UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   Form 10-QSB


[X]  Quarterly  Report  Pursuant  to Section 13 or 15(d) of the  Securities  and
Exchange Act of 1934 For the quarter ended March 31, 1998

                                       or

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

Commission File Number:                              001-12885

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

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


11111 Santa Monica Blvd., Suite 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
May 12, 1998:



     Common Stock                                         4,108,838



<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                                TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION                                         Page No.

         Consolidated Condensed Balance Sheets -
         March 31, 1998 (unaudited) and December 31, 1997                  1

         Unaudited Consolidated Condensed Statement of Operations -
         Three Months Ended March 31, 1998 and 1997                        2

         Unaudited Consolidated Condensed Statement of Cash Flows -
         Three Months Ended March 31, 1998 and 1997                        3

         Unaudited Notes to Consolidated Condensed Financial Statements    5

         Management's Discussion and Analysis or Plan of Operation         8

PART II. OTHER INFORMATION

                  Signatures                                              11



<PAGE>


                               



                          PART I. FINANCIAL INFORMATION

                        AVENUE ENTERTAINMENT GROUP, INC.


                      CONSOLIDATED CONDENSED BALANCE SHEETS


                                                  March 31,         December 31,
                                                    1998                1997
Assets                                          (unaudited)

Cash                                           $   648,694          $ 1,158,347
Short-term investments                             702,101              562,711
Accounts receivable                                201,276              126,492
Income tax receivable                              235,000              235,000
Films costs, net                                 1,560,378            1,481,571
Property and equipment, net                         98,807              102,356
Other assets                                        32,105               18,709
Goodwill                                         2,384,419            2,454,549
                                               -----------           -----------
Total assets                                    $5,862,780          $ 6,139,735
                                                ==========            ==========


Liabilities and Stockholders' Equity
Accounts payable and accrued expenses          $   957,990          $   916,419
Loan payable                                       127,500              127,500
Capitalized lease obligations                        4,229                8,459
Due to related party                                94,480               94,480
                                              ------------           ----------
Total liabilities                                1,184,199            1,146,858
                                                ----------           ----------


Stockholders' equity
Common stock, par value $.01 per share              40,728               40,728
Additional paid-in capital                       6,241,631            6,232,256
Deficit                                         (1,790,879)          (1,327,818)
Accumulated comprehensive income                   337,101              197,711
Note receivable for common stock                  (150,000)            (150,000)
                                               ------------           ----------
Total stockholders' equity                       4,678,581            4,992,877
                                               -----------           -----------
Total liabilities and stockholders' equity      $5,862,780          $ 6,139,735
                                                ==========          ============



   See accompanying notes to the consolidated condensed financial statements.


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                 CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS

                                   (unaudited)


                                                 Three months      Three months
                                                ended March 31,  ended March 31,
                                                   1998               1997
                                                 -----------        --------

Operating revenues                               $   239,701     $  1,774,161
                                                 -----------     ------------

Costs and expenses:
Film production costs                                 32,699        1,052,627
Selling, general and administrative expenses         664,762          705,504
                                                 -----------      -----------
Total costs and expenses                             697,461        1,758,131
                                                 -----------       ----------

Income (loss) before income tax                     (457,760)          16,030

Income tax expense                                     5,301           12,164
                                                 ------------      -----------

Net income (loss)                                $  (463,061)    $      3,866
                                                 ============     ============

Basic and diluted loss per common stock          $      (.11)    $       --
                                                 ============    ============






   See accompanying notes to the consolidated condensed financial statements.



<PAGE>







                        AVENUE ENTERTAINMENT GROUP, INC.

           CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Continued)

                                   (unaudited)

<TABLE>

<CAPTION>
                                                           Three months        Three months
                                                             ended               ended
                                                             March 31,           March 31,
                                                               1998               1997

Cash flows from operating activities:
<S>                                                        <C>                 <C>       
   Net income (loss)                                       $(463,061)          $    3,866
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
   Depreciation                                                 5,913              12,113
   Amortization - film production costs                        25,200           1,036,265
   Amortization - goodwill                                     70,130              70,130
   Stock option compensation                                    9,375               9,375
   Changes in assets and liabilities which
    affect net income:
       Accounts receivable                                    (74,784)           (449,573)
       Film costs                                            (104,007)           (472,581)
       Other assets                                           (13,396)             27,993
       Accounts payable and accrued expenses                   41,571             276,194
       Income taxes payable                                                       (30,315)
       Advances from customers                                                   (487,730)
                                                             ---------          ----------
                                                                  --

           Net cash used in operating activities             (503,059)             (4,263)
                                                             ---------          ----------

Cash flows from investing activities:
       Purchase of equipment                                   (2,364)             (1,060)
                                                             ---------         ------------

           Net cash used in investing activities               (2,364)             (1,060)
                                                             ---------       -------------

   See accompanying notes to the consolidated condensed financial statements.

</TABLE>


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

           CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Continued)

                                   (unaudited)
<TABLE>

<CAPTION>
                                                          Three months     Three months
                                                             ended            ended
                                                           March 31,        March 31,
                                                             1998             1997

Cash flows from financing activities:                            
<S>                                                      <C>                <C>      
   Principal payments of capital lease obligations       $   (4,230)        $ (8,752)
                                                         -----------        ---------

           Net cash used in financing activities             (4,230)          (8,752)
                                                         -----------        ---------

           Net decrease in cash                            (509,653)         (14,075)

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

Cash at end of period                                    $  648,694         $673,005
                                                          ==========        =========

Supplemental cash flow information:
 Cash paid during the year for:
     Interest                                            $    3,305         $
                                                         ------------
                                                                                --
     Income taxes                                        $    5,301         $ 32,164
                                                         ============       =========




     See accompanying notes to consolidated condensed financial statements.

