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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 SEPTEMBER 30, 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
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 (1) 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 check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 12, 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.
PART I FINANCIAL INFORMATION
ITEM 1: Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 ....... 3
Consolidated Statements of Operations for the nine months ended
September 30, 2003 and September 30, 2002 ....................................... 5
Consolidated Statements of Operations for the three months ended
September 30, 2003 and September 30, 2002 ....................................... 6
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2003 and September 30, 2002 ....................................... 7
Notes to Consolidated Financial Statements ....................................... 8
ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................... 11
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk ............... 16
ITEM 4: Controls and Procedures .................................................. 16
PART II OTHER INFORMATION ........................................................ 17
ITEM 1: Legal Proceedings ........................................................ 17
ITEM 2: Changes in Securities and Use of Proceeds ................................ 17
ITEM 3: Defaults Upon Senior Securities .......................................... 17
ITEM 4: Submission of Matters to a Vote of Security Holders ...................... 17
ITEM 5: Other Information ........................................................ 17
ITEM 6: Exhibits and Reports on Form 8-K ......................................... 17
SIGNATURE ........................................................................ 18
EXHIBIT INDEX .................................................................... 19
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 83,668 $ 114,327
Restricted cash 352,314 376,279
Escrowed cash 191,812 294,996
Accounts receivable 18,826 20,781
Prepaid expenses and other current assets 197,660 134,583
Notes receivable from officers short-term portion 417,863 1,137,572
------------ ------------
Total current assets 1,262,143 2,078,538
------------ ------------
PROPERTY, PLANT, & EQUIPMENT
Building and building improvements 19,133,165 19,094,811
Machinery and equipment 4,875,680 4,848,183
Land 348,066 348,066
------------ ------------
24,356,911 24,291,060
Less accumulated depreciation and amortization (19,959,711) (19,534,414)
------------ ------------
Net property, plant and equipment 4,397,200 4,756,646
------------ ------------
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $107,948 and $33,214 at
September 30, 2003 and December 31, 2002,
respectively. 190,989 265,723
Other assets, net 16,977 26,379
------------ ------------
Total other assets 207,966 292,102
------------ ------------
Total assets $ 5,867,309 $ 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
September 30, December 31,
2003 2002
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 2,268,923 $ 1,749,997
Outstanding pari-mutuel tickets 492,852 608,226
Current maturities of long-term debt (Note 2) 106,421 96,072
------------ ------------
Total current liabilities 2,868,196 2,454,295
LONG TERM DEBT, less current maturities (Note 2) 5,794,172 5,531,302
OTHER LONG-TERM LIABILITIES 843,132 985,827
------------ ------------
Total liabilities 9,505,500 8,971,424
------------ ------------
COMMITMENTS AND CONTINGENCIES
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 (8,584,969) (6,790,916)
Other comprehensive loss (496,285) (496,285)
Cost of 1,593,199 Common Stock and 600 Class B
Common Stock shares in treasury (7,964,782) (7,964,782)
------------ ------------
Total stockholders' deficiency (3,638,191) (1,844,138)
------------ ------------
Total liabilities & stockholders' deficiency $ 5,867,309 $ 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
For the Nine Months Ended September 30, September 30,
(Unaudited) 2003 2002
- -------------------------------------- ------------ ------------
OPERATING REVENUES:
Pari-mutuel commissions $ 8,640,004 $ 9,783,166
Admissions 100,943 137,219
Parking and concessions 1,723,889 2,134,513
------------ ------------
Total operating revenue 10,464,836 12,054,898
------------ ------------
Operating expenses:
Wages, taxes and benefits 4,920,967 4,638,296
Purses 2,257,725 2,648,312
Cost of food and beverage 292,635 390,786
Administrative & operating 3,928,357 3,747,601
Depreciation and amortization 500,031 467,038
