U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-23884-LA
THE WESTWIND GROUP, INC.
(Name of Small Business Issuer as specified in its charter)
Delaware 95-4171726
________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1746 1/2 Westwood Boulevard 90024
Los Angeles, California (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: (310) 470-6949
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 .
---- ----
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of Issuer's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
X
---
The Issuer's revenues for the fiscal year ending August 31, 1995
were $758,473
As of November 20, 1995, 7,422,768 shares of the Issuer's common
stock were issued and outstanding, 1,834,250 of which were held by non-
affiliates. As of November 20, 1995, there was not an active trading
market for the Issuer's common stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
ITEM 1. BUSINESS
General
The Westwind Group, Inc. (the "Company") is a producer and
distributor of motion pictures and television movies. The
Company's motion pictures are intended to be distributed in
domestic and foreign theaters and for release in other markets
such as home video, pay-per-view, pay television and free
television. Westwind Productions, Inc., a wholly-owned
subsidiary of the Company, is the Company's production division.
Westwind Releasing Corp., another wholly-owned subsidiary of the
Company, is the Company's distribution division. Throughout this
Form 10-KSB, the Company and its subsidiaries are sometimes
collectively referred to as the "Company."
The Company began operations in 1985, and has produced
fifteen feature length motion pictures since inception.
The Company has primarily financed its pictures through
privately placed limited partnerships and distribution advances.
The Company will continue to use private investors and advances
from distribution sources to fund the costs of motion picture
production but may also attempt, subject to adequate capital, to
finance all or part of motion pictures from its own funds.
Film Production During Fiscal Years 1995 and 1994
During the fiscal years ended August 31, 1995, 1994 and 1993
the Company completed production of the following films:
Fiscal
Year
Picture Description Released Completed
One Man's Justice Action film staring Live Entertainment 1995
Brian Boseworth
Ultimate Desire Erotic thriller Showcase 1994
starring Martin Kemp, Entertainment
Kate Hodge, Deborah Shelton (Foreign)
The Child Drama thriller Norstar 1994
Co-produced starring Entertainment
with Allegro Darlanne Fluegel, (Foreign)
Films M. Emmett Walsh,
and James Brolin
Sherlock:Undercover Family adventure Columbia/ 1993
Dog talking dog mystery Tri-Star
Video-(U.S. Video)
MDP Worldwide (Foreign)
<PAGE>
Martial Outlaw Action/adventure Republic 1993
Co-produced starring Jeff Pictures (U.S.Markets)
with Image Wincott Image
Organization Organization (Foreign)
The Neighbor Drama thriller Academy 1993
Co-produced starring Rod Entertainment
with Allegro Steiger and Linda (U.S.Video) CBS
Kozlowski (U.S.Television)
Image Organi-
zation (Foreign)
The Hit List Drama thriller Showtime 1993
Co-produced starring Networks, (U.S.
with Showtime Jeff Fahey, Yancy Television)
Networks, Inc. Butler, James Vision Intern-
Coburn ational (Foreign)
Columbia/Tri-Star Home Video
(U.S. Video)
Current Projects:
During the fiscal year ending August 31, 1996, the Company
expects to complete production of one feature film.
There can be no absolute assurance that any film scheduled
for production or release will be completed or released in
accordance with the anticipated schedule or budget.
Overhead and Ownership:
In an effort to maintain overhead costs as low as possible,
the Company does not maintain a substantial staff of creative or
technical personnel. Management believes that sufficient motion
picture creative and technical personnel, such as screenwriters,
directors and performers, are available in the market at
acceptable prices to enable the Company to produce as many motion
pictures as it currently plans or anticipates. Currently, the
Company does not own or operate sound stages and related
production facilities generally referred to as a "studio" and
does not have the fixed payroll, general and administrative and
other expenses resulting from ownership and operation of a
studio.
The initial step in motion picture production is the
acquisition of the artistic property or story on which the motion
picture will be based. An artistic property may consist of a
book, screenplay, story or synopses of a story. The Company and
its affiliates currently own all or a portion of many screenplays
and synopses. The Company may acquire artistic properties from
various sources. It may acquire a finished screenplay directly
from its creator or owner. The Company may create a story
synopsis in-house or purchase synopsis from an unaffiliated
party. It may then hire a screenwriter to write a motion picture
screenplay which can potentially be developed into a motion
picture.
<PAGE>
Distribution:
The Company, through Westwind Releasing Corp., makes
distribution arrangements for its films with the various foreign
and domestic U.S. homevideo, television and pay-per-view
distributors. Most of the films' foreign arrangements are made
through foreign sales representatives, whereby the representative
is the agent whom the various foreign distributors contact and
pay a non-refundable advance in order to acquire the rights to
distribute the film in their territory.
