COMPANY DATA:
COMPANY CONFORMED NAME: Desert Winds
ENTERTAINMENT
CORPORATION
CENTRAL INDEX KEY: 0001098507
STANDARD INDUSTRIAL CLASSIFICATION: 7990
IRS NUMBER: 86-0910524
STATE OF INCORPORATION: NV
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-12G
SEC ACT: 1934
SEC FILE NUMBER:
FILM NUMBER:
BUSINESS ADDRESS:
STREET 1: 4170 E. Falcon Drive, #207
CITY: Mesa
STATE: Arizona
ZIP: 85215
BUSINESS PHONE: 480-807-5582
MAIL ADDRESS:
STREET 1: 4170 E. Falcon Drive, #207
CITY: Mesa
STATE: Arizona
ZIP: 85215
CORPORATE COUNSEL:
STREET 1: Kenneth M. Christison
STREET 2: 51 Portridge Drive
CITY: Novato
STATE: California
ZIP: 94945
BUSINESS PHONE: (415) 898-6829
FILING AGENT:
STREET 1: Samuel H. Wong & Co. LLP
STREET 2: 55 Stockton St., #408
CITY: San Francisco
STATE: Califonria
ZIP: 94108
BUSINESS PHONE: (415) 732-1288
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
DESERT WINDS ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 86-0910524
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication No.)
4170 E. Falcon Dr., #207, Mesa, AZ 85215
- -------------------------- ----------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code
480-807-5582
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock - Par Value $0.001
Series A Convertible Preferred Stock - Par Value $0.001
TABLE OF CONTENTS
Page Number
ITEM 1 Business
ITEM 2 Financial Information
ITEM 3 Properties
ITEM 4 Security Ownership of Certain Beneficial Owners and
Management
ITEM 5 Directors and Executive Officers
ITEM 6 Executive Compensation
ITEM 7 Certain Relationships and Related Transactions
ITEM 8 Legal Proceedings
ITEM 9 Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters
ITEM 10 Recent Sales of Unregistered Securities
ITEM 11 Description of Registrant's Securities to be Registered
ITEM 12 Indemnification of Directors and Officers
ITEM 13 Financial Statements and Supplementary Data
ITEM 14 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
ITEM 15 Financial Statements and Exhibits
Item 1. Description of Business
Formation of the Company
On October 7, 1998, The Whitney Corporation ("Whitney") was formed in
Nevada for the purpose of acquiring the assets and good will of a
business engaged in developing, producing, and marketing full-scale
films, television shows, and live casino shows which had been developed
over a number of years by Michael Paloma. On November 12, 1998, Desert
Winds Entertainment Corporation (the "Company" or "Desert Winds"), was
formed in Nevada and on November 13, 1998, entered into a
reorganization agreement with TiMail, Inc., an Oregon corporation,
pursuant to Section 368(a)1F of the Internal Revenue Code whereby all
48,879,023 issued and outstanding shares of TiMail were acquired by the
Company in exchange for 977,580 shares of its common stock. On December
10, 1998, Desert Winds entered into a "Plan and Agreement of
Reorganization" (the "Plan") with Whitney whereby all 6,500,000 issued
and outstanding shares of Whitney common stock were acquired by Desert
Winds in exchange for an equal number of shares of its common stock
making Whitney wholly-owned by Desert Winds. Following consummation
of the Plan, 977,580 (13.1%) of the 7,477,580 issued and outstanding
shares of Desert Winds stock were owned by the former shareholders of
TiMail and 6,500,000 (86.9%) were owned by the former shareholders of
Whitney; additionally, the primary management positions of the Company
were assumed by Michael Paloma who became Chairman, Chief Executive
Officer, and President, and Clint W. Smith who became a director,
Secretary, and Treasurer.
During the period from December 10, 1998, to April 20, 1999, the
mailing and shipping product business of TiMail and the entertainment
production business of Whitney acquired separately by the Company from
TiMail and Whitney, respectively, each continued to be operated
independently without the commingling of capital or participation of
operating personnel from the other. On April 20, 1999, the board of
directors of Desert Winds unanimously approved a resolution which
provided that the Company would divest itself of all assets and
liabilities related to the business and operations of TiMail, Inc. and
an agreement was reached for the Company to sell all of the assets of
TiMail to William and Cindy Cliff (the "Cliffs") who are the managers
of TiMail, in exchange for their agreement to assume all of the
liabilities of TiMail and its operations and to indemnify and hold the
Company harmless from any liabilities or damages related to TiMail or
arising from the agreement of sale. As a result of this transaction,
the Company is no longer involved in the manufacture and sale of
packaging products for mailing and shipping and its principal business
is limited to the development, production, and marketing of full-scale
films, television shows, live casino and theater shows, and related
commercial ventures.
For a number of years, Michael Paloma has been
involved in many aspects of the entertainment industry as an actor,
director, and producer and has been involved with a variety of
entertainment productions including the Company's principal current
production "Legendary Superstars" which was first performed in 1991.
He has primary responsibility for the overall management of the Company
and is closely involved in the conception, direction, and production of
the Company's shows.
Productions
The Company is involved in the entertainment industry developing,
producing, and marketing full-scale film, television, and live stage
productions and is capable of producing films and stage shows of any
size. The Company competes with other stage, television, and motion
picture productions on the basis of artistic and entertainment merit as
perceived by the public and is continuously engaged in developing new
concepts for entertainment selecting and considering for production
those ideas deemed by management to be commercially feasible. Based on
perceived market demand, the Company selects and produces new shows,
including projects ranging from stage productions to feature length
motion pictures, artistic and economic criteria.
Live Stage Productions. Legendary Superstars, the Company's flagship
production, was first performed in 1991 at the Cal-Neva Casino at Lake
Tahoe and has been continuously performed successfully at major casinos
for corporate conventions and similar audiences. Other shows currently
in production or development include "Any Swing Goes", a tribute to the
Big Band music of the 1940's, and "Tropical Paradise", a tribute to
famous summer songs of various well-known artists and groups. In March
1999, the Company signed an agreement with Warner Brothers Television
providing for production of 33 episodes of "News Traveler", a
television comedy series about news reporters who travel through time
to find their stories by interviewing famous legends of the past.
Among other shows in various stages of development and production,
Desert Winds is currently developing a feature length motion picture
entitled "New York Cowboy" which is planned for release in 2000.
Seasonal Effects
The entertainment industry is subject to some seasonal fluctuations but
the Company's overall business does show substantial seasonal changes
in large part because of the variety of the Company's productions and
locations. Although summer is not a television season, the shows
designed for the casinos typically play to large summer audiences;
additionally, the Company produces a show which plays to vacation
audiences in its leased facility in the destination resort area of
South Padre Island, Texas.
Liquidity and Financing Requirements.
Each production undertaken by the Company requires capital in
proportion to the magnitude of the show and the time and number of
persons, both entertainers and production workers, involved. Although
Desert Winds seeks to limit its financial risks associated with various
productions, such as the movie "New York Cowboy", by obtaining
commitments to cover some or all of the development and production
costs prior to production, there can be no assurance such commitments
will be available for some or all of the productions or that the
commitments received will be sufficient to cover the costs of
production. In addition, revenues from the future shows produced by
the Company is subject to unpredictable and changing factors such as
public awareness and personal taste as related to the production and
distribution of a show. The Company presently has limited resources
and must rely to a great extent on revenues from operations to cover
its general and administrative expenses.
Competition
The creation, development, production, and distribution of
entertainment shows such as the Company's, is a highly competitive
business and the Company must compete with a large number of
individuals and entities, many of whom have greater resources and more
experience than Desert Winds. The Company intends to continue its core
business of producing the live shows which have been successful in the
past while carefully moving into other areas such as television and
film by carefully selecting promising properties and maintaining a high
quality of personnel and production techniques.
