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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-23884-LA
THE WESTWIND GROUP, INC.
(Name of Small Business Issuer as specified in its charter)
Delaware 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 xx 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. xx
The Issuer's revenues for the fiscal year ending August 31, 1996
were $611,419
As of February 25, 1997, 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 February 25, 1997, 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's activities have diminished during the last several
years due to various causes including changes in market conditions for
small, independent film production companies and increased competition
from cable television networks. The Company's Board of Directors has
considered, and is considering alternative business opportunities. Such
opportunities may result in the sale or termination of the Company's film
activities, commencement of operations in businesses not involved in the
film or entertainment industry, a change of the Company's management and
a change of control of the Company. The Company has considered several
proposals relating to alternative business operations but has not entered
into any definitive agreement considering any such alternative operations
or change of control. Furthermore, there can be no assurance that the
Company will ever change its current business operations.
Film Production During Fiscal Years 1996, 1995 and 1994
During the fiscal years ended August 31, 1996, 1995 and 1994 the
Company completed production of the following films:
Fiscal
Year
Picture Description Released Completed
Asylum Thriller starring Norstar 1996
Robert Patrick Entertainment
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)
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The Child Drama thriller Norstar 1994
Co-produced starring Entertainment
with Allegro Darlanne Fluegel, (Foreign)
Films M. Emmett Walsh,
and James Brolin
Current Projects
During the fiscal year ending August 31, 1997, 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.
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.
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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. During the last two fiscal years, the Company
has been subject to increased competition, and as a result, has
contributed to the Company's reduced operations.
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, 1996, 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,
screen writers, and other important creative and financial elements,
rights to participate in the net profits or gross revenues of particular
pictures.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its principal offices at 1746 1/2 Westwood Blvd., Los
Angeles, California, 90024, on a month-to-month basis and pays $760 per
month in rent. The lease is terminable by either the Company or the
landlord 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.
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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, 1996.
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 Common Stock was 7,422,768 as of February 25, 1997
was 704. 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.
Results of Operations for the Years Ended August 31, 1996 and 1995
Revenues. The Company's principal objective has been to produce and
distribute one to four motion pictures each year with commercial subject
matter. The Company is now considering alternative business operations,
but currently its only operations are its film production operations.
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
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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.
1996 1995 1994 1993 1992
Revenues $611,419 $758,473 $1,720,216 $3,732,046 $1,648,97
Production
Costs 516,174 870,917 1,175,729 2,489,694 1,212,704
Gross Profit
(loss) 95,245 (112,444) 544,487 1,242,352 436,266
Operating
Expense 395,546 339,895 434,597 726,843 400,150
Other
Income
(Expense) 42,364 12,273 (91,679) 197 (53,086)
Net Income
(loss) (211,511) (220,263) (75,359) 180,799 (99,165)
Net Income
(loss)per
share (.03) (.030) (.01) .024 (.013)
Total revenues for the year ending August 31, 1996, were $611,419 as
compared with $758,473 for the year ended August 31, 1995, a reduction of
approximately 19.39%. The decrease in total revenues from 1995 to 1996 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 three years and it is likely to continue to
decrease this year as film production will continued to be limited.
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, 1996,
approximately 35% of the Company's total film revenues were generated by
the foreign sales as compared to 34% for the year ending August 31, 1995.
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.
Interest. The Company had interest income of $42,364 during the fiscal
year ended August 31, 1996 compared to interest income of $12,273 for the
year ended August 31, 1995.
Operating Expenses, Operating Income and Other Income and Expenses.
For the year ended August 31, 1996, the Company's operating expenses were
$395,546 compared to $339,895 for the year ended August 31, 1995. The
Company incurred a loss from operations of $300,301 for the year ending
August 31, 1996 as compared to income of $452,339 for the year ending
August 31, 1995. This loss was a result of decreased film production and
revenue generation.
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Net Loss. For the fiscal year ended August 31, 1996, the Company had
a net loss of $211,511 compared to a net loss of $220,563 for the year
ended August 31, 1995 which included $64,566 for extraordinary income
related to a forgiveness of a production fee owed by the Company. 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.
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 $162,309 at August 31,
1996, as compared to $286,335 at August 31, 1995. The Company had
treasury bills of $299,163 at August 31, 1996. Total current assets
decreased significantly to $825,827 at August 31, 1996, compared to
$1,090,505 at August 31, 1995.
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, 1997, the Company anticipates it will be
involved in the production of one motion picture that will cost
approximately one million dollars, none of which is expected to be
provided by the company. The Company may continue to develop scripts with
its own funds.
