U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-23884-LA
THE WESTWIND GROUP, INC.
(Name of Small Business Issuer as specified in its charter
Delaware 87-0415594
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1746 1/2 Westwood Blvd., Los Angeles, CA 90024
(Address of principal executive offices)
Registrant's telephone no., including area code: (310) 470-6949
No Change
Former name, former address, and former fiscal year, if changed
since last report.
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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
Common Stock outstanding at April 24, 1996 - 7,422,768 shares of $.004
par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
FORM 10-QSB
FINANCIAL STATEMENTS AND SCHEDULES
THE WESTWIND GROUP, INC.
For the quarter ended February 29, 1996.
The following financial statements and schedules of the registrant
and its consolidated subsidiaries are submitted herewith:
PART I - FINANCIAL INFORMATION
Page of
Form 10-QSB
Item 1. Financial Statements;
Condensed Consolidated Balance Sheets--
February 29, 1996 and August 31, 1995 3
Condensed Consolidated Statements of Income--
for the three months and six months
ended February 29, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows--
for the six months ended February 29, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Page
Item 1. Legal Proceedings 12
Item 2. Changes in the Rights of Security Holders 12
Item 3. Defaults on Senior Securities 12
Item 4. Results of Votes on Securities Holders 12
Item 5. Other Information 12
Item 6(a). Exhibits 12
Item 6(b). Reports on Form 8-K 12
PAGE 2
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
February 29, August 31,
1996 1995
__________ __________
CURRENT ASSETS:
Cash and cash equivalents $ 528,866 $ 286,335
Marketable equity securities
available for sale 24,629 -
Advances to a related party 17,000 -
Film Inventory 348,060 690,760
Income taxes receivable 28,759 19,000
Deferred tax asset 54,064 94,410
_____________ ____________
Total Current Assets 1,001,378 1,090,505
_____________ ____________
PROPERTY AND EQUIPMENT, net 9,342 9,449
_____________ ____________
OTHER ASSETS:
Film inventory-noncurrent 40,671 33,481
Deposit 1,580 1,580
Deferred tax asset 34,053 34,053
_____________ ____________
Total Other Assets 76,304 69,114
_____________ ____________
$ 1,087,024 $1,169,068
_____________ ____________
Note: The balance sheet at August 31, 1995 has been taken from the
audited
financial statements at that date and condensed.
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE 3
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
February 29, August 31,
1996 1995
____________ ____________
CURRENT LIABILITIES:
Accounts payable $ 54,363 $73,888
Accounts payable - related party 11,542 19,904
Accrued expenses 1,711 1,711
Management bonuses 157,000 157,000
_____________ ____________
Total Current Liabilities 224,616 252,503
_____________ ____________
MINORITY INTEREST 448,685 472,988
_____________ ____________
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 29,691 29,691
Additional paid-in capital 124,098 124,098
Unrealized loss on available for
sale securities (842) -
Retained earnings 260,716 289,788
_____________ ____________
Total Stockholders' Equity 413,723 443,577
_____________ ____________
$ 1,087,024 $1,169,068
_____________ ____________
Note: The balance sheet at August 31, 1995 has been taken from the
audited financial statements at that date and condensed.
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE 4
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Six Months Ended
_______________________ _____________________
February February February February
29,1996 28, 1995 29, 1996 28, 1995
__________ ________ ________ ________
REVENUE:
Film revenue $185,780 $125,895 $510,270 $222,832
Film management and
marketing income 8,500 - 8,500 50,000
___________ ________ ________ ________
Total Revenue 194,280 125,895 518,770 272,832
___________ ________ ________ ________
PRODUCTION COSTS 57,398 197,499 349,553 281,432
___________ ________ ________ ________
GROSS PROFIT (LOSS) 136,882 (71,604) 169,217 (8,600)
___________ ________ ________ ________
OPERATING EXPENSE:
General and administrative 67,522 38,883 127,667 99,925
Professional fees 23,430 8,740 27,432 9,155
___________ ________ ________ ________
Total Operating Expense 90,952 47,623 155,099 109,080
___________ ________ ________ ________
INCOME (LOSS) FROM OPERATIONS 45,930 (119,227) 14,118 (117,860)
___________ ________ ________ ________
OTHER INCOME (EXPENSE):
Interest and other income 6,495 2,748 12,975 4,894
Gain on settlement
of contingency - - 30,587 -
___________ ________ ________ ________
Total Other Income (Expense) 6,495 2,748 43,562 4,894
___________ ________ ________ ________
INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME TAXES 52,425 (116,479) 57,680 (112,786)
MINORITY INTEREST IN OPERATIONS
OF PARTNERSHIPS 87,368 72,755 86,692 (60,851)
___________ ________ ________ _________
INCOME (LOSS) BEFORE
INCOME TAXES (34,943) (43,724) (29,012) (51,935)
