UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    Form 10-Q


[X]  Quarterly  Report  Pursuant  to Section 13 or 15(d) of the  Securities  and
Exchange Act of 1934 For the quarter ended September 30, 1997

                                       or

     [ ]  Transition  Report  Pursuant to Section 13 or 15(d) of the  Securities
Exchange Act of 1934 For the transition period from            to

Commission File Number:                         001-12885

                        AVENUE ENTERTAINMENT GROUP, INC.
             (Exact Name of Registrant as Specified in its Charter)

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


11111 Santa Monica Blvd., Suite 2110
Los Angeles, California                                          90025
(Address of principal executive offices)                       (Zip Code)

                                 (310) 996-6815
              (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the  Securities  and  Exchange Act of 1934
during the preceding 12 months (or for such shorter  period) that the Registrant
was  required  to file such  reports  and (2) has been  subject  to such  filing
requirements for the past 90 days.

                           Yes     X                     No ______

Number of shares  outstanding of each of issuer's  classes of common stock as of
November 10, 1997.



     Common Stock                                            4,033,838



<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                                Table of Contents


PART I.  FINANCIAL INFORMATION                                         Page No.

         Consolidated Condensed Balance Sheets -
         September 30, 1997 and December 31, 1996                         1

         Consolidated Condensed Statement of Operations -
         Three Months and Nine Months Ended
         September 30, 1997 and 1996                                      2

         Consolidated Condensed Statement of Cash Flows -
         Nine Months Ended September 30, 1997 and 1996                    3

         Notes to Consolidated Condensed Financial Statements             5

         Management's Discussion and Analysis of Financial
         Condition and Results of Operations                              7

PART II. OTHER INFORMATION

                  Signatures                                             11



<PAGE>


                                                        

                          PART I. FINANCIAL INFORMATION

                        AVENUE ENTERTAINMENT GROUP, INC.


                      CONSOLIDATED CONDENSED BALANCE SHEETS


                                                   September 30,  December 31,
                                                         1997         1996
Assets                                               (unaudited)

Cash                                              $   500,302       $   687,080
Short-term investments                                730,422           696,150
Accounts receivable                                   422,224           149,483
Films costs, net                                    1,624,546         1,998,326
Property and equipment, net                           113,607           117,492
Other assets                                           62,165            81,063
Goodwill                                            2,524,679         2,735,069
                                                  -----------       -----------
Total assets                                       $5,977,945        $6,464,663
                                                   ==========        ==========


Liabilities and Stockholders' Equity
Accounts payable                                  $   487,646       $   284,784
Accrued expenses                                      577,186           457,426
Loan payable                                          227,500
Capitalized lease obligations                          14,196            40,451
Income taxes payable                                                    330,891
Advance from customers                                 89,000           577,730
                                                   ----------       -----------
Total liabilities                                   1,395,528         1,691,282
                                                   ----------        ----------


Stockholders' equity
Common stock, par value $.01 per share                 38,478            36,978
Additional paid-in capital                          4,985,802         4,631,252
Retained earnings (deficit)                          (477,285)          224,001
Unrealized gain (loss) on marketable securities       185,422          (118,850)
Note receivable for common stock                     (150,000)        _________
                                                   ----------
Total stockholders' equity                          4,582,417         4,773,381
                                                   ----------        ----------
Total liabilities and stockholders' equity         $5,977,945        $6,464,663
                                                   ==========        ==========

     See accompanying notes to the consolidated condensed financial statements.


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.
<TABLE>



                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                   (Unaudited)



<CAPTION>
                                                   Three months                   Nine months
                                                 ended September 30,              ended September 30,
                                                 1997            1996           1997                1996
<S>                                         <C>               <C>            <C>              <C>       
Operating revenues                          $   116,050       $  568,327     $2,242,362       $1,539,809
                                            -----------       ----------     ----------       ----------

Cost and expenses:

Film production costs                            26,690          185,888      1,177,518          484,148

Selling, general & administrative
 expenses                                       598,682          320,075      1,938,497        1,048,741
                                             ----------        ---------     ----------       ----------

    Total costs and expenses                    625,222          505,963      3,116,015        1,532,889
                                             ----------       ----------     ----------      -----------

    Income (loss) before income tax            (509,322)          62,364       (873,653)           6,920

Income tax benefit (expense)                    100,000          (39,885)       172,367          (47,977)
                                            -----------       ----------    -----------     ------------

Net income (loss)                            $ (409,322)      $   22,479      $(701,286)       $ (41,057)
                                             ==========       ==========      =========        =========

Net income (loss) per share              $         (.11)   $         .01   $       (.19)    $       (.02)
                                         ==============    =============   ============     ============

Weighted average shares

 outstanding                                  3,772,838        1,795,000      3,737,838        1,795,000
                                             ==========       ==========     ==========       ==========





   See accompanying notes to the consolidated condensed financial statements.