Environmental Matters
The Company has made no material expenditures due to fines or
corrective actions for environmental violations at any of its locations
and, primarily because of the service-related nature of its business,
does not anticipate that any will be incurred in the future.
Employees
The Company's entertainment business has approximately ten (10) core
employees, of whom half are operational. The number of employees may
periodically increase to as many as 30 to 40, depending on the number
and size of the productions in progress at a particular point in time.
Production employees in excess of the core group are generally contract
employees hired for a specific function or production. Other than
agreements entered into with short-term contract employees, there are
no employment agreements in effect and none of the Company's employees
are subject to collective bargaining agreements.
Item 2. Financial Information
Selected Financial Data
The following table sets forth selected financial data for the year
ended December 31, 1998,* derived
from the audited financial statements of the Company, and for the 9
Month period ended
September 30, 1999, derived from the unaudited financial statements
of the Company for that period.
9 months- 1998
9/30/99 12/31/98
Net Sales 2,238,717 10,916
Cost of Sales 1,367,088 --
Gross Profit 876,629 10,916
Other Income -- --
Total Revenue 2,238,717 10,916
Selling, General,
& Administrative
Expenses 682,764 113,835
Income Before Taxes 188,865 (102,919)
Discontinued Operations -- (694,012)
Net Income (Loss) 188,865 (796,931)
Income Taxes -- --
Net Income
Per Common Share $.02 $(.11)
Weighted Average
Number of Shares
Outstanding 8,217,283 7,477,580
Cash Dividend
Per Common Share NONE NONE
* Desert Winds was formed as a Nevada corporation on November 13, 1998;
through a reorganization with TiMail, Inc. consummated on that date,
Desert Winds effectively became the new corporate form of TiMail
domiciled in Nevada. On or about December 10, 1998, Desert Winds
acquired all of the issued and outstanding stock of The Whitney
Company, a Nevada corporation formed in October 1998, to acquire the
assets of an entertainment production business developed and owned by
Michael Paloma. Subsequently, on or about April 20, 1999, the Company
divested itself of all assets and liabilities of TiMail, Inc. acquired
in the November 1998 reorganization. Therefore, with the exception of
a provision for loss from the discontinued operation of the TiMail
business originally booked in 1998, the audited financial statements of
the Company for the year ended December 31, 1998, and the unaudited
financial statements for the interim 9 month period ended September 30,
1999, contained in this registration statement relate only to the
financial condition of the assets and the business operations acquired
from The Whitney Company in December 1998.
Management's Discussion and Analysis of Financial Condition and
Results of Operation
The following discussion and analysis of the Financial Condition and
Results of operation of the Company should be read in conjunction
with the Selected Financial Data and the Financial Statements and Notes
thereto of the Company included herein. In addition to the
historical information contained herein, the discussions in this
Registration Statement contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
words "expect", "estimate", "anticipate:, "predict", "believe", "plan",
"should", "may", and "projects" and similar expressions are intended to
identify forward-looking statements. Such statements relate to, among
other things, trends affecting the financial condition or results of
operations of the Company, the episodes of "News Traveler" to be
produced pursuant to a contract with a major studio for showing on
network television, the Company's future production and showing of
various television, live stage, and film shows, the Company's
objectives, planned or expected activities, and anticipated financial
performance and liquidity. These forward-looking statements are based
largely on the Company's current expectations and are subject to a
number of risks and uncertainties. The Company's actual results could
differ materially from those expected and discussed herein. The
Company does not make projections of its future operating results and
undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future
events, or otherwise.
Overview
Desert Winds is a development stage company whose primary business is
the production and marketing of full-scale movies, television shows,
and live shows designed for presentation in a variety of environments
including casinos and theaters.
The following table sets forth, for the periods indicated, a
consolidated statement of income data as a percentage of net sales.
Year Ended 9 Mos Ended
12-31 09-30
1998 1999
Net Sales 100.0% 100.0%
Cost of Sales 0.0% 61.1%
Gross Profit 100.0% 38.9%
Selling, General & Admin 1043.0% 30.5%
Income Before Taxes 942.8% 8.4%
Income Taxes -0- -0-
Net Income 26.8% 8.4%
The Company's December 31, 1998, financial statements include
activities only for the last two months of the year and do not provide
a meaningful basis for comparison with the results for the first nine
months of 1999. Further, the 1998 statements include a provision for
the loss from discontinued operations resulting from the Company's
divestiture of the assets of Ti-Mail acquired in a reorganization in
1998.
Item 3. Properties
(a) The Company's executive office is located at 4710 E. Falcon
Drive, #207, Mesa, Arizona 85215, and
consists of approximately 3,000 square feet of space leased under the
terms of a non-capitalized lease agreement which expires on June 1,
2000.
(b) On January 1, 1999, the Company entered into an agreement to
lease a 5,000 square foot theater
restaurant on San Padre Island for a term of 144 months ending
December 31, 2011. The rent payable under the agreement is $2,400 per
month or 10% of the Company's gross receipts from operations on the
premises, whichever is greater. The total lease obligation for the
term cannot be determined as the future gross receipts are unknown; the
minimum lease obligation, however, is $345,600.
(c) In addition, from time-to-time the Company leases additional
space on a monthly or other short-term
basis in various locations as appropriate for the storage of equipment
required in the filming and/or production of different shows.
Item 4. Security Ownership of Certain Beneficial Owners and Management
A. Common Stock
The following table sets forth information with respect to beneficial
ownership of Common Stock of Desert Winds as of September 30, 1999 by
(i) each person who is known to be a beneficial owner of more than 5%
of the outstanding shares of Common Stock, and (ii) all directors
and executive officers of Desert Winds as a group.
Name and Address Number of Shares Percent of Common
of Beneficial Owner Beneficially Owned Shares Owned
- ------------------------ ----------------------- ----------
Michael Paloma 5,000,000 47.4%
4710 East Falcon Dr. #207
Mesa, AZ 85215
Russell Ponce 750,000 8.0%
2585 Manzanita Lane
Reno, NV 89509
Sport of Kings Marketing 1,000,000 10.7%
316 California Ave., #1109
Reno, NV 89509
All Directors & Exec.
Officers as a Group 5,050,000 47.9%
B. Convertible Voting and Participating Preferred Stock
As of September 30, 1999 none of the Company's Series A Convertible
Preferred Stock had been issued.
Item 5. Directors & Executive Officers
The following table sets forth certain information regarding the
directors and executive officers of the Company.
Name Age Position
Michael Paloma 41 President, CEO, Chairman
Clint Smith 42 Vice President, Secretary, Director
Lynn Marzonie 36 Chief Financial Officer, Director
Michael Paloma
(President, Chief Executive Officer, and Director)
Mr. Paloma has been in the entertainment business for over 26 years.
His show business experience includes films, commercials, television
(network and cable) and live stage productions either as an actor,
director, or producer. As a producer, Mr. Paloma's credits include 8
movies that have been shown either on cable television, network
television, home video or the overseas market. In addition to
producing movies, he has also produced two television series, "The
Goomba Brothers" (10 episodes) and "The Hit Gang" (12 episodes).
Throughout his career as a movie and television producer, Mr. Paloma
has also been producing live stage shows for casinos and theaters
around the world such as the award winning show "Legendary Superstars,"
which is still performing in major casinos in the United States, and
others including "The History of Rock `n Roll" and "The Blues Brothers
Review".
As an actor, Mr. Paloma has performed in several films, T.V. shows, and
live stage productions. His film credits include "1941" with John
Belushi, "Used Cars" with Kurt Russell, "O'Harrah's Wife" with Ed Asner
and Jody Foster, and "Assassin" with Robert Conrad. Mr. Paloma's
television credits include; "Lou Grant", "Night Rider", "Riptide",
"Seinfeld", and "The Martin Short Show". His live stage credits range
from being the opening act as a stand up comic for artists such as;
The Beach Boys, Charo, Tony Bennett, and Raquel Welch, to impersonating
John Belushi in a Blues Brothers act that has performed internationally
for the past sixteen years. Mr. Paloma has additionally appeared in
T.V. commercials for various products and entities such as HBO, Chili's
restaurants, the U. S. Navy, Pepsi Cola, and Federal Express.
