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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 JUNE 30, 2004
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 (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 AUGUST 4, 2004, 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.
-2-
PAGE
PART I FINANCIAL INFORMATION NUMBER
ITEM 1: Consolidated Financial Statements * 3
Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 4
Consolidated Statements of Operations for the three months ended
June 30, 2004 and June 30, 2003 5
Consolidated Statements of Operations for the six months ended
June 30, 2004 and June 30, 2003 6
Consolidated Statements of Cash Flows for the six months ended
June 30, 2004 and June 30, 2003 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 15
ITEM 4: Controls and Procedures 15
PART II OTHER INFORMATION 16
ITEM 1: Legal Proceedings 16
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
- ----------
*The Consolidated Balance Sheet at December 31, 2003 has been taken from the
audited financial statements at that date. All other financial statements are
unaudited.
-3-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2004 2003
------------ ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 290,456 $ 136,679
Restricted cash 252,941 251,164
Escrowed cash 141,651 53,994
Accounts receivable 31,300 36,968
Prepaid expenses and other current assets 221,694 131,186
Notes receivable from officers short term portion -- 147,238
------------ ------------
Total current assets 938,042 757,229
------------ ------------
Property, plant, & equipment
Building and building improvements 19,137,044 19,137,044
Machinery and equipment 4,871,800 4,871,800
Land 348,066 348,066
------------ ------------
24,356,910 24,356,910
Less accumulated depreciation and amortization (20,371,124) (20,096,849)
------------ ------------
Net property, plant and equipment 3,985,786 4,260,061
------------ ------------
Other assets:
Deferred financing costs, less accumulated amortization of $182,681 and
$132,858 at June 30, 2004 and December 31, 2003, respectively 116,256 166,079
Other assets, net -- 13,715
------------ ------------
Total other assets 116,256 179,794
------------ ------------
Total assets $ 5,040,084 $ 5,197,084
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2004 2003
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY (Unaudited)
Current liabilities:
Accounts payable and other accrued liabilities $ 2,322,229 $ 2,056,314
Checks issued against future deposits 436,823 206,299
Outstanding parimutuel tickets 349,965 540,404
Advances on debt to be finalized 1,029,966 --
Current maturities of long-term debt 108,028 114,402
------------ ------------
Total current liabilities 4,247,011 2,917,419
Long-term debt, less current maturities 6,049,327 6,099,228
Other long-term liabilities 596,786 706,358
------------ ------------
Total liabilities 10,893,124 9,723,005
------------ ------------
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 (10,848,767) (9,531,648)
Other comprehensive loss (447,336) (437,336)
Cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
------------ ------------
Total stockholders' deficiency (5,853,040) (4,525,921)
------------ ------------
Total liabilities & stockholders' deficiency $ 5,040,084 $ 5,197,084
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
---------------------------------
June 30, June 30,
2004 2003
----------- -----------
OPERATING REVENUES:
Pari-mutuel commissions $ 2,575,440 $ 3,020,871
Admissions 30,577 38,595
Concessions and parking 506,356 628,536
----------- -----------
Total operating revenue 3,112,373 3,688,002
----------- -----------
Operating expenses:
Wages, taxes and benefits 1,572,837 1,724,145
Purses 727,389 803,023
Cost of concessions 105,545 108,156
Administrative and operating 963,197 1,518,165
Depreciation and amortization 137,136 137,138
----------- -----------
Total operating expenses 3,506,104 4,290,627
----------- -----------
Loss from operations (393,731) (602,625)
----------- -----------
Other expense:
Interest expense, net (133,273) (107,393)
Amortization of deferred financing costs (24,910) (24,910)
Other expense, net (4,297) (10,000)
----------- -----------
Total other expense (162,480) (142,303)
----------- -----------
Loss from operations before
provision for income taxes (556,211) (744,928)