</TABLE>

<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.


                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                   (Unaudited)



                                                                Nine months
                                                            ended September 30,

                                                           1997          1996
                                                        ----------     ------

Cash flows from operating activities:

Net loss                                                $ (701,286)   $ 188,230
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
   Depreciation                                             20,340        1,553
   Gain on disposal of fixed assets                                        (786)
   Amortization-film production costs                    1,136,281    3,524,000
   Amortization-goodwill                                   210,390
   Stock option compensation                                28,125
   Decrease in due to stockholder                                       (61,529)
   Increase in deferred income                                        1,981,731

Changes in other operating assets and liabilities:
   Accounts receivable                                    (194,816)       2,521
   Film costs                                             (762,501)  (5,197,855)
   Other assets                                             31,898      (85,784)
   Accounts payable and accrued expenses                   158,731      266,671
   Income taxes payable                                   (180,000)
   Advances from customers                                (488,730)
                                                        -----------
Net cash (used for) provided by
operating activities                                      (741,568)     618,752
                                                        ----------    ---------
Cash flows from investing activities:

  Proceeds from sale of marketable securities              270,000
  Proceeds from sale of fixed assets                                      2,500
  Purchase of equipment                                    (16,455)     (11,598)
                                                       -----------    ---------
  Net cash (used for) provided by investing
   activities                                              253,545       (9,098)
                                                      ------------     --------





<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)



                                   (Unaudited)




                                                                 Nine months
                                                             ended September 30,

                                                             1997          1996
                                                          ---------     --------


Cash flows from financing activities:

Proceeds from loan payable                                $ 227,500     $
Exercise of warrants                                        100,000
Principal payments of capital lease of obligation           (26,255)
                                                        -----------

      Net cash used for financing activities                301,245
                                                       ------------

      Net increase (decrease) in cash                      (186,778)     609,654

Cash at the beginning of period                             687,080       11,060
                                                         ----------   ----------

Cash at the end of period                                $  500,302    $ 620,714
                                                         ==========    =========

Supplemental disclosures of cash flow information:

Cash paid during the periods for:

  Interest                                               $   40,924    $   4,097
                                                         ==========    =========
  Income taxes                                           $  191,628    $  38,946
                                                         =========     =========



   See accompanying notes to the consolidated condensed financial statements.







<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)




1.       Summary of Significant Accounting Policies


The Company

 Avenue  Entertainment Group, Inc. (the "Company") is principally engaged in the
development,  production and distribution of feature films,  television  series,
movies-for-television, mini-series and film star biographies.



 Generally,  theatrical  films are first  distributed in the theatrical and home
video markets. Subsequently,  theatrical films are made available for world-wide
television  network  exhibition or pay  television,  television  syndication and
cable  television.  Generally,  television  films are first licensed for network
exhibition and foreign  syndication or home video, and subsequently for domestic
syndication on cable  television.  The revenue cycle  generally  extends 7 to 10
years on film and television product.


Basis of Presentation

The accompanying  interim  consolidated  financial statements of the Company are
unaudited  and have  been  prepared  by the  Company  pursuant  to the rules and
regulations  of  the  Securities  and  Exchange  Commission   regarding  interim
financial reporting. Accordingly, they do not include all of the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements  and should be read in conjunction  with the  consolidated
financial  statements and notes thereto included in the Company's Form 10-SB and
Form 2-SB for the year ended  December 31, 1996.  In the opinion of  management,
all adjustments,  consisting only of normal recurring adjustments,  necessary to
present fairly the financial  position of the Company at September 30, 1997, the
results of  operations  and its cash  flows for the three  months and nine month
periods  ended  September 30, 1997 and 1996 have been  included.  The results of
operations  for the interim  period are not  necessarily  indicative  of results
which may be realized for the full year.




<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


                                   (Unaudited)



2.       Film Costs

Film costs consist of the following:

                                                   September 30,    December 31,
                                                       1997              1996

In process or development                          $   398,218      $   224,452
Released, net of accumulated amortization
 of $7,998,457 and $6,862,176, respectively          1,226,328        1,773,874
                                                   -----------       ----------
                                                    $1,624,546       $1,998,326


3.       Loan Payable

On May 27,  1997,  the  Company  entered  into an  unsecured  demand  note which
provides the Company with  borrowings  (the "Note") in the  principal  amount of
$250,000,  at prime plus 1%, with Fleet  Bank,  National  Association,  which is
payable on demand, but in any event not later than May 27, 1998. As of September
30,  1997,  $227,500  had been  borrowed  under the Note at an interest  rate of
9.50%.



