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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ -------------------
Commission File Number: 0-1590
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THE WESTWOOD GROUP, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-1983910
-------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
190 V.F.W. Parkway, Revere, Massachusetts 02151
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
781-284-2600
------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 10, 2003, 351,210 shares of the Registrant's common stock, par value
$.01 per share, and 912,015 shares of the Registrant's Class B common stock, par
value $.01 per share, were outstanding.
1
PART I FINANCIAL INFORMATION PAGE NUMBER
ITEM 1: Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2003
and December 31, 2002 ................................... 3
Consolidated Statements of Operations for the three
months ended March 31, 2003 and March 31, 2002 .......... 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 2003 and March 31, 2002 .......... 6
Notes to Consolidated Financial Statements ................ 7
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................... 10
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 14
ITEM 4: Controls and Procedures ................................... 14
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings ......................................... 15
ITEM 2: Changes in Securities and Use of Proceeds ................. 15
ITEM 3: Defaults Upon Senior Securities ........................... 15
ITEM 4: Submission of Matters to a Vote of Security Holders ....... 15
ITEM 5: Other Information ......................................... 15
ITEM 6: Exhibits and Reports on Form 8-K .......................... 16
SIGNATURE ................................................. 17
CERTIFICATION ............................................. 18
EXHIBIT INDEX ............................................. 19
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2003 2002
------------ ------------
ASSETS (Note 2)
CURRENT ASSETS:
Cash and cash equivalents $ 116,928 $ 114,327
Restricted cash 253,874 376,279
Escrowed cash 128,006 294,996
Accounts receivable 16,301 20,781
Prepaid expenses and other current assets 136,558 134,583
Notes receivable from officers short term portion 1,092,847 1,137,572
------------ ------------
Total current assets 1,744,514 2,078,538
------------ ------------
PROPERTY, PLANT, & EQUIPMENT
Building and building improvements 19,094,811 19,094,811
Machinery and equipment 4,857,174 4,848,183
Land 348,066 348,066
------------ ------------
24,300,051 24,291,060
Less accumulated depreciation and amortization (19,685,436) (19,534,414)
------------ ------------
Net property, plant and equipment 4,614,615 4,756,646
------------ ------------
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $58,126 and $ 130,400 at March 31,
2003 and December 31, 2002, respectively 240,811 265,723
Other assets, net 26,379 26,379
------------ ------------
Total other assets 267,190 292,102
------------ ------------
Total assets $ 6,626,319 $ 7,127,286
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2003 2002
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 1,109,428 $ 1,749,997
Outstanding parimutuel tickets 863,591 608,226
Current maturities of long-term debt (Note 2) 103,027 96,072
------------ ------------
Total current liabilities 2,076,046 2,454,295
LONG-TERM DEBT, less current maturities (Note 2) 5,848,244 5,531,302
OTHER LONG-TERM LIABILITIES 951,952 985,827
------------ ------------
Total liabilities 8,876,242 8,971,424
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' DEFICIENCY:
Common stock, $.01 par value; authorized
3,000,000 shares, 1,944,409 shares issued 19,444 19,444
Class B Common stock, $.01 par value; authorized
1,000,000 shares; 912,615 shares issued 9,126 9,126
Additional paid-in capital 13,379,275 13,379,275
Accumulated deficit (7,196,701) (6,790,916)
Accumulated other comprehensive loss (496,285) (496,285)
Cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
------------ ------------
Total stockholders' deficiency (2,249,923) (1,844,138)
------------ ------------
Total liabilities & stockholders' deficiency $ 6,626,319 $ 7,127,286
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31, March 31,
2003 2002
- ----------------------------------------------- ----------- -----------
OPERATING REVENUES:
Pari-mutuel commissions $ 2,879,512 $ 3,325,699
Admissions 27,930 42,409
Concessions and parking 547,104 662,674
----------- -----------
Total operating revenue 3,454,546 4,030,782
----------- -----------
Operating expenses:
Wages, taxes and benefits 1,528,132 1,555,012
Purses 779,744 862,096
Cost of food and beverage 77,387 110,123
Administrative & operating 1,178,759 1,115,824
Depreciation and amortization 175,932 133,909
----------- -----------
Total operating expenses 3,739,954 3,776,964
----------- -----------
