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 June 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  ______ of the Securities and Exchange Act of 1934 during
the  preceding 12 months (or for such shorter  period) that the  Registrant  was
required  to file  such  reports  and  (2)  has  been  subject  to  such  filing
requirements for the past 90 days.

                           Yes __X__                          No ______

Number of shares  outstanding of each of issuer's  classes of common stock as of
August 12, 1997.

     Common Stock                                         3,747,838

<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

                                TABLE OF CONTENTS



PART I.           FINANCIAL INFORMATION                                 Page No

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

                  Consolidated Condensed Statement of Operations -
                  Three Months and Six Months Ended
                  June 30, 1997 and 1996                                  2

                  Consolidated Condensed Statement of Cash Flows -
                  Six Months Ended June 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



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

Cash                                         $  390,678       $   687,080
Short-term investments                          707,419           696,150
Accounts receivable                             444,039           149,483
Films costs, net                              1,546,169         1,998,326
Property and equipment, net                     120,772           117,492
Other assets                                     63,581            81,063
Goodwill                                      2,594,809         2,735,069
                                            -----------       -----------
Total assets                                 $5,867,467        $6,464,663
                                             ==========        ==========

                      Liabilities and Stockholders' Equity

Accounts payable                             $   489,979          284,784
Accrued expenses                                 574,104          457,426
Loan payable                                     140,000
Capitalized lease obligations                     22,948           40,451
Income taxes payable                              87,000          330,891
Advance from customers                            42,000          577,730
                                               ---------        ---------
Total liabilities                              1,356,031        1,691,282
                                               ---------        ---------

Stockholders' equity

Common stock, par value $.01 per share            37,478           36,978
Additional paid-in capital                     4,799,502        4,631,252
Retained earnings (deficit)                      (67,963)         224,001
Unrealized loss on marketable securities        (107,581)        (118,850)
Note receivable for common stock                (150,000)        _________
                                               -----------
Total stockholders' equity                     4,511,436        4,773,381
                                               ----------       ----------
Total liabilities and stockholders' equity    $5,867,467        $6,464,663
                                                ==========      ==========

   See accompanying notes to the consolidated condensed financial statements.


                                      -1-
<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.
<TABLE>


                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                   (Unaudited)


<CAPTION>

                                                       Three months              Six months
                                                      ended June 30,               ended June 30,
                                                    ----------------             ----------------
                                                1997             1996          1997               1996
                                              -------           ------       -------           -------
<S>                                          <C>              <C>            <C>              <C>       
Operating revenues                           $  352,151       $  602,477     $2,126,312       $  971,482
                                             ----------       ----------     ----------       ----------

Cost and expenses:
  Film production costs                          98,201          169,704      1,150,828          298,260
  Selling, general & administrative
   expenses                                     634,311          547,836      1,339,815          728,666
                                             ----------        ---------     ----------         --------

    Total costs and expenses                    732,512          717,540      2,490,643        1,026,926
                                             ----------       ----------     ----------      -----------

    Loss before income tax                     (380,361)        (115,063)      (364,331)         (55,444)

Income tax benefit (expense)                     84,531           10,908         72,367           (8,092)
                                           ------------       ----------    -----------      -----------

Net loss                                     $ (295,830)       $(104,155)     $(291,964)       $ (63,536)
                                             ==========        =========      =========        =========

Net loss per share                       $         (.08)    $       (.06) $        (.08)    $      (.04)
                                         ===============    ============= ==============    ============
Weighted average shares
  outstanding                                 3,735,338        1,795,000      3,719,267        1,795,000
                                             ==========        =========     ==========       ==========


</TABLE>



   See accompanying notes to the consolidated condensed financial statements.