INCOME TAXES:
Current tax expense (benefit) - - - -
Deferred tax expense (benefit) - - - (5,789)
___________ _________ _________ __________
NET (LOSS) INCOME $ (34,943) $ 43,724) $(29,012) $(46,146)
___________ _________ _________ __________
INCOME (LOSS) PER COMMON
SHARE $(.004) $ (.006) $ (.004) $ (.006)
___________ _________ _________ __________
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,422,768 7,422,768 7,422,768 7,422,768
___________ _________ _________ __________
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE 5
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Six Months Ended
__________________________
February 29, February 28,
1996 1995
__________ ____________
Cash Flows From (To) Operating Activities:
Net income (loss) $ (29,012) $ (46,146)
__________ ____________
Adjustments to reconcile net income to cash provided (used)
by operations:
Depreciation and amortization 1,021 155
Minority interests in operations
of partnerships 87,368 (60,851)
Write off film script inventory - 1,296
Gain on contingency (25,471) -
Changes in assets and liabilities:
(Increase) decrease in deferred tax asset 11,587 -
(Increase) decrease in film inventory 342,700 254,805
(Increase) decrease in income tax receivable 19,000 -
Increase (decrease) in accounts payable and
accrued expenses (19,525) (4,879)
Increase (decrease) in accounts
payable - related party (8,362) -
Increase (decrease) in taxes payable - (2,396)
Increase (decrease) in deferred income taxes - (5,789)
_________ __________
Total Adjustments 408,318 182,341
_________ ___________
Net Cash Provided (Used)
by Operating Activities 379,306 136,195
_________ ___________
Cash Flows From (To) Investing Activities:
Advances to a related party (17,000) -
Payments for film script inventory (7,190) (17,503)
Purchase of property and equipment (914) -
_________ ___________
Net Cash From (To) Investing Activities (25,104) (17,503)
_________ ___________
Cash Flows From (To) Financing Activities:
Distributions to limited partners (111,671) (103,171)
Contributions from limited partners - -
_________ ___________
Net Cash From (To) Financing Activities (111,671) (103,171)
_________ ___________
Net Increase in Cash and Cash Equivalents 242,531 15,521
Cash and Cash Equivalents at Beginning of Period 286,335 255,626
_________ ____________
Cash and Cash Equivalents at End of Period $ 528,866 $ 271,147
_________ ____________
[Continued]
PAGE 6
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
Increase (Decrease) in Cash and Cash Equivalents
For the Six Months Ended
__________________________
February 29, February 28,
1996 1995
____________ __________
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ - $ 2,396
Supplemental Schedule of Non-cash
Investing and Financing Activities:
For the six months ended February 29, 1996:
The Company received in settlement of a lawsuit $5,116 and stock in
the distributor company valued at $25,471 [See Note 5].
For the six months ended February 28, 1995:
None
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE 7
THE WESTWIND GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 _ BASIS OF PRESENTATION
The accompanying financial statements have been prepared by
the Company without audit. In the opinion of management, all
adjustments (which included only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and changes in financial position for all periods
presented, have been made.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
in the accompanying interim financial statements. It is
suggested that these condensed consolidated financial
statements be read in conjunction with the financial
statements and notes thereto included in the Company's August
31, 1995 audited financial statements. The results of
operations for the periods ended February 29, 1996 and
February 28, 1995 are not necessarily indicative of the
operating results for the full year.
NOTE 2 _ MARKETABLE SECURITIES
The Company investments in marketable equity securities which
are held for an indefinite period and thus are classified as
available-for-sale. Available-for-sale securities are recorded
at fair value under the caption "marketable securities" on the
balance sheet, with the change in fair value during the period
excluded from earnings and recorded as a separate component of
equity. Fair value of the equity securities was determined on
a specific identification basis in computing unrealized gain
or loss. As of February 29, 1996 and February 28, 1995.
Unrealized holding gains (losses) on such securities, which
were added (subtracted) to stockholders' equity during the six
months ended February 29, 1996 and February 28, 1995 were
$(842) and $0 respectively. The change in net unrealized
holding gain (loss) on available-for-sale securities for the
three months ending February 29, 1996 and February 28, 1995
was $(5,683) and $0.
NOTE 3 _ ADVANCES TO RELATED PARTY
During January 1996, the Company advanced $17,000 to an
officer director and majority shareholder of the Company. The
advances bear interest at 6% per annum.