Income (loss) from operations (285,408) 253,818
----------- -----------
Other expense:
Interest expense, net (94,377) (134,299)
Other expense, net -- (29,454)
----------- -----------
Total other expense (94,377) (163,753)
----------- -----------
Income (loss) before
provision for income taxes (379,785) 90,065
Provision for income taxes 26,000 17,142
----------- -----------
Net income (loss) $ (405,785) $ 72,923
=========== ===========
Basic and diluted per share data:
Net income (loss) ($ 0.32) $ 0.06
=========== ===========
Basic and diluted weighted average common shares
outstanding 1,263,225 1,263,225
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
THE WESTWOOD GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended March 31
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(405,785) $ 72,923
Adjustments to reconcile net income (loss) to --------- ---------
net cash provided by (used in) operating activities:
Depreciation and amortization 175,934 133,909
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 122,405 (190,631)
Decrease (increase) in escrowed cash 166,990 (35,949)
Decrease in accounts receivable 4,480 31,378
Decrease (increase) in prepaid expenses and other
current assets (1,975) 108,899
Decrease in accounts payable and other accrued liabilities (646,298) (319,709)
Increase in outstanding parimutuel tickets 255,365 121,575
Increase in accrued executive bonus long-term portion -- 39,176
Increase (decrease) in other long term liabilities (33,875) 114,771
--------- ---------
Total adjustments 43,026 3,419
--------- ---------
Net cash provided by (used in) operating activities (362,759) 76,342
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,262) (71,517)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (26,103) (78,276)
Proceeds from debt financing 350,000 --
Decrease in notes receivable, officers 44,725 87,326
Proceeds from short-term financing -- 300,000
--------- ---------
Net cash provided by financing activities 368,622 309,050
--------- ---------
Net increase in cash and cash equivalents 2,601 313,875
Cash and cash equivalents, beginning of year 114,327 12,355
--------- ---------
Cash and cash equivalents, end of year $ 116,928 $ 326,230
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 122,607 $ 113,348
========= =========
Income taxes $ 26,000 $ 10,000
========= =========
Non-cash investing activities:
The Company recorded a capital lease obligation of $5,729 in the quarter ended March 31, 2003.
The accompanying notes are an integral part of these consolidated financial
statements.
6
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 2003
1. BASIS OF PRESENTATION
INTERIM RESULTS
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair statement of
results of operations for the interim periods presented. 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 and disclosure of contingent assets and
liabilities on the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Operating results for interim periods are not necessarily
indicative of results that may be expected for an entire fiscal year.
Accordingly, these interim consolidated financial statements should be read in
conjunction with the consolidated financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated condensed financial statements as of March
31, 2003 and December 31, 2002 and for the three-month periods ended March 31,
2003 and 2002 include the accounts of the Company and its wholly-owned
subsidiaries. All material inter-company accounts and transactions have been
eliminated in consolidation.
INCOME (LOSS) PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards No. 128
("SFAS No. 128"), "Earnings per Share", issued by the Financial Accounting
Standards Board. Basic net income (loss) per share is computed using the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) per share is computed using the weighted average number of
common shares and potentially dilutive common shares, consisting of stock
options with an exercise price below the average market price of common shares.
Stock options were not considered in 2003 since the Company had a net loss and
their effect would be antidilutive. The Company's stock options did not have a
dilutive effect in 2002 since the option prices per share were deemed to be
equal to or higher than the estimated average per share market price of the
Company's common stock.
The amount of potentially dilutive common shares issuable under the
Company's stock options, if any, are determined based on the treasury stock
method.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
STOCK BASED COMPENSATION
At March 31, 2003, the Company continued to account for stock-based
compensation plans using the intrinsic value method. The Company accounts for
stock based compensation plans in accordance with the provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for
7
Stock-Based Compensation" ("SFAS No. 123"), and SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure".
