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, 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 XX No___. Common Stock outstanding at March 17, 1997 - 7,422,768 shares of $.004 par value Common Stock. DOCUMENTS INCORPORATED BY REFERENCE: NONE FORM 10-QSB CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES THE WESTWIND GROUP, INC. For the quarter ended November 30, 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; Accountant's Disclaimer of Opinion. . . . . . . . . . . . 3 Condensed Consolidated Balance Sheets-- November 30, 1996 and August 31, 1996 . .. . . . . . . . .4-5 Condensed Consolidated Statements of Operations --for the three months and three months ended November 30, 1996 and 1995. . . . . . . . . . . . .6 Condensed Consolidated Statements of Cash Flows-- for the three months ended November 30, 1996 and 1995 . . . . . . . . . . . . .7-8 Notes to Condensed Consolidated Financial Statements. . . . .9 Item 2.. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . .13 PART II - OTHER INFORMATION Page Item 1.. . Legal Proceedings 15 Item 2.. . Changes in the Rights of Security Holders 15 Item 3.. . .Defaults on Senior Securities 15 Item 4.. . .Results of Votes on Securities Holders 15 Item 5.. . .Other Information15 Item 6(a). Exhibits 15 Item 6(b). Reports on Form 8-K 15 THE WESTWIND GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1996 PRITCHETT, SILER & HARDY, P.C. CERTIFIED PUBLIC ACCOUNTANTS THE WESTWIND GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTENTS PAGE _ Accountant's Disclaimer of Opinion 1 _ Unaudited Condensed Consolidated Balance Sheets, November 30, 1996 and August 31, 1996 2 - 3 _ Unaudited Condensed Consolidated Statements of Operations, for the three months ended November 30, 1996 and 1995 4 _ Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 1996 and 1995 5 - 6 _ Notes to Unaudited Condensed Consolidated Financial Statements 7 - 9 PRITCHETT, SILER & HARDY, P.C. CERTIFIED PUBLIC ACCOUNTANTS A PROFESSIONAL CORPORATION 430 EAST 400 SOUTH SALT LAKE CITY, UTAH 84111 _______________ (801) 328-2727 ACCOUNTANT'S DISCLAIMER OF OPINION Board of Directors THE WESTWIND GROUP, INC. Los Angeles, California The accompanying condensed consolidated balance sheet of The Westwind Group, Inc. as of November 30, 1996 and the related statements of operations and cash flows for the three months ended November 30, 1996 and 1995 were not audited by us and, accordingly, we do not express an opinion on them. /s/ Pritchett, Siler & Hardy, P.C. March 12, 1997 THE WESTWIND GROUP, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS November 30, August 31, 1996 1996 _________________________ CURRENT ASSETS: Cash and cash equivalents $494,887 $ 162,309 Treasury Bills - 299,163 Marketable equity securities, available for sale 20,418 18,945 Advances and other receivables 12,161 2,739 Advances related-party 101,438 86,900 Film inventory 85,806 153,746 Deferred tax asset, net 102,025 102,025 _________________________ Total Current Assets 816,735 825,827 PROPERTY AND EQUIPMENT, net 7,650 8,164 _________________________ OTHER ASSETS Film script inventory 10,089 6,205 Other assets 1,580 1,580 Deferred tax asset 25,762 25,762 _________________________ Total Other Assets 37,431 33,547 _________________________ $861,816$ 867,538 _________________________ Note: The balance sheet at August 31 1996 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, 1996 1996 _________________________ CURRENT LIABILITIES: Accounts payable $70,747 $ 67,905 Accounts payable - related party 5,213 2,539 Accrued expenses 2,539 2,539 Management bonuses 257,000 257,000 _________________________ Total Current Liabilities 335,499 332,656 _________________________ MINORITY INTEREST: 271,743 309,341 _________________________ STOCKHOLDERS' EQUITY: Preferred stock - - Common stock 29,691 29,691 Additional paid-in capital 124,098 124,098 Unrealized Gain on available for sale securities (5,052) (6,525) Retained earnings 105,837 78,277 _________________________ Total Stockholders' Equity 254,574 225,541 _________________________ $861,816 $ 867,538 _________________________ Note: The balance sheet at August 31, 1996 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, ___________________________ 1996 1995 ______________________ REVENUE: Film revenue $ 117,693 $ 324,490 Film management and marketing income 15,675 - ______________________ Total Revenue 133,368 324,490 ______________________ PRODUCTION COSTS 55,568 292,155 ______________________ GROSS PROFIT 77,800 32,335 ______________________ OPERATING EXPENSE: General and administrative 54,922 60,145 Professional fees 158 4,002 ______________________ Total Operating Expense 55,080 61,457 ______________________ INCOME FROM OPERATIONS 22,720 (31,812) ______________________ OTHER INCOME (EXPENSE): Interest income 3,902 6,480 Gain on settlement of contingency - 30,587 ______________________ Total Other Income (Expense) 3,902 37,067 ______________________ INCOME (LOSS) BEFORE MINORITY INTEREST AND PROVISION FOR INCOME TAXES 26,622 5,255 MINORITY INTEREST IN OPERATIONS OF PARTNERSHIPS 938 676 ______________________ INCOME (LOSS) BEFORE INCOME TAXES 27,560 5,931 CURRENT INCOME TAX EXPENSE (BENEFIT) - - DEFERRED INCOME TAX EXPENSE (BENEFIT) - - ______________________ NET INCOME (LOSS) $27,560 5,931 ______________________ NET INCOME (LOSS) PER COMMON SHARE $ .00 $ .00 ______________________ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,422,768 7,422,768 ______________________ 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, ___________________________ 1996 1995 ______________________ Cash Flows From Operating Activities: Net income (loss) $ 27,560 $ 5,931 ______________________ Adjustments to reconcile net income to cash provided (used) by operations: Depreciation and amortization 514 499 Minority interests in operations of partnerships (938) (676) Gain on settlement of contingency - (25,471) Changes in assets and liabilities: (Increase) in film inventory 66,331 290,712 (Increase) in advances and other receivables Decrease in income tax receivable - 40,246 (Increase) in deferred tax asset - (40,246) Increase (decrease) in accounts payable and accrued expenses 2,842 (18,277) ______________________ Total Adjustments 59,327 246,787 ______________________ Net Cash Provided by Operating Activities 86,887 252,718 ______________________ Cash Flows From Investing Activities: Payments for film script inventory (3,884) (662) Payments for Property and equipment - (914) Advances to related-party (14,538) - Proceeds from maturity of T-Bills 299,163 - Distributions to limited partners (30,050) (12,062) ______________________ Net Cash Used by Investing Activities 245,691 (13,638) ______________________ Cash Flows From Financing Activities: Net Cash Used by Financing Activities - - ______________________ Net Increase (Decrease) in Cash and Cash Equivalents 332,578 239,080 Cash and Cash Equivalents at Beginning of Year 163,309 286,335 ______________________ Cash and Cash Equivalents at End of Year $494,887 $ 525,415 ______________________ [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 $ - $ - Supplemental Schedule of Non-cash Investing and Financing Activities: For the three months ended November 30, 1996: None 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]. 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, 1996 audited financial statements. The results of operations for the periods ended November 30, 1996 and 1995 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, 1996 and 1995 were $1,473 and $4,841 respectively. The change in net unrealized holding gains on available-for-sale securities for the three months ending November 30, 1996 and 1995 was $1,473 and $4,841. 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 agreement with the Company's interest at 51.9%. 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, 1996 and 1995 were approximately $0 and $662, 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, 1996 and August 31, 1996, 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, 1996 and 1995, 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 an aggregate 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 accounts for income taxes under 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 November 30, 1996 the amounts of the deferred tax assets and liabilities are $127,787 and $0, 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, 1996, the Company has $127,000 available in operating loss carryforwards. Management determined that no valuation allowance was necessary for the net deferred tax assets as of November 30, 1996. NOTE 6 _ ECONOMIC DEPENDENCY The Company has two significant customers who represent approximately 77% 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, ___________________________ 1996 1995 ______________________ Foreign Sales Agents $ 63,024 $ 49,362 Domestic Customers 54,412 275,000 Other 257 128 ______________________ Total Film Revenue $117,693 $324,490 ______________________ 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, 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 November 30, 1996, the Company had total assets of $861,816 compared to $867,538 as of August 31, 1996, a decrease of $6,022. As of November 30, 1996, the Company's cash totaled $494,887 as compared to $162,309 August 31, 1996. The increase was the result of the decrease in treasury bills from $299,163 at August 31, 1996 to -0- at November 30, 1996. 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 remained essentially unchanged at $335,499 at November 30, 1996, compared to $332,656 at August 31, 1996. Provision for minority interests decreased slightly from $309,341 at August 31, 1996 to $271,743 at November 30, 1996. Shareholders' Equity at November 30, 1996 was $254,574 compared to $225,541. 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. Revenue and Expenses. The Company had total revenue of $133,368 for the three month period ended November 30, 1996, compared to $324,490 for the three month period ended November 30, 1995, a decrease of approximately 59%. Film revenue varies significantly from quarter to quarter depending upon the overall film activity and the timing of receipts from the delivery of films. During the last several quarters, the Company's film activity has continued to decrease. -13- Production costs for the three month period ended November 30, 1996 was $55,568 compared to $292,155 for the three month period ended November 30, 1995. Production costs are related to film activity and varies significantly from quarter to quarter. Operating expenses were $92,381 and $247,480 for the three month and nine month periods ended November 30, 1996 compared to $111,616 and $220,696 for the three month and nine month periods ended November 30, 1995. The Company had a net income of $27,560 for the three months ended November 30, 1996 compared to net income of $5,931 for the three months ended November 30, 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 Additional Information The Company's activities have diminished during the last several years due to various causes including changes in market conditions for small, independent film production companies and increased competition from cable television networks. During each of the last three fiscal years, the Company's revenues have declined, its film activity has decreased and its assets have decreased. Management believes that the Company cannot continue to operate solely as a filmproduction company. The Company's Board of Directors has, and is considering alternative business opportunities. Such opportunities may result in the sale or termination of the Company's film activities, commencement of operations in business not involved in the film or entertainment industry, may result in the change of the Company's management and may result in a change of control of the Company. The Company has considered several proposals relating to alternative business operations but has not entered into any definitive agreement considering any such alternative operations or change of control. Furthermore, there can be no assurance that the Company will ever change its current business operations. -14- 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, 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. -15- 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: March 18, 1997 THE WESTWIND GROUP, INC. By /s/ William C. Webb William C. Webb President/Director Principal Executive and Financial Officer -16-