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 June 30, 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 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
August 10, 1998.

                  Common Stock                        4,108,838



<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

                                TABLE OF CONTENTS



PART I.    FINANCIAL INFORMATION                                        Page No.

           Consolidated Condensed Balance Sheets -
           June 30, 1998 (unaudited) and December 31, 1997                 1

           Consolidated Condensed Statement of Operations -
           Three Months and Six Months Ended
           June 30, 1998 and 1997                                          2

           Consolidated Condensed Statement of Cash Flows -
           Six Months Ended June 30, 1998 and 1997                         3

           Notes to Consolidated Condensed Financial Statements            5

           Management's Discussion and Analysis of Financial
           Condition and Results of Operations                             8

PART II.   OTHER INFORMATION

                  Signatures                                              11



<PAGE>


                                                        
                          PART I. FINANCIAL INFORMATION

                        AVENUE ENTERTAINMENT GROUP, INC.

                      CONSOLIDATED CONDENSED BALANCE SHEETS



                                               June 30,             December 31,
                                                 1998                   1997
                            Assets           (unaudited)

Cash                                        $   457,677            $ 1,158,347
Marketable Securities                           534,628                 562,711
Accounts receivable                             156,779                126,492
Income tax receivable                           208,000                235,000
Films costs, net                              1,521,643              1,481,571
Property and equipment, net                      92,826                102,356
Other assets                                     38,310                 18,709
Goodwill                                      2,314,289              2,454,549
                                            -----------            -----------
Total assets                                 $5,324,152             $6,139,735
                                             ==========             ==========

                      Liabilities and Stockholders' Equity

Accounts payable and accrued expense          $   928,046              916,419
Loan payable                                      127,500              127,500
Capitalized lease obligations                                            8,459
Due to related party                               94,480               94,480
                                              -----------           ----------
Total liabilities                               1,150,026            1,146,858
                                               ----------           ----------

Stockholders' equity

Common stock, par value $.01 per share             41,088               40,728
Additional paid-in capital                      6,396,446            6,232,256
Accumulated deficit                            (2,113,408)          (1,327,818)
Accumulated comprehensive income                                       197,711
Note receivable for common stock                 (150,000)            (150,000)
                                             -------------          ----------
Total stockholders' equity                      4,174,126            4,992,877
                                              -----------           ----------
Total liabilities and stockholders' equity     $5,324,152           $6,139,735
                                               ==========           ==========

   See accompanying notes to the consolidated condensed financial statements.


<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>

<CAPTION>

                                                       Three months                    Six months
                                                      ended June 30,                  ended June 30,
                                                    ----------------                 ----------------
                                                1998             1997          1998                 1997
                                              -------           ------       -------             -------

<S>                                         <C>               <C>            <C>             <C>        
Operating revenues                          $   170,057       $  352,151     $  409,758      $ 2,126,312
                                            -----------       ----------     ----------      -----------

Cost and expenses:
  Film production costs                         140,553           98,201        173,252        1,150,828
  Selling, general & administrative
   expenses                                     555,506          634,311      1,220,268        1,339,815
                                            -----------        ---------     ----------      -----------

    Total costs and expenses                    696,059          732,512      1,393,520        2,490,643
                                            -----------       ----------     ----------      -----------

Unrealized gains on trading securities          205,628                         205,628
                                            ----------- ----------------    -----------

Loss before income tax                         (320,374)        (380,361)      (778,134)        (364,331)

Income tax benefit (expense)                     (2,155)          84,531         (7,456)          72,367
                                           ------------      -----------   ------------      -----------

Net loss                                     $ (322,529)      $ (295,830)    $ (785,590)      $ (291,964)
                                             ==========       ==========     ==========       ==========

Basic and diluted loss per share         $         (.08)   $        (.08) $        (.19)   $       (.08)
                                         ==============    =============  =============    ============
Weighted average shares
  outstanding                                 4,090,838        3,735,338      4,083,124        3,719,267
                                            ===========       ==========     ==========       ==========





   See accompanying notes to the consolidated condensed financial statements.