------------ ------------
Total operating expenses 11,899,715 11,892,033
------------ ------------
Income(loss) from operations (1,434,879) 162,865
------------ ------------
Other expense:
Interest expense, net (303,178) (304,438)
Other expense, net (10,000) (44,363)
------------ ------------
Total other expense (313,178) (348,801)
------------ ------------
Loss from operations before
provision for income taxes (1,748,057) (185,936)
Provision for income tax 45,996 28,480
------------ ------------
Net loss $ (1,794,053) $ (214,416)
============ ============
Basic and diluted per share data:
Net loss ($ 1.42) ($ 0.17)
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, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, September 30,
(Unaudited) 2003 2002
- ------------------------------------ ------------- -------------
OPERATING REVENUES:
Pari-mutuel commissions $2,739,621 $3,064,867
Admissions 34,418 48,565
Parking and concessions 548,249 701,715
---------- ----------
Total operating revenue 3,322,288 3,815,147
---------- ----------
Operating expenses:
Wages, taxes and benefits 1,668,690 1,581,147
Purses 674,958 892,220
Cost of food and beverage 107,092 108,671
Administrative and operating 1,231,432 1,259,200
Depreciation and amortization 162,049 177,745
---------- ----------
Total operating expenses 3,844,221 4,018,983
---------- ----------
Loss from operations (521,933) (203,836)
---------- ----------
Other expense:
Interest expense, net (101,411) (77,230)
Other expense, net - (13,019)
---------- ----------
Total other expense (101,411) (90,249)
---------- ----------
Loss from operations before
provision for income taxes (623,344) (294,085)
Provision for income tax 12,496 1,035
---------- ----------
Net loss $ (635,840) $ (295,120)
========== ==========
Basic and diluted per share data:
Net loss ($ 0.50) ($ 0.23)
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.
6
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (1,794,053) (214,416)
------------ ------------
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 500,031 467,038
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 23,965 (222,970)
Decrease (increase) in escrowed cash 103,184 (167,046)
Decrease in accounts receivable 1,955 30,462
Decrease (increase) in prepaid expenses and other
current assets (63,077) 167,131
Decrease in other assets, net 9,402 21,780
Increase in accounts payable and other accrued liabilities 492,616 84,805
Decrease in outstanding pari-mutuel tickets (115,374) (25,540)
Decrease in accrued executive bonus long -term portion - (54,352)
Decrease in other long term liabilities (142,695) (381,571)
------------ ------------
Total adjustments 810,007 (80,263)
------------ ------------
Net cash used for operating activities (984,046) (294,679)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (39,541) (554,805)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment of debt (76,781) (406,285)
Retirement of debt - (3,856,218)
Proceeds from debt financing 350,000 5,400,000
Increase in deferred finance costs - (254,432)
Decrease in notes receivable, officers 719,709 137,246
------------ ------------
Net cash provided by financing activities 992,928 1,020,311
------------ ------------
Net increase in cash and cash equivalents (30,659) 170,827
Cash and cash equivalents, beginning of year 114,327 12,355
------------ ------------
Cash and cash equivalents, end of year $ 83,668 $ 183,182
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 286,014 $ 273,076
------------ ------------
Income taxes $ 46,996 $ 26,035
------------ ------------
The Company recorded capital lease obligations of $26,310 in 2003.
The accompanying notes are an integral part of these consolidated financial
statements.
7
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2003
(Unaudited)
1. BASIS OF PRESENTATION
INTERIM RESULTS
In the opinion of management, the accompanying unaudited consolidated
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 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 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 financial statements as of September 30,
2003 and December 31, 2002 and for the three and nine month periods ended
September 30, 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.
LOSS PER COMMON SHARE
Basic net 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 and 2002 since the Company had a net loss and their effect
would be antidilutive.
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 September 30, 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 SFAS No. 123, "Accounting for Stock-Based
Compensation", 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 nine months ended September 30,
2003 and 2002.
