involvement in international  sales also
provides favorable  opportunities in the areas of co-production and co-financing
which can  further  benefit the  Company.  No  assurance  can be given that such
co-production and co-financing opportunities will be available to the Company.


<PAGE>

         Through an international sales division, the Company will either act as
its own sales  agent in  international  markets,  sell  foreign  rights to third
parties in the international marketplace, or sell certain rights while retaining
others  which the  Company  may  exploit on its own.  To the extent the  Company
retains any of these foreign  rights,  the Company's  financial  commitment with
respect to a particular motion picture may be substantially increased.  Although
the Company believes that its expansion into this area can provide opportunities
for future  growth,  foreign  distribution  creates  certain  additional  risks,
including  the  necessity  for  additional  capital,  an increase  in  operating
overhead,  fluctuation  in  currency  exchange  rates,  and  changes  in foreign
exchange  control  laws.  No assurance  can be given that Company  funds will be
available to create and develop an international sales division.

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",  and "The Full Monty".  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.

<PAGE>

         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.

         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.


<PAGE>

         "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.

         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

<PAGE>

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:

                                       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

<PAGE>

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.

         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

<PAGE>

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.

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.


<PAGE>

         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.

         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.


<PAGE>

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 subleases for itself and Avenue Pictures on a
month-to-month  basis  approximately  3,500  square feet of office  space at its
corporate  headquarters  at 11755 Wilshire  Boulevard,  Suite 2200, Los Angeles,
California 90025. The rent for such space is approximately $8,000 per month.

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


<PAGE>


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.

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".  Prior to July 16, 1997, the Common Stock
was traded on the Over-The  -Counter Bulletin Board under the symbol "FLIK." The
following table sets forth the high and low sales prices for the Common Stock on
the AMEX since July 16, 1997, and for the period prior thereto, the high and low
bid prices for the Common Stock.  Quotations  for periods prior to July 16, 1997
represent  bid  prices  between  dealers  and do  not  include  retail  mark-up,
mark-down, or commissions, and do not represent actual transactions.

                  1998                          High Sale             Low Sale
                  ----                          ---------             --------
               1st Quarter                       $6 .44                 $5.25
               2nd Quarter                        $7.50                 $4 32
               3rd Quarter                       $5.00                  $1.75
               4th Quarter                        $2.75                 $1.63

                  1997                          High Bid               Low Bid
               1st Quarter                        $4.50                $2.75
               2nd Quarter                        $6.00                 $3.75
     3rd Quarter (to July 15, 1997)               $6.63                 $6.63

                                                High Sale             Low Sale
     3rd Quarter (from July 16, 1997
         to September 30, 1997)                  $10.25                 $5.50

               4th Quarter                        $8.50                 $5.06

         As of March 15, 1999, there were 163 holders of record of Common Stock.

         On  March  15,  1999,  the  closing  price of the  Common  Stock on the
American Stock Exchange was $2.125.


<PAGE>



                                 DIVIDEND POLICY

         The Company anticipates that, for the foreseeable future, earnings 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".




<PAGE>


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.

Liquidity and Capital Resources

         At December 31, 1998,  the Company had  approximately  $427,000 of cash
and approximately $340,000 of marketable securities.  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  for the year ended  December  31,  1998.  The  Company has a working
capital deficiency and has an accumulated deficit of $3,385,000 through December
31, 1998.  The  Company's  continuation  as a going  concern is dependent on its
ability to ultimately attain profitable  operations and positive cash flows from
operations.  The Company's  management  believes that it can satisfy its working
capital  needs based on its  estimates of revenues and  expenses,  together with
improved  operating  cash flows,  as well as  additional  funding  whether  from
financial  markets,  other  sources  or other  collaborative  arrangements.  The
Company  believes it will have  sufficient  funds available to continue to exist
through  the next  year,  although  no  assurance  can be given in this  regard.
Insufficient  funds will require the Company to scale back its  operations.  The
Independent Auditor's Report dated April 14, l999 on the Company's  consolidated
financial   statements   states  that  the  Company  has  suffered  losses  from
operations, has a working capital deficiency and has an accumulated deficit that
raises  substantial doubt about its ability to continue as a going concern.  The
accompanying financial statements do not include any adjustments that may result
from the Company's inability to continue as a going concern.

Results of Operations

         For the year ended  December  31,  1998 the  Company  had a loss before
income  taxes of  $2,114,000  as compared to a loss of  $1,760,000  for the year
ended  December 31, 1997.  The increased  loss in 1998 was the result of reduced
revenue  earned in 1998 and a $225,000  write down taken on certain films in the
"Hollywood Collection". The increased loss was partially offset by an unrealized
gain on trading securities,  as well as a gain on the sale of investments,  both
relating to the common stock of GP Strategies Corporation.

