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 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-23884-LA
CTC COSMETICS HOLDINGS, 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.)
No. 80 Liu Tuang Road Pudong, Shanghai, China
(Address of principal executive offices)
Registrant's telephone no., including area code: (852) 2882-5699
The Westwind Group, Inc.
1746 1/2 Westwood Boulevard, Los Angeles, CA 90024
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 18, 1997 - 9,500,000
shares of $.004 par value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
FORM 10-QSB
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CTC COSMETICS HOLDINGS COMPANY, INC.
(f.k.a. THE WESTWIND GROUP, INC.)
For the quarter ended February 28, 1997
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 28, 1997 and August 31, 1996 3-4
Condensed Consolidated Statements of
Operations -- for the three months
and six months ended February 28,
1997 and 1996 5
Condensed Consolidated Statements of
Cash Flows -- for the three months
and six months ended February 28,
1997 and 1995 6-7
Notes to Condensed Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION
Page
Item 1. Legal Proceedings 14
Item 2. Changes in the Rights of Security Holders 14
Item 3. Defaults on Senior Securities 14
Item 4. Results of Votes on Securities Holders 14
Item 5. Other Information 14
Item 6(a). Exhibits 14
Item 6(b). Reports on Form 8-K 14
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
February 28, August 31,
1997 1996
_________________________
CURRENT ASSETS:
Cash and cash equivalents $461,186 $162,309
Treasury Bills - 299,163
Marketable equity securities,
available for sale 16,735 18,945
Advances and other receivables 635 2,739
Advances related-party 109,229 86,900
Film inventory 17,588 153,746
Deferred tax asset, net 102,025 102,025
_________________________
Total Current Assets 707,398 825,827
PROPERTY AND EQUIPMENT, net 8,038 8,164
_________________________
OTHER ASSETS
Film script inventory 25,510 6,205
Other assets 1,580 1,580
Deferred tax asset 25,762 25,762
_________________________
Total Other Assets 52,852 33,547
_________________________
$766,288 $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.
3
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
February 28, August 31,
1997 1996
_________________________
CURRENT LIABILITIES:
Accounts payable $134,947 $ 67,905
Accounts payable - related party 5,213 5,213
Accrued expenses 2,539 2,539
Management bonuses 257,000 257,000
_________________________
Total Current Liabilities 399,699 332,656
_________________________
MINORITY INTEREST: 218,517 309,341
_________________________
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 (8,736) (6,525)
Retained earnings 3,019 78,277
_________________________
Total Stockholders' Equity 148,072 225,541
_________________________
$766,288 $ 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.
4
THE WESTWIND GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Six Months Ended
_____________________________________________________
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
_____________________________________________________
REVENUE:
Film revenue $52,558 $185,780 $170,251 $510,270
Film management
and marketing
income - 8,500 15,675 8,500
_____________________________________________________
Total Revenue 52,558 194,280 185,926 518,770
_____________________________________________________
PRODUCTION COSTS 69,612 57,398 125,180 349,553
_____________________________________________________
GROSS PROFIT (LOSS) (17,054) 136,882 60,746 169,217
_____________________________________________________
OPERATING EXPENSE:
General and
administrative 85,573 67,522 140,495 127,667
Professional fees 3,204 23,430 3,362 27,432
_____________________________________________________
Total Operating
Expense 88,777 90,952 143,857 155,099
_____________________________________________________
INCOME (LOSS) FROM
OPERATIONS 105,831 45,930 (83,111) 14,118
_____________________________________________________
OTHER INCOME (EXPENSE):
Interest and other
income 4,049 6,495 7,951 12,975
Gain on settlement
of contingency - - - 30,587
_____________________________________________________
Total Other
Income (Expense) 4,049 6,495 7,951 43,562
_____________________________________________________
INCOME (LOSS) BEFORE
MINORITY INTEREST
AND INCOME TAXES 101,782 52,425 (75,160) 57,680
MINORITY INTEREST IN
OPERATIONS OF
PARTNERSHIPS (1,035) 87,368 (97) 86,692
_____________________________________________________
INCOME (LOSS) BEFORE
INCOME TAXES (102,817) (34,943) (75,257) (29,012)
INCOME TAXES:
Current tax expense
(benefit) - - - -
Deferred tax expense
(benefit) - - - -
_____________________________________________________
NET (LOSS) INCOME $(102,817) $(34,943) $(75,257) $(29,012)
_____________________________________________________
INCOME (LOSS) PER
COMMON SHARE $ (.014) $ (.004) $ (.010) $ (.004)
_____________________________________________________
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.