8
NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the EITF reached a consensus on Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables". EITF 00-21 addresses certain
aspects of the accounting by a vendor for arrangements under which the vendor
will perform multiple revenue generating activities. EITF 00-21 will be
effective for periods beginning after June 15, 2003. The adoption of EITF 00-21
did not have a material impact on the Company's financial position and results
of operations.
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.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003, and hedging relations designated after June 30, 2003, except for
those provisions of SFAS No. 149 which relate to SFAS No. 133 implementation
issues that have been effective for fiscal quarters that began prior to June 15,
2003. For those issues, the provisions that are currently in effect should
continue to be applied in accordance with their respective effective dates. In
addition, certain provisions of SFAS No. 149, which relate to forward purchases
or sales of when-issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The adoption of SFAS No. 149 has not and is not expected to
have a material effect on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
the scope of SFAS No. 150 as a liability. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective beginning September 1, 2003. The adoption of SFAS No. 150 has not
and is not expected to have a material effect on the Company's financial
statements.
9
2. DEBT
Long-term debt consisted of the following:
September 30, 2003 December 31, 2002
------------------ -----------------
6.5% Boston Federal Savings Bank ("Boston Federal Savings
Bank"), which is collateralized by a mortgage and security
interest in all real estate and personal property located
at Wonderland Greyhound Park Realty LLC $5,900,593 $5,627,374
Less current maturities 106,421 96,072
---------- ----------
Long - term portion $5,794,172 $5,531,302
========== ==========
At September 30, 2003, the Company had drawn down a total of $6,000,000
under the Boston Federal Savings Bank line, with an additional $500,000
available for use. Of this available amount, $250,000 was available for working
capital purposes and $250,000 was available to assist the Company for
transaction costs relating to the proposed purchase of stock from the minority
stockholders of the Company. On October 27, 2003, the Company drew down the
remaining $250,000 that was available for working capital purposes, and an
additional $90,000 for transaction costs related to the proposed going private
transaction.
The loan is due in monthly principal and interest payments of
approximately $43,000, and the final payment on the loan is to be made on
September 1, 2005 in the amount of $6,019,779.
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 September 30,
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 April 1, 2003, a class action complaint was filed by a stockholder
of the Company against the Company 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 is not fair to the stockholders and that
the proxy statement omits information alleged to be "material." On June 17,
2003, the Company filed a Motion to Dismiss for mootness on the grounds that the
then proposed going private transaction was never completed.
On October 23, 2003, this same plaintiff filed a supplemented and
amended complaint with the Court of Chancery in the State of Delaware alleging
that the new proposed reverse stock split, as described in the preliminary proxy
statement filed with the Securities and Exchange Commission on August 21, 2003,
as amended October 2, 2003, is not fair to the stockholders of the Company and
that the proxy statement omits information that the plaintiff alleges to be
"material." The Company disputes all of the allegations set forth in this
complaint, and on November 10, 2003, it filed a Motion to Dismiss for failure to
state a claim.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
You should read the following discussion and analysis of our financial
condition and results of operations together with 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 Company 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. While various legislation has been introduced,
the Massachusetts state legislature took no action to expand legalized gaming in
the years 2000, 2001 and 2002. On October 3, 2002, the then Governor of
Massachusetts issued an executive order establishing a special 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 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 focused on the various ways that the expansion
of legalized gaming could possibly impact, both negatively and positively, the
Commonwealth and its citizens. Management is unable to predict what, if any,
impact this report will have on the overall prospects for the enactment of
legislation in Massachusetts to expand legalized gaming. There is no assurance
that the release of this report will prompt or thwart the introduction or
enactment of such legislation. This is not the first time a commission of this
type has been formed. Over the past decade, when similar commissions have
proposed
11
the introduction of gaming legislation, numerous bills have been introduced, but
legislation has never been enacted despite being supported of by the then
Governor of The Commonwealth of Massachusetts and certain state legislators.