Competition:
The business of motion picture production and distribution
is highly competitive. There are numerous competitive factors in
the motion picture production and distribution industry,
including the quality, variety and timing of products and
marketing efforts. The Company competes with "major" film
studios as well as with independent motion picture and television
production companies for the acquisition of literary properties
and for the services of performing artists and technical
personnel. The Company competes with others in the sale and
distribution of motion pictures. The Company also competes for
available production financing. The Company's ability to acquire
artistic properties and to engage the services of creative and
technical personnel and to distribute its motion pictures will be
limited by its financial resources. Many of the organizations
with which the Company competes have far greater financial
resources than the Company.
Copyrights:
Distribution rights to motion pictures are granted legal
protection under the copyright laws of the United States and most
foreign countries, which provide substantial civil and criminal
sanctions for unauthorized duplication and exhibition of motion
pictures. Motion pictures, musical works, sound recordings, art
work, still photography and motion picture properties are each
separate works subject to copyright under most copyright laws,
including the United States Copyright Act of 1976. The Company
plans to take appropriate and reasonable measures to secure,
protect and maintain or obtain agreements to secure, protect and
maintain copyright protection for all Company pictures under the
laws of applicable jurisdictions.
Government Regulation:
The Code and Ratings Administration of the Motion Picture
Association of America, an industry trade association, assigns
ratings for age-group suitability for theatrical distribution of
motion pictures. The Company follows the practice of submitting
its pictures for such ratings. Certain of the Company's pictures
may be given an "R" rating, which means that children under
certain age may, under rules enforced by the theatrical
exhibitors, view such pictures only if accompanied by an adult.
Management's current policy is to produce motion pictures which
qualify for a rating no more restrictive than "R".
Employees:
At August 31, 1995, the Company employed three (3) full-time
employees in its Los Angeles office. During the production of a
motion picture as many as 40 people are engaged by the Company
for periods of six weeks or longer. The Company has granted, and
will grant, to actors, directors, screenwriters, and other
important creative and financial elements, rights to participate
in the net profits or gross revenues of particular pictures.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its principal offices at 1746 1/2Westwood
Blvd., Los Angeles, California, 90024, on a month-to-month basis
and pays $760 per month in rent. The Company also has a $1,450
month to month lease for additional office space. The leases are
terminable by either the Company or the landlords upon thirty
days written notice. The Company's office facilities are
adequate for its current needs. The Company believes it could
readily find suitable replacement office facilities if necessary.
ITEM 3. LEGAL PROCEEDINGS
To the best knowledge of the Company, it is not a party to
any pending or threatened litigation or proceeding material to
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's
securities holders during the fourth quarter of the fiscal year
ending August 31, 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. Market for Common Stock. There is no active market for
the Company's securities. The Company's stock has been traded in
the over-the-counter market.
B. Holders of Common Stock. The approximate number of
holders of record of the Company's 7,422,768 shares of Common
Stock was 707 as of November 22, 1994. A number of the Company's
record shareholders are broker/dealers whom are holding record
title of the Company's Common Stock for numerous customers.
Accordingly, the Company believes the actual number of beneficial
holders of its Common Stock is greater than the number of
shareholders of record.
C. Dividends. The Company has never paid a cash dividend
to date and does not anticipate or contemplate paying dividends
in the foreseeable future. It is the present intention of
management to utilize all available funds for the development of
the Registrant's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The following discussion should be read in conjunction with
the consolidated financial statements and notes to those
statements attached hereto.
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. The
consolidation financial statements also include the accounts of
several limited and general partnerships for which the Company
acts as general partner and in which it holds ownership,
financial or operating control.
<PAGE>
Results of Operations for the Years Ended August 31, 1995 and
1994
Revenues: The Company's principal objective is to produce
and distribute one to four motion pictures each year with
commercial subject matter. Film revenues are derived primarily
from the distribution of feature films in both domestic and
foreign markets. The Company's revenues are derived from
management and marketing fees relating to specific motion
pictures, from fees for film production services and from
distributive shares in partnerships and joint ventures formed to
finance motion pictures. The Company's revenues and net income
are dependent upon the level of film activity engaged in by the
Company as well as by the success of the particular motion
pictures released by the Company in any given year. Most of the
income which will be generated by a motion picture will be
generated in the year in which it is released and distributed.
Thereafter, minimum revenues are received from such motion
picture.