</TABLE>



<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

                                   (Unaudited)


                                                              Six months
                                                             ended June 30,
                                                        1998             1997
Cash flows from operating activities:

Net loss                                            $ (785,590)     $  (291,964)
Adjustments to reconcile net loss
  to net cash provided by (used in)
  operating activities:
   Depreciation                                         11,893           13,175
   Amortization-film production costs                  163,039        1,110,382
   Amortization-goodwill                               140,260          140,260
   Unrealized gains on trading securities             (205,628)
   Stock option compensation                            18,750           18,750
  Changes in assets and liabilities which
     affect net income:
       Accounts receivable                             (30,287)        (294,556)
       Film costs                                     (203,110)        (658,225)
       Other assets                                    (19,601)          17,482
       Accounts payable and accrued expenses            11,627          297,982
       Income taxes payable                             27,000          (80,000)
       Advances from customers                                         (535,730)
                                                    ----------       ----------

           Net cash used in operating activities      (871,647)        (262,444)
                                                    ----------       ----------

Cash flows from investing activities:
  Proceeds from sale of marketable securities           36,000
  Purchase of equipment                                 (2,364)         (16,455)
                                                    ----------      -----------

      Net cash provided by (used in)
       investing activities                             33,636          (16,455)
                                                    ----------      -----------




<PAGE>


                        AVENUE ENTERTAINMENT GROUP, INC.

           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)

                                   (Unaudited)



                                                                  Six months
                                                                ended June 30,
                                                            1998            1997


Cash flows from financing activities:
Sale of common stock                                    $  145,800     $
Principal payments of capital lease obligation              (8,459)     (17,503)
                                                        -----------    --------

      Net cash provided by (used in) financing
         activities                                        137,341      (17,503)
                                                        ----------     ---------

      Net decrease in cash                                (700,670)    (296,402)

Cash at the beginning of period                          1,158,347      687,080
                                                        ----------    ----------

Cash at the end of period                               $  457,677    $  390,678
                                                        ==========    ==========

Supplemental disclosures of cash flow information:

Cash paid during the periods for:
  Interest                                              $    6,638    $   35,344
                                                        ==========    ==========
  Income taxes                                          $    7,456    $  191,509
                                                        ==========     =========


   See accompanying notes to the consolidated condensed financial statements.







<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

              NOTES TO CONSOLIDATED CONDENSED 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-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 June 30,  1998,  the
results of operations  and its cash flows for the six months ended June 30, 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)


2. Film costs

   Film costs consist of the following:

                                                       June 30,     December 31,
                                                         1998           1997
     In process or development                        $  184,442    $    47,955
     Released, net of accumulated amortization of
           $11,916,113 and $11,753,074                 1,337,201      1,433,616
                                                       ---------      ---------
                                                      $1,521,643    $ 1,481,571
                                                       =========      =========


3. Loan payable

   On May 27, 1997,  the Company  entered  into an  unsecured  demand note
which provided the Company with borrowings (the "Note") in the principal  amount
of $250,000, at prime plus 1%, with Fleet Bank, National Association  ("Fleet"),
which was payable on demand, but in any event not later then May 27, 1998. As of
June 1, 1998,  Fleet  extended the Note for an  additional  one-year  period and
reduced the available  borrowing amount of the Note to $150,000.  As of June 30,
1998, $127,500 had been borrowed under the Note at an interest rate of 9.5%. The
Note is payable on demand, but in any event not later then May 27, 1999.

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:

                                                         Six months ended
                                                June 30,               June 30,
                                                  1998                 1997
                                               ---------               -------

Net loss $  (785,590)                       $  (291,964)
Other comprehensive income, net of tax:
 Unrealized gains on
  marketable securities                                                 11,269
                                            -----------             ----------
    Comprehensive income                    $  (785,590)            $ (280,695)
                                            ===========             ==========


<PAGE>



                        AVENUE ENTERTAINMENT GROUP, INC.

        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

4.       Comprehensive income (Continued)

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

                                                   June 30,     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  $205,628  decrease  in
Accumulated other comprehensive income on the Consolidated Balance Sheet and the
recognition  of an  Unrealized  gain on trading  securities of $205,628 in the  
Consolidated Statement of Operations for periods ended June 30, 1998.

5.       Sale of stock

         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 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 OF FINANCIAL 
                CONDITION AND RESULTS OF OPERATIONS

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.

Liquidity and capital resources

At  June  30,  1998,  the  Company  had  approximately   $458,000  of  cash  and
approximately  $535,000 of short term  investments.  Of the  $458,000 of cash at
June 30, 1998,  approximately  $300,000 has been  earmarked for future  residual
payments  which have been  accrued in the  financial  statements.  The  residual
payments  would be  payable  on the  earlier  of the  second air date of certain
television productions or September 2000.