In the Spring of 2003, according to newspaper accounts, Governor Mitt
Romney was considering introducing legislation to allow the installation of
video slot machines at two to four unspecified sites in the Commonwealth, which
would be determined by means of an auction with five-year licenses going to the
highest bidders. In a hearing of the Government Regulations Committee of the
Massachusetts House of Representatives, Robert Pozen, Governor Romney's Chief of
Commerce and Labor, 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.
On November 6, 2003, an amendment was filed to an omnibus economic
development package in the Massachusetts Senate that would have authorized the
installation of up to 1,500 slot machines at each of the state's four race
tracks and the establishment of up to two casinos. Faced with significant
opposition, the amendment was withdrawn prior to any vote being taken. According
to newspaper accounts, no further legislation to expand legalized gaming is
expected to be introduced in 2003.
If Governor Romney and/or the state legislature determines to introduce
or enact legislation to expand gaming in the future, 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.
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.
Wonderland Greyhound Park currently conducts live racing five (5)
nights per week. Wonderland Greyhound Park also offers simulcast wagering
afternoons and evenings throughout the year.
Quarter Ended September 30, 2003 Compared to Quarter Ended September 30, 2002
The table below illustrates certain key statistics for Wonderland Park, the
Company's greyhound racing operation, for the three months ended September 30,
2003 and 2002.
2003 2002
Performances 66 84
Simulcast days 92 92
Pari-mutuel handle (thousands)
Live-on track $ 3,291 $ 4,229
Live-simulcast 6,142 7,257
Guest-simulcast 10,664 12,235
-------- --------
$ 20,097 $ 23,721
======== ========
Total attendance 58,679 67,489
Average per capita on site wagering $ 238 $ 244
Average Daily Attendance 638 734
12
OPERATING REVENUE
Total operating revenue declined by $493,000 to $3.32 million in the
quarter ended September 30, 2003 as compared to the quarter ended September 30,
2002.
Pari-mutuel commissions declined by 11% from $3.06 million to $2.74
million during the same period.
Total handle in the third quarter of 2003 was approximately $20.01
million as compared to $23.7 million in 2002. Live-on track handle decreased
22.2% or about $0.94 million from $4.23 million to $3.29 million in 2003, with
an average daily attendance of approximately 638 persons in 2003 compared to 734
persons in 2002. Live-simulcast handle decreased by $1.12 million or 15.4% in
the third quarter of 2003 compared to the third quarter of 2002. Guest-simulcast
handle decreased by $1.57 million or 12.8% from 2002.
Net admissions revenue decreased by 29.0%. Concessions and parking
revenue consists of food and beverage, program sales, lottery, parking and gift
shop sales. It stood at approximately $548,000 for the three months ended
September 30, 2003 decreasing by approximately $154,000 from approximately
$702,000 for the three months ended September 30, 2002.
Pari-mutuel commissions for the three months ended September 30, 2003
included approximately: $27,000 deposited into the Greyhound Capital
Improvements Trust Fund, $43,000 into the Greyhound Promotional Trust Fund, and
$16,000 into the Greyhound Adoption Fund. During same period of 2002 these
figures amounted to approximately: $38,000, $52,000, and $21,000, respectively.
OPERATING EXPENSES
Operating expenses of approximately $3.84 million for the three months
ended September 30, 2003 decreased by approximately $0.18 million from
approximately $4.02 million for the three months ended September 30, 2002. The
decrease is mainly the result of the decline in purse expense related to handle
decline.
INTEREST EXPENSE
Interest expense increased by approximately $24,000 for the three
months ended September 30, 2003 from $77,000 in the three months ended September
30, 2002 to approximately $101,000 in the three months ended September 30, 2003.
This increase is the result of draw downs on the loan facility.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased approximately $16,000 to
$162,000 in the three months ended September 30, 2003, from approximately
$178,000 in the comparable period in 2002.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during the three months ended September 30, 2003 and
2002 primarily due to the Company's net loss in both years. The provision for
taxes of $12,000 and $1,000 in the three months ended September 30, 2003 and
2002, respectively, represents state taxes.