1995 1994 1993 1992 1991
Revenues $758,473 $1,720,216 $3,732,046 $1,648,970 $786,145
Production 870,917 1,175,729 2,489,694 1,212,704 284,743
Costs
Gross (112,444) 544,487 1,242,352 436,266 501,402
Profit
(less)
Operating 339,895 434,597 726,843 400,150 352,642
Expense
Other 12,273 (91,679) 197 (53,086) 10,869
Income
(Expense)
Minority 131,242 (158,823) (206,682) (122,395) (13,637)
Interest
in
Partnerships
NetIncome (220,263) (75,359) 180,799 (99,165) 93,593
(loss)
Net (.030) (.01) .024 (.013) .015
Income
(loss)per
share
Total revenues for the year ending August 31, 1995, were
$758,473 as compared with $1,720,216 for the year ended August
31, 1994, a reduction of approximately 56%. The decrease in total
revenues from 1994 to 1995 was primarily the result of fewer
films released. The market for lower priced films has changed in
recent years and at the same time, the average cost of the
Company's productions has increased. The Company's revenues has
decreased in each of the last two years and it is likely to
continue to decrease this year as film production will continue
to be limited. The Company wrote down the carrying value of film
inventory to not realizable value for the film "Ultimate Desire"
in the amount of $292,364 and $70,843 for the years ended August
31, 1995 and 1994
The Company's revenues are generated from film distribution
in the domestic market (the United States and Canada) as well as
from films distributed in foreign markets. The Company utilizes
the services of two principal foreign sales agents. During the
year ended August 31, 1995, approximately 66% of the Company's
total film revenues were generated by foreign sales as compared
to 60% for the year ending August 31, 1994. The Company
anticipates that it will continue to be dependent upon the
efforts of foreign sales agents for a significant portion of its
total film revenues during the current fiscal year.
<PAGE>
Operating Expenses, Operating Income and Other Income and
Expenses:
For the year ended August 31, 1995, the Company's
operating expenses were $339,895 compared to $434,597 for the
year ended August 31, 1994. The Company incurred a loss from
operations of $452,339 for the year ending August 31, 1995 as
compared to income of $109,890 for the year ending August 31,
1994. This loss was a result of decreased film production and
revenue generation. For the year ended August 31, 1994, the
Company had a write off of $120,015 in connection with the
dissolution of limited partnerships which had been formed to
finance earlier film productions. There was no such write off
for the year ended August 31, 1995.
Net Loss: For the fiscal year ended August 31, 1995, the
Company had a net loss of $220,263 which included $64,566 for
extraordinary income related to a forgiveness of a production fee
owed by a consolidated partnership. The extraordinary
forgiveness of debt was offset by bad debt expense of the same
amount recorded as general and administrative expense. For the
year ended August 31, 1994, the Company had a net loss of
$75,359. The Company's income is dependent upon revenues which
is dependent upon not only on total film activity, but upon the
timing of the completion of films and the release dates of films.
Changes in Accounting Principles: The Financial Accounting
Standards Board has issued Statement No. 109 regarding accounting
for income taxes. This statement requires an asset and liability
approach to determining deferred income tax amounts and income
tax expenses for the period. Effective for the year ended
August 31, 1994, the Company adopted FASB Statement 109
"Accounting for Income Taxes." The cumulative effect/benefit of
the change of accounting for prior years is $55,351 and has been
included in the Statement of Income for the year ended August 31,
1994. There was no tax adjustment for the year ended August 31,
1995.
Inflation and Foreign Exchange: Generally, costs in
connection with producing and distributing motion pictures have
increased during recent years. This may affect results of
operations in future periods. However, the Company believes
inflation has not had a material affect on the Company's
operations to date.
The Company does not believe that recent fluctuations in the
value of the dollar in relationship to foreign currency has had
any material impact on its operating results or that a
continuation of current currency exchange levels will have any
material adverse impact in the future.
Financial Condition and Capital Resources
The Company's film productions have generally been funded
through limited and general partnerships and from third party
sources. The Company has received revenues from film activities
and distributions from partnerships in which it is the general
partner.
The Company had cash and cash equivalents of $286,335 at
August 31, 1995, as compared to $255,626 at August 31, 1994.
Total current assets decreased significantly to $1,090,505 at
August 31, 1995, compared to $1,808,366 at August 31, 1994.
The Company has historically financed its productions
through limited partnership financing, co-production ventures and
from other sources. For the fiscal year ended August 31, 1996,
the Company anticipates it will be involved in the production of
one motion picture that will cost approximately $6,000,000 none
of which is expected to be provided by the company. The Company
will continue to develop scripts with its own funds.
The Company projects its operating expenses for the next 12
months to be approximately $300,000 exclusive of investments in
film projects. Operating expenses increase and decrease as a
result of overall film activity. The Company believes it will be
able to generate sufficient funds to meet its current liabilities
for the next 12 months.
<PAGE>
The Company's revenues have declined significantly in each
of the last two years, and management anticipates there will be
further decline this year. The Company's current assets have
decreased significantly during the last year. The market for
lower budget films has changed during the last several years and
as a consequence, the Company's film production has decreased.
