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 November 30, 1995
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 January 15, 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 November 30, 1995.
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
November 30, 1995 and August 31, 1995 3
Condensed Consolidated Statements of Income
for the three months ended
November 30, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows
for the three months ended
November 30, 1995 and 1994 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
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
November 30, August 31,
1995 1995
_________________________
CURRENT ASSETS:
Cash and cash equivalents $525,415 $ 286,335
Marketable equity securities,
available for sale 30,312 -
Film inventory 400,048 690,760
Income taxes receivable 59,246 19,000
Deferred tax asset, net 54,064 94,410
_________________________
Total Current Assets 1,069,185 1,090,505
PROPERTY AND EQUIPMENT, net 9,864 9,449
OTHER ASSETS
Film script inventory 34,143 33,481
Other assets 1,580 1,580
Deferred tax asset 34,053 34,053
_________________________
Total Other Assets 69,776 69,114
_________________________
$1,148,825 $1,169,068
_________________________
<FN>
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.
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
November 30, August 31,
1995 1995
_________________________
CURRENT LIABILITIES:
Accounts payable $61,381 $ 73,888
Accounts payable - related party 14,134 19,904
Accrued expenses 1,711 1,711
Management bonuses 157,000 157,000
_________________________
Total Current Liabilities 234,226 252,503
_________________________
MINORITY INTEREST: 460,250 472,988
_________________________
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 29,691 29,691
Additional paid-in capital 124,098 124,098
Unrealized Gain on Securities
Available for sale 4,841 -
Retained earnings 295,719 289,788
_________________________
Total Stockholders' Equity 454,349 443,577
_________________________
$1,148,825 $1,169,068
_________________________
<FN>
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.
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
November 30,
___________________________
1995 1993
______________________
REVENUE:
Film revenue $ 324,490 $ 96,937
Film management and marketing income - 50,000
______________________
Total Revenue 324,490 146,937
______________________
PRODUCTION COST 292,155 83,933
______________________
GROSS PROFIT 32,335 63,004
______________________
OPERATING EXPENSE:
General and administrative 60,145 61,042
Professional fees 4,002 415
______________________
Total Operating Expense 64,147 61,457
______________________
INCOME FROM OPERATIONS (31,812) 1,547
______________________
OTHER INCOME (EXPENSE):
Interest income 6,480 2,146
Gain on settlement of contingency 30,587 -
______________________
Total Other Income (Expense) 37,067 61,457
______________________
INCOME (LOSS) BEFORE MINORITY INTEREST AND
PROVISION FOR INCOME TAXES 5,255 3,693
MINORITY INTEREST IN OPERATIONS OF PARTNERSHIPS 676 11,904
______________________
INCOME (LOSS) BEFORE INCOME TAXES 5,931 (8,211)
CURRENT INCOME TAX EXPENSE (BENEFIT) - -
DEFERRED INCOME TAX EXPENSE (BENEFIT) - (5,790)
______________________
NET INCOME (LOSS) $ 5,931 (2,421)
______________________
NET INCOME (LOSS) PER COMMON SHARE $ .000 $ (.000)
______________________
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 7,422,768 7,422,768
______________________
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Three Months Ended
November 30,
___________________________
1995 1994
______________________
Cash Flows From Operating Activities:
Net income (loss) $ 5,931 $ (2,421)
______________________
Adjustments to reconcile net income
to cash provided(used) by operations:
Depreciation and amortization 499 111
Minority interests in operations
of partnerships (676) 11,904
Gain on settlement of contingency (25,471) -
Changes in assets and liabilities:
(Increase) decrease in film inventory 290,712 59,325
(Increase) decrease in income
tax receivable 40,246 -
(Increase)decrease in deferred tax asset (40,246) (5,789)
Increase(decrease)in accounts payable
and accrued expenses (18,277) (4,879)
Increase (decrease) in taxes payable - (2,396)
___________ ________
Total Adjustments 246,787 58,276
___________ ________
Net Cash Provided by
Operating Activities 252,718 55,855
___________ ________
Cash Flows From Investing Activities:
Payments for film script inventory (662) (7,859)
Payments for Property and equipment (914) -
___________ ________
Net Cash Used by Investing Activities (1,576) (7,859)
___________ ________
Cash Flows From Financing Activities:
Distributions to limited partners (12,062) (21,447)
___________ ________
Net Cash Used by Financing Activities (12,062) (21,447)
___________ ________
Net Increase (Decrease) in Cash
and Cash Equivalents 239,080 26,549
Cash and Cash Equivalents at
Beginning of period 286,335 255,626
___________ ________
Cash and Cash Equivalents at End of period $525,415 $ 282,175
___________ ________
<FN>
[Continued]
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Continued]
Increase (Decrease) in Cash and Cash Equivalents
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 three months ended November 30, 1995:
The Company received in settlement of a lawsuit $5,116 and
stock in the distributor company valued at $25,471[See Note 4].