All stock options were fully vested as of December 31, 2000. As a result,
there is no pro-forma expense for the three months ended March 31, 2003 and
2002.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses the accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the related asset retirement costs, in particular legal obligations associated
with such retirement that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. The Company adopted this statement on January 1, 2003,
as required. However, the adoption of this statement did not have a material
impact on the Company's financial position, results of operations or cash flows.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of this interpretation are
effective for interim and annual periods after December 15, 2002. The initial
recognition and initial measurement requirements of this interpretation are
effective prospectively for guarantees issued or modified after December 31,
2002. The provisions of FIN 45, which the Company adopted in 2003, did not have
a material impact on the consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). This interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
addresses consolidation by business enterprises of variable interest entities.
Under current practice, two enterprises generally have been included in
consolidated financial statements because one enterprise controls the other
through voting interests. This interpretation defines the concept of "variable
interests" and requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively
disperse the risks among the parties involved. The provisions of FIN 46, which
the Company adopted in 2003, did not have a material impact on the consolidated
financial statements.
8
2. DEBT
Long-term debt consisted of the following:
March 31, 2003 December 31, 2002
-------------- -----------------
6.5% Boston Federal Savings Bank Term Loan $5,951,271 $5,627,374
requiring 34 equal monthly payments of principal and
interest beginning November 1, 2002 collateralized
by a mortgage and security interest in all real
estate and personal property located at Wonderland
Greyhound Park. The final payment on the loan is to
be made September 1, 2005 in the amount of $5,690,369
Less current maturities 103,027 96,072
---------- ----------
Long-term portion $5,848,244 $5,531,302
========== ==========
At March 31, 2003, the Company had drawn down a total of $6,000,000 under
the Boston Federal Saving Bank line, with an additional $500,000 available for
use. Of this available amount, $250,000 is currently available for working
capital purposes and $250,000 may be used to assist the Company for transaction
costs relating to the possible purchase of stock from the minority stockholders
of the Company.
The Loan, Reimbursement, and Security Agreement, dated as of September 3,
2002, by and between Wonderland Greyhound Park Realty, LLC and Boston Federal
Savings Bank, contains certain restrictive covenants including the maintenance
of certain financial ratios and debt coverage requirements. As of March 31,
2003, the Company was in compliance with these covenants. The note is
collateralized by a mortgage and security interest in all real estate and
personal property at Wonderland Greyhound Park.
3. LITIGATION
The Company is involved in various legal proceedings that arise in the
ordinary course of its business.
On March 18, 2003, the Company received an Administrative Complaint and Ex
Parte Motion for a Temporary Order to Cease and Desist from the Secretary of the
Commonwealth, Securities Division of The Commonwealth of Massachusetts, one day
prior to the date of the special meeting of the stockholders to approve a
proposed reverse stock split, which, if approved, would have resulted in the
Company changing its status from a public company to a private company. The
Administrative Complaint, which was prompted by the receipt by the Massachusetts
Securities Division of an anonymous letter from a Company stockholder, claims
that the Westwood Group failed to disclose certain information to the
stockholders in the Company's Proxy Statement, which the Division alleges to be
"material." The stockholders' meeting scheduled for March 19, 2003, in order to
approve the proposed going private transaction, was adjourned in order to permit
the Company to address this matter. On April 8, 2003, the Company filed an
answer in response to the Administrative Complaint denying each of the
allegations set forth in the Administrative Complaint.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Company, Joseph I. Messina, against the Westwood Group and the Company's
Board of Directors in the Court of Chancery in the State of Delaware seeking to
enjoin the proposed reverse stock split on the basis that it would not have been
fair to the stockholders and that the proxy statement omitted information that
Mr. Messina alleges to be "material." The Company disputes all of the
allegations set out in the Complaint and is taking appropriate action to address
this Complaint.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data" and
our financial statements and related notes appearing elsewhere in this quarterly
report. This discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including, but not limited to, those set forth under
"Results of Operations" and elsewhere in this quarterly report.
Results of Operations
During 2001, the Company and the owners of other area racetracks worked to
enact legislation which would permit the Company and the other greyhound track
to continue to provide simulcast broadcasting of thoroughbred racing on a more
frequent basis, as well as providing for a decrease in the pari-mutuel taxes
paid to the Commonwealth and that the funds available from the pari-mutuel tax
decrease be made available for increases in purses and the Greyhound Capital
Improvement and Promotional Trust Funds as well as the establishment of a
Greyhound Adoption Fund and the implementation of an off-track betting system.