Management is considering strategies for future business
operations including considerations of participating in other
business ventures. However, as of the date hereof, no decisions
have been made to change the Company's business plan.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Financial Statements
Independent Auditor's Report 9
Consolidated Balance Sheet
Year ended August 31, 1995 10-11
Consolidated Statements of Operations
Years ended August 31, 1995 and 1994 12-13
Consolidated Statements of Stockholders' Equity
Years ended August 31, 1995 and 1994 14
Consolidated Statements of Cash Flows
Years ended August 31, 1995 and 1994 15-16
Notes to Consolidated Financial Statements 17-24
<PAGE>
PETERSON, SILER & STEVENSON, P.C.
430 EAST 400 SOUTH
SALT LAKE CITY, UTAH 84111
(801) 328-2727
INDEPENDENT AUDITORS' REPORT
Board of Directors
THE WESTWIND GROUP, INC.
Los Angeles, California
We have audited the accompanying consolidated balance sheet of
The Westwind Group, Inc. and its subsidiaries as of August 31,
1995 and the related consolidated statements of operations
stockholders' equity, and cash flows for the years ended August
31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we 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. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements examined by
us present fairly, in all material respects, the financial
position of The Westwind Group, Inc. and its subsidiaries as of
August 31, 1995 and the results of their operations, and their
cash flows for the years ended August 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
/S/ PETERSON, SILER & STEVENSON, P.C.
October 19, 1995
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
August 31,
1995
____________
CURRENT ASSETS:
Cash and cash equivalents $ 286,335
Film inventory 690,760
Income taxes receivable 19,000
Deferred tax asset, net 94,410
____________
Total Current Assets 1,090,505
____________
PROPERTY AND EQUIPMENT, net 9,449
____________
OTHER ASSETS:
Film script inventory 33,481
Other assets 1,580
Deferred tax asset 34,053
____________
Total Other Assets 69,114
____________
TOTAL ASSETS $1,169,068
____________
The accompanying notes are an integral part of these consolidated
financial statements.
-10-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31,
1995
____________
CURRENT LIABILITIES:
Accounts payable $ 73,888
Accounts payable - related party 19,904
Accrued expenses 1,711
Management bonuses 157,000
____________
Total Current Liabilities 252,503
____________
MINORITY INTEREST 472,988
____________
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued
and outstanding -
Common stock, $.004 par value, 50,000,000
shares authorized, 7,422,768 shares issued
and outstanding at August 31, 1995 29,691
Additional paid-in capital 124,098
Retained earnings 289,788
____________
Total Stockholders' Equity 443,577
____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,169,068
____________
The accompanying notes are an integral part of these consolidated
financial statements.
-11-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
August 31,
________________________
1995 1994
______________________
REVENUE
Film revenue $ 708,473 $1,627,676
Film management and marketing income 50,000 92,540
______________________
Total Revenue 758,473 1,720,216
______________________
PRODUCTION COST:
Related to film revenue 835,333 1,078,483
Profit participation expense 33,254 48,225
Co-partner production fee 2,330 49,021
______________________
Total Production Cost 870,917 1,175,729
______________________
GROSS PROFIT (LOSS) (112,444) 544,487
______________________
OPERATING EXPENSE:
General and administrative 308,433 406,334
Professional fees 31,462 28,263
______________________
Total Operating Expense 339,895 434,597
______________________
INCOME (LOSS) FROM OPERATIONS (452,339) 109,890
______________________
OTHER INCOME (EXPENSE):
Loss on dissolution of partnerships - (120,015)
Interest income 12,273 28,336
______________________
Total Other Income (Expense) 12,273 (91,679)
______________________
INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME TAXES (440,066) 18,211
MINORITY INTEREST IN OPERATIONS OF PARTNERSHIPS 131,242 (158,323)
______________________
INCOME (LOSS) BEFORE INCOME TAXES (308,824) (140,112)
CURRENT TAX EXPENSE (BENEFIT) - 5,825
DEFERRED TAX EXPENSE ( BENEFIT) (55,057) (15,227)
______________________
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (253,767) (130,710)
______________________
[Continued]
-12-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS [Continued]
For the Years Ended
August 31,
______________________
1995 1994
______________________
EXTRAORDINARY ITEM - Forgiveness of
production fee 64,566 -
MINORITY INTEREST IN EXTRAORDINARY ITEM 31,062 -
CHANGE IN ACCOUNTING PRINCIPLE - Cumulative
effect (benefit) on years prior
to August 31, 1994, of application
of Statement of Financial Accounting
FASB 109 "Accounting for Income Taxes" - (55,351)
______________________
NET INCOME (LOSS) $(220,263) $ (75,359)
______________________
EARNINGS (LOSS) PER COMMON SHARE:
Income from continuing operations $ (.034) $ (.018)
Extraordinary item forgiveness
of production fee .004 -
Cumulative effect of accounting change - .008
______________________
EARNINGS (LOSS) PER COMMON SHARE $ (.030) $ (.010)
______________________
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,422,768 7,422,768
______________________
The accompanying notes are an integral part of these consolidated
financial statements.