Mr. Paloma was the recipient of a Best Actor award for his roll as John
Adams in the off-Broadway musical "1776" and he also received a Cleo
award for his performance in a local T.V. commercial in San Diego, CA.
Clint Smith -- Vice President, Secretary, and Treasurer
Mr. Smith has been an attorney licensed to practice law in Arizona
since 1985 and has been in private practice with an emphasis on
financial matters during that period. He is also licensed to practice
law in California. Mr. Smith has also been an entertainer for many
years; he sang in rock bands and played big band jazz while in high
school and college and has been singing in a barber shop quartet since
1991. . Mr. Smith leads and plays trumpet in a 1940's-style swing band
which he recently formed.
Lynn Marzonie -- Chief Financial Officer and Director
Ms. Marzonie has been employed as the Chief Financial Officer of Desert
Winds for the past two years with the responsibility for managing the
Company's various bank accounts, accounts payable, accounts receivable,
payroll, and payroll taxes. From 1983 until coming to Desert Winds,
she worked as a paralegal and she now also acts as the Company's on-
staff paralegal.
Key Employees
Tasha Richardson -- For over 10 years, Ms. Richardson has been involved
with various aspects of the entertainment industry. Her initial
experiences were heavily focused in live theater acting in various
stage productions for which she received several acting awards through
the International Thespian Society and other organizations. Ms.
Richardson also received a full ride scholarship to the University of
Northern Colorado for her theatrical achievements.
Ms. Richardson's involvement with Women in Film, the Screen Actors
Guild of Colorado, and several other associations has given her the
opportunity to work behind the scenes of several different movies and
television shows and she has been a production manager, stage-manager,
and assistant director for several live stage productions.
Ms. Richardson joined Desert Wind Entertainment in October 1998, and to
date has coordinated several performances for the Company as the
General Manager and Production Manager for Desert Wind's live theater
in Texas and as the key coordinator for the Company's film projects.
She is currently working on several projects for the Company and her
knowledge and expertise in various areas of the entertainment business
are expected to be key elements in their success.
Mike Church is a graduate of the University of California, Los Angeles.
After graduation, he immediately move into the entertainment industry
where he has been steadily employed for the past 15 years. For 10
years Mr. Church was associated with Dick Clark Productions where he
served as Production Manager and Post Production Supervisor on over 30
network television specials. In addition, he has acted in various
capacities, including Associate Producer, for specials produced by ABC,
CBS, HBO, and various independent production companies.
Simultaneously, Mr. Church has been involved in the live concert
business for the past 14 years. He has managed legend singer Connie
Francis' live engagement tour since 1985, and co-produced her live
album in 1996 entitled "Connie Francis: The Return Concert - Live at
Trump's Castle". In addition to his production experience, he has been
an Independent Booking Agent for live entertainers for the past 9
years, including, but not limited to, Connie Francis, Peter Noone, and
CeCe Peniston, Martha Wash, Crystal Waters, and Jody Watley.
In January of 1998, Mr. Church joined Desert Wind Entertainment and is
currently working on a number of projects for the Company utilizing
his knowledge of both television production and live production, as
well as his booking agent expertise.
Item 6. Executive Compensation
The following table provides summary information concerning the
compensation that will be paid on an annualized basis to the Company's
President and the Vice President, Secretary (the "Named Executive
Officers") for all services rendered in all capacities to the Company
during the fiscal year ending December 31, 1999.
Name and Annual Compensation (USD) Long Term
Principal Position 1999 Compensation Awards
Michael Paloma $90,000 none
President, CEO, Chairman
Clint Smith
Vice President, Secretary $20,000 none
Employment Agreements
The Company has no employment agreements with any of its Executive
Officers.
Director Compensation
There is no compensation for directors either on an annual basis or for
attendance at board meetings.
Item 7. Certain Relationships and Related Transactions
Pursuant to the terms of an agreement of reorganization dated November
13, 1998, TiMail, Inc. was merged into Desert Winds. As part of the
agreement, Desert Winds issued 977,580 shares of its common stock in
exchange for all of the issued and outstanding stock of TiMail. From
that date until April 20, 1999, William and Cindy Cliff (the "Cliffs")
were responsible for the day-to-day operations of the TiMail division
of Desert Winds ("TiMail") and were the sole managers of that division
without the participation of Desert Winds. By mutual agreement of the
Cliffs and Desert Winds, on April 20, 1999, the Cliffs purchased from
Desert Winds all of the assets of TiMail, including fixtures and
equipment, trade, good will, and other intangible assets. As
consideration for the purchase, assumed all of the liabilities of
TiMail as of that date and agreed to indemnify and hold Desert Winds
harmless from any and all claims and/or damages related to the Purchase
Agreement or the Cliff's failure to satisfy any of the liabilities
assumed.
On December 10, 1998, Desert Winds entered into a reverse merger with
The Whitney Company ("Whitney") whereby Desert Winds acquired all of
the issued and outstanding stock of Whitney in exchange for the
issuance of 6,500,000 shares of its common stock. 5,000,000 of those
shares were issued to Michael Paloma, Chairman, CEO, and President of
the Company and 50,000 of the shares were issued to Clint Smith,
Secretary of the Company.
Item 8. Legal Proceedings
The Company is not presently a party to any litigation material to its
ongoing business operations or financial condition.
Item 9. Market Price of and Dividends on the Registrant's
Common Equity
and Related Stockholder Matters
There is no trading market for the Common Stock of the Company which is
quoted on the OTCBB under the symbol "DESW". The quotations listed
below reflect inter-dealer prices without mark-up, mark-down or
commission and may not represent actual transactions. At October 29,
1999, the bid price of the Common Stock was $.50.
Due to limited trading, the following prices may not reflect actual
trades (selling price) during the applicable periods.
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
High Low High Low High Low High Low
--------------- --------------- --------------- -------------
1999 3 1/2 1 2 3/4 1/2 1 1/8 3/8 7/8 9/16
1998 NA NA NA NA NA NA NA NA
Desert Winds has paid no dividends to its common shareholders.
Item 10. Recent Sales of Unregistered Securities
Desert Winds issued the following unregistered securities during the
three-year period ended September 30, 1999:
(a) In November 1998, Desert Winds issued 977,580 shares of its common
stock to the shareholders of TiMail, Inc., an Oregon corporation, in
consideration for all of the issued and outstanding shares of the
common stock of TiMail, Inc. The shares were issued in reliance on the
exemption from registration under the 1933 Securities Act provided in
Section 4(2) of the 1933 Securities Act, as amended.
(b) I
n December 1998, Desert Winds issued 6,500,000 shares of its common
stock in exchange for all of
the 6,500,000 issued and outstanding shares of common stock of The
Whitney Company, a Nevada corporation. The shares were issued in
reliance on the exemption from registration under the 1933 Securities
Act provided in Section 4(2) of the 1933 Securities Act, as amended.
(c) In January 1999, Desert Winds issued 215,000 shares of its common
stock to Quantum Corporation, a
Nevada corporation, as consideration for services rendered to the
Company by that entity. The shares were issued in reliance on the
exemption from registration under the 1933 Securities Act provided in
Section 4(2) of the 1933 Securities Act, as amended.
(d)
In April 1999, Desert Winds issued 340,000 shares of its common
stock to Matbar Corporation, a
Nevada corporation, as consideration for services rendered to the
Company by that entity. The shares were issued in reliance on the
exemption from registration under the 1933 Securities Act provided in
Section 4(2) of the 1933 Securities Act, as amended.
