1
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, 2001
-----------------------------
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
------- -------
AS OF AUGUST 14, 2001, 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.
Page 1 of 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2001 2000
-----------------------------------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $12,679 $141,310
Restricted cash 379,755 435,656
Accounts receivable 44,930 88,206
Prepaid expenses and other current assets 337,846 108,370
Notes receivable from officers short - term portion 610,174 431,136
-----------------------------------------------
Total current assets 1,385,384 1,204,678
-----------------------------------------------
PROPERTY PLANT AND EQUIPMENT:
Land 348,066 348,066
Building and building improvements 18,601,448 18,593,939
Machinery and equipment 4,653,431 4,615,432
-----------------------------------------------
23,602,945 23,557,437
Less accumulated depreciation and amortization (18,681,683) (18,443,132)
-----------------------------------------------
Net property, plant and equipment 4,921,262 5,114,305
-----------------------------------------------
OTHER ASSETS:
Notes receivable from officers long term portion 1,119,910 1,315,208
Deferred financing costs, less accumulated amortization of $103,217
and $85,002 at June 30, 2001 and December 31, 2000 respectively. 78,931 97,146
Other assets, net 62,786 48,871
-----------------------------------------------
Total other assets 1,261,627 1,461,225
-----------------------------------------------
Total assets $7,568,273 $7,780,208
===============================================
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Page 2 of 13
3
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
June 30, December 31,
2001 2000
----------------------------------------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $2,341,072 $2,108,881
Discontinued operations 351,000 351,000
Outstanding parimutuel tickets 775,789 635,355
Current maturities of long-term debt 284,838 295,225
-----------------------------------------------
Total current liabilities 3,752,699 3,390,461
LONG TERM DEBT LESS CURRENT MATURITIES 3,938,287 4,096,172
ACCRUED EXECUTIVE BONUS LONG - TERM PORTION 100,166 147,880
OTHER LONG - TERM LIABILITIES 1,748,948 1,917,521
-----------------------------------------------
Total liabilities 9,540,100 9,552,034
-----------------------------------------------
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 (7,220,653) (7,020,652)
Other comprehensive loss (194,237) (194,237)
Cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
-----------------------------------------------
Total stockholders' deficiency (1,971,827) (1,771,826)
-----------------------------------------------
Total liabilities and stockholders' deficiency $7,568,273 $7,780,208
===============================================
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3 of 13
4
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
June 30, June 30,
2001 2000
-------------------------------------------------
OPERATING REVENUES:
Pari-mutuel commissions $3,666,121 $3,823,005
Admissions 59,113 68,931
Other 819,845 829,810
-------------------------------------------------
Total operating revenue 4,545,079 4,721,746
-------------------------------------------------
OPERATING EXPENSES:
Wages, taxes and benefits 1,644,452 1,667,415
Purses 1,079,761 1,141,985
Cost of food and beverage 121,596 112,951
Administrative and operating 1,528,597 1,253,733
Depreciation and amortization 128,383 121,716
-------------------------------------------------
Total operating expenses 4,502,789 4,297,800
-------------------------------------------------
Income from operations 42,290 423,946
-------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense, net (184,027) (83,109)
Other income, net 2 -
-------------------------------------------------
Total other expenses (184,025) (83,109)
-------------------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (141,735) 340,837
PROVISION FOR INCOME TAXES 33,000 72,777
-------------------------------------------------
NET INCOME (LOSS) $(174,735) $ 268,060
=================================================
BASIC AND DILUTED PER SHARE DATA:
NET INCOME (LOSS) ($0.14) $0.21
=================================================
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: 1,263,225 1,263,225
=================================================
Page 4 of 13
5
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<Table>
<Caption>
For the Six Months Ended
June 30, June 30,
2001 2000
-------------------------------------
OPERATING REVENUES:
Pari-mutuel commissions $7,072,790 $7,263,328
Admissions 104,787 125,674
Other 1,483,627 1,572,293
-------------------------------------
Total operating revenue 8,661,204 8,961,295
-------------------------------------
OPERATING EXPENSES:
Wages, taxes and benefits 3,243,960 3,137,359
Purses 2,036,615 2,107,461
Cost of food and beverage 224,098 194,077
Administrative and operating 2,766,923 2,060,094
Depreciation and amortization 256,766 250,594
-------------------------------------
Total operating expenses 8,528,362 7,749,585
-------------------------------------
Income from operations 132,842 1,211,710
-------------------------------------
OTHER EXPENSE:
Interest expense, net (292,385) (234,254)
Other expense, net (7,458) -
-------------------------------------
Total other expenses (299,843) (234,254)
-------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (167,001) 977,456
PROVISION FOR INCOME TAXES 33,000 132,777
-------------------------------------
NET INCOME (LOSS) $ (200,001) $ 844,679
=====================================
BASIC AND DILUTED PER SHARE DATA:
NET INCOME (LOSS) ($0.16) $0.67
=====================================
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: 1,263,225 1,263,225
=====================================
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Page 5 of 13
6
THE WESTWOOD GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
For the Six Months
Ended June 30,
----------------------------------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(200,001) $844,679
----------------------------------------------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 256,766 250,594
Changes in operating assets and liabilities:
Decrease in restricted cash 55,901 56,045
Decrease (increase) in accounts receivable 43,276 (82,868)
Increase in prepaid expenses and other current assets (229,476) (207,636)
Decrease (increase) in other assets, net (13,915) 4,888
Decrease in notes receivable from officers 16,260 355,179
(Decrease) increase in accounts payable and other accrued liabilities 232,191 (475,458)
(Decrease) increase in outstanding parimutuel tickets 140,434 (155,537)
(Decrease) in accrued executive bonus long-term portion (47,714) -
(Decrease) in other long - term liabilities (168,573) (333,104)
----------------------------------------------------
Total adjustments 285,150 (587,897)
----------------------------------------------------
Net cash provided by operating activities 85,149 256,782
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (45,508) (46,840)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (168,272) (157,541)
----------------------------------------------------
Net increase (decrease) in cash and cash equivalents (128,631) 52,401
Cash and cash equivalents, beginning of period 141,310 343,109
----------------------------------------------------
Cash and cash equivalents, end of period $12,679 $395,510
====================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $291,994 $254,661
====================================================
Income taxes $7,500 $61,300
====================================================
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Page 6 of 13
7
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
INTERIM RESULTS
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair statement of
results of operations for the interim periods presented. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities on the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Operating results for interim periods are not necessarily
indicative of results that may be expected for an entire fiscal year.