-13-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
Common Stock Additional
_____________________ Paid-In Retained
Shares Amount Capital Earnings
______________________________________________
BALANCE, August 31, 1993 7,422,768 29,691 124,098 585,410
Net (loss) for the year
ended August 31, 1994 - - - (75,359)
______________________________________________
BALANCE, August 31, 1994 7,422,768 29,691 124,098 510,051
Net (loss) for the year
ended August 31, 1995 - - - (220,263)
______________________________________________
BALANCE, August 31, 1995 7,422,768 $29,691 $124,098 $289,788
______________________________________________
The accompanying notes are an integral part of this financial
statement.
-14-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended
August 31,
_________________________
1995 1994
______________________
Cash Flows From (To) Operating Activities:
Net income (loss) $(220,263) $(75,359)
______________________
Adjustments to reconcile net income (loss) to
cash provided (used) by operations:
Depreciation and amortization 481 742
Loss on dissolution of partnerships - 120,015
Write off of film script inventory 4,169 38,172
Minority interests in partnerships (100,180) 158,323
Write off film inventory to net
realizable value 292,364 70,843
Gain on Sale of Script (21,732) -
Bad debt expense 2,750 25,788
Changes in assets and liabilities:
(Increase) decrease in film inventory 484,226 (217,591)
(Increase) decrease in current
deferred tax asset (27,262) (47,275)
(Increase) decrease in deferred tax asset (27,795) (6,258)
Increase (decrease) in accounts payable 42,857 (25,000)
Increase (decrease) in accounts
payable related party (5,096) (74,806)
Increase (decrease) in accrued expenses (3,168) 1,637
Increase (decrease) in management bonuses (35,000) (5,000)
Increase (decrease) in taxes payable (5,825) (106,200)
______________________
Total Adjustments 600,789 (66,610)
______________________
Net Cash Provided (Used) by Operating
Activities 380,526 (141,969)
______________________
Cash Flows From (To) Investing Activities:
Payments for film script inventory (48,190) (26,894)
Purchase of property plant and equipment (9,775) -
Proceeds from sale of film script 51,127 -
Distributions to limited partners (342,979) (636,077)
Contributions from limited partners - 775,000
______________________
Net Cash Provided (Used) by Investing
Activities (349,817) 112,029
______________________
[Continued]
-15-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS [Continued]
Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended
August 31,
__________________________
1995 1994
______________________
Cash Flows From Financing Activities:
Proceeds from advances from distributor $ - $ -
Payments for advances from distributor - -
______________________
Net Cash Provided by Financing Activities - -
______________________
Net Increase (Decrease) in Cash and
Cash Equivalents 30,709 (29,940)
Cash and Cash Equivalents at Beginning of Year 255,626 285,566
______________________
Cash and Cash Equivalents at End of Year $ 286,335 $255,626
______________________
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ 6,165 $101,672
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the Year Ended August 31, 1995:
None
For the Year Ended August 31, 1994:
The Company accrued a related party payable of $25,000 for
production work performed.
The Company transferred film script inventory of $28,636 to film
inventory.
The Company exchanged accounts receivable of $16,000 for film
inventory.
The accompanying notes are an integral part of these consolidated
financial statements.
-16-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 _ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is engaged in producing, marketing and
distributing commercial feature films. Story rights and film
scripts are typically purchased from third parties. The
Company produces, co-produces or arranges production on these
and other scripts and occasionally sells scripts to third
parties. Production costs are generally financed through the
formation of limited partnerships or advances from
distributors. Feature films developed are distributed by
third parties in the United States and foreign markets, in the
form of video, television, and pay per view rights.
Basis of Presentation - The consolidated financial statements
include the accounts of The Westwind Group, Inc. [Group] and
its wholly-owned subsidiaries Westwind Productions, Inc.
[Productions] and Westwind Releasing, Corp. [Releasing]. The
consolidated financial statements also include limited and
general partnerships for which the Company acts as general
partner and holds ownership, financial or operating control.
The limited and general partnerships included in the financial
statements and the Company's percentage interest in the
partnerships as of August 31, 1995 are as follows:
D.S.R. Partnership 51.9%
Dogged Partnership 28.3%
All significant intercompany transactions have been eliminated
in consolidation.
During the year ended August 31, 1995, the Pike partnership
was dissolved in order to eliminate administrative costs
associated with its continued operation. This limited
partnership was included in the statements of operations and
the Company's percentage interest in the partnership was
67.4%.
During the year ended August 31, 1994, certain older
partnerships were dissolved in order to eliminate
administrative costs associated with their continued
operation. These limited and general partnerships were
included in the statement of operations for the year ended
August 31, 1994 and the Company's percentage interest in the
partnership are as follows:
Bounty Partnership 59.0%
M.L. III Partnership 73.7%
M.L. II Partnership 71.8%
M.L. Partnership 70.0%
M.L. IV General Partnership 66.7%
Due to the timing of dissolution, partnership accounting
factors caused the Company to record a loss of $120,015 on
dissolution for the year ended August 31, 1994. The Company
had previously recorded profits from these partnerships.