Revenues

         Revenues for the year ended December 31, 1998 were $829,000 as compared
to $2,367,000 for the year ended December 31, 1997. The reduced revenues for the
year were the result of the lack of new television  projects,  the ending of the
Company's  arrangement  with  A&E  for  additional  features  in the  "Hollywood
Collection",  and reduced  licensing rights in secondary  markets.  In 1998, the
Company  earned  $212,000 in producer  fees related to the feature film "Wayward
        
<PAGE>

Son",  as well as  $320,000  of  revenue  from the  licensing  of  rights to its
programming in secondary  markets through Janson  Associates.  In addition,  the
Company received development fees during 1998 for various projects. Revenues for
the year ended December 31, 1997 were derived  primarily from the completion and
delivery to Hallmark  Entertainment  of "Tell Me No Secrets" as well as $275,000
of producer fees  generated from the production and delivery of the feature film
"Finding  Graceland"  and from the  completion  and delivery to A&E of three one
hour  features  which led to  approximately  $411,000  of revenue  from A&E.  In
addition, the Company earned $506,000 of revenue from licensing of rights to its
programming in secondary markets through Janson Associates. The reduced revenues
earned  from  Janson  Associates  was due to  competitive  pressures  in foreign
markets.  For  the  year  ended  December  31,  1998,  approximately  39% of the
Company's revenue were earned through Janson Associates.

Film Production Costs

         Film  production  costs  for the year  ended  December  31,  1998  were
$718,000 as compared to  $1,464,000  for the year ended  December 31, 1997.  The
reduced  film  production  costs were the result of reduced  revenue  recognized
during the year.  Included  in film  production  costs for 1998,  was a $225,000
write down  taken on  several  film in the  "Hollywood  Collection",  due to the
reduced  revenue stream forecast in the future.  Film  production  costs for the
year ended December 31, 1997 can be attributed to the film amortization  related
to the Company's  television product in the amount of $904,000 and approximately
$424,000 related to the Company's  documentary  films and licensing  activities,
including  a  $70,000  write  down  taken on the one hour  film,  "The  Story of
Lassie", due to the reduced revenue stream forecast in the future.

Selling, General, and Administrative

         Selling,  general and  administrative  expenses ("SG&A") for the twelve
months ended December 31, 1998 and 1997 were $2,425,000 and $2,718,000. 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 $37,500 of stock option  compensation  expense relating to
previously  issued  stock  options  in 1998 and 1997 and  $100,000  of  non-cash
compensation  in  1997  recognized  on  stock  (see  Note 5 to the  consolidated
financial  statements).  The  remaining  SG&A costs for 1998 and 1997  relate to
salaries,  occupancy costs and professional fees. The reduced costs in 1998 were
primarily attributable to the efforts to reduce expenses and personnel costs due
to the reduced level of revenue.

Income Taxes

         For the years  ended  December  31,  1998 and 1997,  the Company had an
income tax  benefit of $57,000  and  $208,000,  respectively.  The  benefit  was
derived from the carry back of the current  years loss,  as well as an offset of
the balance of the income tax payable at December 31, 1996.


<PAGE>


Recent Accounting Developments

         The Financial  Accounting  Standards Board issued Accounting  Standards
(SFAS 130),  "Reporting  Comprehensive  Income",  in June 1997 which  requires a
statement of comprehensive income to be included in the financial statements for
fiscal years  beginning  after  December 15, 1997.  The Company has included the
required information in Note 12 to the Consolidated Financial Statements.

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standard  (SFAS) No. 133,  "Accounting  for Derivative
Instruments and Hedging Activities." This Statement  establishes  accounting and
reporting standards for derivative  instruments and for hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  This  Statement is effective  for all fiscal  quarters of fiscal
years  beginning  after June 15,  1999.  The Company  will adopt SFAS No. 133 by
January 1, 2000. The Company is currently  evaluating the impact the adoption of
SFAS No. 133 will have on the consolidated financial statements.

Year 2000

         The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The "year
2000" problem is pervasive  and complex as virtually  every  computer  operation
will be affected in some way by the  rollover of the two digit year value to 00.
The issue is whether  computer  systems will properly  recognize  date sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

         The Company is  utilizing  both  internal  and  external  resources  to
identify,  correct or reprogram and test systems for year 2000  compliance.  The
Company  operates its financial  reporting  systems through a personal  computer
based  accounting and general ledger  package.  The Company is in the process of
installing  the  required  updates to the  system to make the  system  year 2000
compliant.  The Company  believes  that these  updates  will cost  approximately
$5,000 and be complete by the end of the second quarter of 1999.

         The Company has also identified various ancillary programs that need to
be updated and has  contracted  with third parties for this work to be completed
within the next six months. It is expected that the cost of these  modifications
will be approximately $5,000.

         In addition,  the Company is examining  their exposure to the year 2000
in other areas of technology.  These areas include telephone and E-mail systems,
operating  systems and applications in free standing personal  computers,  local
area  networks  and other areas of  communication.  A failure of these  systems,
which may impact the ability of the  Company to service  their  customers  which
could have a material  effect on their results of  operations.  These issues are
being handled by the finance team at the Company by identifying the problems and


                                       2
<PAGE>

obtaining  from service  providers  either the  necessary  modifications  to the
software or  assurances  that the  systems  will not be  disrupted.  The Company
believes that the cost of the programming and equipment  upgraded will not be in
excess of $7,500. In addition,  certain personnel  computers and other equipment
that is not year 2000  compliant will be upgraded  through the Company's  normal
process of equipment  upgrades.  The Company  believes that the  evaluation  and
implementation  process  will be  complete  no later than the second  quarter of
1999. Over the next year, the Company plans to continue to develop and implement
other information technology projects needed in the ordinary course of business.

         The Company expects to finance these expenditures from working capital.
Therefore,  the  Company  does not expect the year 2000 issue to have a material
adverse impact on its financial position or results of operations.