Provision for income taxes -- 7,500
----------- -----------
Net loss $ (556,211) $ (752,428)
----------- -----------
Basic and diluted per share data:
Net loss $ (0.44) $ (0.60)
=========== ===========
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 OPERATIONS
(UNAUDITED)
For the Six Months Ended
---------------------------------
June 30, June 30,
2004 2003
----------- -----------
OPERATING REVENUES:
Pari-mutuel commissions $ 4,976,746 $ 5,900,383
Admissions 56,181 66,525
Concessions and parking 943,663 1,175,640
----------- -----------
Total operating revenue 5,976,590 7,142,548
----------- -----------
Operating expenses:
Wages, taxes and benefits 3,029,676 3,252,277
Purses 1,358,062 1,582,767
Cost of concessions 184,902 185,543
Administrative & operating 2,128,593 2,696,924
Depreciation and amortization 274,275 288,159
----------- -----------
Total operating expenses 6,975,508 8,005,670
----------- -----------
Loss from operations (998,918) (863,122)
----------- -----------
Other expense:
Interest expense, net (238,581) (201,768)
Amortization of deferred financing costs (49,823) (49,823)
Other expense, net (2,797) (10,000)
----------- -----------
Total other expense (291,201) (261,591)
----------- -----------
Loss from operations before
provision for income taxes (1,290,119) (1,124,713)
Provision for income taxes 27,000 33,500
----------- -----------
Net loss $(1,317,119) $(1,158,213)
----------- -----------
Basic and diluted per share data:
Net loss $ (1.04) $ (0.92)
=========== ===========
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.
-7-
THE WESTWOOD GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six months ended
---------------------------------
June 30, June 30,
2004 2003
----------- -----------
Cash flows from operating activities
Net loss $(1,317,119) $(1,158,213)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 324,098 337,982
Minimum pension liability adjustment (10,000) --
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash (1,777) 98,840
Decrease (increase) in escrowed cash (87,657) 120,099
Decrease in accounts receivable 5,668 4,727
Increase in prepaid expenses and other current assets (90,508) (142,300)
Increase in other assets 13,715 --
Increase in accounts payable and other accrued liabilities 295,581 518,390
Increase in checks issued against future payments 230,524 --
Decrease in outstanding parimutuel tickets (190,439) (157,187)
Decrease in other long term liabilities (109,572) (66,921)
----------- -----------
Total adjustments 379,633 713,630
----------- -----------
Net cash used for operating activities (937,486) (444,583)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment -- (28,141)
Cash flows from financing activities:
Principal payments of debt (56,275) (51,237)
Proceeds from debt financing -- 350,000
Decrease in notes receivable, officers 147,238 538,926
Proceeds from advances on debt to be finalized 1,000,000 --
----------- -----------
Net cash provided by financing activities 1,090,963 837,689
----------- -----------
Net increase in cash and cash equivalents 153,777 364,965
Cash and cash equivalents, beginning of year 136,679 114,327
----------- -----------
Cash and cash equivalents, end of year $ 290,456 $ 479,292
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 207,368 $ 201,768
----------- -----------
Income taxes $ 27,000 $ 26,000
----------- -----------
Non-cash investing activities: The Company recorded a capital lease obligation
of $26,310 in 2003.
The accompanying notes are an integral part of these consolidated financial
statements.
-8-
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2004
(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, 2003.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements as of June 30, 2004 and
December 31, 2003 and for the three- and six- month periods ended June 30, 2004
and 2003 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
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 128, Earnings per Share, issued by the Financial Accounting Standards Board.
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
2004 or 2003 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 June 30, 2004, 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 the beginning of the periods
presented. As a result, There is no pro-forma expense for the six months ended
June 30, 2004 or 2003.