                                      -2-
<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                   (Unaudited)


                                                           Six months
                                                          ended June 30,
                                                    1997               1996
Cash flows from operating activities:

Net loss                                       $  (291,964)         $(63,536)
                                               -----------          ---------
Adjustments to reconcile net income
  to net cash provided (used) for
  operating activities:
   Depreciation                                     13,175            15,000
   Amortization-film production costs            1,110,382           155,800
   Amortization-goodwill                           140,260
   Stock option compensation                        18,750
  Changes in assets and liabilities
    which affect net income:
       Accounts receivable                        (294,556)           12,951
       Film costs                                 (658,225)          (65,114)
       Other assets                                 17,482            (1,086)
       Accounts payable and accrued expenses       297,982          (191,906)
       Income taxes payable                        (80,000)          137,154
       Advances from customers                    (535,730)           80,500
                                                -----------        ---------

           Net cash (used for) provided by
            operating activities                  (262,444)           79,763
                                                ----------         ---------

Cash flows from investing activities:
  Purchase of equipment                            (16,455)           (9,809)
                                               ------------       -----------

      Net cash used for investing activities       (16,455)           (9,809)
                                               -----------        ----------

                                      -3-


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)

                                   (Unaudited)



                                                             Six months
                                                            ended June 30,
                                                        1997             1996


Cash flows from financing activities:
Principal payments of capital lease of obligation      (17,503)        (21,076)
                                                       --------        --------

      Net cash used for financing activities           (17,503)        (21,076)
                                                       --------       ---------

      Net increase (decrease) in cash                 (296,402)         48,878

Cash at the beginning of period                        687,080           9,277
                                                     ---------        --------

Cash at the end of period                             $390,678        $ 58,155
                                                      ========        ========

Supplemental disclosures of cash flow information:

Cash paid during the periods for:
  Interest                                           $  35,344       $   3,722
                                                     =========       =========
  Income taxes                                       $ 191,509      $   23,712
                                                     =========      ==========


   See accompanying notes to the consolidated condensed financial statements.





                                      -4-

<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Summary of Significant Accounting Policies

         The Company

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

         Generally, theatrical films are first distributed in the theatrical and
home  video  markets.  Subsequently,  theatrical  films are made  available  for
world-wide   television  network   exhibition  or  pay  television,   television
syndications  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 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 June 30,  1997,  the
results  of  operations  and its cash  flows for the three  months and six month
periods  ended  June 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.

                                      -5-

<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


2.       Film Costs

         Film costs consist of the following:

                                                        June 30,    December 31,
                                                          1997           1996
           In process or development                   $  295,394   $   224,452
           Released, net of accumulated amortization 
               of $7,972,558 and $6,862,176
                                                        1,250,775     1,773,874
                                                        ---------     ---------
                                                       $1,546,169   $ 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 June 30,
1997, $140,000 had been borrowed under the Note at an interest rate of 9.5%.

                                      -6-
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR
 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 six months  ended June 30,1997 the Company had a loss before
income taxes of $380,000 and $364,000 compared to a loss of $115,000 and $55,000
for the quarter and six months ended June 30, 1996.  The increased  loss for the
periods was the result of several  factors.  For the quarter ended June 30,1997,
the Company had significantly  reduced licensing revenue at the Company's Wombat
division,  partially  offset by the  revenue  generated  by the Avenue  Pictures
division, which was acquired on September 30, 1996. In addition, for the quarter
ended June 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 six months ended June 30, 1997 was
the result of increased general and administrative expenses,  primarily salaries
and occupancy  costs incurred by Avenue  Pictures for the period and $140,000 of


                                       -7-
<PAGE>

amortization  of  goodwill  related to the  purchase of Avenue  Pictures.  These
increased  expenses were partially  mitigated by the revenue generated by Avenue
Pictures for the period.

Revenues

Revenues  for the three  months  ended June 30, 1997 were  $352,000  compared to
$602,000 for the three  months  ended June 30, 1996.  The revenues for the three
months  ended June 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 three months ended June
30, 1997  amounted to  approximately  $174,000 and were  primarily  derived from
recognition of the production and overhead fees on the feature film "The Road to
Graceland",  which accounted for approximately 49% of the consolidated  revenues
for the three months ended June 30, 1997.  Revenues from Wombat's operations for
the three months ended June 30, 1997 were approximately  $179,000, a decrease of
$423,000 from the comparable period of the prior year. Of the revenues earned by
Wombat during the three months ended June 30, 1997,  approximately  $120,000 was
derived  from the  completion  and  availability  of a one-hour  motion  picture
profile for A&E. The remaining  revenue was derived from  licensing of rights to
Wombat programming in secondary markets (Janson Associates), which accounted for
32% of revenues in 1997, as compared to 67% of revenues in 1996. The decrease in
revenues  earned for 1997 were  primarily  the result of  reduced  licensing  in
international markets during 1997.