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
The table below illustrates certain key statistics for Wonderland Park, the
Company's greyhound racing operation, for the nine months ended September 30,
2003 and 2002.
13
2003 2002
-------- --------
Performances 207 251
Simulcast days 272 273
Pari-mutuel handle (thousands)
Live-on track $ 9,552 $ 12,946
Live-simulcast 18,619 23,606
Guest-simulcast 34,733 37,548
-------- --------
$ 62,904 $ 74,100
======== ========
Total attendance 176,401 203,339
Average per capita on site wagering $ 251 $ 248
Average Daily Attendance 649 745
OPERATING REVENUE
Total operating revenue declined by approximately $1.59 million to
$10.46 million in the nine months ended September 30, 2003 as compared to $12.05
million for the nine months ended September 30, 2002.
Pari-mutuel commissions declined by 11.7% from $9.78 million to $8.64
million during the same period.
Total handle in the first nine months of 2003 was approximately $62.9
million as compared to $74.1 million in 2002.
Live-on track handle decreased 26.2% or about $3.3 million from $12.9
million in 2002 to $9.6 million in 2003, with an average attendance of
approximately 649 persons in 2003 compared to 745 persons in 2002.
Live-simulcast handle decreased by $4.9 million or 21.1% in the first nine
months of 2003. Guest-simulcast handle decreased by $2.8 million or 7.5% from
2002.
Net admissions revenue decreased by 26.4%. Concessions and parking
revenue consists of food and beverage, program sales, lottery, parking and gift
shop sales. It stood at approximately $1.72 million for the nine months ended
September 30, 2003 decreasing by approximately $411,000 from approximately $2.13
million for the nine months ended September 30, 2002.
Pari-mutuel commissions for the nine months ended September 30, 2003
included approximately: $86,000 deposited into the Greyhound Capital
Improvements Trust Fund, $136,000 into the Greyhound Promotional Trust Fund, and
$48,000 into the Greyhound Adoption Fund. During same period of 2002 these
figures amounted to approximately: $94,000, $159,000, and $65,000, respectively.
OPERATING EXPENSES
Operating expenses of approximately $11.90 million for the nine months
ended September 30, 2003 were essentially unchanged from approximately $11.89
million for the nine months ended September 30, 2002. Increases in salary costs
as a result of union settlements were offset by decreases in purse expense.
INTEREST EXPENSE
Interest expense was unchanged for the nine months ended September 30,
2003 compared to the comparable period in the prior year.
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DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $33,000 to
$500,000 in the nine months ended September 30, 2003, from approximately
$467,000 in the comparable period in 2002.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during the first nine months of 2003 and 2002 primarily
due to the operating losses in 2003 and 2002. The provision for taxes of $45,966
and $28,480 in the first nine months of 2003 and 2002, respectively, represents
state taxes.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2003, the Company had a working capital deficit of
approximately $1.61 million and a stockholders' deficit of approximately $3.64
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 for maintenance and enhancement of the
racing facility at Wonderland, and for debt service requirements.
The Company's cash and cash equivalents totaled approximately $84,000
at September 30, 2003, compared with $114,000 at December 31, 2002.
The Company generated a cash deficit from operations of approximately
$984,000 during the first nine months of 2003 as compared to a deficit of
$295,000 during the corresponding period in 2002. Non-cash items included in the
Company's net loss in the first nine months of 2003 consist of depreciation
and amortization expense of $500,000. Changes in working capital accounts
including restricted cash, accounts payable and other accrued liabilities
provided approximately $310,000 of cash in the first nine months of 2003.
Net cash used in investing activities in 2003 of approximately $40,000
represents additions to property, plant and equipment.
Financing activities in 2003, which included proceeds of debt financing
of $350,000, generated approximately $993,000 of cash in the first nine months
of 2003.