Film Inventory - Costs to produce a film are capitalized as
film inventory and are amortized using the individual-film-
forecast-computation method, which amortizes film costs in the
same ratio that current gross revenues bear to anticipated
gross revenues. Amortization of film costs begin when a film
is released and revenues on that film are recognized. Film
inventory classified as current assets include unamortized
costs of film inventory released and allocated to the primary
market. All other capitalized film script costs are
classified as noncurrent assets. If estimated future gross
revenues from a film are not sufficient to recover the
unamortized film costs, other direct distribution expenses,
and participation's, the unamortized film costs are written
down to net realizable value. If it is determined that a
property will not be used in the production of a film, the
costs are charged to production overhead in the current
period.
-17-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 _ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Revenue Recognition - The Company's revenues from license fees
for its motion picture films are recognized when commitments
under the license agreements are due and the film is available
for delivery. The variance in film revenues, from year to
year, can be caused by the releasing of films just prior or
subsequent to the year end.
Depreciation Methods - The cost of property and equipment is
depreciated over the estimated useful lives of the assets.
Depreciation is computed on the straight line method for
financial reporting purposes.
Income (Loss) Per Share - The computation of income (loss) per
share of common stock is based on the weighted average number
of shares outstanding during the period presented.
Cash and Cash Equivalents - For the purposes of the statement
of cash flows, the Company considers all highly liquid debt
investments purchased with a maturity of three months or less
to be cash equivalents. At August 31, 1995 and 1994, the
Company has $170,498 and $106,174 in excess of insured amounts
in its investment account.
Minority Interest - The minority interest represents the
amounts invested by non majority limited partners net of
profits or losses allocated to the minority partners.
Income Taxes - Effective for the year ended August 31, 1995
the Company adopted FASB Statement 109, "Accounting for Income
Taxes." The cumulative effect (benefit) of the change in
accounting for income taxes for prior years is $(55,351) and
has been included in the Statement of Income for the year
ended August 31, 1994. The financial statements for prior
years have not been restated. [See Note 5]
NOTE 2 _ PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at
cost, less accumulated depreciation:
August 31,
1995
_____________
Property and equipment $ 11,900
Airplane 9,775
_____________
21,675
Less: accumulated depreciation 12,226
_____________
Total $ 9,449
_____________
During June 1995, the Company invested in a 25% interest in an
airplane. The plane is rented out throught a local airport.
The plane is managed by the majority owner. The Company plans
to use the plane in its film operations for filming, finding
locations for filming and as a prop.
Depreciation expense for the years ended August 31, 1995 and
1994 was $481 and $742, respectively.
-18-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 _ LIMITED PARTNERSHIPS
The Company organizes limited partnerships to finance the
production 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 in ongoing partnerships ranging from 51.9% to 28.3%.
NOTE 4 _ COMMITMENTS AND CONTINGENCIES
Development Agreements - The Company enters into development
agreements as a means to obtain story rights for feature
films. Developers typically are entitled to a percentage of
the net profits of the Company's general partnership interest
in the film. Amounts paid to developers for the years ended
August 31, 1995 and 1994 were $48,190 and $26,894,
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 roll 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 August 31, 1995, there 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 $33,254 and $48,225 in profit participation payments
for the years ended August 31, 1995 and 1994, respectively.
NOTE 5 _ INCOME TAXES
The Company adopted Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" [FASB 109] during the year
ended August 31, 1994. 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.
-19-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 _ INCOME TAXES [Continued]
At August 31, 1995 the total of all deferred tax assets and
liabilities are $154,290 and $25,827, 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 August 31, 1995, the
Company has $140,039 of operating loss carryovers which can be
applied against prior year net income. Management determined
that no valuation allowance was necessary for the net deferred
tax assets as of August 31, 1995.
The components of income tax expense from continuing
operations for the year ended August 31, 1995 consist of the
following:
1995 1994
_____________ ___________
Current income tax expense:
Federal $ - $ 2,109
State - 3,716
_____________ ___________
Net Current Tax Expense - 5,825
_____________ ___________
Deferred tax expense (benefit) arising from:
Excess of tax over financial
accounting depreciation 176 (3)
Excess of tax over financial accounting
for amortization of production cost 2,131 (3,502)
Cash basis reporting of expenses
for tax purposes 14,743 9,894
Cash basis reporting of income
for tax purposes (3,020) (16,571)
Income from partnerships included in
book income but not included
for tax purposes (13,071) (5,045)
Net operating loss carryovers (56,016) -
_____________ ___________
Net Deferred Tax Expense (Benefit) (55,057) (15,227)
_____________ ___________
Total Income Tax Expense (Benefit) $(55,057) $(9,402)
_____________ ___________
Deferred income tax expense primarily results from temporary
differences in the recognition of film production costs and
the Company reporting taxes on a cash basis.