-9-
2. DEBT
Long-term debt consisted of the following:
JUNE 30, DECEMBER 31,
2004 2003
---------- ----------
6.5% Boston Federal Savings Bank term loan requiring 15
monthly payments of principal and interest of $42,910
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 $6,018,735 $6,157,355 $6,213,630
Less current maturities ..................................... 108,028 114,402
---------- ----------
Long-term portion ........................................... $6,049,327 $6,099,228
========== ==========
At June 30, 2004, the Company had drawn down a total of $6,340,000 from
the Boston Federal Savings Bank loan and $160,000 was available for use. The
remaining amounts available under this agreement can only be used to assist the
Company for transaction costs to become a private 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 June 30, 2004
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. ADVANCES ON DEBT TO BE FINALIZED
In March 2004, Wonderland Greyhound Park Realty LLC received a commitment
from a group of investors, one of whom being Charles F. Sarkis, to loan the
Company up to $2.5 million to be used for short term working capital purposes in
consideration for a second mortgage on the real property located at Wonderland
Greyhound Park. In the first six months of 2004, the Company received unsecured
advances in the amount of $1,000,000 which bear interest at 10% per annum from
this group of investors, but to date have not finalized the transaction
contemplated by the proposed commitment. In July 2004, the Company received an
additional $150,000 of unsecured advances, increasing the aggregate amount
received from this group of investors to $1,150,000. Accrued interest on the
advances totaled $29,966 at June 30, 2004. As these negotiations continue, the
Company is currently seeking to raise all or the remaining portion of the $2.5
million from other potential investors. However, there can be no assurance that
the Company will be able to successfully consummate any such loan transaction.
The Company's ability to continue as a going concern will depend in part on its
ability to consummate this proposed debt financing.
4. GOING PRIVATE TRANSACTION
On August 10, 2004, the Company filed a definitive proxy statement and an
accompanying Schedule 13E-3 with the Securities and Exchange Commission in order
to effectuate a 500 for 1 reverse stock split of its capital stock. The
definitive proxy statement was mailed to the stockholders of the Company on or
about August 11, 2004. A special meeting of the Company's stockholders is
currently scheduled to be held on September 20, 2004 to vote upon the proposed
reverse stock split. If the proposed reverse stock split is approved by the
Company's stockholders at the special meeting, 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. If such legislation
is enacted, the Board of Directors of the Company will engage an independent
financial advisor, and in consultation with this advisor, will determine the
incremental increase in the valuation of the Company as a direct result of the
installation and operation of a certain number of slot machines at its
Wonderland racetrack facility, and based upon such valuation, will pay each
redeemed record holder any increase in value above the $4.00 per share cash
payment received in connection with the reverse stock split, which will be
payable at such time and in such manner as determined by the Board of Directors.
- 10 -
5. LITIGATION
The Company is involved in various legal proceedings that arise in the
ordinary course of business.
On March 6, 2003, the Company received an inquiry from the Securities
Division of the Office of the Secretary of The Commonwealth of Massachusetts.
According to the Securities Division, it had received an anonymous letter from a
stockholder of the Company raising certain allegations concerning the then
proposed 1,500-to-1 reverse stock split. The Company's counsel answered all of
the Securities Division's questions and provided the requested materials.
On March 18, 2003, which was one day prior to the scheduled meeting to
approve the proposed 1,500-to-1 reverse stock split, the Company received an
Administrative Complaint and Ex Parte Motion for a Temporary Order to Cease and
Desist from the Securities Division. The Administrative Complaint claimed that
the Company failed to disclose certain information to the stockholders in the
prior proxy statement, which the Securities Division alleged to be "material."
Specifically, the Securities Division alleged that the Company failed to
disclose:
(i) the existence of loans from the principal of Alouette Capital to the
Company and Mr. Sarkis;
(ii) that Alouette Capital was not a registered broker dealer; and
(iii) the extent of the Company's lobbying activities with respect to the
passage of gaming legislation. The stockholders' meeting scheduled for
March 19, 2003 to approve the proposed going private transaction was
adjourned in order to permit the Company to address this matter, and the
stockholders' vote was never taken.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Company against the Company and its 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."