On November 17, 2001, the "Act Providing for Improvements to the Horse and
Greyhound Racing Industry in the Commonwealth and the Regulation Thereof" was
signed into law by the acting governor of Massachusetts. Under this statute, the
Company and the other area racetracks are permitted to continue to provide
simulcast broadcasting of thoroughbred racing to their patrons until December
2005. This legislation also provides that the Company is to pay premiums for the
right to simulcast interstate thoroughbred and harness racing ranging from 3% to
7% for the benefit of the purse accounts at the Commonwealth's two commercial
horse racetracks. In addition, to the extension and expansion of simulcast
broadcasting, this statute provides for a "purse pool," which will be funded by
taxes, fees and assessments with a minimum of $400,000 being credited to the
purse accounts of each racetrack with any remaining portion being apportioned
among the racetracks pursuant to a formula to be devised by the State Racing
Commission. All unclaimed simulcast wagers collected at each racetrack are to be
deposited with the Massachusetts State Racing Commission for payment to the
purse account of the individual racetracks responsible for such unclaimed
wagers. The Westwood Group also received a one-time grant of $300,035 during
2001 from the Commonwealth for the purpose of funding capital improvements and
repairs to its facility and equipment. Finally, the statute authorizes account
wagering at each of the individual racetracks and establishes a nine member
special commission to study the feasibility of an off-track betting program in
Massachusetts.
Despite the enactment of this legislation and the initial potential for an
increase in cash flow from such legislation, management does not believe that
this legislation has materially benefited the Company's overall racing
operations since November 2001.
The Company is still experiencing a decline in total attendance and
live-on track handle caused by a variety of factors, including a general decline
in the pari-mutuel racing industry, the negative effect of the ballot initiative
on greyhound racing's image, and strong competition for the wagered dollar from
the Massachusetts State Lottery and from the introduction of casino gambling and
slot machines in neighboring states.
Management has worked diligently over the past decade in attempting to
convince the Governors and the Massachusetts state legislature of the need to
allow the Commonwealth's commercial racetracks to offer their patrons expanded
gaming opportunities. While various legislation was introduced, including for
the upcoming legislative session, the Massachusetts state legislature took no
action on gaming in the years 2000, 2001, and 2002. On October 3, 2002, the then
acting Governor of Massachusetts issued an executive order establishing an
exploratory commission to study and report on the potential impact, both
positive and negative, of the potential expansion of legalized gaming in
Massachusetts. This commission held public hearings in four locations throughout
the Commonwealth and reported its findings to the Governor on
10
December 31, 2002. This commission's report did not recommend that the Governor
and/or the state legislature enact legislation that would expand gaming, but
instead focuses on the various ways that the expansion of legalized gaming could
possibly impact, both negatively and positively, the Commonwealth and its
citizens.
According to published newspaper accounts, Governor Romney has directed
his Chief of Commerce and Labor, Robert Pozen, to conduct an independent
analysis of the possible expansion of gaming, which is not anticipated to be
completed until some time in the spring of 2003. In addition, according to such
newspaper accounts, Governor Romney was considering introducing legislation to
allow video slot machines at two to four unspecified sites in the Commonwealth
with five-year licenses to be auctioned to the highest bidders. In a recent
hearing of the Government Regulations Committee of the Massachusetts House of
Representatives, Mr. Pozen, on behalf of the Romney administration, stated that
7,200 slot machines at three unspecified sites could raise as much as $300
million annually in additional state tax revenues. At this same hearing, a
number of other gaming-related proposals were discussed. On April 15, 2003,
the House of Representatives debated two gaming bills related to permitting slot
machines at the Commonwealth's four racetracks and authorizing slot machines and
full-scale casinos. Both of these gaming bills were defeated in the House of
Representatives on that date.
According to published newspaper accounts, the president of the
Massachusetts Senate stated that expansion of gaming would not be part of the
Senate's proposed budget for fiscal year 2004. In addition, according to recent
published newspaper accounts, legislation to expand gaming will not again be
addressed in either the Massachusetts Senate or House of Representatives until
the fall of 2003.
If Governor Romney and/or the state legislature determines to introduce or
enact legislation in 2003 to expand gaming, the process to enact gaming
legislation could take a number of months, and it is impossible to predict the
nature of any such legislation and whether the Company would in fact
benefit from such legislation if ultimately enacted.