The temporary differences gave rise to the following deferred
tax asset (liability) at August 31, 1995:
1995 1994
_____________ ___________
Excess of tax over financial
accounting depreciation and amortization 154 330
Excess of tax over financial accounting
for amortization of production cost 3,908 6,039
Cash basis recording of expenses
for tax purposes 64,221 78,964
Cash basis recording of income
for tax purposes (25,827) (28,847)
Income from partnerships included
in book income but not included
for tax purposes 29,992 16,920
Net operating loss carryovers 56,016 -
-20-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 _ INCOME TAXES [Continued]
A reconciliation of income tax expense at the federal
statutory rate to income tax expense at the Company's
effective rate is as follows:
1995 1994
_____________ ___________
Computed tax at the expected
federal statutory rate 34.00% 34.00%
State income taxes, net of federal benefit 6.00 6.00
Excess of tax over financial accounting
depreciation and amortization .03 (.01)
Excess of tax over financial accounting
for amortization of production cost .34 (7.66)
Cash basis reporting of expenses for
tax purposes 2.33 21.63
Cash basis reporting of income for
tax purposes (.48) (36.23)
Income from partnerships included in
book income but not included for tax
purposes (2.06) (11.02)
Net operating loss carryovers (8.85) -
_____________ ___________
Effective Income Tax Rates 31.31% 6.71%
_____________ ___________
NOTE 6 _ RELATED PARTY TRANSACTIONS
Officers, significant shareholders and promoters and their
relatives' ownership interest in the related partnerships at
August 31, 1995 is as follows:
Inclusive ofExclusive of
Relative's Relative's
Ownership Ownership
__________ __________
Pike Partnership 15% 7%
Bounty Partnership 43% 21%
Dogged Partnership 4% 3%
At August 31, 1995 and 1994, the Company has $18,594 and
$25,000 in related party accounts payable for production
services rendered by an officer and director of the Company.
During the year ended August 31, 1993 the Company's Board of
Directors approved the payment of $330,000 in management
bonuses to certain officers and key personnel of the Company.
During 1994 the Company paid $130,000 of the bonuses and
accrued the remaining $200,000. During the year ended August
31, 1995 and 1994 the Company paid $38,000 and $5,000 of these
bonuses and extended the remaining $157,000 to be paid during
the year ended August 31, 1996.
NOTE 7 _ OPERATING LEASES
The Company leases two offices on a month to month basis and
pays $760 and $1,450 per month in rent. These leases are
terminated by either the Company or the Landlord upon thirty
days written notice.
-21-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 _ ECONOMIC DEPENDENCY
For the year ended August 31, 1995, the Company had two
significant customers who represents approximately 87% 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 Years Ended
August 31,
________________________
1995 1994
______________________
Foreign Sales Agents $ 465,052 $ 969,675
Domestic Customers 241,619 640,717
Other 1,802 17,284
______________________
Total Film Revenues $708,473 $1,627,676
______________________
NOTE 9 _ FILM INVENTORY
The components of film inventory at August 31, 1995 are:
Released films $ 446,941
Films completed but not released 243,819
Films in progress -
Story rights and scenarios 33,481
___________
Total Film Inventory 724,241
Less long-term portion 33,481
___________
Total Current Film Inventory $ 690,760
___________
Film cost amortization was $507,959 and $1,003,841 for the
years ended August 31, 1995 and 1994, respectively.
During the year ended August 31, 1995 and 1994 the Company
recorded an adjustment of $292,364 and $70,843 to reduce the
carrying value of film inventory to its net realizable value.
NOTE 10 _ EXTRAORDINARY ITEM
During the year ended August 31, 1995 the Company forgave a
$64,566 receivable for production fees from a partnerships
which the Company is the general partner. The net effect of
the transaction was to record bad debt expense of $64,566 and
an extraordinary gain of $64,566 net of $31,063 in minority
interest.
-22-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
A. Identification of Directors and Executive Officers
The current directors and executive officers of the Company
who will serve until the next annual meeting of shareholders or
until their successors are elected or appointed and qualified,
are set forth below:
Name Age Position
William C. Webb 48 Chairman/President/CEO
James K. Webb 44 Director
Background information concerning the Company's officers and
directors is as follows:
William C. Webb: Mr. Webb has been the Chairman of the
Board of Directors, the President and CEO of the Company since
inception. Mr. Webb is, and has been since 1976, a motion picture
producer, director and writer who has worked in Europe and the
United States. Mr. Webb received his film training at the London
Film School. He also received a Bachelor of Science in
Electrical Engineering from Duke University.