         Like other companies,  the Company relies on its customers for revenues
and on its vendors for products and services of all kinds;  these third  parties
all face the year 2000 issue.  An  interruption in the ability of any of them to
provide goods or services,  or to pay for goods or services provided to them, or
an interruption in the business operations of our customers causing a decline in
demand for  services,  could have a material  adverse  effect on the  Company in
turn.

         In addition,  there is a risk, the  probability of which the Company is
not in a position to estimate,  that the  transition to the year 2000 will cause
wholesale,  perhaps  prolonged,  failures  of  electrical  generation,  banking,
telecommunications  or  transportation  systems in the United  States or abroad,
disrupting the general infrastructure of business and the economy at large.
The effect of such disruptions on the Company could be material.

         The Company's various departments will communicate with their principal
customers and vendors about their year 2000  readiness,  and expect this process
to be completed no later than the third  quarter of 1999.  None of the responses
received to date suggests that any  significant  customer or vendor  expects the
year 2000 issue to cause an  interruption  in its operations  which would have a
material  adverse  impact on the  Company.  However,  because  so many firms are
exposed to the risk of failure not only of their own systems, but of the systems
of other firms,  the ultimate effect of the year 2000 issue is subject to a very
high degree of uncertainty.

         The Company  believes  that its  preparations  currently  under way are
adequate to assess and manage the risks  presented  by the year 2000 issue,  and
does not have a formal contingency plan at this time.

         The  statements  in this section  regarding the effect of the year 2000
and the Company's responses to it are forward-looking statements. They are based
on  assumptions  that the  Company  believes  to be  reasonable  in light of its
current knowledge and experience.  A number of contingencies  could cause actual
results to differ materially from those described in forward-looking  statements
made by or on behalf of the Company.



<PAGE>


Forward-Looking Statements

         This report  contains  certain  forward-looking  statements  reflecting
management's   current  views  with  respect  to  future  events  and  financial
performance.  These forward-looking  statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking  statements,  including,  but not limited to, the ability of
the Company to reverse its history of  operating  losses;  the ability to obtain
additional financing and improved cash flow in order to meet its obligations and
continue to exist as a going concern;  production risks; dependence on contracts
with certain customers; future foreign distribution arrangements;  the risk that
the Company's  preparations with respect to the risks presented by the year 2000
issue will not be adequate;  and dependence on certain key management personnel.
All of these above  factors are  difficult  to predict,  and many are beyond the
control of the Company.

Market Risk Exposure

The financial  position of the Company is subject to market risk associated with
interest rate  movements on outstanding  debt. The Company has debt  obligations
with variable  terms.  The carrying  value of the  Company's  variable rate debt
obligation  approximates  fair value as the  market  rate is based on prime (see
Note 8 to the Consolidated Financial Statements).





<PAGE>





ITEM 7.  FINANCIAL STATEMENTS



                                                                       Page
Avenue Entertainment Group, Inc.

  Independent Auditors' Report                                          25

  Consolidated Balance Sheet as of December 31, 1998                    26

  Consolidated Statements of Operations for the years ended
    December 31, 1998 and 1997                                          27

  Consolidated Statement of Stockholders' Equity for the years ended
    December 31, 1998 and 1997                                          28

  Consolidated Statement of Cash Flows for the years ended
    December 31, 1998 and 1997                                          29

  Notes to Consolidated Financial Statements                            31



<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,  1998 and the related
         consolidated  statements of operations,  stockholders'  equity and cash
         flows for each of the years in two-year period ended December 31, 1998.
         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 generally  accepted  auditing
         standards.  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,  1998 and the
         results of its  operations  and its cash flows for each of the years in
         the  two-year  period  ended  December  31,  1998  in  conformity  with
         generally accepted accounting principles.

         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, 1998.  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.


                                                          KPMG LLP
         New York, New York
         April 14, 1999



<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 1998

                                     Assets

Cash                                                            $  427,240
Marketable securities                                              339,716
Accounts receivable                                                108,515
Income tax receivable                                               55,000
Film costs, net                                                  1,091,646
Property and equipment, net                                         87,272
Goodwill                                                         2,174,029
Other assets                                                        29,766
                                                               -----------

Total assets                                                   $ 4,313,184
                                                               ===========

                      Liabilities and Stockholders' Equity

Accounts payable and accrued expenses                          $ 1,024,862
Loan payable                                                       127,500
Deferred compensation                                              145,006
Due to related party                                                94,481
                                                               -----------

Total liabilities                                                1,391,849

Commitments and contingencies

Stockholders' equity:
  Preferred stock, par value $.01 per share.  Authorized
   2,000,000 shares, none issued
  Common stock, par value $.01 per share.  Authorized
    15,000,000 shares; issued and outstanding, 4,108,838 shares     41,088
  Class B common stock, no par value.  Authorized
    1,000,000 shares; none issued
  Additional paid-in capital                                     6,415,196
  Accumulated deficit                                           (3,384,949)
Note receivable for common stock                                  (150,000)

Total stockholders' equity                                       2,921,335

Total liabilities and stockholders' equity                     $ 4,313,184
                                                               ===========

          See accompanying notes to consolidated financial statements.