4.       Subsequent Event



On  November 7, 1997,  the Company  sold  170,000  shares of common  stock to an
investment group and realized proceeds of $850,000.



<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.



The following  discussion and analysis  should be read in  conjunction  with the
Company's consolidated condensed financial statements and related notes thereto.


General

The  Company is an  independent  entertainment  company  which,  through its two
operating subsidiaries, (Avenue Pictures and Wombat Productions) produces motion
pictures for theatrical exhibition, television and other ancillary markets, both
domestically and internationally.

Pursuant  to the  Share  Exchange  Agreement,  CineMasters  acquired  all of the
outstanding  capital  stock  of  Avenue  Pictures  from  Mr.  Brokaw,  the  sole
shareholder of Avenue Pictures,  in exchange for 1,425,000 shares of CineMasters
Common Stock. In connection with the Business Combination,  National Patent made
a capital  contribution  to CineMasters of 90,566 shares of registered  National
Patent common stock valued at $815,000 in the  aggregate  based upon the closing
price per share of National  Patent common stock on the American  Stock Exchange
on  September  30, 1996 in exchange  for 407,500  shares of  CineMasters  Common
Stock.  Such capital  contribution  was made by National  Patent for  investment
purposes  and  was a  condition  to  closing  pursuant  to  the  Share  Exchange
Agreement.

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  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 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.  As a  result  of the  Reincorporation,
Avenue Pictures became a wholly-owned subsidiary of the Company.


Results of Operations

For the quarter and nine months ended  September  30,1997 the Company had a loss
before  income taxes of $509,000 and $874,000  compared to income of $62,000 and
$7,000 for the quarter and nine months ended  September  30, 1996.  The loss for
the periods was the result of several  factors.  For the quarter ended September
30,1997,  the Company's licensing revenue decreased  significantly at its Wombat
division.  In addition,  for the quarter ended  September 30, 1997,  the Company
recorded  $70,000 of  amortization  of goodwill  related to the  acquisition  of
Avenue Pictures, as well as increased expenses related to the operations and the
business development of Avenue Pictures.  The increased loss before income taxes
for the nine months ended September 30, 1997 was the result of increased general
and administrative expenses,  which were primarily salaries,  professional fees,
occupancy costs and $210,000 of amortization of goodwill related to the purchase
of Avenue  Pictures on September  30,  1996.  In  addition,  Wombat  experienced
reduced  revenues for the period which were  partially  mitigated by the revenue
generated by Avenue Pictures for the period.


Comparison of Three Months Ended September 30, 1997 and 1996

Revenues

Revenues for the three months ended September 30, 1997 were $116,000 compared to
$568,000  for the three months ended  September  30, 1996.  The revenues for the
three months ended September 30, 1997 were primarily derived from the operations
of Wombat and were  approximately  $106,000,  a decrease  of  $462,000  from the
comparable period of the prior year. Of the revenues earned by Wombat during the
three months ended  September 30, 1997,  approximately  $64,000 was derived from
licensing  of  rights  to  Wombat   programming  in  secondary  markets  (Janson
Associates),  which  accounted for 61% of revenues in 1997, as compared to 5% of
revenues in 1996.


Film Production Costs

Film production  costs for the three months ended September 30, 1997 was $27,000
compared to $186,000 for the three months ended  September  30, 1996 as a result
of reduced revenues recognized by Wombat for the 1997 period.


Selling, General and Administrative

Selling,  general and administrative (S,G&A) expenses for the three months ended
September 30, 1997 were $599,000 compared to $320,000 for the three months ended
September  30,  1996.  Included in the three  months  ended  September  30, 1997
expenses are $325,000 of S,G&A expenses relating to Avenue Pictures'  operations
and were  principally  salaries  and  related  benefits,  professional  fees and
occupancy expenses.  In addition,  the Company recognized  approximately $70,000
amortization  of goodwill  related to the Avenue  acquisition  on September  30,
1996.