(e) In May 1999, Desert Winds issued 289,905 shares of its
common stock to Clarmat, an irrevocable
Nevada Trust, as consideration for services rendered to the Company by
that entity. The shares were issued in reliance on the exemption from
registration under the 1933 Securities Act provided in Section 4(2)
of the 1933 Securities Act, as amended.
(f) In May 1999, Desert Winds issued 1,000,000 shares of common stock
to Sport of Kings Marketing, Inc., a Nevada corporation, as payment in
full of an obligation to Sport of Kings in return for operating capital
in the amount of $1,000,000 provided to Desert Winds. These shares
were issued under the exemption from registration provided in
Regulation D, Rule 504, promulgated under the 1933 Securities Act, as
amended.
(g) On or about September 8, 1999, the Company commenced a private
offering of up to 165,000 unregistered convertible preferred shares,
each of which is convertible into ten shares of common stock. As of
October 15, 1999, none of the preferred shares had been sold.
Item 11. Description of Registrant's Securities to be Registered
The authorized capital stock of Desert Winds consists of forty-five
million Common Shares, 9,322,485 of which were outstanding as of
September 30, 1999, and held of record by approximately 550
shareholders, and five million Convertible Preferred Shares, none of
which were issued and outstanding as of September 30, 1999. The
following summaries of certain provisions of the Common Shares
and certain of the rights and privileges of the Series A Convertible
Preferred Shares do not purport to be complete and are subject to, and
qualified in their entirety by, the provisions of Desert Winds's
Restated Articles of Incorporation, Bylaws, and the Certification of
Preferences, Rights, and Limitations of Series A Convertible Preferred
Stock, each of which is included as an exhibit to this Registration
Statement, as well as by the provisions of applicable law.
Common Shares
Desert Winds Restated Articles of Incorporation authorize the
issuance of up to fifty million shares including forty-five million
Common Shares and five million Convertible Preferred Shares. Holders
of Common Shares are entitled to receive ratably such dividends, if
any, as may be declared by Desert Winds' Board of Directors out of
funds legally available therefor. Upon the liquidation, dissolution or
winding up of Desert Winds, after payment of all debts and other
liabilities of the Company and after payment of the liquidation
preference to which holders of Convertible Preferred Shares are
entitled, the holders of Common Shares are thereafter entitled to
receive ratably the remaining net assets of Desert Winds..
Holders of Common Shares have no preemptive subscription, redemption or
conversion rights. The Common Shares are, when issued, fully paid and
non-assessable.
Series A Convertible Preferred Shares
Desert Winds Articles of Incorporation, as amended by resolution of
the board of directors, authorize the issuance of five million
preferred shares. By resolution dated August 25, 1999, the board
created a series of Preferred Stock of Desert Winds consisting of five
million (5,000,000) authorized shares, $.001 par value, designated as
Series A Convertible Preferred Stock ("Series A Preferred Stock"). The
Company is authorized by its Articles of Incorporation to issue
5,000,000 shares of preference shares, $0.001 par value. As of the
date of this offering, there are no Convertible Preferred Shares issued
or outstanding. The Convertible Shares are non-voting, have a declared
value and liquidation preference of $10.00 per share, and carry a 7 _ %
($0.0775) annual dividend, payable quarterly in Common Stock of the
Company based on the market value on the last day of each respective
quarter.
Each share is convertible into ten (10) shares of Common Stock at the
election of the holder at any time after beginning one year after
issuance. In addition, it is subject to mandatory conversion at any
time after one year from the date of issuance, upon the Company
undertaking a private or public offering of at least $1,000,000 under
the Securities Act of 1933, as amended. The Preferred Stock is also
callable by the Company at any time after one (1) year from the date of
issuance for conversion into Common Stock at the same ratio of one (1)
share of Preferred Stock to ten (10) shares of Common Stock upon thirty
(30) days prior written notice, provided all cumulated dividends are
paid prior to conversion.
The shareholders of Convertible Preferred stock offered hereby are
entitled to receive a dividend at the rate of $0.0775 per share per
annum payable in equal quarterly installments on March 31, June 30,
September 30, and December 31, in Common Stock, before any dividends
shall be declared or made upon the Company's Common Stock or any other
class of stock. If any dividends payable on any of the Shares of
Preferred Stock shall not be paid for any reason, the right of the
dividends shall accumulate and shall be paid without interest to such
holders when and as authorized by the Board of Directors. Any
dividends over and above the amount of dividends payable to the holders
of Preferred Stock shall be distributed as determined by the Board of
Directors.
The board of directors may, from time to time, as permitted by law and
by the Articles of Incorporation and Bylaws of Desert Winds, increase
or decrease the total number of shares of Series A Preferred Stock.
The Transfer Agent for the shares is RTT Transfer, Inc., 530 Merchant
Street, Vacaville, California 95688, telephone 707-447-0508.
Item 12. Indemnification of Directors and Officers
The Nevada Revised Statutes (the "NRS"), the provisions of which
govern Desert Winds, empowers a Nevada Corporation to indemnify
present and former directors, officers, employees, or agents or any
person who may have served at the request of the corporation as a
director, officer, employee, or agent of another corporation
("Eligible Persons") against liability incurred in any proceeding,
civil or criminal, in which the Eligible Person is made a party by
reason of being or having been in any such capacity, or arising out of
his status as such, if the individual acted in good faith and
reasonably believed that (a) the individual was acting in the best
interests of the corporation, or (b) if the challenged action was
taken other than in the individual's official capacity as an
officer, director, employee or agent, the individual's conduct
was at least not opposed to the corporation's best interests, or (c)
if in a criminal proceeding, either the individual had reasonable
cause to believe his conduct was lawful or no reasonable cause to
believe his conduct was unlawful.
The NRS further empowers a corporation to pay or reimburse the
reasonable expenses incurred by an Eligible Person in connection
with the defense of any such claim, including counsel fees; and,
unless limited by its articles of incorporation, the corporation is
required to indemnify an Eligible Person against reasonable
expenses if he is wholly successful in any such proceeding, on the
merits or otherwise. Under certain circumstances, a corporation may
pay or reimburse an Eligible Person for reasonable expenses
prior to final disposition of the matter. Unless a corporation's
articles of incorporation otherwise provide, an Eligible Person may
apply for indemnification to a court which may order indemnification
upon a determination that the Eligible Person is entitled to
mandatory indemnification for reasonable expense or that the
Eligible Person is fairly and reasonably entitled to indemnification
in view of all the relevant circumstances without regard to whether
his actions satisfied the appropriate standard of conduct. Before a
corporation may indemnify any Eligible Person against liability or
reasonable expenses under the NRS, a quorum consisting of directors
who are not parties to the proceeding must (1) determine that
indemnification is permissible in the specific circumstances because
the Eligible Person met the requisite standard of conduct (2)
authorize the corporation to indemnify the Eligible Person and (3)
if appropriate, evaluate the reasonableness of expenses for which
indemnification is sought. If it is not possible to obtain a
quorum of uninvolved directors, the foregoing action may be taken by a
committee of two or more directors who are not parties to the
proceeding, special legal counsel selected by the Board or such a
committee, or by the shareholders of the corporation.
In addition to the foregoing, the NRS states that the
indemnification it provides shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any
provision of the articles of incorporation or bylaws, resolution of
the board of directors or shareholders, or any other authorization
adopted after notice by a majority vote of all the voting shares then
issued and outstanding. The NRS also empowers a Nevada corporation
to purchase and maintain insurance on behalf of any Eligible Person
against any liability asserted against or incurred by him in any
capacity as such, or arising out of his status as such, whether or
not the corporation would have had the power to indemnify him against
such liability.