The Company projects its operating expenses for the next 12 months to
be approximately $250,000 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.
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.
Additional Information
The Company's activities have diminished during the last several years
due to various causes including changes in market conditions for small,
independent film production companies and increased competition from cable
television networks. During each of the last three fiscal years, the
Company's revenues have declined, its film activity has decreased and its
assets have decreased. Management believes that the Company cannot
continue to operate solely as a film production company.
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The Company's Board of Directors has, and is considering alternative
business opportunities. Such opportunities may result in the sale or
termination of the Company's film activities, commencement of operations
in business not involved in the film or entertainment industry, may
result in the change of the Company's management and may result in a
change of control of the Company. The Company has considered several
proposals relating to alternative business operations but has not entered
into any definitive agreement considering any such alternative operations
or change of control. Furthermore, there can be no assurance that the
Company will ever change its current business operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Financial Statements
Independent Auditor's Report
Consolidated Balance Sheet
Year ended August 31, 1996
Consolidated Statements of Income
Years ended August 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity
Years ended August 31, 1996 and 1995
Consolidated Statements of Cash Flows
Years ended August 31, 1996 and 1995
Notes to Consolidated Financial Statements
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:
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Name Age Position
William C. Webb 49 Chairman/President/CEO
James K. Webb 45 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. 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).
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)
Other All
Name and Annual Restrict Option/ LTIP Other
Principal ($) ($) Compen- Stock SAR'S Payouts Compen-
Position Year Salary Bonus sation($) Awards($) (#) ($) sation($)
- --------- ----- ------- ---- -------- -------- ---- ----- -------
William C. 1996 $60,000 $* $-0- $-0- -0- $-0- $-0-
Webb,
1995 $60,000 $-0- $-0- $-0- -0- $-0- $-0-
President,
CEO 1994 $60,000 $-0- $-0- $-0- -0- $-0- $-0-
Chairman
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* During the year ended August 31, 1996, the Company's Board of Directors
approved the payment of a $100,000 bonus to William Webb, its
president. As of August 31, 1996, such bonus had not been paid.
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, 1996. As of August 31, 1996, 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 February 25, 1997, 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:
Name Amount
and Address and Nature Percent
of Beneficial of Beneficial of Class*
Owner Ownership
William C. Webb (1) 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the fiscal years ending August 31, 1996, 1995 and 1994, the officers
and directors received the following distributions from investments in
Company affiliated partnerships:
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1996 1995 1994
William Webb $6303 $15,770 $17,518
Carol Schuler(1) $5217 $12,096 $10,981
James Webb $834 $ 1,839 $10,631
(1) Ms. Schuler resigned as an officer in 1995.
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, 1996.
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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: February 28, 1997 By /S/ WILLIAM C. WEBB
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/ February 28, 1997
William C. Webb CEO
/s/ James K. Webb
Director February 28, 1997
James K. Webb
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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: February 28, 1997 By /s/ William C. Webb
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/ February 28, 1997
William C. Webb CEO
/s/ James K. Webb Director February 28, 1997
James K. Webb
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THE WESTWIND GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
PAGE
_ Independent Auditors' Report 1
_ Consolidated Balance Sheet, August 31, 1996 2 - 3
_ Consolidated Statements of Operations, for the
years ended August 31, 1996 and 1995 4 - 5
_ Consolidated Statement of Stockholders' Equity, for
the years ended August 31, 1996 and 1995 6
_ Consolidated Statements of Cash Flows, for the
the years ended August 31, 1996 and 1995 7 - 8
_ Notes to Consolidated Financial Statements 9 - 15
<PAGE>
PRITCHETT, SILER & HARDY, 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, 1996 and the related consolidated statements of
operations stockholders' equity, and cash flows for the
years ended August 31, 1996 and 1995. 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, 1996 and the results of their
operations, and their cash flows for the years ended August
31, 1996 and 1995, in conformity with generally accepted
accounting principles.
/S/ PRITCHETT, SILER & HARDY, P.C.
PRITCHETT, SILER & HARDY, P.C.
November 5, 1996
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THE WESTWIND GROUP, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
August 31,
1996
____________
CURRENT ASSETS:
Cash and cash equivalents $ 162,309
Treasury bills 299,163
Marketable equity securities available
for sale 18,945
Advances and other receivables 2,739
Advances - related party 86,900
Film inventory 153,746
Deferred tax asset, net 102,025
____________
Total Current Assets 825,827
____________
PROPERTY AND EQUIPMENT, net 8,164
____________
OTHER ASSETS:
Film script inventory 6,205
Other assets 1,580
Deferred tax asset 25,762
____________
Total Other Assets 33,547
____________
TOTAL ASSETS $ 867,538
____________
The accompanying notes are an integral part of these
consolidated financial statements.