Comparison of Nine Months Ended September 30, 1997 and 1996

Revenues

Revenues for the nine months ended September 30, 1997 were  $2,242,000  compared
to $1,540,000 for the nine months ended September 30, 1996. The revenues for the
nine months ended  September  30, 1997 were derived from  revenues  generated by
Avenue  Pictures  which was acquired on September 30, 1996 and the operations of
Wombat.  Revenues  from the  operations  of Avenue  Pictures for the nine months
ended September 30, 1997 amounted to approximately $1,457,000 and were primarily
derived from the delivery to Hallmark of the made-for-television  movie "Tell Me
No Secrets"  and the  recognition  of the  producing  and  overhead  fees on the
feature film "The Road to Graceland",  which accounted for  approximately 61% of
the consolidated revenues for the nine months ended September 30, 1997. Revenues
from  Wombat  operations  for the nine  months  ended  September  30,  1997 were
approximately $785,000, a decrease of $754,000 from the comparable period of the
prior  year.  Of the  revenues  earned by Wombat  during the nine  months  ended
September 30, 1997,  approximately  $286,000 was derived from the completion and
availability  of two one-hour  motion  picture  profiles to A&E.  The  remaining
revenue was derived from licensing of rights to Wombat  programming in secondary
markets  (Janson  Associates),  which  accounted for 63% of revenues in 1997, as
compared to 43% of revenues in 1996.


Film Production Costs

Film  production  costs  for the  nine  months  ended  September  30,  1997  was
$1,178,000  compared to $484,000 for the nine months ended  September  30, 1996.
The increase can be primarily  attributed to the film  amortization  relating to
"Tell Me No Secrets" in the amount of $916,000.


Selling, General and Administrative

Selling,  general and administrative  (S,G&A) expenses for the nine months ended
September 30, 1997 were  $1,923,000  compared to $1,049,000  for the nine months
ended  September 30, 1996.  Included in the nine months ended September 30, 1997
expenses are $973,000 of SG&A expenses  relating to Avenue Pictures'  operations
and were  principally  salaries  and  related  benefits,  professional  fees and
occupancy expenses.  Wombat's SG&A expenses decreased by approximately  $344,000
primarily  as a  result  of  decreased  commissions  paid to  Janson  Associates
resulting from decreased licensing revenues. In addition, the Company recognized
approximately   $210,000   amortization  of  goodwill   related  to  the  Avenue
acquisition on September 30, 1996.


Liquidity and Capital Resources

At  September  30,  1997,  the  Company had  approximately  $500,000 of cash and
approximately  $730,000 of short term  investments.  On  November  7, 1997,  the
Company sold 170,000 shares of common stock to an investment  group and realized
proceeds of $850,000.



During the nine months ended September 30, 1997, the Company's cash decreased by
$187,000.  On May 27, 1997,  the Company  entered into an unsecured  demand note
which provides the Company with borrowings (the "Note") in the principal  amount
of $250,000, at prime plus 1%, with Fleet Bank, National  Association,  which is
payable on demand, but in any event not later than May 27, 1998. As of September
30, 1997, $227,000 had been borrowed under the Note.

The Company  believes it has adequate  capital  resources to meet its short-term
need  covering  at least  twelve  months.  The  Company  expects  to expand  its
production activities. Management believes that the existing cash and short term
investments are adequate to fund the Company's operations,  however,  management
may seek to raise  additional  funds,  through the  issuance of common  stock or
issuance of debt, to expand the Company's  business at a greater rate.  However,
there is no guarantee  that such funding will be available,  or available  under
terms which are  acceptable  to the Company.  The  Company's  rate of growth and
investment  in  projects  will be  adjusted  as  necessary  based  on  available
financing and existing capital resources.


Recent accounting pronouncement

 In  February  1997,  Statement  of  Financial  Accounting  Standards  No.  128,
"Earnings per Share" (SFAS No. 128),  was issued.  SFAS No. 128  simplifies  the
standards  for  computing  earnings  per  share,  and  makes the  United  States
standards for  computing  earnings per share more  comparable  to  international
standards.  SFAS No. 128  requires  presentation  of "basic"  earnings per share
(which excludes dilution) and "diluted" earnings per share. The Company does not
believe the adoption of SFAS No. 128 in fiscal 1997 will have a material  impact
on the  Company's  reported  earnings per share.  SFAS No. 128 is effective  for
financial  statements  issued for periods  ending  after  December  15, 1997 and
requires restatement of all prior period earnings per share presented.



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  Company's  ability  to  generate  an  operating  profit and the
Company's ability to secure additional financing on acceptable terms.




<PAGE>



                           PART II. OTHER INFORMATION

                        AVENUE ENTERTAINMENT GROUP, INC.



                               September 30, 1997


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  in its  behalf by the
undersigned thereunto duly authorized.

                                            AVENUE ENTERTAINMENT GROUP, INC.

DATE:         November 14, 1997             BY: Gene Feldman
                                                Chairman of the Board



DATE:         November 14, 1997             BY:  Cary Brokaw
                                                 President and Chief Executive
                                                 Officer, Director



DATE:         November 13, 1997             BY:  Sheri L. Halfon
                                                 Vice President and Chief 
                                                 Financial Officer, Director