As a result of the Administrative Complaint filed by the Securities
Division, the proposed 1,500-to-1 reverse stock split was indefinitely
suspended. On April 8, 2003, the Company filed an answer in response to the
Securities Division's complaint, which denied each of the allegations set forth
in the complaint, and between April and June 2003, the Company and the
Securities Division negotiated a settlement.
On June 17, 2003, the Company filed a Motion to Dismiss the Court of
Chancery class action lawsuit for mootness on the grounds that the previously
proposed going private transaction was never completed. On October 23, 2003, the
same plaintiffs filed a supplemented and amended complaint with the Court of
Chancery in the State of Delaware alleging that the proposed reverse stock split
described in this proxy statement is not fair to the stockholders of the Company
and that the proxy statement omits information that the plaintiffs allege to be
"material." The plaintiffs amended the complaint to include Mr. Cassin, as a co-
defendant. The plaintiffs allege that the $4.00 pre share price valuation of the
Company's Common Stock and Class B Common Stock being paid to stockholders being
redeemed in the proposed reverse stock split is not fair and allege that the
fair value of the Company's Common Stock exceeds $5.00 per share; the Board of
Directors of the Company breached its fiduciary duties to the stockholders; and
the Company is violating Delaware corporate law by proposing to issue fractional
shares to some stockholders and paying other stockholders cash in lieu of
fractional shares. In addition, the plaintiffs allege that this proxy statement
fails to disclose all material facts regarding the description of the Company's
real estate, the RM Bradley appraisal reports, the lobbying expenses and the
reasons for the proposed 500-for-1 stock split. The plaintiffs are seeking an
injunction that would prevent the Company from completing the proposed reverse
stock split and damages.
The Company disputes all of the allegations set forth in the complaint,
and on November 10, 2003, it filed a Motion to Dismiss for failure to state a
claim. The Company's opening brief in support of its Motion to Dismiss was filed
on February 3, 2004, and the plaintiffs' answering brief in opposition to the
Motion to Dismiss was filed on March 1, 2004. The Court of Chancery suspended
briefing in this case until after the definitive proxy statement was finalized
and filed with the Securities and Exchange Commission.
- 11 -
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 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.
OVERVIEW
On August 10, 2004, the Company filed a definitive proxy statement and an
accompanying Schedule 13E-3 with the Securities and Exchange Commission in order
to effectuate a 500 for 1 reverse stock split of its capital stock. The
definitive proxy statement was mailed to the stockholders of the Company on or
about August 11, 2004. A special meeting of the Company's stockholders is
currently scheduled to be held on September 20, 2004 to vote upon the proposed
reverse stock split. If the proposed reverse stock split is approved by the
Company's stockholders at the special meeting, 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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
The table below illustrates certain key statistics for Wonderland Park,
the Company's greyhound racing operation for the three months ended June 30,
2004 and 2003
2004 2003
------- -------
Performances ......................... 64 75
Simulcast days ....................... 91 91
Pari-mutuel handle (thousands)
Live-on track ...................... $ 2,561 $ 3,577
Live-simulcast ..................... 4,512 6,686
Guest-simulcast .................... 11,285 12,297
------- -------
$18,358 $22,560
======= =======
Total attendance ..................... 56,617 62,922
Average per capita on site wagering .. $ 249 $ 252
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.