Item 13. Financial Statements
DESERT WINDS ENTERTAINMENT CORPORATION
FINANCIAL STATEMENTS
December 31, 1998
Ronald P. Konkle
Certified Public Accountant
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance Sheet - Ti-Mail, Inc. 2
Balance Sheet - Desert Winds Entertainment Corporation 3
Combining Balance Sheet 4
Statement of Income and Expenses - Ti-Mail, Inc. 5
Statement of Income and Expenses-Desert Winds
Entertainment Corporation 6
Combining Statement of Income and Expenses 7
Statement of Stockholders' Equity 8
Statement of Cash Flows - Ti-Mail Inc. 9
Statement of Cash Flows - Desert Winds
Entertainment Corporation 10
Combining Statement of Cash Flows 11
Notes to Financial Statements 12-16
INDEPENDENT AUDITORS' REPORT
ON THE SUPLLEMENTARY INFORMATION 17
SUPPLEMENTARY INFORMATION
Schedule of Cost of Goods Sold 18
Schedule of Selling, General and Administrative Expenses 19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Desert Winds Entertainment Corporation
Mesa, Arizona
I have audited the accompanying balance sheets of Ti-Mail, Inc.,
an operation division of Desert Winds Entertainment Corporation, and
Desert Winds Entertainment Corporation as of December 31, 1998, and the
related statements of income and expenses; stockholders' equity; and,
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion the financial statements of Ti-Mail, Inc. and
Desert Winds Entertainment Corporation referred to above present
fairly, in all material respects, the financial position of Desert
Winds Entertainment Corporation, as of December 31, 1998 and the
results of its operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
Vacaville, California
May 31, 1999
(1)
TI-MAIL INC., an Operating Division of
DESERT WINDS ENTERTAINMENT CORPORATION
BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 9,788.08
Accounts Receivable 56,515.52
Inventory 315,657.80
Total $ 381,961.40
PROPERTY AND EQUIPMENT - net 125,929.73
OTHER ASSETS
Deposits and Advances $ 19,400.00
Prepaid Expenses 4,529.77
Goodwill 51,696.00
Total 75,625.77
Total Assets $ -
See Notes to Financial Statements
(2)
TI-MAIL INC., an Operating Division of
DESERT WINDS ENTERTAINMENT CORPORATION
BALANCE SHEET
December 31, 1998
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 260,268.36
Sales Tax Payable 24.81
Payroll Taxes Payable 72,109.91
Customer Deposits 85.15
Equipment Advances 29,813.21
Advance on Receivables - Net 26,131.19
Note Payable - Wikelund 55,550.00
Total $ 443,982.63
LONG-TERM LIABILITIES
Note Payable - Clearlake 360,000.00
OTHER LIABILITIES
Note Payable - Stockholder $ 507,000.00
Note Payable - Wilder Equipment 36,498.03
Note Payable - AEG Credit Line 236,854.23
Total 780,352.26
Total Liabilities 1,584,334.89
EQUITY
COMMON STOCK, $0.01 par value;
50,000,000 shares authorized;
977,580 shares issued and outstanding $ 48,879.00
Paid-in Capital 646,133.27
Total $ 695,012.27
RETAINED EARNINGS
Beginning of Year $(995,455.43)
Current Year Loss (700,374.83)
End of Year - Deficit (1,695,830.26)
Total Capital (1,000,817.99)
Total Liabilities and Capital $ 583,516.90
DESERT WINDS ENTERTAINMENT CORPORATION
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash $42,946
Inventory - TV Shows Produced 359,321
Total $402,267
PROPERTY AND EQUIPMENT-NET 15,407
OTHER ASSETS
Literary Rights and Contracts 5,600
Total Assets $423,274
LIABILITIES
CURRENT LIABILITIES
Payroll Taxes and Insurance $ 10,593
OTHER LIABILITIES
Notes Payable-Shareholder $500,000
Notes Payable-Other 15,600
Total 515,600
526,193
EQUITY
COMMON STOCK, $0.01 par value
50,000,000 shares authorized
No shares issued and outstanding $ -0-
Retained Earnings (102,919)
Total Equity (102,919)
Total Liabilities and Equity $ 423,274
(3)
See Notes to Financial Statements
DESERT WINDS ENTERTAINMENT CORPORATION
COMBINING BALANCE SHEET
DECEMBER 31, 1998
TI-MAIL DESERT COMBINED
WINDS
ASSETS
Current Assets:
Cash $ 9,788 $ 42,946 $ 52,734
Accounts Receivable 56,515 56,515
Inventory 315,658 359,321 674,979
Total 381,961 422,267 784,228
Property and
Equipment-Net 125,930 15,407 141,337
Other Assets:
Deposits and Advances 19,400 19,400
Prepaid Expenses
Literary Rights
and Contracts 5,600 4,530
Goodwill 51,696 51,696
Total 75,626 5,600 81,226
Total Assets $583,517 $423,274 $1,006,791
LIABILITIES
Current Liabilities:
Accounts Payable $260,268 $ $260,268
Other 183,715 10,593 194,308
Total 443,983 10,593 454,576
Long Term Liabilities:
Notes Payable 633,352 15,600 648,952
Notes Payable
- - Shareholders 507,000 500,000 1,007,000
Total 1,140,352 515,600 1,655,952
Total Liabilities 1,584,335 526,193 2,110,528
EQUITY
Common Stock 695,012 695,012
Retained Earnings/
(Deficit) (1,695,830) (102,919) (1,798,749)
Total (1,000,818) (102,919) (1,103,737)
Total Liabilities
and Equity $583,517 $423,274 $1,006,791
See Notes to Financial Statements
(4)
TI-MAIL, INC.