Revenues  for the six months  ended June 30,  1997 were  $2,126,000  compared to
$971,000 for the six months ended June 30, 1996. The revenues for the six months
ended June 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 six months ended June 30, 1997
amounted  to  approximately  $1,447,000  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  68% of  the  consolidated
revenues  for the six  months  ended  June  30,  1997.  Revenues  from  Wombat's
operations for the six months ended June 30, 1997 were approximately $680,000, a
decrease of $291,000 from the comparable  period of the prior year. The decrease
in  revenues  earned by Wombat for the six  months  ended  June 30,  1997,  were
primarily due to reduced sales of licensed programming in international  markets
during 1997.  Of the revenues  earned by Wombat during the six months ended June
30,  1997,   approximately   $250,000  was  derived  from  the   completion  and
availability  of two one-hour  motion  picture  profiles for A&E. The  remaining
revenue was derived from licensing of rights to Wombat  programming in secondary
markets (Janson Associates).

Film Production Costs

Cost of revenues for the three  months ended June 30, 1997 was $98,000  compared
to $170,000  for the three  months  ended June 30,  1996.  The  decrease  can be
primarily  attributed to the film amortization  relating to Wombat's  television
product in the amount of $74,000 for the three months ended June 30, 1997 due to
the decrease in revenues for the same period.

                                      -8-

<PAGE>

Cost of revenues for the six months ended June 30, 1997 was $1,151,000  compared
to  $298,000  for the six  months  ended  June 30,  1996.  The  increase  can be
primarily  attributed  to the film  amortization  relating  to  Avenue  Pictures
television product in the amount of $900,000.

Selling, General and Administrative

Selling,  general and administrative (S,G&A) expenses for the three months ended
June 30, 1997 were $634,000 compared to $548,000 for the three months ended June
30, 1996. Included in the three months ended June 30, 1997 expenses are $340,000
of S,G&A expenses relating to Avenue Pictures' operations which were principally
salaries and related  benefits and occupancy  expenses  including  approximately
$50,000 relating to costs incurred for future business development. In addition,
the Company recognized approximately $70,000 amortization of goodwill related to
the Avenue  acquisition on September 30, 1996.  Wombat's  reduced SG& A expenses
for the 1997 period were a result of reduced licensing  revenues and the related
commission  expense,  as well as reduced  salaries  and the effect of  increased
capitalized overhead.

Selling,  general and administrative  expenses for the six months ended June 30,
1997 were  $1,340,000  compared  to $729,000  for the six months  ended June 30,
1996.  Included in the six months  ended June 30, 1997  expenses are $644,000 of
S,G&A expenses  relating to Avenue  Pictures'  operations which were principally
salaries and related benefits and occupancy  expenses,  including  approximately
$100,000  relating  to  costs  incurred  for  future  business  development.  In
addition, the Company recognized approximately $140,000 amortization of goodwill
related to the Avenue acquisition on September 30, 1996.  Wombat's SG&A expenses
decreased  primarily as a result of reduced  licensing  revenues and the related
commission expense, as well as a decrease in salaries.

Liquidity and Capital resources

At  June  30,  1997,  the  Company  had  approximately   $391,000  of  cash  and
approximately $707,000 of short term investments.

During the six months  ended June 30,  1997,  the  Company's  cash  decreased by
$296,000.  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 June 30,
1997, $140,000 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.

                                      -9-

<PAGE>

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.

                                      -10-
<PAGE>


                           PART II. OTHER INFORMATION

                        AVENUE ENTERTAINMENT GROUP, INC.

                                  June 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:    August 14, 1997            BY:      Gene Feldman
                                             Chairman of the Board

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

DATE:    August 14, 1997            BY:      Sheri L. Halfon
                                             Vice President and Chief Financial
                                             Officer, Director


                                      -11-
<PAGE>