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