Wonderland Greyhound Park currently conducts live racing six (6) nights
per week. Wonderland Greyhound Park also offers simulcast wagering afternoons
and evenings throughout the year.
The table below illustrates certain key statistics for Wonderland
Greyhound Park, the Company's greyhound racing operation for the three months
ended March 31, 2003 and 2002.
2003 2002
------- -------
Performances 66 76
Simulcast days 89 90
Pari-mutuel handle (thousands)
Live-on track $ 2,684 $ 3,960
Live-simulcast 5,791 7,849
Guest-simulcast 11,772 12,585
------- -------
$20,247 $24,394
------- -------
Total attendance 54,800 65,553
Average per capita on site wagering $ 264 $ 252
OPERATING REVENUE
Total operating revenue declined by approximately $576,000 to $3.45
million in the quarter ended March 31, 2003 as compared to the quarter ended
March 31, 2002. Parimutuel commissions declined by 13% from approximately $3.33
million to $2.88 million during the same period. Total handle in the first
quarter of 2003 was approximately $20.25 million as compared to $24.39 million
in 2002, a decline of 17%. Live-on track handle decreased 32% or about $1.28
million for the same period from approximately $3.96 million to $2.68 million in
the first quarter of 2003, with an average daily attendance of approximately 615
persons in the first quarter of such periods compared to 803 persons in the
first quarter
11
of 2002. Live-simulcast handle decreased by approximately $2.06 million or 26%
in the first quarter of 2003 compared to the first quarter of 2002.
Guest-simulcast handle decreased by approximately $813,000 or 6.5% from the 2002
amount. Net admissions revenue decreased by 34%. Most of this decrease is
associated with decreased attendance, and the remainder with increased
promotional discounts. Other operating revenue consists of food and beverage,
program sales, lottery, parking and gift shop sales and was approximately
$547,000 for the three months ended March 31, 2003 decreasing by approximately
$116,000 from approximately $663,000 for the three months ended March 31, 2002.
Parimutuel commissions for the three months ended March 31, 2003 included
approximately $35,000 deposited into the Greyhound Capital Improvements Trust
Fund, $12,000 into the Greyhound Adoption Fund, and $40,000 into the Greyhound
Promotional Trust Fund. During same period of 2002 such amounts were $38,000,
$0, and $50,000 respectively.
OPERATING EXPENSES
Operating expenses of approximately $3.7 million for the three months
ended March 31, 2003 decreased by approximately $37,000 from approximately $3.8
million for the three months ended March 31, 2002. This decrease was the result
of cost savings in payroll and operations of approximately $60,000, as well as
decreased purses from the handle decline of approximately $4 million. These cost
savings were offset by an increase in utilities of approximately $125,000,
which was mainly the result of a credit that was received in the first quarter
of 2002.
INTEREST EXPENSE
Interest expense decreased by approximately $40,000 to approximately
$94,000 for the three months ended March 31, 2003 from $134,000 for the three
months ended March 31, 2002. The decrease was the result of the note payable
refinancing on advantageous terms.
INCOME TAX PROVISION
The Company's provision of $26,000 and $17,142 for income taxes for the
three months ended March 31, 2003 and 2002, respectively, represents state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, the Company had a working capital deficit of
approximately $332,000 and a stockholders' deficit of approximately $2.2
million. Historically, the Company's primary sources of capital to finance its
businesses have been its cash flow from operations and credit facilities. The
Company's capital needs are primarily from maintenance and enhancement of the
racing facility at Wonderland Greyhound Park, and for debt service requirements.
The Company's cash and cash equivalents totaled approximately $117,000 at March
31, 2003, compared with approximately $114,000 at December 31, 2002. The
Company's cash used by operations was approximately $363,000 during the first
quarter of 2003 as compared to cash provided by operations of approximately
$76,000 during the corresponding period in 2002. Non-cash items included in the
Company's net loss in the first quarter of 2003 consisted of depreciation and
amortization expense of $175,000.
On September 3, 2002, Wonderland Greyhound Park Realty, LLC, a subsidiary
of the Company, entered into a $6,500,000 Loan, Reimbursement and Security
Agreement with Boston Federal Savings Bank. This loan is collateralized by a
mortgage on all real and personal property located at Wonderland Greyhound Park.