PAGE 8
THE WESTWIND GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 _ LIMITED PARTNERSHIP
The Company forms limited partnerships to finance the
production of some of its feature films. The Company serves
as the general partner and has ownership, operating, and
financial control of the limited partnerships. Limited
partnership agreements generally limit cash distributions to
the Company until limited partners' original investments are
returned plus interest at a predetermined rate. Profits are
allocated according to partnership agreements with the
Company's interest ranging from 51.9% to 28.3%.
NOTE 5 _ COMMITMENTS AND CONTINGENCIES
Development Agreements - The Company enters into development
agreements as a means to obtain story rights for feature
films. Developers typically are entitled to a percentage of
the net profits of the Company's general partnership interest
in the film. Amounts paid to developers for the three months
ended February 29, 1996 and February 28, 1995 were
approximately $7,109 and $17,503, respectively.
Distribution Agreements - The Company has entered into film
distribution agreements for foreign markets as a means of
financing production costs. These foreign distributor
agreements require an up front advance which is repaid by the
Company at prime plus 2% from the proceeds of the film. The
foreign distributor collects revenues from sublicensees and
after withholding the funds advanced, expenses incurred and a
distribution fee of approximately 15% to 25% of gross
revenues, forwards the remainder to the Company.
The Company also enters into various other foreign and
domestic distribution and licensing agreements for its films
as a means to exhibit it's films to the public. Distributors
typically receive 12.5% to 25% of gross revenues as a
distribution fee after predetermined minimum revenues are
received by the Company and are entitled to be reimbursed for
expenses incurred from the proceeds of the film.
The Company as a Distributor - The Company enters into various
agreements to produce, assist in production and distribute
films for which it does not own the story rights. These
agreements typically provide for the Company to be compensated
for its role as producer, entitle the Company to receive a
percentage revenue in gross profits of the film and
occasionally require the Company to advance funds to meet
production costs. The advances are to be repaid from the
gross revenues of the film. At February 29, 1996 and August
31, 1995, their were no amounts advanced under these
agreements.
Other - The Company has a continuing obligation to certain
writers and actors to pay profit participation amounts ranging
from 1 to 7.5 percent based on a predetermined level of income
and distributions received by the Company. The Company has
recorded $0 and $0 in profit participation payments for the
three months ended February 29, 1996 and February 28, 1995,
respectively.
PAGE 9
THE WESTWIND GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 _ COMMITMENTS AND CONTINGENCIES
Gain Contingency - The Company has filed suit for $133,477
against a Company, which had been contracted to distribute a
film, for breach of a home video distribution agreement. The
suit is based on a refusal to pay the full amount of the
minimum guarantee, failure to render an accounting of sales
and failure to pay royalties. In November 1990, the Company
received a judgment against the distributor for $133,477;
however, the distributor was forced into bankruptcy by its
creditors before payment was made. During November 1995, the
Company recorded $30,587 in other income when it received
$5,116 and 1,684 shares of the distributor common stock with
an aggregate fair value of $25,471 on the date of issuance.
The Company does not plan to pursue further collection.
NOTE 6 _ INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" [FASB 109]. FASB 109 requires the Company to
provide a net deferred tax asset/liability equal to the expected
future tax benefit/expense of temporary reporting differences
between book and tax and any available operating loss or tax
credit carryforwards.
On February 29, 1996 the amounts of the deferred tax assets and
liabilities are $88,217 and $25,827, respectively. The amount of
and ultimate realization of the benefits from the deferred tax
assets is dependent, in part, upon the tax laws in effect, the
future earnings of the Company, and other future events, the
effects of which cannot be determined. As of February 29, 1996,
the Company has no available operating loss carryforwards.
Management determined that no valuation allowance was necessary
for the net deferred tax assets as of February 29, 1996.
NOTE 7 _ ECONOMIC DEPENDENCY
The Company has these significant customers who represent
approximately 98% of the Company's revenue.
The Company also receives a substantial portion of its revenue
from two foreign sales agents who collect on behalf of the
Company from numerous customers on a world-wide basis. These
foreign revenues relate to other revenues as follows:
For the Three Months
Ended February 29,
___________________________
1996 1995
______________________
Foreign Sales Agents $ 181,249 $ 187,314
Domestic Customers 328,881 35,518
Other 140 -
______________________
Total Film Revenues $ 510,270 $ 222,832
______________________
PAGE 10
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is engaged in the business of financing, producing
and distributing quality, lower and medium budget motion pictures.