- 12 -
OPERATING REVENUE
Total operating revenue declined by approximately $576,000 to $3.11
million in the quarter ended June 30, 2004 as compared to the quarter ended June
30, 2003. Parimutuel commissions declined by 15% from approximately $3.02
million to $2.58 million during the same period. Total handle in the second
quarter of 2004 was approximately $18.36 million as compared to $22.56 million
in 2003, a decline of 19%. Live-on track handle decreased 28% or about $1.02
million for the same period from approximately $3.58 million to $2.56 million in
the second quarter of 2004, with an average daily attendance of approximately
622 persons in the second quarter of such period compared to 691 persons in the
second quarter of 2003. Live-simulcast handle decreased by approximately $2.17
million or 32% in the second quarter of 2004 compared to the second quarter of
2003. Guest-simulcast handle decreased by approximately $1.01 million or 8% from
the 2003 amount. Net admissions revenue decreased by 21%. This decrease is
associated with decreased attendance. Other operating revenue consisting of food
and beverage, program sales, lottery, parking and gift shop sales was
approximately $506,000 for the three months ended June 30, 2004 decreasing by
approximately $123,000 from approximately $629,000 for the three months ended
June 30, 2003. Parimutuel commissions for the three months ended June 30, 2004
included approximately $28,000 deposited into the Greyhound Capital Improvements
Trust Fund, $13,000 into the Greyhound Adoption Fund, and $41,000 into the
Greyhound Promotional Trust Fund. During same period of 2003 such amounts were
$30,000, $18,000 and $49,000 respectively.
OPERATING EXPENSES
Operating expenses of approximately $3.5 million for the three months
ended June 30, 2004 decreased by approximately $790,000 from approximately $4.34
million for the three months ended June 30, 2003. The decrease resulted from
reductions in professional fees and operating expenses and a decline in purse
expense occasioned by the decline in handle.
INTEREST EXPENSE
Interest expense increased by approximately $26,000 for the three months
ended June 30, 2004 from $107,000 in the three months ended June 30, 2003 to
approximately $133,000 in the three months ended June 30, 2004. The increase was
the result of increased borrowings on the Company's loan facility as well as
borrowings under the Company's advances.
INCOME TAX PROVISION
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during the three months ended June 30, 2004 and 2003
primarily due to the Company's net loss in both periods. The Company's provision
of $0 and $7,500 for income taxes for the three months ended June 30, 2004 and
2003, respectively, represents state and other related taxes.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
The table below illustrates certain key statistics for Wonderland Park,
the Company's greyhound racing operation for the six months ended June 30, 2004
and 2003
2004 2003
-------- --------
Performances .......................... 125 141
Simulcast days ........................ 182 180
Pari-mutuel handle (thousands)
Live-on track ....................... $ 4,716 $ 6,261
Live-simulcast ...................... 9,086 12,477
Guest-simulcast ..................... 21,516 24,069
-------- --------
$ 35,318 $ 42,807
======== ========
Total attendance 106,359 117,722
Average per capita on site wagering $ 247 $ 258
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.
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OPERATING REVENUE
Total operating revenue declined by approximately $1.16 million to $5.98
million in the six months ended June 30, 2004 as compared to $7.14 million in
the six months ended June 30, 2003. Parimutuel commissions declined by 16% from
approximately $5.90 million to $4.98 million during the same period. Total
handle in the first six months of 2004 was approximately $35.32 million as
compared to $42.81 million in 2003, a decline of 17%. Live-on track handle
decreased 25% or about $1.5 million for the same period from approximately $6.26
million to $4.72 million in the first six months of 2004, with an average daily
attendance of approximately 584 persons in the first six months of such periods
compared to 654 persons in the first six months of 2003. Live-simulcast handle
decreased by approximately $3.39 million or 27% in the first six months of 2004
compared to the first six months of 2003. Guest-simulcast handle decreased by
approximately $2.55 million or 11% from the 2003 amount. Net admissions revenue
decreased by 16%. This decrease is associated with decreased attendance. Other
operating revenue consisting of food and beverage, program sales, lottery,
parking and gift shop sales was approximately $944,000 for the six months ended
June 30, 2004 decreasing by approximately $231,000 from approximately $1.18
million for the six months ended June 30, 2003. Parimutuel commissions for the
six months ended June 30, 2004 included approximately $54,000 deposited into the
Greyhound Capital Improvements Trust Fund, $24,000 into the Greyhound Adoption
Fund, and $77,000 into the Greyhound Promotional Trust Fund. During same period
of 2003 such amounts were $60,000, $31,000 and $91,000 respectively.