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                 Years ended December 31,       
                                              1998                    1997
                                              ----                    ----

Operating revenues                        $    828,732             $  2,367,215
                                          ------------             ------------

Costs and expenses:
  Film production costs                        717,915                1,463,822
  Selling, general and
   administrative expenses                   2,425,597                2,718,028
                                          ------------            -------------

Total costs and expenses                     3,143,512                4,181,850
                                          ------------            -------------

Unrealized gain on trading securities          135,888

Gain on sale of investments                     65,070                   55,000
                                          ------------           --------------

Loss before income taxes                    (2,113,822)              (1,759,635)

Income tax benefit                              56,691                  207,816
                                          ------------         ----------------

Net loss                                  $ (2,057,131)            $ (1,551,819)
                                          ============             ============

Basic and diluted loss
 per common share                         $      (.50)         $           (.41)
                                          -----------          ----------------



          See accompanying notes to consolidated financial statements.







<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>

<CAPTION>

                                                                                  Accumulated
                                  Common Stock         Additional      Retained    other        Compre-     Stock
                            Number of                   paid-in        earnings  comprehensive   hensive    subscription
                             Shares       Amount        capital        (deficit)    income       income     receivable       Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>        <C>           <C>          <C>          <C>             <C>        <C>          <C>   
Balance, January 1, 1997      3,697,838  $ 36,978    $4,631,252   $    224,001   $(118,850)    $           $           $  4,773,381
-----------------------------------------------------------------------------------------------------------------------------------
Net loss                                                            (1,551,819)              (1,551,819)                 (1,551,819)
Issuance of common stock        225,000     2,250     1,122,750                                                           1,125,000
Other comprehensive income                                                         316,561      316,561                     316,561
                                                                                             ----------
Total comprehensive income                                                                   (1,235,258)
                                                                                             ----------
Stock option compensation
 expense                                                 37,500                                                              37,500
Proceeds from previously
 issued stock                                            92,254                                                              92,254
Non cash compensation                                   100,000                                                             100,000
Exercise of warrants            100,000     1,000        99,000                                                             100,000
Stock subscription
 receivable                      50,000       500       149,500                                            (150,000)               
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997    4,072,838    40,728     6,232,256     (1,327,818)    197,711                 (150,000)      4,992,877
-----------------------------------------------------------------------------------------------------------------------------------
Net loss                                                            (2,057,131)              (2,057,131)                 (2,057,131)
Issuance of common stock         36,000       360       145,440                                                             145,800
Other comprehensive income                                                        (197,711)    (197,711)                   (197,711)
                                                                                             ----------
Total comprehensive income                                                                   (2,254,842)
                                                                                             ----------
Stock option compensation
 expense                                                 37,500                                                              37,500
-----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998    4,108,838   $41,088  $  6,415,196    $(3,384,949)  $          $              $(150,000)     $2,921,335
------------------------------------------------------------------------------------------------------------------------------------

          See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                     Years ended December 31,
                                                  1998                  1997
                                                  ----                  ----
Cash flows from operating activities:
  Net loss                                     $ (2,057,131)     $  (1,551,819)
Adjustments to reconcile net income to
  net cash provided by (used for)
  operating activities:
  Depreciation                                       23,859             32,499
  Amortization - film production costs              702,172          1,276,629
  Amortization - goodwill                           280,520            280,520
  Gain on sale of investments                       (65,070)           (55,000)
  Unrealized gain on trading securities            (135,888)
  Proceeds from sale of marketable securities       228,048
  Stock compensation                                 37,500            137,500
  Deferred compensation                             145,006
  Changes in assets and liabilities which
   affect net income:
     Accounts receivable                             17,367             22,991
     Film costs                                    (312,247)          (759,874)
     Other assets                                   (11,057)
     Accounts payable and accrued expenses          271,638            174,209
     Due to GP Strategies                                               94,480
     Income taxes receivable                         15,000           (235,000)
     Income taxes payable                                             (330,891)
     Advances from customers                                          (577,730)
     Other                                                              62,354
                                               ------------     --------------
              Net cash used for
               operating activities                (859,673)        (1,429,132)
                                                 ----------       ------------
Cash flows from investing activities:
     Purchase of equipment                           (8,775)           (17,363)
     Proceeds from sale of short-term
      investments                                                      505,000
                                               ------------      -------------
         Net cash provided by (used for)
           investing activities                      (8,775)           487,637
                                               ------------     ---------------

                                   (Continued)



<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                                      Years ended December 31,
                                                   1998                  1997
                                                   ----                  ----

Cash flows from financing activities:
   Proceeds from short-term borrowings                            $     127,500
   Proceeds from the issuance of
    common stock    145,800                    $   1,217,254
   Exercise of warrants                                                 100,000
   Principal payments of capital
    lease obligation                                  (8,459)           (31,992)
                                                ------------     --------------
       Net cash provided by
         financing activities                        137,341          1,412,762
                                                  ----------      -------------

            Net (decrease) increase in cash         (731,107)           471,267

Cash at beginning of year                          1,158,347            687,080
                                                ------------      -------------

Cash at end of year                            $     427,240       $  1,158,347
                                               =============       ============

Supplemental cash flow information: 
  Cash paid during the year for:
     Interest                                  $      12,701     $       46,061
     Income taxes                                     10,222            201,694





          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-televison/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, 1998. The Company has a working  capital  deficiency and has
       an  accumulated  deficit of  $3,385,000  through  December 31, 1998.  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.  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.

       Cash and Cash Equivalents

       Cash and cash  equivalents  include all highly  liquid  investments  with
       original maturities, to the Company, of three months or less.

       Marketable Securities

       At December 31, 1998,  marketable  securities are comprised of registered
       shares of GP Strategies Corporation (GP Strategies), a stockholder of the
       Company.  The Company has classified these shares as trading  securities,
       which are  principally  held for the purpose of selling  them in the near
       term to assist in funding its working capital needs.  Unrealized  holding
       gains and losses on trading securities are included in earnings. Prior to
       June 1998,  the Company  had  classified  the  marketable  securities  as
       available for sale (see Note 11).