STATEMENT OF INCOME AND EXPENSES
FOR THE YEAR OF 1998
INCOME
Net Sales $ 472,678.51
COST OF GOODS SOLD 306,046.78
GROSS MARGIN 167,631.73
EXPENSES
Selling, general and administrative 870,163.06
OPERATING LOSS (702,531.33)
NON-OPERATING INCOME 2,156.50
NET LOSS $ (700,374.83)
See Notes to the Financial Statements
(5)
DESERT WINDS ENTERTAINMENT CORPORATION
STATEMENT OF INCOME AND EXPENSES
FOR THE TWO MONTH PERIOD ENDED DECEMBER 31, 19998
INCOME $ 10,916
EXPENSES
Operating Expenses $63,835
Commission Expense 50,000
Total Expense 113,835
NET LOSS $ (102,919)
(6)
See Notes to Financial Statements
DESERT WINDS ENDERTAINMENT CORPORATION
COMBINING STATEMENT OF INCOME AND EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
TI-MAIL DESERT COMBINED
WINDS
INCOME
Net Sales $ 472,679 $ 10,916 $ 483,599
COST OF GOODS SOLD 307,047 305,047
GROSS MARGIN 167,632 10,916 167,632
EXPENSES
Selling, general and
administrative 870,163 113,835 983,998
OPERATING LOSS (702,531) (102,919) (805,450)
NON-OPERATING INCOME 2,156 -0- 2,156
NET LOSS $ (700,375) $(102,919) $ (803,294)
See Notes to the Financial Statements
(7)
TI-MAIL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998
Common Stock Additional
Shares Amount Paid-In Capital
Balance, January, 1998 22,724,197 $22,724 $ 579,287
Shares Issued:
David G. Gwyther for
services rendered 70,000 70
Blackwell, Donaldson
& co. for services
rendered 40,000 40
Matt Bardasian for
services rendered 25,000,000 25,000
Fred Cravener for
services rendered 30,000 30
Stephanie Corrington
services rendered 10,000 10
Julianem Family Trust
shares sold 1,004,826 1,005 66,846
48,879,023 $ 48,879 $ 646,133
December 10, 1998:
Reverse split 1 for 50 977,580 $ 48,879 $ 646,133
(8)
See Notes to Financial Statements
TI-MAIL, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (700,375)
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation and amortization 28,642
Net change in operating assets and liabilities 199,064
Net cash (used in) investing activities (472,669)
CASH FLOW FROM INVESTING ACTIVITIES
Equipment purchases (59,605)
Net cash (used in) investing activities (59,605)
CASH FLOW FROM FINANCING ACTIVITIES
Payment of Stockholder's note (56,500)
Advance from Bardasian 507,000
Accrued interest on note 3,343
Financing of inventory 236,954
Payment of note payable - other (151,250)
Net cash (from) financing activities 539,447
Net increase in cash 7,173
CASH AT BEGINNING OF YEAR 2,615
CASH AT END OF YEAR $ 9,788
(9)
See Notes to Financial Statements
DESERT WINDS ENTERTAINMENT CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (102,919)
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation 662
Net change in operating assets and liabilities (348,728)
Net cash (used in) investing activities (450,985)
CASH FLOW FROM INVESTING ACTIVITIES
Equipment purchases (16,069)
Purchase of literary rights and contracts (5,600)
Net cash (used in) investment activities (21,669)
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable - shareholder 500,000
Notes payable - other 15,600
Net cash (from) financing activities 515,600
Net increase in cash 42,946
CASH AT BEGINNING OF YEAR -0-
CASH AT END OF YEAR $ 42,946
(10)
See Notes to Financial Statements
DESERT WINDS ENTERTAINMENT CORPORATION
COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
TI-MAIL DESERT COMBINED
WINDS
CASH FLOW FROM OPERATING
Net loss $(700,375) $(102,919) $(803,294)
Adjustments to reconcile net
income to net cash
provided from operations:
Depreciation 28,642 662 29,304
Net change in operating assets
and liabilities 199,064 (348,728) (149,664)
Net cash (used in) operations (472,669) (450,985) (923,654)
CASH FLOW FROM INVESTING
Equipment purchases (59,605) (16,069) (75,674)
Purchase of literary rights (5,600) (5,600)
Net cash (used in) investment (59,605) (21,669) (81,274)
CASH FLOW FROM FINANCING ACTIVITIES
Payment of Stockholder's note (56,500) (56,500)
Note payable - stockholder 507,000 500,000 1,007,000
Note payable - other 15,600 15,600
Accrued interest on note 3,343 3,343
Financing of inventory 236,854 236,954
Payment of note payable - other (151,250) (151,250)
Net cash (used in) financing 539,447 515,600 539,447
NET INCREASE IN CASH 7,173 42,946 50,119
CASH AT BEGINNING OF YEAR 2,615 -0- 2,615
CASH AT END OF YEAR $ 9,788 $ 42,946 $ 52,734
(11)
See Notes to Financial Statements
DESERT WINDS ENTERTAINMENT CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Ti-Mail, Inc. with headquarters in Vacaville, California, is
engaged in the production and distribution of a one-step shipping
and gift wrap utilizing DuPont Tyvek material. Tyvek (a
registered trademark of DuPont) is a material which is tear,
water, puncture and mar resistant. Ti-Mail, Inc., produces an
alternative to "brown paper packages" by providing a tough
decorative wrap for all occasions. Ti-Mail, Inc. sells it
products internationally and throughout the United States through
national packaging and mailing centers such as the U.S. Post
Offices, Mail Boxes Etc., and bookstores.
Desert Winds Entertainment Corporation is engaged in the
marketing and production of fill-scale films, TV shows and live
casino shows.
Reorganization and Divestitures
On November 13, 1998, pursuant to a resolution of the board of
directors and a majority vote of the shareholders, Ti-Mail, Inc.,
an Oregon corporation, changed its name and domicile to Desert
Winds Entertainment Corporation, a Nevada corporation. The
merger is commonly known as a "F" reorganization as provided
within Section 368 (a) 1 F of the Internal Revenue Code. A
reverse split of the company's common shares issued and
outstanding of one share of Desert Winds Entertainment
Corporation for every 50 shares of Ti-Mail was an integral part
of this merger. Thus, the 48,879,023 shares of Ti-Mail, Inc.
were exchanged for 977,580 shares of Desert Winds Entertainment
Corporation. The merger became effective on December 10, 1998,
the date of filing with the State of Nevada.
On December 10, 1998, a plan and agreement was entered
consummated by Desert Winds Entertainment Corporation and The
Whitney Corporation, both Nevada corporation, providing for an
exchange of shares between The Whitney Corporation shareholders
and Desert Winds Entertainment Corporation. One hundred percent
of The Whitney Corporation shares issued and outstanding,
6,500,000 shares, were surrendered for an equal amount of Desert
Winds Entertainment Corporation shares on December 31, 1998, the
effective date of the merger. This merger is considered a "B"
reorganization as provided within Section 368(a) 1 B of the
(12)
Internal Revenue Code. The merger qualifies as a reverse merger
as the shareholders of the merged entity, The Whitney
Corporation, gained ownership control and 6,500,000 shares of the
total 7,477,580 shares issued and outstanding for the combined
entity. In addition to the change in ownership control, the
management of The Whitney Corporation replaced the management of
Desert Winds Entertainment Corporation with Michael Poloma as a
Director, President and Chief Executive Officer and Clint W.
Smith as a Director, Secretary and Treasurer. Ther merger has
been booked on a cost basis valuation; and, therefore, no value
has been assigned to the intangibles consisting of entertainment
ideas, concepts, works in progress, the personal services of Mr.
Paloma, and other proprietary entertainment properties.
Subsequent to this audit Desert Winds Entertainment Corporation
has divested itself of the Ti-Mail, Inc. operating division. The
divestiture includes all assets and liabilities of Ti-Mail, Inc.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Significant Accounting Policies
Accounts receivable - trade
The Company considers its accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is
required. The Company factors its accounts with American
Equities Group.
Inventories
Inventories are stated at the lower of cost (determined by the
average cost method) or market.
Property and Equipment
Property and equipment are recorded at cost and are being
depreciated using the straight-line method over their useful
lives. Leasehold improvements are being amortized over the
building lease.
Goodwill
Goodwill, which represents the excess of the cost of a purchased
company over the fair market value of its net assets at date of
acquisition.
Income Taxes
Deferred tax liabilities and assets are determined based on the
difference between the financial statement and the tax basis of
assets and liabilities, using enacted tax rates in effect for the
year in which the differences are expected to reverse. The
differences relate primarily to net operating losses incurred by
the Company. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will
not be realized. Current income taxes are based on the year's
income, taxable for federal and state income tax reporting
purposes. When there is no taxable income for federal or state
purposes, the minimum state taxes will be expensed in the current
period.
Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts
of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair value of financial instruments
All assets and liabilities deemed to be financial instruments
have fair values which approximate their respective carrying
values.
(13)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVENTORIES
Inventory - Ti-Mail:
Raw Materials $ 260,900.85
Finished Goods 54,756.95
Total $ 315,657.80
Inventory - Desert Winds:
The inventory of $359,321 consists of costs incurred in
the production of the first three episodes of a television series
called "News Traveler" that are a part of a 33 episode agreement
with Warner Brothers Television.
NOTE 3. PROPERTY AND EQUIPMENT
Ti-Mail Desert Winds Combined
Furniture and fixtures $ 15,945.31 $ $ 15,945.31
Plant/Production equipment 87,206.00 8,668.54 95,874.31
Office equipment 59,495.95 6,313.36 65,809.31
Research and development 12,755.01 12,755.01
Leasehold improvements 12,809.45 1,087.00 13,896.45
Total 188,211.72 16,068.90 204,280.62
Less: Accumulated
Depreciation (62,281.99) (662.00) (62,943.99)
Net $ 125,929.73 $15,406.90 $141,336.63
NOTE 4. LEASE COMMITMENT
Ti-Mail's lease for their main office has expired and they
are occupying the space on a month to month basis.