James K. Webb: Mr. Webb was a director of the Company from
1989 to 1992 when he resigned for professional reasons. He was
reappointed as a director of the Company in September 1994. Mr.
Webb is also the Senior Vice President for a major U.S. bank. He
is presently based in Dallas, Texas, but has formerly worked for
First Interstate Bank, Los Angeles, Ticor Corp., Los Angeles,
among others. He has received his Masters in Business
Administration degree from Pepperdine University and his Bachelor
of Arts degree from Southern Methodist University. He is the
brother of William Webb.
B. Significant Employees: None.
C. Family Relationships: James K. Webb is the brother of
William C. Webb.
D. Other: Involvement in Certain Legal Proceedings.
There have been no events under any bankruptcy act, no
criminal proceedings and no judgments or injunctions material to
the evaluation of the ability and integrity of any director or
executive officer during the past five years.
E. Compliance with Section 16(a): The Company currently
has no class of securities registered pursuant to Section 12 of
the Exchange Act and therefore is not subject to Section 16(a).
-24-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash
compensation paid by the Company for services rendered during the
last three years to the Company's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
___________________ ___________ __________
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All
Other Other
Name and Annual Restrict Option/ LTIP Compensa-
Principal ($) ($) Compen- Stock SAR's Payouts tion
Position Year Salary Bonus sation($) awards($) (#) ($) ($)
William 1995 $60,00 $-0- $-0- $-0- $-0- $ -0- $ -0-
C. Webb 1994 $60,000 $-0- $-0- $-0- $-0- $ -0- $ -0-
President, 1993 $60,000 $100,000 $-0- $-0- $-0- $ -0- $ -0-
CEO
Chairman
The Company expects to compensate Mr. Webb approximately
$80,000 in salary for services rendered as CEO during the fiscal
year 1996.
No options, stock appreciation rights or long-term incentive
plan awards were issued or granted to the Company's executive
officers during the fiscal year ended August 31, 1995. As of
August 31, 1995, the end of the Company's last fiscal year, the
Company's management owned no options or stock appreciation
rights. Accordingly, no tables relating to such items have been
included in this Item 10.
Compensation of Directors
The Company's directors are not compensated for attending
Board of Directors meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A. & B. Security Ownership of Management and Certain
Beneficial Owners
The following table sets forth information regarding shares
of the Company's Common Stock owned beneficially as of November
22, 1995, by (i) each director of the Company, (ii) all officers
and directors as a group, and (iii) each person known by the
Company to beneficially own 5% or more of the outstanding shares
of the Company's Common Stock:
-25-
<PAGE>
Name Amount
and Address and Nature Percent
of Beneficial of Beneficial of Class*
Owner Ownership
William C. Webb (1)(2) 5,588,518 75%
1746 1/2 Westwood Blvd.
Los Angeles, CA 90024
James K. Webb (1) 172,500 2%
1746 1/2 Westwood Blvd.
Los Angeles, CA 90024
Robert W. Mann 423,750 6%
937 Westholme Ave.
Los Angeles, CA 90024
All Officers, and Directors 5,761,018 77%
as a Group (2 persons)
Total Shares Issued
and Outstanding 7,422,768 100%
(1) These individuals are the officers and/or directors of
the Company.
(2) William Webb owns 3,333,388 of these shares in his own
name, Monica Webb owns 515,130 of these shares in her own name,
and 1,740,000 of these shares are jointly owned by William Webb
and Monica Webb. Mr. Webb anticipates that all of these shares
will be owned solely by him pursuant to an agreement between Mr.
Webb and Monica Webb.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the fiscal years ending August 31, 1995, 1994 and 1993,
the officers and directors received the following distributions
from investments in Company affiliated partnerships:
1995 1994 1993
William Webb $15,770 $17,518 $57,455
Carol Schuler(1) $12,096 $10,981 $36,581
James Webb $ 1,839 $10,631 -0-
Kurt Anderson(1) -0- -0- $22,764
(1) Ms. Schuler resigned as an officer in 1995.
(2) Mr Anderson resigned as an officer and director in 1993.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. No Exhibits are filed in connection with this Form 10-
KSB and the Company incorporate by reference all applicable
Exhibits heretofore filed.
B. No form 8-K was filed by the Company during the quarter
ended August 31, 1995.
-26-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
THE WESTWIND GROUP, INC.
Date: November 29, 1995 By: /s/ William C. Webb
Principal Executive Officer
Principal Financial Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Issuer and
in the capacities and on the dates indicated.
Signature Capacity Date
/s/ WILLIAM C. WEBB Chairman/President/ November 29, 1995
William C. Webb CEO
/s/ JAMES K. WEBB Director November 29, 1995
James K. Webb
-27-
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<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 286
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 1091
<PP&E> 9449
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<TOTAL-ASSETS> 1169
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0
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<OTHER-SE> 414
<TOTAL-LIABILITY-AND-EQUITY> 1169
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