On May 27, 1997, the Company entered into an unsecured demand note (the "Note"),
which provided the Company with borrowings in the principal  amount of $250,000,
at prime plus 1%, with Fleet Bank, National Association. The Note was payable on
demand,  but in any event not later then May 27, 1998. As of June 1, 1998, Fleet
extended the Note for an  additional  one-year  period and reduced the available
borrowing amount of the Note to $150,000. As of June 30, 1998, $127,500 had been
borrowed  under the Note.  The Note is payable  on demand,  but in any event not
later then May 27, 1999.

Management  believes  that the  existing marketable securities 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.

Results of operations

For the quarter and six months  ended June 30,1998 the Company had a loss before
income  taxes of  $320,000  and  $778,000  compared  to a loss of  $380,000  and
$364,000 for the quarter and six months ended June 30, 1997.  The increased loss
for the  periods  was the result of reduced  revenues  earned by both Wombat and
Avenue Pictures  partially offset by a $205,000  unrealized gain on the transfer
of GP Strategies  common stock from available for sale to trading  securities in
June 1998.

<PAGE>

Revenues

Revenues  for the three  months  ended June 30, 1998 were  $170,000  compared to
$352,000 for the three months ended June 30, 1997.  Revenues from the operations
of Avenue Pictures for the three months ended June 30, 1998, were  approximately
$92,000,  which were  primarily  derived from  development  fees, as compared to
approximately  $174,000 in 1997 which were primarily derived from recognition of
the  production  and  overhead  fees on the feature  film  "Finding  Graceland".
Revenues from Wombat's  operations for the three months ended June 30, 1998 were
approximately  $78,000 as compared to $179,000  for the three  months ended June
30, 1997.  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 and the  remaining
revenue in 1997 and all the revenue in 1998 was derived from licensing of rights
for Wombat programming in secondary markets through Janson Associates.

Revenues  for the six  months  ended June 30,  1998 were  $410,000  compared  to
$2,126,000 for the six months ended June 30, 1997.  Revenues from the operations
of Avenue  Pictures  for the six months  ended June 30, 1998 were  approximately
$112,000  which were  primarily  derived  from  development  fees as compared to
approximately  $1,447,000  for the six  months  ended  June 30,  1997 which 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 "Finding Graceland".  Revenues from Wombat's operations for the
six months  ended June 30,  1998 were  approximately  $297,000,  as  compared to
approximately  $680,000 for the six months ended June 30, 1997. Wombat's revenue
of  $297,000  in 1998 was  derived  from  the  licensing  of  rights  to  Wombat
programming  in secondary  markets  through Janson  Associates.  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 of $430,000 was derived from
licensing of rights for Wombat  programming in secondary  markets through Janson
Associates.

Film Production Costs

Cost of revenues for the three months ended June 30, 1998 was $141,000  compared
to  $98,000  for the three  months  ended June 30,  1997.  The  increase  can be
primarily  attributed to increased  amortization  costs related to Wombat's film
library, despite reduced revenues.

Cost of revenues for the six months ended June 30, 1998 was $173,000 compared to
$1,151,000 for the six months ended June 30, 1997. The decrease is the result of
reduced revenue recognized for the period.

Selling, General and Administrative

Selling,  general and administrative (S,G&A) expenses for the three months ended
June 30, 1998 were $636,000 compared to $634,000 for the three months ended June
30,  1997.  The reduced  S,G&A cost for the period was the results of efforts to
reduce expenses and personnel costs due to the reduced revenue level.  

<PAGE>

Selling,general  and  administrative  expenses for the six months ended June 30,
1998 were  $1,220,000  compared to $1,340,000  for the six months ended June 30,
1997. The reduced S,G&A cost for the period was the results of efforts to reduce
expenses and personnel costs due to the reduced revenue level.

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.

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.

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.



                                  June 30, 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:         August 14, 1998           BY:      Gene Feldman
                                                 Chairman of the Board

DATE:         August 14, 1998           BY:      Cary Brokaw
                                                 President and Chief Executive
                                                 Officer, Director

DATE:         August 14, 1998           BY:      Ira J. Sobotko
                                                 Principal Accounting Officer