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

       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  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,
       1998 and 1997 was $631,170 and $350,650.

       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
      

                                       
<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


       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  and  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.

       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.

       Comprehensive Income

       On  January  1,  1998,  the  Company  adopted  SFAS  No.  130,  Reporting
       Comprehensive  Income.  SFAS No. 130 establishes  standards for reporting
       and presentation of comprehensive income and its components in a full set
       of financial statements. Comprehensive income consists of net income, net
       unrealized gains (losses) on securities and foreign currency  translation
       adjustment   and  is  presented  in  the   consolidated   statements   of
       stockholders'  equity  as well as Note 11  which  presents  comprehensive
       income.  The  Statement  requires  only  additional  disclosures  in  the
       consolidated  financial  statements;  it does not  affect  the  Company's
       financial  position  or  results  of  operations.  Prior  year  financial
       statements have been  reclassified to conform to the requirements of SFAS
       No. 130.


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



       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, 1998 and 1997, 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 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.


(2)    Film Costs

       Film costs consist of the following:

                                                                    December 31,
                                                                        1998

       In process or development                                   $      2,076
       Released, net of accumulated amortization of $12,455,246       1,089,570
                                                                      ---------
                                                                     $1,091,646

      

                                       5
<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


       Based upon the Company's present estimates of anticipated future revenues
       at December 31, 1998,  approximately 75% of the net film costs related to
       released  product will be amortized  during the  five-year  period ending
       December 31, 2003.


 (3)   Property and Equipment

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

                                                   Useful          December 31,
                                                     life               1998

       Machinery and equipment                 4 to 5 years        $ 228,744
       Furniture and fixtures                 10 years                21,470
                                                                    --------
                                                                     250,214
       Less accumulated depreciation                                (162,942)
                                                                   $  87,272

       Depreciation  expense was $23,859 and $32,499 for the year ended December
       31, 1998 and 1997.


 (4)   Commitments and Contingencies

       Leases

       The  Company  is  obligated  under a lease  for  office  space,  expiring
       September 30, 1999, which requires minimum annual rentals, plus increases
       based on real estate taxes and operating costs.

       Rent expense was  $156,166 and $143,782 for the years ended  December 31,
       1998 and 1997, respectively.

       Minimum  annual  rental  commitments  at  December  31,  1998  under  the
       noncancelable operating leases are as follows:

        1999                               $  85,904
        2000                                   6,119
                                          ----------

        Total minimum obligations          $  92,023
                                           =========


       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 1998, the President and Chairman
       deferred $97,000 and $48,000 of their compensation, respectively.


<PAGE>

                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



(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,  1998,
       815,000 options are exercisable.

       Option activity was as follows:

<TABLE>
     
<CAPTION>

                                                                               Weighted
        
                                                                       average
                                              Number of       Exercise        exercisable
                                              shares           price             price

       <S>                                    <C>          <C>                <C>     
       Outstanding at January 1, 1997         891,500      $ .32 - 1.70       $   1.29
                                            ---------      ------------          --------

       Options granted                        573,000       3.00 - 6.31           3.05

       Options exercised                     (100,000)             1.00           1.00
                                            ----------    ---------------      --------

       Outstanding at December 31, 1997     1,364,500        .32 - 6.31           1.97
                                            ---------      --------------        -------


       Options cancelled                     (623,000)      3.00 - 6.31           3.23

       Options granted                        670,000       1.81 - 5.63           2.08
                                            ---------      -------------       --------

       Outstanding at December 31, 1998     1,411,500        .31 - 1.81           1.50
                                            ---------       -------------        --------

</TABLE>


       The  Company  recorded  compensation  expense  related  to stock  options
       granted at prices less than market value totaling $37,500 and $37,500 for
       the years ended December 31, 1998 and 1997.

       At December 31, 1998, the weighted average remaining  contractual life of
       all outstanding options was 6.5 years.



<PAGE>
                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


       The  following  table  summarizes  information  about the Plan's  options
outstanding at December 31, 1998:


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

  1,120,000       $1.70 - 1.81          $1.76            7.72            538,000
    291,500                .32            .32             1.7            277,000
 -------------------------------------------------------------------------------
  1,411,500         .32 - 1.81           1.46             6.5            815,000
  ------------------------------------------------------------------------------

       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,
                                                     1998             1997
                                                     ----             ----

        Net loss              As reported         $(2,057,131)     $(1,551,819)
                              Pro forma            (2,623,651)      (2,090,005)

        Basic and diluted
          loss per share      As reported            (.50)               (.41)
                              Pro forma              (.64)               (.55)


       Pro forma net loss  reflects  only  options  granted  in the years  ended
       December  31,  1998,  1997  and  1996.  Therefore,  the  full  impact  of
       calculating compensation cost for stock options under SFAS No. 123 is not


                                      
<PAGE>

                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

       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.

       At December 31, 1998 and 1997, the per share  weighted-average fair value
       of stock options granted was $1.53 and $2.75,  respectively,  on the date
       of grant using the modified  Black-Scholes  option-pricing model with the
       following  weighted-average  assumptions:  December  31,  1998 - expected
       dividend yield 0%, risk-free interest rate of 4.5%,  expected  volatility
       of 84.95%,  and an expected life of 7 years,  December 31, 1997- expected
       dividend yield 0%, risk-free interest rate of 6.3%,  expected  volatility
       of 87.4% and an expected life of 8 years.