On December 30, 1996, Ti-Mail entered into a lease with
Park Place Development Company for approximately 11,520 sf
of warehouse space for 25.5 months from the date of
occupancy with two 2 year options with 6% increases. The
first 13.5 months rent were prepaid plus a $10,000 security
deposit. Monthly rent is $4,608 after a subsidy from the
City of Clearlake.
Lease commitment including options for years
ending December 31:
1999 $ 57,507.84
2000 58,613.76
2001 60,958.32
2002 62,130.60
to 4/30/03 20,710.20
Lease expense for 1998 was $85,214.99
Desert Winds Entertainment Corporation occupies a 3,000
square foot space at 4710 East Falcon Drive, Mesa, Arizona,
as its corporate headquarters. The term of the lease is 12
months commencing on June 1, 1998. The remaining
obligation under the lease is:
January - June, 1999 $11,418.78
Desert Winds Entertainment Corporation entered into a lease
for 5,000 s.f. theater restaurant on San Padre Island,
Texas on January 1, 1999. The rent is $2,400 per month or
10% of gross receipts which is greater. The total lease
obligation cannot be calculated as the gross receipts is
unknown. The lease is for 144 months ending December 31,
2011. Minimum lease obligations is $345,600.
(14)
NOTES TO FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES
Income taxes charges to expense for the year ended December 31,
1998 consisted of the following:
State Franchise Tax $ 800
Deferred tax assets and liabilities consists of the following at
December 31, 1998:
Federal deferred tax assets(liabilities):
Tax benefit resulting from net operating
Loss carryforward $ 557,000
Allowance (557,000)
$ -0-
State deferred tax assets(liabilities):
Tax benefit resulting from net operating
Loss carryforward $ 152,000
Allowance (152,000)
$ -0-
A valuation was created during 1998 and has been recorded to
offset the tax benefit of the Federal and State net operating
loss carryforwards in excess of the Federal and State deferred
tax liability. The Company has only been in business for four
years and management has taken a conservative position by not
recognizing the benefit of the net operating loss carryforward
until it is used.
The Company has approximately $1,696,000 and $1,692,000 in unused
net operating loss carryforwards to directly offset future
Federal and State taxable income, respectively. If not used, the
carryforwards will expire as follows:
Year ending Federal State
2003 $ $ 113,000
2004 371,000
2005 509,000
2006 699,000
2010 114,000
2011 372,000
2012 510,000
2013 700,000
$1,696,000 $1,692,000
NOTE 6. MAJOR CUSTOMER
Ti-Mail, Inc. had one major customer whose sales comprised a
significant portion of total sales for the year ended December
31, 1998. There was a combined total accounts receivable balance
of $40,550 due from this customer as of December 31, 1998.
(15)
NOTES TO FINANCIAL STATEMENTS
NOTE 7. RECEIVABLES SOLD WITH RECOURSE
In the normal course of business, the Company sells some of
its accounts receivable with recourse to a factoring
company. A factoring fee of 3% is charged to the Company
and recorded as an expense. At December 31, 1998, the
balance of outstanding factored receivables was $57,689.
NOTE 8. CONCENTRATION OF CREDIT RISK
The Company grants credit to its customers on an unsecured
basis. Concentration of credit risk with respect to trade
receivables is limited due to the large number of customers
comprising the Company's customer base and their dispersion
across different geographic areas.
NOTE 9. ISSUANCE OF STOCK
Shares of common stock in Desert Winds Entertainment
Corporation were not issued until January, 1999.
SUPPLEMENTARY SCHEDULES
INDEPENDENT AUDITOR'S REPORT ON THE
SUPPLEMENTARY INFORMATION
To the Board of Directors
Desert Winds Entertainment Corporation
Mesa, Arizona
My report on the audit of the basic financial statements of
Desert Winds Entertainment Corporation for 1998 appears on page 1.
That audit was conducted for the purposes of forming an opinion on the
basic financial statements taken as a whole. The supplementary
information for the year ended December 31, 1998, is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has not been subjected to the
auditing procedures applied in the audit of the basic financial
statements as many of the documents are missing and presumed destroyed.
Therefore, no opinion, is rendered on these statements.
Vacaville, California
May 31, 1999
(17)
SCHEDULE OF COST OF SALES
For the Year Ended December 31, 1998
TI-MAIL, INC.
Materials $ 189,734
Freight 36,041
Other Direct Costs 79,272
Total $ 305,047
(18)
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the Year Ended December 31, 1998
TI-MAIL DESERT COMBINED
WINDS
Advertising and Promotion $ 52,728 $ $ 52,728
Accounting and Audits 5,160 5,160
Amortization 1,854 1,854
Automobile Expenses 206 206
Bank Charges and Credit Fees 14,535 274 14,809
Bad Debt Expense 5,063 5,063
Commissions 50,000 50,000
Depreciation 26,788 662 27,450
Donations 545 545
Dues and Subscriptions 131 131
Freight 3,026 3,026
Insurance 28,296 28,296
Interest and Late Fees 94,604 94,604
Lease Expense 85,215 85,215
Legal and Professional Fees 59,935 11,600 71,535
Licenses 265 550 815
Outside Services 30,150 13,356 43,506
Office Expense 4,344 4,344
Office Rent 4,368 4,368
Officer's Salaries 90,750 90,750
Office Supplies 5,008 3,342 8,350
Postage and Delivery 20,779 403 21,182
Printing 35 35
Professional Services 16,518 16,518
Payroll 204,958 18,596 223,554
Repairs and Maintenance 108 100 208
Research and Development 1,191 1,191
Taxes - Payroll 29,489 3,159 32,648
Taxes - Property 532 532
Taxes - State 800 800
Telephone 19,113 2,119 21,232
Trade Shows 15,499 15,499
Travel & Meals 54,872 15,408 70,280
Utilities 3,036 3,036
Contra Expense (5,129) (10,343) (15,472)
Total $ 870,163 $ 113,835 $ 893,998
(19)
DESERT WINDS ENTERTAINMENT CORPORATION
FINANCIAL STATEMENTS
September 30, 1999
Ronald P. Konkle
Certified Public Accountant
6963 Mills Lane
Vacaville, CA 95688
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheet 2
Statement of Income and Expenses 3
Statement of Cash Flows 4
Statement of Stockholders' Equity 5
Notes to Financial Statements 6-7
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Desert Winds Entertainment Corporation
Mesa, Arizona
I have reviewed the accompanying financial statements of Desert
Winds Entertainment Corporation as of September 30, 1999, and the none
month period then ended. My review was conducted in accordance with
standards established by the American Institute of Certified Public
Accountants.
A review is substantially less in scope than an examination, the
object of which is the expression of an opinion of the financial
statements. Accordingly, I do not express such an opinion.
Based upon my review, nothing came to my attention that caused me
to believe that the accompanying financial statements are not presented
in conformity with generally accepted accounting principles.