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THE WESTWIND GROUP, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31,
1996
____________
CURRENT LIABILITIES:
Accounts payable $ 67,905
Accounts payable - related party 5,213
Accrued expenses 2,539
Management bonuses payable 257,000
____________
Total Current Liabilities 332,656
____________
MINORITY INTEREST 309,341
____________
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, 1996 29,691
Additional paid-in capital 124,098
Retained earnings 78,277
Unrealized holding loss on marketable securities (6,525)
____________
Total Stockholders' Equity 225,541
____________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $867,538
____________
The accompanying notes are an integral part of these
consolidated financial statements.
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THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
August 31,
_________________________
1996 1995
______________________
REVENUE
Film revenue $ 562,432 $708,473
Film management and marketing income 48,987 50,000
______________________
Total Revenue 611,419 758,473
______________________
PRODUCTION COSTS:
Direct costs related to film revenue 511,316 835,333
Profit participation expenses 4,858 33,254
Co-partner production fees - 2,330
______________________
Total Production Cost 516,174 870,917
______________________
GROSS PROFIT (LOSS) 95,245 (112,444)
______________________
OPERATING EXPENSE:
General and administrative 269,153 308,433
Accrued management bonuses 100,000 -
Professional fees 26,393 31,462
______________________
Total Operating Expense 395,546 339,895
______________________
INCOME (LOSS) FROM OPERATIONS (300,301) (452,339)
______________________
OTHER INCOME (EXPENSE):
Interest income 42,364 12,273
______________________
Total Other Income (Expense) 42,364 12,273
______________________
INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME TAXES (257,937) (440,066)
MINORITY INTEREST IN OPERATIONS
OF PARTNERSHIPS (6,856) (131,242)
______________________
INCOME (LOSS) BEFORE INCOME TAXES (251,081) (308,824)
CURRENT TAX EXPENSE (BENEFIT) (39,916) -
DEFERRED TAX EXPENSE ( BENEFIT) 346 (55,057)
______________________
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (211,511) (253,767)
______________________
[Continued]
-4-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS [Continued]
For the Years Ended
August 31,
_________________________
1996 1995
______________________
EXTRAORDINARY ITEM - Forgiveness of production fee - 64,566
MINORITY INTEREST IN EXTRAORDINARY ITEM - 31,062
______________________
NET INCOME (LOSS) $(211,511) $(220,263)
______________________
EARNINGS (LOSS) PER COMMON SHARE:
Income from continuing operations $ (.03) $ (.034)
Extraordinary item forgiveness of production fee - .004
______________________
EARNINGS (LOSS) PER COMMON SHARE $ (.03) $ (.030)
______________________
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 7,422,768 7,422,768
______________________
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
Common Stock Additional Unrealized Loss
__________________ Paid-In Retained on Marketable
Shares Amount Capital Earnings Securities
__________________ _________ ________ __________
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 -
Unrealized loss on
marketable securities - - - - (6,525)
Net (loss) for the
year ended August
31, 1996 - - - (211,511) -
_________________________________________________________
BALANCE, August 31,
1996 7,422,768 $29,691 $124,098 $78,277 $(6,525)
_________________________________________________________
The accompanying notes are an integral part of this
financial statement.