OPERATING EXPENSES
Operating expenses of approximately $7.02 million for the six months ended
June 30, 2004 decreased by approximately $1.03 million from approximately $8.06
million for the six months ended June 30, 2003. The decrease resulted from
reductions in payroll expense, decline in purse expense occasioned by the
decline in handle, and reductions in operating expenses and professional fees.
INTEREST EXPENSE
Interest expense increased by approximately $37,000 for the six months
ended June 30, 2004 from $202,000 in the six months ended June 30, 2003 to
approximately $239,000 in the six months ended June 30, 2004. The increase was
the result of increased borrowings on the Company's loan facility, as well as
borrowings on the Company's unsecured bridge loan.
INCOME TAX PROVISION
The Company's provision for income Taxes was less than the statutory
federal tax rate of 34% during the six months ended June 30, 2004 and 2003
primarily due to the Company's net loss in both periods. The Company's provision
of $27,000 and $33,500 for income taxes for the six months ended June 30, 2004
and 2003, respectively, represents state and other related taxes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004, the Company had a working capital deficit of
approximately $3.3 million and a stockholders' deficit of approximately $5.8
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 $290,000 at June 30, 2004,
compared with approximately $137,000 at December 31, 2003. The Company's cash
used by operations was approximately $937,000 during the first six months of
2004 as compared to cash used by operations of approximately $445,000 during the
corresponding period in 2003. Non-cash items included in the Company's net loss
in the first six months of 2004 consisted of depreciation and amortization
expense of $324,000.
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.
In March 2004, Wonderland Greyhound Park Realty LLC received a commitment
from a group of investors, one of whom being Charles F. Sarkis, to loan the
Company up to $2.5 million to be used for short term working capital purposes in
consideration for a second mortgage on the real property located at Wonderland
Greyhound Park. The Company has received an unsecured loan in the aggregate
amount of $1,150,000 at a 10% interest rate from this group of investors, but to
date have not finalized the transaction contemplated by the proposed commitment.
As these negotiations continue, the Company is currently seeking to raise all or
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the remaining portion of the $2.5 million from other potential investors.
However, there can be no assurance that the Company will be able to successfully
consummate any such loan transaction. The Company's ability to continue as a
going concern will depend in part on its ability to consummate this proposed
debt financing.
On August 10, 2004, the Company filed a definitive proxy statement and an
accompanying Schedule 13E-3 with the Securities and Exchange Commission in order
to effectuate a 500 for 1 reverse stock split of its capital stock. The
definitive proxy statement was mailed to the stockholders of the Company on or
about August 11, 2004. A special meeting of the Company's stockholders is
currently scheduled to be held on September 20, 2004 to vote upon the proposed
reverse stock split. If the proposed reverse stock split is approved by the
Company's stockholders at the special meeting, 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. If such legislation
is enacted, the Board of Directors of the Company will engage an independent
financial advisor, and in consultation with this advisor, will determine the
incremental increase in the valuation of the Company as a direct result of the
installation and operation of a certain number of slot machines at its
Wonderland racetrack facility, and based upon such valuation, will pay each
redeemed record holder any increase in value above the $4.00 per share cash
payment received in connection with the reverse stock split, which will be
payable at such time and in such manner as determined by the Board of Directors.
The reverse stock split would (i) cause the Westwood Group to redeem shares
held by approximately 370 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%.
There have been no other material changes to our contractual obligations
and lease commitments since December 31, 2003.
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.
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
forwardlooking 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. Special attention should be paid
to such forward-looking statements including, but not limited to, statements
relating to (i) the Company's ability to execute its business strategy, (ii) the
Company's ability to obtain sufficient resources to finance its working capital
and capital expenditures needs and provide for its obligations, and (iii) the
statements contained
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in this item.