For the three months ended November 30, 1994:
None
The accompanying notes are an integral part of these consolidated
financial statements.
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 November 30, 1995 and 1994
are not necessarily indicative of the operating results for
the full year.
NOTE 2 _ MARKETABLE SECURITIES
The Company investments in marketable equity securities are
held for an indefinite period and thus are classified as
available-for-sale. Available-for-sale securities are recorded
at fair value in 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 November 30, 1995 and 1994 Unrealized holding gains on
such securities, which were added to stockholders' equity
during the three months ended November 30, 1995 and 1994 were
$4,841 and $0 respectively. The change in net unrealized
holding gains on available-for-sale securities for the three
months ending November 30, 1995 and 1994 was $4,841 and $0.
NOTE 3 _ 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%.
THE WESTWIND GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 _ 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 November 30, 1995 and 1994 were approximately $662 and
$10,000, 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 November 30, 1995 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 November 30, 1995 and 1994, respectively.
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. The Company continued to
pursue collection and during November 1995, the Company record
in other income $30,587 when it received $5,116 and 1,684
shares of the distributor common stock with a fair
value of $25,471 on the date of issuance.
THE WESTWIND GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 _ INCOME TAXES
The Company adopted Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" [FASB 109] during the year
ended August 31, 1994. 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 November 30, 1995 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 November 30, 1994,
the Company has no available operating loss carryforwards.
Management determined that no valuation allowance was necessary
for the net deferred tax assets as of November 30, 1995.
NOTE 6 _ ECONOMIC DEPENDENCY
The Company has three significant customers who represent
approximately 99% 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 November 30,
_____________________
1994 1993
______________________
Foreign Sales Agents $ 49,362 $ 64,892
Domestic Customers 275,000 32,045
Other 128 -
______________________
Total Film Revenues $ 324,490 $96,937
______________________
***** END OF FINANCIAL STATEMENTS *****
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 November 30, 1995, 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 November 30, 1995, the Company had total assets of
$1,148,825 compared to $1,169,068 as of August 31, 1995, a decrease of
$20,243. As of November 30, 1995, the Company's cash totaled $525,415
as compared to $286,335 at August 31, 1995. During the same period,
current assets decreased slightly to $1,069,185 from $1,090,505. The
decrease in current assets was primarily the result of a decreased
current film inventory of approximately $290,000. 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 $234,226 as of
November 30, 1995, from $252,503 at August 31, 1995. Provision for
minority interests decreased slightly from $472,988 at August 31, 1995
to $460,250 at November 30, 1995.
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:
"Desire" aka "Ultimate Desire" an erotic thriller starring Martin
Kemp, Kate Hodge, Robert Miranda and Deborah Shelton is currently
being sold overseas by Showcase Entertainment. April 1996 Domestic
home video release will be handled by Monarch Releasing.
Several other projects are in development.
Revenue and Expenses.
The Company had total revenue of $324,490 for the three month
period ended November 30, 1995, compared to $146,837 for the three
month period ended November 30, 1994. 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 November 30,
1995 was $292,155 compared to $83,933 for the three month period ended
November 30, 1994. Operating expenses were $64,147 for the three
month period ended November 30, 1995 compared to $61,457 for the three
month period ended November 30, 1994.
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. (See Note 4 to financial statements.) As a result of this one-
time gain, the Company had net income of $5,931 for the three months
ended November 30, 1995 compared to a loss of $2,421 for the three
months ended November 30, 1994.
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 November 30, 1995.
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.
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: January 19, 1996 THE WESTWIND GROUP, INC.
By /s/ William C. Webb
William C. Webb
President/Director
Principal Executive and
Financial Officer