-6-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended
August 31,
_________________________
1996 1995
______________________
Cash Flows From (To) Operating Activities:
Net income (loss) $(211,511) $(220,263)
______________________
Adjustments to reconcile net income (loss) to
cash provided (used) by operations:
Write off of film script inventory 1,824 4,169
Depreciation and amortization - 481
Loss on dissolution of partnerships 35,745 -
Minority interests in partnerships (6,856) (100,180)
Write off film inventory to net
realizable value 127,822 292,364
Gain on contingency (25,470) -
Gain on Sale of Script - (21,732)
Bad debt expense - 2,750
Changes in assets and liabilities:
(Increase) decrease in film inventory 409,192 484,226
(Increase) decrease in current
deferred tax asset 11,385 (27,262)
(Increase) decrease in advances
and other receivables (2,739) -
(Increase) decrease in deferred tax asset 8,291 (27,795)
Increase (decrease) in accounts payable (5,983) (42,857)
Increase (decrease) in accounts
payable related party (14,691) (5,096)
Increase (decrease) in accrued expenses 828 (3,168)
Increase (decrease) in management bonuses 100,000 (35,000)
Increase (decrease) in taxes payable - (5,825)
______________________
Total Adjustments 639,348 600,789
______________________
Net Cash Provided (Used) by Operating
Activities 427,837 380,526
______________________
Cash Flows From (To) Investing Activities:
Purchase of US Treasury bill (299,163) -
Advances - related party (86,900) -
Payments for film script inventory (8,469) (48,190)
Purchase of property plant and equipment (539) (9,775)
Proceeds from sale of film script - 51,127
Distributions to limited partners (156,792) (342,979)
Contributions from limited partners - -
______________________
Net Cash Provided (Used) by Investing
Activities (551,863) (349,817)
______________________
[Continued]
-7-
<PAGE>
THE WESTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS [Continued]
Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended
August 31,
_________________________
1996 1995
______________________
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 (124,026) 30,709
Cash and Cash Equivalents at Beginning of Year 286,335 255,626
_______________________
Cash and Cash Equivalents at End of Year $ 162,309 $286,335
_______________________
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ - $ 6,165
Supplemental Schedule of Non-cash Investing and Financing
Activities:
For the Year Ended August 31, 1996:
None
For the Year Ended August 31, 1995:
None
The accompanying notes are an integral part of these
consolidated financial statements.
-8-
<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%.
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.
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.
-9-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 _ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[Continued]
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.
Earnings (Loss) Per Share - The computation of earnings
(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 - The Company accounts for income taxes in
accordance with FASB Statement 109, "Accounting for
Income Taxes." [See Note 5]
Treasury Bills and Marketable Securities - The company
accounts for investments in debt and equity securities in
accordance with Statement of Financial Accounting
Standards SFAS 115 "Accounting for Certain Investments in
Debt and Equity Securities." Under SFAS 115 the
Company's treasury bills have been classified as held to
maturity and are recorded at amortized soct. Held to
maturity securities represent those securities that the
Company has both the positive intent and ability to hold
until they mature. The Company's marketable securities
have been classified as available for sale and are
recorded at their fair market value and unrealized gains
and losses are reported in a separate component of
shareholders equity.
Accounting Estimates - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures of
contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results
could differ from those estimated.
NOTE 2 _ TREASURY BILLS
At August 31, 1996 US Treasury bills consisted of the
following investments which are carried at amortized
cost:
Date Maturity Amortized Market Maturity
Acquired Date Cost Value Value
___________ _________ _________ _________ _________
3/25/96 9/19/96 97,721 99,721 100,000
6/19/96 9/19/96 99,721 99,721 100,000
6/19/96 9/19/96 98,721 99,721 100,000
-10-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 _ MARKETABLE SECURITIES
At August 31, 1996 marketable securities available for
sale consisted of the following:
Unrealized
Holding Market
Cost Loss Value
_________ ___________ __________
Common Stock 25,470 6,525 18,945
NOTE 4 _ RELATED PARTIES TRANSACTION
During the year ended August 31, 1996 the Company paid
various expenses on behalf of its majority shareholder
and president. These expenses totaled $86,900 and have
been recorded as advances related party.
Officers, significant shareholders and promoters and
their relatives' ownership interest in the related
partnerships at August 31, 1996 is as follows:
Ownership
__________
Desire Partnership 48%
Dogged Partnership 49%
At August 31, 1996 and 1995, the Company has $2,870 and
$18,594 in related party accounts payable for production
services rendered by a former officer and director of the
Company.
During the year ended August 31, 1996 the Company's Board
of Directors approved the payment of $100,000 in
management bonuses to an officer, director and president
of the Company. As of August 31, 1996 the bonuses had
not yet been paid.
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, 1997.
-11-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 _ FILM INVENTORY
The components of film inventory at August 31, 1996 are:
Released films $ 138,711
Films completed but not released 15,035
Films in progress -
Story rights and scenarios 6,205
___________
Total Film Inventory 159,951
Less long-term portion 6,205
___________
Total Current Film Inventory $ 153,746
___________
Film cost amortization was $361,578 and $507,959 for the
years ended August 31, 1996 and 1995, respectively.
During the year ended August 31, 1996 and 1995 the Company
recorded an adjustment of $127,823 and $292,364 to reduce
the carrying value of film inventory to its net realizable
value.