(b)    In October 1995, as part of a consulting  agreement,  the Company  issued
       options to acquire 100,000 shares of common stock at $1.00 per share. The
       options were immediately exercisable and were exercised in October 1997.

(c)    In April 1997,  the Company  issued 50,000  shares of  restricted  common
       stock to a  consultant  pursuant to a private  placement  transaction  in
       exchange for a promissory note in the principal amount of $150,000 due on
       demand but in no event later than December 31, 1999. The Company recorded
       $100,000  as deferred  compensation  expense,  based upon the  calculated
       value of the restricted common stock issued in 1997.

(d)    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,  1998 and 1997 are as
       follows (in thousands, except per share amounts):


                                                   December 31,     December 31,
                                                       1998              1997
                                                       ----              ----

        Basic and diluted loss per share

           Net loss                                 $(2,057,131)   $ (1,551,819)
           Weighted average shares outstanding        4,094,992       3,790,146
           Basic and diluted loss per share         $      (.50)   $       (.41)


       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.

(e)    In May 1998, the Company sold 36,000 restricted shares of common stock to
       certain  investors  pursuant  to  a  private  placement  transaction  and
       realized  net  proceeds of  approximately  $146,000  The shares of common
<PAGE>

                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

       stock cannot be sold,  transferred or assigned for a one-year period. The
       Company  claimed an exemption from the  registration  requirements of the
       Securities Act of 1933 (the "Act") pursuant to Rule 506 of Registration D
       of the Act.


(6)    Income Taxes

       Components of income tax (benefit) are as follows:

                                                     December 31,   December 31,
                                                         1998           1997
                                                         ----             ----
            Federal                                    $  56,691      $ 146,698
            State and local                                              61,118
                                                     -----------     ----------
                                                       $  56,691       $207,816
                                                       =========       ========


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

                                                    December 31,    December 31,
                                                        1998            1997
                                                        ----             ----
       Tax (benefit)
         at Federal statutory rate of 34%            $ (718,699)     $ (598,276)
       Increase (decrease) in taxes resulting from:
       State and local income taxes, net of
         federal income tax benefit                     (56,822)        (35,377)
       Nondeductible goodwill amortization               95,377          95,377
       Other                                              2,282           3,400
       Change in valuation allowance                    621,171         327,060
                                                     ----------       ---------
       Total                                         $  (56,691)     $ (207,816)
                                                     ==========      ==========



<PAGE>
                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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

                                                                December 31,
                                                                    1998
       Deferred tax assets
       Accrued expenses                                        $     41,710
       Stock options                                                 79,281
       Film cost write-down                                          67,940
       NOLs                                                         982,150
                                                                  1,171,081
       Valuation allowance                                       (1,052,090)
       Net assets                                                   118,991

       Deferred tax liabilities

       Unrealized gains                                             (58,432)
       State liabilities                                            (60,559)
                                                                -----------
       Net liabilities                                             (118,991)
                                                                 ----------
       Net tax assets                                      $               
                                                           ================




       For Federal  income tax  purposes,  the Company has unused net  operating
       loss carryforwards of approximately $2,470,000 expiring through 2018.




(7)    Related Party Transactions

       Transactions with GP Strategies

       In July  1996,  the  Company  had a  private  placement  in which it sold
       123,338  shares of common  stock at $1.50 per share to people  affiliated
       with the Company and GP Strategies.  At July 31, 1996, 23,334 shares were
       paid. The remaining subscribed shares were paid for in September 1997.

       At December 31, 1998, the Company owed GP Strategies  $94,481  related to
       the payment of certain expenses of the Company by GP Strategies.



<PAGE>

                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

       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, 1998 and 1997 were  $320,000 and  $506,000,
       respectively.  Included in operating  expenses was $112,000 and $217,000,
       of commissions to Janson Associates  incurred in the years ended December
       31, 1998 and 1997,  respectively.  The President of Janson  Associates is
       related to the Company's Chairman through marriage.


(8)    Loan Payable

       On May 27, 1997, the Company  entered into an unsecured  demand note (the
       "Note")  which  provides 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, 1999.  As of December 31, 1998,  $127,500 had been  borrowed
       under the Note.  The Company  believes that it will be able to extend the
       note for an additional period on similar terms and conditions.


 (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,  monthly  payments of
       $8,333, for the greater of five years or the remainder of his life. Under
       certain circumstances, 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.

       The  Company is accruing  $640,000,  the  present  value of the  expected
       benefit payments at December 31, 2001, on a straight-line  basis over the
       term of the  Chairman's  employment  contract,  which  covers  the period
       September 30, 1996 to December 31, 2001.

       This  agreement  also gives the Chairman  the option to purchase  certain
       assets of the Wombat  Production  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.  The  Company
       retained the rights to acquire any future productions of the Chairman for
       normal  consideration,  subject to reasonable  producer  fees,  rights of
       licensees and existing distribution rights.