The Company's motion pictures are intended to be distributed for
exhibition in domestic and foreign theater markets and for subsequent
release in other markets such as home video, pay-per-view, pay
television and free television. Westwind Productions, Inc., a wholly-
owned subsidiary of the Company, is the Company's production entity.
Westwind Releasing Corp., another wholly-owned subsidiary of the
Company, is the Company's distribution division. The following
discussion should assist in an understanding of the Company's
financial position at February 29, 1996, as compared to the same
quarter for the last fiscal year. The financial statements and the
notes attached thereto should be referred to in connection with this
discussion.
Liquidity and Capital Resources.
As of February 29, 1996, the Company had total assets of
$1,087,024 compared to $1,169,068 as of August 31, 1995, a decrease of
$82,044. As of February 29, 1996, the Company's cash totaled $528,866
as compared to $286,335 at August 31, 1995. During the same period,
current assets decreased slightly to $1,001,378 from $1,090,505. The
decrease in current assets was primarily the result of a decreased
current film inventory of approximately $342,700. Film inventory is
carried at the lessor of the Company's cost of producing the film or
its net realizable value based upon estimated future film revenues.
Film inventory is reduced or amortized as the Company receives
revenues from films carried in inventory or to the extent film
inventory exceeds estimated future film revenues.
Total current liabilities decreased slightly to $224,616 as of
February 29, 1996, from $252,503 at August 31, 1995. Provision for
minority interests decreased slightly from $472,988 at August 31, 1995
to $448,685 at February 29, 1996.
Results of Operations
The Company's principal objective is to produce and distribute
motion pictures with commercial subject matter. Film revenues are
derived primarily from the distribution of feature films in both
domestic and foreign markets. The Company's revenues are derived from
management and marketing fees relating to specific motion pictures,
from fees for film production services and from distributive shares in
partnerships and joint venture formed to finance motion pictures. The
Company's revenues and net income are dependent upon the level of film
activity engaged in by the Company as well as by the success of the
particular motion pictures released by the Company in any given year.
Most of the income which will be generated by a motion picture will be
generated in the year in which it is released and distributed.
Thereafter, minimum revenues are received from such motion picture.
The Company's film activity during the quarter included the
following:
"Asylum," a dramatic thriller starring Robert Patrick and Malcolm
McDowell began principal photography April 8, 1996. The project is a
co-production with Norstar Entertainment. Norstar funded the project
entirely and will have all rights to the film. The company receives a
production fee for the project.
"Desire" aka "Ultimate Desire" an erotic thriller starring Martin
Kemp, Kate Hodge, Robert Miranda and Deborah Shelton will be released
by Monarch Home Video for domestic video release at the end of May.
PAGE 11
Revenue and Expenses.
The Company had total revenue of $194,280 for the three month
period ended February 29, 1996, compared to $125,895 for the three
month period ended February 28, 1995. For the six months ended
February 29, 1995, the Company had total revenue of $518,770 as
compared to $272,832 for the six months ended February 28, 1995. Film
revenue varies significantly from quarter to quarter depending upon
the overall film activity and the timing of receipts from the delivery
of films.
Production costs for the three month period ended February 29,
1996 was $57,398 compared to $197,499 for the three month period ended
February 28, 1995. Production costs for the six month period ended
February 29, 1996 were $349,953 compared to $281,432 for the six month
period ended February 28, 1995. Operating expenses were $90,952 and
$155,099 for the three month and six month periods ended February 29,
1996 compared to $47,623 and $109,080 for the three month and six
month periods ended February 28, 1995.
During the three months ended November 30, 1995, the Company
had a $30,587 one time gain in connection with settlement of a law
suit. As a result of increased operating expenses, the Company had a
loss income of $29,012 for the six months ended February 29, 1996
compared to a loss of $51,935 for the six months ended February 28,
1995. For the three months ended February 29, 1996, the Company had a
net loss of $34,943 compared to a net loss of $43,724 for the three
months ended February 28, 1995.
The Company's revenues from operations and from partnership
distributions as well as income and operating expenses are subject to
increase or decrease on a quarterly basis depending on the amount of
film activity engaged in a particular quarter and the timing of
receipts from licenses and from distribution agreements
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. To the best knowledge of the Company,
it did not become a party to any pending or threatened litigation or
proceeding material to the Company during the three month period ended
February 29, 1996.
Item 2. Changes in the Rights of the Company's Security Holders.
None.
Item 3. Defaults by the Company on its Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6(a). Exhibits. None.
Item 6(b). Reports on Form 8-K. None.
PAGE 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: April 29, 1996 THE WESTWIND GROUP, INC.
By /s/ William C. Webb
William C. Webb
President/Director
Principal Executive and
Financial Officer
PAGE 13