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 28, February 29,
1997 1996
__________________________
Cash Flows From (To) Operating Activities:
Net income (loss) $(75,258) $ (29,012)
__________________________
Adjustments to reconcile net income
to cash provided (used)
by operations:
Depreciation and amortization 1,077 1,021
Minority interests in operations
of partnerships 97 87,368
Write off film script inventory - -
Gain on contingency 2,104 (25,471)
Changes in assets and liabilities:
(Increase) decrease in advances
and other receivables 136,158 342,700
(Increase) decrease in film
inventory - 342,700
(Increase) decrease in deferred
tax asset - 11,587
(Increase) decrease in income tax
receivable - 19,000
Increase (decrease) in accounts
payable and accrued expenses 67,042 (19,525)
Increase (decrease) in accounts
payable - related party - (8,362)
___________________________
Total Adjustments 206,478 408,318
___________________________
Net Cash Provided (Used) by
Operating Activities 131,220 379,306
___________________________
Cash Flows From (To) Investing
Activities:
Proceeds from treasury bills 299,163 -
Advances to a related party (22,329) (17,000)
Payments for film script inventory (17,305) (7,190)
Purchase of property and equipment (951) (914)
____________________________
Net Cash From (To) Investing
Activities 258,578 (25,104)
____________________________
Cash Flows From (To) Financing Activities:
Distributions to limited partners (90,921) (111,671)
Contributions from limited partners - -
____________________________
Net Cash From (To) Financing
Activities (90,921) (111,671)
____________________________
Net Increase in Cash and Cash
Equivalents 298,877 242,531
Cash and Cash Equivalents at Beginning
of Period 162,309 286,335
____________________________
Cash and Cash Equivalents at End of
Period $ 461,186 $ 528,866
____________________________
[Continued]
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 28, February 29,
1997 1996
___________________________
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 six months ended February 28, 1997:
None
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].
The accompanying notes are an integral part of these consolidated
financial statements.
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, 1996 audited financial statements. The results of
operations for the periods ended February 28, 1997 and
February 29, 1996 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 28, 1997 and February 29, 1996.
Unrealized holding gains (losses) on such securities, which
were added (subtracted) to stockholders' equity during the six
months ended February 28, 1997 and February 29, 1996 were
$(2,210) and $(842) respectively. The change in net
unrealized holding gain (loss) on available-for-sale
securities for the three months ending February 28, 1997 and
February 29, 1996 was $(3,684) and $(5,683).
NOTE 3 _ ADVANCES TO RELATED PARTY
During the six months ended 1997, the Company advanced
$22,329 to an officer director and majority shareholder of the
Company. As of February 28, 1997 the total advanced
outstanding from the officer, director and majority
shareholder of the Company was $109,229.
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 at 51.9%.
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 develop film scripts for the six
months ended February 28, 1997 and February 29, 1996 were
approximately $17,305 and $7,109, 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 28, 1997 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 February 28, 1997 and February 29, 1996,
respectively.
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 August 31, 1996 the amounts of the deferred tax assets and
liabilities are approximately $129,311 and $1,564, 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
28, 1997, the Company has approximately $127,000 available
operating loss carryforwards. Management determined that no
valuation allowance was necessary for the net deferred tax assets
as of February 28, 1997.
NOTE 7 _ ECONOMIC DEPENDENCY
The Company has two significant customers who represent
approximately 80% 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 Six Months
Ended February 28,
_________________________
1997 1996
_________________________
Foreign Sales Agents $ 119,971 $ 181,249
Domestic Customers 50,023 328,881
Other 257 140
_________________________
Total Film Revenues $ 170,251 $ 510,270
_________________________
10
THE WESTWIND GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 _ SUBSEQUENT EVENTS
On March 21, 1997, the Company acquired all the issued and
outstanding common stock of CTC Cosmetics Holding (BVI) Co.,
Ltd., a British Virgin Island Corporation ("CTC") in exchange for
the issuance of 9,000,000 post-split shares of restricted common
stock of the Company and changed the name of the Company to
CTC Cosmetics Holding Company, Inc.. In connection with the
acquisition, the Company effected a reverse stock split,
not reflected in the accompanying financial statements, wherein one
share of common stock was issued in exchange for 12.93 shares of
common stock. After giving effect to the acquisition,
there are approximately 9,500,000 shares of common stock outstanding
with approximately 500,000 shares (5%) being held by the former
shareholders of the Company. Control of the Company changed to the
new shareholders. The former officers and directors resigned.
The Company also transferred all of its shares of its wholly-owned
subsidiary to its former directors, William Webb and James Webb.
As of Septemer 30, 1996 CTC Cosmetics Holding (BVI) Co., Ltd a
British Virgin Island Corporation had total assets of $16,431,298
and for the year then ended had total revenues of $18,146,691
resulting in net income of $2,250,436.
11
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Prior to March 21, 1997, the Company was engaged in the
business of financing, producing and distributing quality,
lower and medium budget motion pictures. Westwind
Productions, Inc., formerly a wholly-owned subsidiary of the
Company, was the Company's production entity. Westwind
Releasing Corp., formerly a wholly-owned subsidiary of the
Company, was the Company's distribution division.
Effective March 21, 1997, the Company effected the corporate
reorganization described below. The financial statements
included herewith and the discussion concerning the results
of the quarter and six months ended February 28, 1997 relate
to the Company's operation prior to such corporate
reorganization. Therefore, the financial statements and MDA
discussion included herein are not reflective of the
Company's post March 21, 1997 operations and financial
position.