Vacaville, CA
October 14, 1999
(1)
DESERT WINDS ENTERTAINMENT CORPORATION
BALANCE SHEET
SEPTEMBER 30, 1999
Assets
Current Assets:
Cash $ 19,800
Contracts Receivable 19,800,000
Deposits & Advances 4,975
Total $ 19,824,517
Fixed Assets - Net of Depreciation 57,188
Other Assets 12,100
Total Assets $ 19,824,517
Liabilities
Current Liabilities:
Deferred Income $ 18,000,000
Accounts Payable 594,000
Payroll Taxes 20,059
Total $ 18,614,059
Long-term Liabilities:
Notes Payable 1,187,300
Total Liabilities 19,801,359
Equity
COMMON STOCK, $0.01 par value
50,000,000 shares authorized
9,322,485 shares issued
and outstanding $ 9,322
Paid-In Capital 691,190
Retained Earnings (608,066)
Net Capital 92,446
Total Liabilities and Equity $19,893,805
See Footnotes to Financial Statements
(2)
Desert Winds Entertainment Corporation
Income and Expense Statement
For Nine Months Ended September 30, 1999
Income:
Show Income $ 2,238,717
Costs:
Production Costs 1,367,088
Gross Profit 871,629
Operating Expenses:
General and Administration Expense 682,764
Net Income 188,865
Retained Earnings - Beginning of Year (796,931)
Retained Earnings - September 30, 1999 (608,066)
Earnings per share (9,322,485 shares outstanding)
- nine months $0.20 per share
Earnings per share (9,322,485 shares outstanding)
- three months $(.004) loss per share
See Footnote to Financial Statements
(3
DESERT WINDS ENTERTAINMENT CORPORATION
Statement of Cash Flows
For the Nine Months Ended September 30, 1999
CASH FLOW FROM OPERATING ACTIVITIES:
Net profit from operations $188,865
Adjustment to reconcile net income
to net cash provided from operations:
Depreciation 3,800
Net change in operating assets and liabilities (842,188)
Net cash (used in) operating activities (649,523)
CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases (45,581)
Net cash (used in) investment activities (45,581)
CASH FLOW FROM INVESTING ACTIVITIES:
Notes payable 671,700
Net cash (from) investment activities 671,700
NET DECREASE IN CASH (23,404)
CASH AT BEGINNING OF YEAR 42,946
CASH - September 30, 1999 $ 19,542
See Footnotes to Financial Statements
(4)
Desert Winds Entertainment Corporation
Statement of Stockholders' Equity
For Nine Months Ended September 30, 1999
Common Stock
Balance, December 31, 1998 Shares Amount
7,477,580 $7,477
January 1, to June 30, 1999:
Promotional and debt reduction
shares issue as provided by
resolution of the Board of
directors 844,905 845
May 4, 1999:
Shares issued as approved by
the State of Nevada under
small Corporate Offering 1,000,000 1,000
Balance, June 30, 1999 9,322,485 $9,322
See Footnotes to Financial Statements
(5)
DESERT WINDS ENTERTAINMENT CORPORATION
FOOTNOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Desert Winds Entertainment Corporation (Desert Winds) is engaged in the
production and marketing of full-scale films, television shows and live
casino shows.
History, Reorganization and Divestitures
On November 13, 1998, Ti-Mail, Inc., an Oregon corporation, changed its
name and domicile to Desert Winds Entertainment Corporation, a Nevada
corporation. This merger is commonly known as a "F" reorganization as
provided within Section 368(a) 1 F of the Internal Revenue code. A
Reverse (1 for 50) split of Ti-Mail's common shares issued and
outstanding was an integral part of this merger. This, the 48,879,023
shares of Ti-Mail, Inc. were exchanged for 977,580 shares of Desert
Winds. The merger became effective on December 10, 1998.
On December 10, 1998, a plan and agreement was consummated by Desert
Winds and The Whitney Corporation (Whitney), both Nevada corporations,
providing for an exchange of stock. One hundred percent of Whitney
shares issued and outstanding, 6,500,000 shares, were surrendered for
an equal amount of Desert Winds shares. The effective date of this
merger was December 31, 1998. This merger is considered a "B"
reorganization as provided within Section 368 (a) 1 B of the Internal
Revenue Code. This merger qualifies as a reverse merger as the
shareholders of the merged entity, Whitney, gained ownership control
and 6,500,000 shares of the total 7,477,580 shares issued and
outstanding for the combined entity. In addition to the change in
ownership, the management of Whitney replaced the management of Desert
Winds with Michael Paloma as a Director, President and Chief Executive
Officer and Clint W. Smith as a Director, Secretary and Treasurer.
On April 20, 1999, Desert Winds divested itself of the assets and
liabilities originating from Ti-mail, Inc. A provision for the loss
from discontinued operations had been booked in 1998. As the net loss
from the sale of the assets and liabilities equals the provision no
further accounting entries are required.
(6)
FOOTNOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Significant Accounting Policies
Contracts Receivable
This contract with a major television company for the production of a
television series is believed to be fully collectible. However, only a
portion of the series has been produced so a deferred liability,
Deferred Income, has been recorded for the remainder of the series to
be produced.
Fixed Assets
Property and equipment are recorded at cost and are being depreciated
over their useful lives.
Other Assets
Other Assets consists of literary rights and contracts purchased in the
merger with Whitney.
Account Payable - Distribution Costs
A liability and production costs for 33% of the gross revenues form the
sale of the television series has been recorded as defined by the
contract.
Income Taxes
No liability for federal income taxes has been recorded
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets;
liabilities; and, the disclosure of contingent assets and liabilities
at the date of the financial statements. The may also effect the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
All assets and liabilities deemed to be financial instruments have fair
values which approximate their respective carrying values.
(7)
Item 14 Changes in and disagreements with Accountants on Accounting
and Financial Disclosure
November 11, 1999
To: Ken Christison
From: Ronald P. Konkle, C.P.A.
Subj: Audit Statement
For your information:
1. I am the only of Desert Winds Entertainment, Inc. a Nevada
corporation, since its formation Novemeber 18, 1998.
2. There are no disagreements between management and me as to
accounting principles used in the presentation of
financial statements.
/s/ Ronald P. Konkle, C.P.A.
INDEX TO EXHIBITS
Number Assigned in
Regulation S-K
Item 601 Exhibit Description of Exhibit
(2) 2.01 Articles and Plan of
Merger - Desert Winds
Entertainment Corporation and
Ti-Mail, Inc.
2.02 Plan and Agreements of
Reorganization -Desert Winds
Entertainment Corporation and
The Whitney Corporation
2.03 Acquisition Agreement of
Ti-Mail Assets
2.04 Production Financing and
Distribution Agreement with
Warner Bros. Television
(3) 3.01 Articles of Incorporation of
the Company
3.02 Bylaws of the Company
(4) 4.01 <No Exhibit>
(9) 9.01 <No Exhibit>
(10) 10.01 <No Exhibit>
(11) 11.01 Statements re Per Share
Earnings
(12) 12.01 Statements re Computation of
Ratios
(16) 16.01 <No Exhibit>
(21) 21.01 <No Exhibit>
(24) 24.01 <No Exhibit>
(27) 27.01 Financial Data Schedule
(99) 99.01 <No Exhibits>
DESERT WINDS ENTERTAINMENT CORPORATION
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
financial statements of Desert Winds Entertainment Corporation and is
qualified in its entirety by reference to such financial statements.
PERIOD-TYPE 9 MONTHS YEAR
FISCAL-YEAR-END DEC-31-1999 DEC-31-1998
PERIOD-END SEP-30-1999 DEC-31-1998
CASH 19,542 42,946
SECURITIES -0- -0-
RECEIVABLES 19,800,000 -0-
ALLOWANCES -0- -0-
INVENTORY -0- 359,321
CURRENT-ASSETS 19,824,517 402,267
P P & E 61,650 16,069
DEPRECIATION (4,462) (662)
OTHER ASSETS 12,100 12,100
TOTAL-ASSETS 19,893,805 429,774
CURRENT-LIABILITIES 18,614,059 10,593
COMMON STOCK 9,322 7,478
TOTAL-LIABILITIES-AND EQUITY 19,893,805 429,774
SALES 2,238,717 10,916
TOTAL REVENUES 2,238,717 10,916
COSTS 1,367,088 -0-
OTHER-EXPENSES 682,764 113,835
LOSS PROVISION
INTEREST-EXPENSE -0- -0-
INCOME-PRETAX 188,865 (102,919)
INCOME TAX
INCOME-CONTINUING 188,865 (102,919)
DISCONTINUED
EXTRAORDINARY -0- (694,012)
CHANGES
NET-INCOME 188,865 (796,931)
EPS-PRIMARY $.02 LOSS
EPS-DILUTED $.02 LOSS