NOTE 6 _ PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at
cost, less accumulated depreciation:
August 31,
1996
_____________
Property and equipment $ 12,439
Airplane 9,775
_____________
22,214
Less: accumulated depreciation 14,050
_____________
Total $ 8,164
_____________
During June 1995, the Company invested in a 25% interest
in an airplane. The plane is rented out through 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, 1996
and 1995 was $1,781 and $481, respectively.
-12-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 _ 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 8 _ 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, 1996 and 1995
were $8,469 and $48,190, 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, 1996, 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 $4,858 and
$33,254 in profit participation payments for the years
ended August 31, 1996 and 1995, respectively.
-13-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 _ INCOME TAXES
The Company accounts for income taxes in accordance with
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.
At August 31, 1996 the total of all deferred tax assets and
liabilities are $129,311 and $1,520, 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.
Because of the uncertainty surrounding the realization of
the deferred asset, the Company has established a valuation
allowance of $68,000 as of August 31, 1996 which has been
offset against the deferred tax asset. The net increase in
the valuation allowance during the year ended August 31,
1996 was $68,000. As of August 31, 1996, the Company has
approximately $127,000 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, 1996.
The components of income tax expense from continuing
operations for the year ended August 31, 1996 and 1995
consist of the following:
1996 1995
_____________ ___________
Current income tax expense:
Federal $(39,916) $ -
State - -
_____________ ___________
Net Current Tax Expense (39,916) -
_____________ ___________
Deferred tax expense (benefit) arising from:
Excess of tax over financial accounting
depreciation 933 176
Excess of tax over financial accounting
for amortization of production cost 4,437 2,131
Cash basis reporting of expenses for
tax purposes (55,409) 14,743
Cash basis reporting of income for
tax purposes (25,612) (3,020)
Income from partnerships included in
book income but not included for
tax purposes 2,922 (13,071)
Net operating loss carryovers 5,075 (56,016)
Increase in valuation allowance 68,000 -
_____________ ___________
Net Deferred Tax Expense (Benefit) 346 (55,057)
_____________ ___________
Total Income Tax Expense (Benefit) $(39,570) $(55,057)
_____________ ___________
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.
-14-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 _ 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:
1996 1995
_____________ ___________
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 .28 .03
Excess of tax over financial accounting
for amortization of production cost 1.34 .34
Cash basis reporting of expenses
for tax purposes (16.69) 2.33
Cash basis reporting of income
for tax purposes (7.72) (.48)
Income from partnerships included in
book income but not included for tax
purposes .88 (2.06)
Net operating loss carryovers 1.53 (8.85)
_____________ ___________
Effective Income Tax Rates 19.62% 31.31%
_____________ ___________
The temporary differences gave rise to the following
deferred tax asset (liability) at August 31, 1996:
1996 1995
_____________ ___________
Excess of tax over financial
accounting depreciation
and amortization (779) 154
Excess of tax over financial accounting
for amortization of production cost (529) 3,908
Cash basis recording of expenses
for tax purposes 51,630 64,221
Cash basis recording of income
for tax purposes (215) (25,827)
Income from partnerships included in book
income but not included for tax purposes 27,070 29,992
Net operating loss carryovers 50,611 56,016
NOTE 10 _ OPERATING LEASES
The Company leases office space on a month to month basis
and pays $760 a month in rent. This lease is terminated
by either the Company or the Landlord upon thirty days
written notice.
-15-
<PAGE>
THE WESTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 _ 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,
________________________
1996 1995
______________________
Foreign Sales Agents $197,479 $465,052
Domestic Customers 362,940 241,619
Other 2,013 1,802
______________________
Total Film Revenues $562,432 $708,473
______________________
NOTE 12 _ EXTRAORDINARY ITEM
During the year ended August 31, 1995 the Company forgave
a $64,566 receivable for production fees from a
partnerships in 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.
-16-
<PAGE>
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<MULTIPLIER> 1000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 162
<SECURITIES> 318
<RECEIVABLES> 88
<ALLOWANCES> 0
<INVENTORY> 154
<CURRENT-ASSETS> 826
<PP&E> 8164
<DEPRECIATION> 0
<TOTAL-ASSETS> 868
<CURRENT-LIABILITIES> 333
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 195
<TOTAL-LIABILITY-AND-EQUITY> 868
<SALES> 611
<TOTAL-REVENUES> 611
<CGS> 516
<TOTAL-COSTS> 516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (251)
<INCOME-TAX> 40
<INCOME-CONTINUING> (212)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (212)
<EPS-PRIMARY> (.03)
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