Corporate Reorganization
During the last several years, the Company's operations
in the film business have declined as the result of changes
in industry competition, marketing and conditions. The
Company's revenues have continued to declined during the
last several years. As a result of the Company's decreasing
revenue, increasing losses and decreasing assets, the
Company's management believed that the Company should
discontinue its film operations and seek alternative
business operations. There has been no trading market for
the Company's common stock during the last several years and
management believed that it was unlikely that a trading
market would develop unless the Company's financial position
improved.
In March 1997, the Company negotiated the acquisition
of a privately held cosmetic company named CTC Cosmetics
Holding (BVI) Co., Ltd., a British Virgin Islands
corporation (hereafter "CTC") in a stock-for-stock exchange
whereby the Company issued shares of its common stock to the
shareholders of CTC in exchange for their shares of CTC. A
condition of the transaction was the discontinuance of the
Company's film operations, a reverse stock split, a change
of the Company's name and a change of the Company's
management.
On March 21, 1997, the acquisition of CTC was effected
and in connection therewith, the following action was taken:
1. The Company effective a 12.93-for-1
reverse stock split reducing the number of
shares of the Company's common stock issued
and outstanding from 7,422,768 500,000;
2. The Company issued 9,000,000 shares of
its common stock, calculated on a post-split
basis, to the shareholders of CTC in exchange
for all of their shares of CTC.
12
3. The Company effective a divisive
reorganization wherein it transferred all of
its shares of its wholly-own subsidiaries,
Westwind Productions, Inc. and Westwind
Releasing, Inc. to its former directors
William Webb and James Webb.
4. The Company amended its Certificate of
Incorporation to change its name from The
Westwind Group, Inc. to CTC Holding Company,
Inc.
5. The Company accepted the resignations of
its then officers and directors and appointed
the following as officers and directors of
the Company:
Paul K.W. Tso Chairman, Director, CEO
Mark K.W. Lee Vice Chairman, Director,
President/Secretary
Yung Fung Che Director
Corrie C. H. Lee Director
Audrey W. Leung Director
Joanne Leung Chief Financial Officer
Jack G. Shi Vice President and
Secretary
Liquidity and Capital Resources.
As of February 28, 1997, the Company had total assets
of $766,288 compared to $867,538 as of August 31, 1996, a
decrease of $101,250. As of February 28, 1997, the
Company's cash totaled $461,186 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 February 28, 1997. Film inventory decreased from
$153,746 at August 31, 1996 to $17,588 at February 28, 1997.
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 increased to $399,699 at
February 28, 1997 from $332,656 at August 31, 1996.
Shareholders' Equity at February 28, 1997 was $148,072
compared to $225,541
As a result of the corporate reorganization, the
Company's financial position subsequent to February 28, 1997
is significantly different than its financial position at
February 28, 1997 (See Note 8 in the financial statements).
13
Results of Operations
Prior to March 21, 1997, the Company's principal
objective was to produce and distribute motion pictures with
commercial subject matter. Film revenues were derived
primarily from the distribution of feature films in both
domestic and foreign markets. The Company's revenues were
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. Subsequent
to March 21, 1997, the Company is no longer in the film
business and its revenues are derived from the sale of
cosmetic products. The discussion concerning the results o
operations for the three and six month periods ended
February 28, 1997 are no longer applicable to the Company's
current operations and are not indicative of future
financial operating results.
Revenue and Expenses.
The Company had total revenue of $52,588 for the three
month period ended February 28, 1997, compared to $194,280
for the three month period ended February 28, 1996. The
Company had total revenue of $185,926 for the six month
period ended February 28, 1997, compared to $518,770 for the
three month period ended February 28, 1996.
Production costs for the three month period ended
February 28, 1997 were $69,612 compared to $57,398 for the
three month period ended February 28, 1996. Production
costs for the six month period ended February 28, 1997 were
$125,180 compared to $349,553 for the six month period
ended February 28, 1996. Production costs are related to
film activity and varies significantly from quarter to
quarter. Operating expenses were $88,777 and $143,857 for
the three month and six month periods ended February 28,
1997 compared to $90,952 and $155,099 for the three month
and six month periods ended February 28, 1996.
The Company had a net loss of $102,817 for the three
months ended February 28, 1997 compared to a net loss of
$34,943 for the three months ended February 28, 1996. The
Company had a net loss of $75,257 for the six months ended
February 28, 1997 compared to a net loss of $29,012 for the
six months ended February 28, 1996.
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 28,
1997.
Item 2. Changes in the Rights of the
Company's Security Holders. None.
Item 3. Defaults by the Company on its
Senior Securities. None.
14
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. No Form
8-K was filed during the quarter ended
February 28, 1997. A form 8-K was filed
March 21, 1997 to report on the corporate
reorganization described above.
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: April 21, 1997 CTC COSMETICS HOLDINGS COMPANY, INC.
By /s/ Paul K.W. Tso
Paul K.W. Tso
Chief Executive Officer/Chairman
Principal Executive Officer
By /s/ Joanne Leung
Joanne Leung
Chief Financial Officer
Principal Financial Officer
16