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-