<PAGE>

                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


 (10)  Significant Customers

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

                                         Year ended            Year ended
                                        December 31,          December 31,
                                            1998                 1997
                                            ----                 ----

       A&E Television Networks                                       17
       Janson Associates                       39                    24
       Wayward Son Productions                 26
       Hallmark Entertainment                                        40
       Largo Entertainment Corp.                                     15

(11)     Comprehensive Income

         The Company has adopted  Statement  of Financial  Accounting  Standards
("SFAS") No. 130. "Reporting  Comprehensive Income", which establishes standards
for the  reporting  and display of  comprehensive  income and its  components in
general purpose  financial  statements for the year ended December 31, 1998. The
following are the components of comprehensive income:

                                                            Year ended 
                                              December 31,          December 31,
                                                  1998                1997   
                                               ---------           -----------
Net loss $  (2,111,826)                    $  (1,551,819)
Other comprehensive income:
 Unrealized gains (losses) on
  marketable securities                         (197,711)               316,561
                                          --------------            ------------
    Comprehensive income                   $  (2,309,537)         $  (1,235,258)
                                           =============          =============

       The components of accumulated  comprehensive  income,  net of related tax
       are as follows:

                                                 December 31,       December 31,
                                                       1998           1997   
Unrealized gains on
  marketable securities                        $                    $  197,711
                                               -----------------    ----------
    Accumulated other comprehensive income     $                    $  197,711
                                               =================    ==========

         In June 1998,  the Company made the decision to sell in the  short-term
its  shares  of  GP  Strategies  common  stock,  which  are  classified  on  the
Consolidated  Balance  Sheet as a  Marketable  security,  in order to  assist in
funding its working capital needs. The effect of  reclassifying  these shares as
trading   securities  from  available  for  sale  was  a  $197,711  decrease  in
Accumulated  other  comprehensive  income on the  Consolidated  Balance Sheet at
December 31, 1998.


<PAGE>


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

              None

                                    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        72   Chairman of the Board, President of Wombat
Cary Brokaw         47   President, Chief Executive Officer and Director
Michael Feldman     31   Executive Vice President and Director
Sheri L. Halfon     42   Senior Vice President, Chief Financial Officer, 
                           and Director
Doug Rowan          60   Director
James A. Janowitz   52   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 whose term expires at the 2000 annual meeting of
the Company.

         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 whose term expires at the 2000 annual meeting of the Company.

         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  whose term  expires at the 1999  annual  meeting of the
Company.

         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


                                       
<PAGE>


Vice  President  and  Chief  Financial  Officer  of  Avenue  Pictures  since its
formation in 1991.  Ms. Halfon is a Class II Director  whose term expires at the
1999 annual meeting of the Company.

         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  whose term
expires at the 2001 annual meeting of the Company.

         James  A.  Janowitz  has  been  a  senior  partner  in  the  litigation
department  at Pryor,  Cashman,  Sherman & Flynn and head of its motion  picture
group for more than the past five  years.  Mr.  Janowitz  is a Class I  Director
whose term expires at the 2001 annual meeting of the Company.

         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,  except that Michael  Feldman  filed an
untimely report on Form 4.



<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 1998,
1997 and 1996.


                                                      SUMMARY COMPENSATION TABLE
<TABLE>

<CAPTION>
                                                                         Long-Term
                                                                       Compensation
                                                                          Awards
                                              Annual Compensation          Stock               All Other
                                             Salary          Bonus        Options            Compensation
Name and Principal Position          Year      ($)            ($)           (#)                   ($)      
---------------------------          ----   -------         ------       ---------          ---------------
                                     
            
<S>                                  <C>     <C>                <C>      <C>                 <C>              
Cary Brokaw                          1998    450,000(1)         -0-      100,000(2)(3)            --
President, Chief Executive           1997    450,000            -0-             (3)               --
Officer and Director                 1996    450,000(4)         -0-      300,000(2)               --

Gene Feldman                         1998    150,000(5)         -0-       75,000(3)(6)            --
Chairman of the Board,               1997    150,000            -0-           (3)                 --
President of Wombat                  1996    150,000            -0-           -0-                 --
Division of the Corporation

Sheri Halfon                         1998    104,500(7)         -0-       75,000(3)(8)            --
Senior Vice President,               1997    120,000(7)         -0-           (3)                 --
Chief Financial Officer              1996     95,000(4)(7)      -0-           -0-                 --
-------------------
</TABLE>

       (1) Mr. Brokaw's salary for the year pursuant to his employment agreement
       was $450,000, of which $97,000 has been deferred by Mr. Brokaw.

       (2) Of the 100,000  stock  options  granted to Mr.  Brokaw in 1998,  only
       40,000 are currently  vested and of the 300,000 stock options  granted to
       Mr. Brokaw in 1996, only 180,000 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) Prior to  completion  of the Business  Combination  on September  30,
       1996, Mr.  Brokaw's and Ms.  Halfon's  compensation  was paid directly by
       Avenue Pictures.



                                       
<PAGE>

       (5) Mr. Feldman's salary for the year was $150,000,  of which $48,000 has
       been deferred by Mr. Feldman.

       (6) Of the 75,000  stock  options  granted to Mr.  Feldman in 1998,  only
       30,000 are currently vested.

       (7)  Includes  $51,500,  $65,539  and  $8,400  for  1998,  1997 and 1996,
       respectively, paid to Ms. Halfon by certain companies whose shows were in
       production or post-production by the Company.

       (8) Of the  75,000  stock  options  granted to Ms.  Halfon in 1998,  only
       30,000 are currently vested.



                                       
<PAGE>



Option Grants in 1998

         The following table and notes contain information  concerning the grant
of non-qualified  stock options in 1998 to the named executive officers pursuant
to the 1997 Plan.