</TABLE>



<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)




1.       Summary of significant accounting policies


The Company

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



         Generally, theatrical films are first distributed in the theatrical and
home  video  markets.  Subsequently,  theatrical  films are made  available  for
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-KSB for the year ended  December 31, 1997. In the opinion of management,
all adjustments,  consisting only of normal recurring adjustments,  necessary to
present  fairly the  financial  position of the Company at March 31,  1998,  the
results of  operations  and its cash flows for the three  months ended March 31,
1998 and 1997 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 CONDENSED FINANCIAL STATEMENTS (Continued)


                                   (Unaudited)



2.       Film costs

         Film costs consist of the following:

                                                   March 31,        December 31,
                                                     1998               1997
In process or development                          $  438,025       $   47,955
Released, net of accumulated amortization
 of $11,778,274 and $11,753,074, respectively       1,122,353        1,433,616
                                                  -----------       ----------
                                                   $1,560,378       $1,481,571


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 March 31,
1998, $127,500 had been borrowed under the Note at an interest rate of 9.50%.



<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

                                   (Unaudited)

4.       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:

                                                          Three months ended
                                                   March 31,           March 31,
                                                     1998                1997
                                                   ---------           -------

Net income (loss)                              $  (463,061)         $    3,866
Other comprehensive income, net of tax:
 Unrealized gain (loss) on
  marketable securities                            139,390            (130,179)
                                               -----------          -----------
    Comprehensive income                       $  (323,671)         $ (126,313)
                                               ===========          ==========

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

                                                   March 31,        December 31,
                                                     1998                1997

Unrealized gain on
  marketable securities                        $   337,101          $  197,711
                                                -----------         ----------
    Accumulated other comprehensive income     $   337,101          $  197,711
                                               ===========          ==========

5.       Subsequent event

         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  $143,000.  The shares of common 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.


<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.

Results of Operations

         For the  quarter  ended March 31,  1998,  the Company had a loss before
income  taxes of  approximately  $458,000  compared to income of $16,000 for the
quarter  ended March 31, 1997.  The loss for the period was primarily the result
of  reduced  revenues  earned by both  Wombat  and  Avenue  Pictures,  partially
mitigated by reduced selling, general and administrative expenses.

Revenues

         Revenues for the three  months ended March 31, 1998 were  approximately
$240,000  compared to $1,774,000  for the three months ended March 31, 1997. The
revenues for the three months ended March 31, 1998 were  primarily  derived from
the  operations  of Wombat  and were  approximately  $219,000,  as  compared  to
$371,000  for the three months  ended March 31,  1997.  The  revenues  earned by
Wombat  in 1998 and 1997 were  derived  from the  licensing  of rights to Wombat
programming in secondary markets through Janson Associates. For the three months
ended March 31,  1998,  Avenue  Pictures  had  revenues of $20,000,  compared to
revenues of  $1,273,000  for the three  months  ended March 31,  1997.  In 1998,
Avenue  Pictures'  revenues were derived from  development  fees,  while for the
three months ended March 31, 1997, Avenue's revenues were primarily derived from
the delivery to Hallmark of the  made-for-television  movie "Tell Me No Secrets"
($1,000,000)  and the  recognition  of the  producing  and overhead  fees on the
feature film "Finding Graceland."

Film production costs

         Film  production  costs for the three  months ended March 31, 1998 were
$33,000  compared to  $1,053,000  for the three months ended March 31, 1997 as a
result of reduced  revenues  recognized by Avenue  Pictures for the three months
ended March 31, 1998.

Selling, General and Administrative

         Selling,  general and  administrative  (S,G&A)  expenses  for the three
months  ended March 31, 1998 were  $665,000  compared to $706,000  for the three
months ended March 31, 1997.  The reduced S,G&A in 1998 is the result of reduced
commissions paid by Wombat, due to reduced licensing revenues,  partially offset
by increased personnel costs incurred by Avenue Pictures in order to develop its
business.

Liquidity and Capital Resources

        At March 31, 1998,  the Company had  approximately  $649,000 of cash and
approximately $702,000 of short term investments.

         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
$250,000, at prime plus 1%, with Fleet Bank, National  Association.  The Note is
payable on demand, but in any event not later than May 27, 1998. As of March 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,  however there can be no assurance  that the Company will be able to
extend this Note.

         The Company  believes it has  adequate  capital  resources  to meet its
short-term needs 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 debt, to expand the Company's  business at a greater rate.  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 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 4 to the Consolidated Financial Statements.

         In addition,  in June of 1997,  the FASB issued SFAS 131,  "Disclosures
About  Segments of an  Enterprise  and Related  Information".  SFAS 131 requires
disclosure of certain  information  about operating  segments and about products
and  services,  geographic  areas in which a company  operates,  and their major
customers. The Company is presently in the process of evaluating the effect that
this new standard will have on disclosures in the Company's financial statements
and the required  information  will be reflected in the year ended  December 31,
1998 financial statements.


<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;  production  risks;
dependence on contracts  with certain  customers;  future  foreign  distribution
arrangements  and dependence on certain key management  personnel.  All of these
above factors are  difficult to predict,  and many are beyond the control of the
Company.



<PAGE>


                           PART II. OTHER INFORMATION

                        AVENUE ENTERTAINMENT GROUP, INC.

                                 March 31, 1998

                                   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:             May 15, 1998       BY:      Gene Feldman
                                              Chairman of the Board

DATE:             May 15, 1998       BY:      Cary Brokaw
                                              President and Chief Executive
                                              Officer, Director

DATE:             May 15, 1998       BY:      Ira J. Sobotko
                                              Principal Accounting Officer