A portion of the proceeds from this loan transaction was used to refinance the
Company's then existing credit facility with Century Bank and Trust Company. The
Company is the guarantor of the loan from Boston Federal Savings Bank.
12
The Company believes that it will generate enough cash from operating and
financing activities to satisfy its anticipated obligations during 2003.
On February 13, 2003, the Company filed a Definitive Proxy Statement and
an accompanying Schedule 13E-3 with the Securities and Exchange Commission in
order to effectuate a 1,500 for 1 reverse stock split of its capital stock. If
the proposed reverse stock split had been approved by a majority of the voting
power of the Company's stockholders, then holders of less than 1,500 shares
immediately prior to such meeting would have been cashed out at a per share
purchase price equal to $4.00, thereby reducing the number of its stockholders
to under 300 and, consequently, allowing the Company to change its status from a
public company to a private company. This would have relieved the Company of the
administrative burden and cost and competitive disadvantages associated with
filing reports and otherwise complying with the requirements of registration
under the Federal securities laws and to permit small stockholders to receive
liquidity for their shares without having to pay brokerage commissions. The
proposed reverse stock split would have (i) caused the Company to redeem shares
held by approximately 400 holders of record of Common Stock, (ii) retained
record holders who hold 1,500 or more shares of Common Stock or Class B Common
Stock, (iii) reduced the number of shares, on a pro-rata basis, held by the
holders of record who hold 1,500 or more shares of Common Stock or Class B
Common Stock, and (iv) changed the percent of outstanding Common Stock held by
the remaining stockholders to 100%. Assuming the completion of the proposed
reverse stock split and change in its status from a public company to a private
company, the Company would have promptly thereafter initiated a tender offer for
additional shares of its capital stock in order to provide those stockholders
who would not have received a cash payment in connection with the proposed
reverse stock split the opportunity to tender one post-reverse stock split share
in return for $6,000, which reflects the highest payment to be received by any
stockholder as a result of the consummation of the proposed reverse stock split.
The special meeting of the Company's stockholders scheduled for March 19,
2003 was adjourned so that the Company could address allegations raised by the
Massachusetts Securities Division in an Administrative Complaint and a lawsuit
brought by a stockholder in Delaware Chancery Court (See Part II, Item 1, "Legal
Proceedings"). Accordingly, the proposed going private transaction was not
consummated.
Management continues to examine the full range of strategic alternatives in
an effort to maximize shareholder value, including the benefits and
disadvantages of remaining a public company, particularly in light of the lack
of a meaningful trading market for its common stock.
CRITICAL ACCOUNTING POLICIES
In accordance with the U.S. Securities and Exchange Commission Release
Nos. 33-8040, 34-45149 and R-60, the Company's Critical Accounting Policies are
as follows:
USE OF 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Estimates that could impact on the Company's results of
operations include those relating to contractual obligations and other accrued
expenses. Actual results could differ from those estimates.
RESTRICTED CASH
Restricted cash includes approximately $75,000 and $125,000 at March 31,
2003 and December 31, 2002, respectively, related to funds dedicated to payment
of the Company's liability for outstanding pari-mutuel tickets. Unclaimed
winnings from pari-mutuel wagering are held by Wonderland Greyhound Park until
they become payable to the Commonwealth by operation of unclaimed property
statutes. Restricted cash includes approximately $53,000 and $126,000 at March
31, 2003 and December 31, 2002, respectively, which is required to be used for
the purposes of the proposed going private transaction. Restricted cash also
includes approximately $125,000 at March 31, 2003 and December 31, 2002, held as
collateral for the Company's letter of credit which secures the Company's racing
bond.
13
ESCROWED CASH
Escrowed cash is related to the operations of Wonderland Greyhound Park
and includes amounts held by The Commonwealth of Massachusetts in trust funds
(for capital improvements and advertising/promotion). Wonderland Greyhound Park
funds these costs and requests reimbursements from the trust funds. Wonderland
Greyhound Park is reimbursed upon approval by the Commonwealth of Massachusetts.