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 procedures as of June 30,
2004 and, based on that evaluation, concluded that the Company's disclosure
controls and procedures were effective as of June 30, 2004. During the three
month period ended June 30, 2004, 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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
3. LITIGATION
The Company is involved in various legal proceedings that arise in the
ordinary course of business.
On March 6, 2003, the Company received an inquiry from the Securities
Division of the Office of the Secretary of The Commonwealth of Massachusetts.
According to the Securities Division, it had received an anonymous letter from a
stockholder of the Company raising certain allegations concerning the then
proposed 1,500-to-1 reverse stock split. The Company's counsel answered all of
the Securities Division's questions and provided the requested materials.
On March 18, 2003, which was one day prior to the scheduled meeting to
approve the proposed 1,500-to-1 reverse stock split, the Company received an
Administrative Complaint and Ex Parte Motion for a Temporary Order to Cease and
Desist from the Securities Division. The Administrative Complaint claimed that
the Company failed to disclose certain information to the stockholders in the
prior proxy statement, which the Securities Division alleged to be "material."
Specifically, the Securities Division alleged that the Company failed to
disclose:
i) the existence of loans from the principal of Alouette Capital to the Company
and Mr. Sarkis;
(ii) that Alouette Capital was not a registered broker dealer; and
(iii) the extent of the Company's lobbying activities with respect to the
passage of gaming legislation. The stockholders' meeting scheduled for March 19,
2003 to approve the proposed going private transaction was adjourned in order to
permit the Company to address this matter, and the stockholders' vote was never
taken.
On April 1, 2003, a class action complaint was filed by a stockholder of
the Company against the Company and its 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."
As a result of the Administrative Complaint filed by the Securities
Division, the proposed 1,500-to-1 reverse stock split was indefinitely
suspended. On April 8, 2003, the Company filed an answer in response to the
Securities Division's complaint, which denied each of the allegations set forth
in the complaint, and between April and June 2003, the Company and the
Securities Division negotiated a settlement.
On June 17, 2003, the Company filed a Motion to Dismiss the Court of
Chancery class action lawsuit for mootness on the grounds that the previously
proposed going private transaction was never completed. On October 23, 2003, the
same plaintiffs filed a supplemented and amended complaint with the Court of
Chancery in the State of Delaware alleging that the proposed reverse stock split
described in this proxy statement is not fair to the stockholders of the Company
and that the proxy statement omits information that the plaintiffs allege to be
"material." The plaintiffs amended the complaint to include Mr. Cassin, as a co-
defendant. The plaintiffs allege that the $4.00 pre share price valuation of the
Company's Common Stock and Class B Common Stock being paid to stockholders being
redeemed in the proposed reverse stock split is not fair and allege that the
fair value of the Company's Common Stock exceeds $5.00 per share; the Board of
Directors of the Company breached its fiduciary duties to the stockholders; and
the Company is violating Delaware corporate law by proposing to issue fractional
shares to some stockholders and paying other stockholders cash in lieu of
fractional shares. In addition, the plaintiffs allege that this proxy statement
fails to disclose all material facts regarding the description of the Company's
real estate, the RM Bradley appraisal reports, the lobbying expenses and the
reasons for the proposed 500-for-1 stock split. The plaintiffs are seeking an
injunction that would prevent the Company from completing the proposed reverse
stock split and damages.
The Company disputes all of the allegations set forth in the complaint, and
on November 10, 2003, it filed a Motion to Dismiss for failure to state a claim.
The Company's opening brief in support of its Motion to Dismiss was filed on
February 3, 2004, and the plaintiffs' answering brief in opposition to the
Motion to Dismiss was filed on March 1, 2004. The Court of Chancery suspended
briefing in this case until after the definitive proxy statement was finalized
and filed with the Securities and Exchange Commission.
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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) Reports on Form 8-K
None.
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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
--------------------------------------
Richard P. Dalton
President, Chief Executive Officer and
Director
(Principal Executive, Financial and
Accounting Officer)
Date August 16, 2004
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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.