The Company believes that it will generate enough cash from operations
to satisfy its anticipated obligations during 2003.
On August 21, 2003, the Company filed a preliminary proxy statement and
an accompanying Schedule 13E-3, which was subsequently amended on October 3,
2003 and October 31, 2003, with the Securities and Exchange Commission in order
to effectuate a 500 for 1 reverse stock split of its capital stock. If the
proposed reverse stock split is approved by the Company's stockholders at a
special meeting of the stockholders on a date to be determined, then holders of
less than 500 shares immediately prior to such meeting will be 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 to a private company and to relieve 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 a
fair price for their shares without having to pay brokerage commission.
In addition to receiving the cash payment of $4.00 per share, each record
holder being redeemed in connection with the proposed reverse stock split will
be entitled to receive an additional cash payment if, within one calendar year
from the date of the special meeting of the stockholders, the Massachusetts
state legislature enacts legislation that expands legalized gaming in The
Commonwealth of Massachusetts and such legislation authorizes the Company to
install slot machines at its Wonderland racetrack facility.
The reverse stock split will (i) cause the Company to redeem shares
held by approximately 375 holders of record of Common Stock, (ii) not eliminate
record holders who hold 500 or more shares of Common Stock and Class B Common
Stock, (iii) reduce the number of shares, on a pro-rata basis, held by the
holders of record who hold 500 or more shares of Common Stock and Class B Common
Stock, and (iv) change the percent of 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 to a private company, the Company will promptly
thereafter initiate a tender offer for additional shares of its capital stock in
order to provide those stockholders who did not receive a cash payment in
connection with the proposed reverse stock split the opportunity to tender one
share in return for $2,000, which amount reflects the highest payment to be
received by any stockholder as a result of the consummation of the proposed
reverse stock split.
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 settlement of liabilities related to
discontinued operations, contractual obligations and other accrued expenses.
Actual results could differ from those estimates.
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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 totalisator 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
forward-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.
ITEM 4. CONTROLS AND PROCEDURES
The term "disclosure controls and procedures" is defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange
Act"). The rules refer to the controls and other procedures designed to ensure
that information required to be disclosed in reports that the Company files or
submits under the Exchange Act is recorded processed, summarized and reported
within the time periods specified. The Company's management, including the
Company's Chief Executive Officer, performed an evaluation of the effectiveness
of the design and operation of the Company's disclosure controls and
16
procedures as of September 30, 2003 and, based on that evaluation, concluded
that the Company's disclosure controls and procedures were effective as of
September 30, 2003.
During the three month period ended September 30, 2003, there were no
significant changes in the Company's internal control over financial reporting
that materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
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 April 1, 2003, a class action complaint was filed by a stockholder
of the Company against the Company 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 is not fair to the stockholders and that
the proxy statement omits information alleged to be "material." On June 17,
2003, the Company filed a Motion to Dismiss for mootness on the grounds that the
then proposed going private transaction was never completed.
On October 23, 2003, this same plaintiff filed a supplemented and
amended complaint with the Court of Chancery in the State of Delaware alleging
that the new proposed reverse stock split, as described in the preliminary proxy
statement filed with the Securities and Exchange Commission on August 21, 2003,
as amended October 2, 2003, is not fair to the stockholders of the Company and
that the proxy statement omits information that the plaintiff alleges to be
"material." The Company disputes all of the allegations set forth in this
complaint, and on November 10, 2003, it filed a Motion to Dismiss for failure to
state a claim.
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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification by Principal Executive Officer and
Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 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
(b) Current Reports on Form 8-K
None.
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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.
Date: November 13, 2003 /s/ Richard P. Dalton
--------------------------------------
Richard P. Dalton, President,
Chief Executive Officer and Director
(Principal Executive, Financial and
Accounting Officer)
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EXHIBIT INDEX
31.1 Certification by Principal Executive Officer and Principal Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 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