REVENUE RECOGNITION
The Company's annual revenues are mainly derived from the net commission
that it receives from wagers made by patrons during its live-on track racing
performances, live and guest-simulcast racing performances and from admission
and concession charges at such performances. Inter-track receivables and
payables are dependent on the accuracy of an independent totalistar vendor. This
vendor's system has been independently reviewed and deemed reliable.
FORWARD-LOOKING STATEMENTS
Certain statements contained throughout this quarterly report constitute
"forward-looking statements" as that term is defined under the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from those contemplated or projected,
forecasted, estimated or budgeted in or expressed or implied by such
foward-looking statements. Such factors include, among others, the following:
general economic and business conditions; industry trends, changes in business
strategy or development plans; availability and quality of management; and
availability, terms and employment of capital.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material exposure to market risk that could affect its
future results of operations and financial condition. Risks and uncertainties,
including those not presently known to us or that we currently deem immaterial,
may impair our business. The Company does not use derivative products and does
not have any material monetary assets (See Item 2, "Liquidity and Capital
Resources").
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including its Chief Executive Officer (its principal
executive officer and principal financial and accounting officer), of its
disclosure controls and procedures (as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934). Based upon that evaluation, the Chief
Executive Officer concluded that the design and operation of these disclosure
controls and procedures were effective. No significant changes were made in the
Company's internal controls or other factors that could significantly affect
these controls subsequent to the date of their evaluation.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that arise in the
ordinary course of its business.
On March 18, 2003, the Company received an Administrative Complaint and Ex
Parte Motion for a Temporary Order to Cease and Desist from the Secretary of the
Commonwealth, Securities Division of The Commonwealth of Massachusetts, one day
prior to the date of the special meeting of the stockholders to approve a
proposed reverse stock split, which, if approved, would have resulted in the
Company changing its status from a public company to a private company. The
Administrative Complaint, which was prompted by the receipt by the Massachusetts
Securities Division of an anonymous letter from a Company stockholder, claims
that the Westwood Group failed to disclose certain information to the
stockholders in the Company's Proxy Statement, which the Division alleges to be
"material." The stockholders' meeting scheduled for March 19, 2003, in order to
approve the proposed going private transaction, was adjourned in order to permit
the Company to address this matter. On April 8, 2003, the Company filed an
answer in response to the Administrative Complaint denying each of the
allegations set forth in the Administrative Complaint.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Company, Joseph I. Messina, against the Westwood Group and the Company's
Board of Directors in the Court of Chancery in the State of Delaware seeking to
enjoin the proposed reverse stock split on the basis that it would not have been
fair to the stockholders and that the proxy statement omitted information that
Mr. Messina alleges to be "material." The Company disputes all of the
allegations set out in the Complaint and is taking appropriate action to address
this Complaint.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 13, 2003, the Company mailed a proxy statement to stockholders
in connection with a special meeting to be held on March 19, 2003 to vote on an
amendment to the Company's certificate of incorporation in order to effectuate a
1,500 for 1 reverse stock split of its capital stock (see Item 2 under
"Liquidity and Capital Resources"). The special meeting of the Company's
stockholders scheduled for March 19, 2003 was adjourned so that the Company
could address allegations raised by the Massachusetts Securities Division in an
Administrative Complaint and a lawsuit brought by a stockholder in Delaware
Chancery Court (See Item 1, "Legal Proceedings"). Accordingly, the proposed
reverse stock split was not voted upon, and conversely was not consummated.
ITEM 5. OTHER INFORMATION
None.
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification by Principal Executive Officer and Principal
Financial and Accounting Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbares-Oxley
Act of 2002.
(b) Current Reports on Form 8-K
None.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WESTWOOD GROUP, INC.
/s/ Richard P. Dalton
Date: May 15, 2003 ___________________________________
Richard P. Dalton President,
Chief Executive Officer and
Director (Principal Executive Officer and
Principal Financial and Accounting Officer)
17
CERTIFICATION
I, Richard P. Dalton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Westwood
Group, Inc.:
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit/to state a material fact
necessary to make the statement made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated dated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Richard P. Dalton
Date: May 15, 2003 ______________________________
Richard P. Dalton
President and Chief Executive Officer
(Principal Executive Officer and Principal
Financial Officer)
18
EXHIBIT INDEX
99.1 Certification by Principal Executive Officer and Principal Financial
and Accounting Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
19