<TABLE>

                     STOCK OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>

                                            % of Total                             Market Price
                        Number of             Options                              of Underlying
                       Securities           Granted to              Exercise        Security on
                       Underlying            Employees                Price           Date of
                         Options             in Fiscal               ($ per        Grant ($ per        Expiration
Name                   Granted (1)             Year                   share)          share)              Date
----                   -----------             ----                   ------          ------              ----
<S>                       <C>                   <C>                 <C>                <C>               <C>  <C>
Gene Feldman              75,000                11                  1.8125             2.00              2/19/07
Cary Brokaw              100,000                15                  1.8125             2.00              2/19/07
Sheri Halfon              75,000                11                  1.8125             2.00              2/19/07
-------------
</TABLE>

(1) 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 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 (20% per annum) and expiration date remained the
same.

         The  following  table sets forth  information  concerning  the value of
unexercised  options as of December 31, 1998 held by the executives named in the
Summary Compensation Table above. No options were exercised during 1998.

<TABLE>

                AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1998
                           AND YEAR-END OPTION VALUES

<CAPTION>

                             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)
<S>                       <C>                   <C>                      <C>                  <C>       
Gene Feldman              230,000(E)            45,000(U)                $370,375(E)          $14,063(U)
Cary Brokaw               220,000(E)           180,000(U)                  89,000(E)           69,750(U)
Sheri Halfon               30,000(E)            45,000(U)                   9,375(E)           14,063(U)
----------
(1) Calculated based on the closing price of the Common Stock $2.125 as reported
by the American Stock Exchange on December 31, 1998.

</TABLE>


<PAGE>


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
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



<PAGE>

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
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 15, 1999, are indicated below:

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

Cary Brokaw                                    1,651,350(1)                38%
c/o Avenue Pictures, Inc.
11755 Wilshire Boulevard
Suite 2250
Los Angeles, CA 90025

GP Strategies Corporation                      1,067,900                   26%
9 West 57th Street
New York, New York 10019

Gene Feldman                                     411,700(2)                 9%
c/o Avenue Entertainment Group, Inc.
9 West 57th Street
Suite 4170
New York, New York 10019
---------------------
* 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.

(1) Includes  vested options to purchase up to 180,000 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 40,000  shares of Common Stock of the
Corporation  at a price of $1.8125 per share,  exercisable  until  February  19,
2007.  Does not include  unvested  options to  purchase up to 120,000  shares of
Common Stock of the Corporation at a price of $1.70 per share, exercisable until
September  30, 2006 and  unvested  options to  purchase  up to 60,000  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 and 40,000
vested stock options  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 200,000 shares of Common Stock of the Corporation at a
price of $0.32 per share,  exercisable  until August 11, 2000 and vested options
to purchase up to 30,000 shares of Common Stock of the Corporation at a price of
$1.8125  per share,  exercisable  until  February  19,  2007.  Does not  include
unvested  options to  purchase  up to 45,000  shares of the Common  Stock of the
Corporation  at a price of $1.8125 per share,  exercisable  until  February  19,
2007.

                                       
<PAGE>

          SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS

         The  following  table  sets  forth,  as of March 15,  1999,  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                            397,700(2)                      9

Cary Brokaw                           1,631,350(3)                     38

Michael Feldman                         137,000(4)(5)                   3

Sheri L. Halfon                          30,100(6)                      1

Doug Rowan                                5,000(7)                      *

James A. Janowitz                            -0-(8)                     *

Directors and Executive               2,210,150(9)                      7
  Officers as a Group
  (7 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 90,000 shares of Common Stock of
the Corporation at a price of $1.70 per share, which option is exercisable until
September 30, 2006 and vested  options to purchase up to 30,000 shares of Common
Stock of the  Corporation  at a price of $1.8125  per share,  exercisable  until
February 19, 2007.  Does not include  unvested  options to purchase up to 60,000
shares  of  Common  Stock of the  Corporation  at a price of  $1.70  per  share,
exercisable  until  September  30, 2006 and  unvested  options to purchase up to
45,000  shares of Common  Stock of the  Corporation  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 30,000 shares of Common Stock of
the Corporation at a price of $1.8125 per share,  exercisable until February 19,
2007.  Does not include  unvested  options to  purchase  up to 45,000  shares of
Common  Stock of the  Corporation  at a price of $1.8125 per share,  exercisable
until March 10, 2007.

(7)  Includes  vested  options to purchase up to 4,000 shares of Common Stock of
the Corporation at a price of $1.8125 per share, exercisable until July 1, 2007.
Does not include unvested options to purchase up to 6,000 shares of Common Stock
of the  Corporation at a price of $1.8125 per share,  exercisable  until July 1,
2007.

                                      
<PAGE>

(8) Does not include 25,000 shares of Common Stock of the Corporation  which are
owned by Pryor, Cashman,  Sherman & Flynn, a law firm in which Mr. Janowitz is a
senior partner, as to which Mr. Janowitz disclaims beneficial ownership.

(9) Includes 614,000 shares of Common Stock issuable upon exercise of currently
exercisable stock options.

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

         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
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.

                                        
<PAGE>

         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.

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 15, 1999

         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


Doug Rowan                      Director


Ira J. Sobotko                  Principal Financial and Accounting Officer

Dated:  April 15, 1999


<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.

                                       15
<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.

       21                           Subsidiaries of the Company *

       27                           Financial Data Schedule *

--------------
* 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.