-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UsYazGK6RNTxuCcPW7tZYgjsCUhqZTi8Gd2SBQaaKXzB0wvtLMC8vaKzveEygY/n fL3S6f8CSM+fKbNhW7DaXg== 0000950135-03-005651.txt : 20031113 0000950135-03-005651.hdr.sgml : 20031113 20031113160355 ACCESSION NUMBER: 0000950135-03-005651 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTWOOD GROUP INC CENTRAL INDEX KEY: 0000083530 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 041983910 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01590 FILM NUMBER: 03998176 BUSINESS ADDRESS: STREET 1: 190 VFW PARKWAY CITY: REVERE STATE: MA ZIP: 02151 BUSINESS PHONE: 6172842600 MAIL ADDRESS: STREET 1: 190 VFW PARKWAY CITY: REVERE STATE: MA ZIP: 02151 FORMER COMPANY: FORMER CONFORMED NAME: REVERE RACING ASSOCIATION INC DATE OF NAME CHANGE: 19830519 10-Q 1 b48108wge10vq.txt THE WESTWOOD GROUP, INC. 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. 14 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. 15 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. 17 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) 18 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 EX-31.1 3 b48108wgexv31w1.txt SECTION 302 CERTIFICATION OF CEO & CFO EXHIBIT 31.1 CERTIFICATION I, Richard P. Dalton, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Westwood Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Richard P. Dalton ----------------------------------------- Richard P. Dalton President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) 20 EX-32.1 4 b48108wgexv32w1.txt SECTION 906 CERTIFICATION OF CEO & CFO EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Westwood Group, Inc. (the "Company") on Form 10-Q for the six months ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard P. Dalton, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: November 13, 2003 /s/ Richard P. Dalton ------------------------------------------ Richard P. Dalton President and Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) A signed original of this written statement required by Section 906 has been provided to The Westwood Group, Inc. and will be retained by The Westwood Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 21 -----END PRIVACY-ENHANCED MESSAGE-----