Accordingly, these interim consolidated financial statements should be read in
conjunction with the consolidated financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated condensed financial statements as of June 30,
2001 and December 31, 2000 and for the three and six month periods ended June
30, 2001 and 2000 include the accounts of the Company and its wholly-owned
subsidiaries. All material inter-company accounts and transactions have been
eliminated in consolidation.
INCOME (LOSS) PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share, issued by the Financial Accounting Standards Board.
Under SFAS No. 128, the basic and diluted net income and loss per share of
common stock is computed by dividing the net income (loss) by the weighted
average number of common shares outstanding during the period, including
potentially dilutive stock options. The Company's stock options did not have a
dilutive effect in 2000 since the option prices per share were deemed to be
equal to or higher than the estimated average per share market price of the
Company's common stock. Stock options were not considered in 2001 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.
2. DEBT
Long - term debt consisted of the following:
June 30, 2001 December 31, 2000
- -----------------------------------------------------------------------------------------------------------------------
9.5% Century Bank and Trust Company term loan, $4,223,125 $4,391,397
requiring 60 monthly payments of principal and interest of $58,319
beginning August 1, 1998, collateralized by a mortgage and security
interest in all real estate and personal property located at
Wonderland Greyhound Park.
Less current maturities 284,838 295,225
---------- ----------
Long - term portion $3,938,287 $4,096,172
========== ==========
3. OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had a working capital deficit of
approximately $2.4 million, and a stockholders' deficit of approximately $1.97
million. Historically, the Company's primary sources of capital to finance its
businesses have been its cash flow from operations and credit facilities.
Currently, no additional credit facility exists. 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 $13,000 at June 30, 2001, compared with $141,000 at
December 31, 2000. The Company generated cash flows from operations of
approximately $85,000 during the first six months of 2001 as compared to
$257,000 during the corresponding period in 2000. Non cash items included in the
Company's net income in the first six months of 2001 consist of depreciation and
amortization expense of $257,000. Changes in working capital accounts including
restricted cash, accounts payable and other accrued liabilities provided
approximately $53,000 of cash in the first six months of 2001.
Net cash used in investing activities in 2001 of approximately $46,000
represents investments and additions to the property, plant and equipment.
Financing activities in 2001 include $168,000 of funds used to reduce
outstanding balances on long term debt.
The Company has suffered recurring losses and has a significant working
capital deficit and stockholders' deficit as of June 30, 2001, which raises
substantial doubts as to the ability of the Company to continue as a going
concern. The Company believes that if the new simulcast broadcasting legislation
is enacted as currently proposed, such legislation may provide the Company the
opportunity to be more competitive in its current arena and very likely improve
its overall revenue position.
In addition, management has taken steps to bring the Company's expense
structure in line with the reduced revenue levels being achieved. The Company
has begun to pursue several opportunities to lease parcels of its real property
surrounding the Wonderland racing facility to third parties for non-racing
activities. The Company believes that such leasing arrangements, if achieved,
will provide the Company with a new viable source of revenue which will enhance
its overall revenue levels. Management has also begun to implement a cost
reduction program, pursuant to which the Company has identified certain
operational and administrative costs that it believes can be reduced, and has
taken steps to implement such reductions. The Company will continue to use its
commercially reasonable efforts to reduce its costs to meet forecasted revenues.
There can be no assurance that the Company will succeed in achieving these
revenue enhancing and cost reduction objectives, and its failure to do so may
have a material adverse effect on its business, prospects, financial condition,
and operating results and the Company's ability to continue as a going concern.
Page 7 of 13
8
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2001
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The current legislation which permits the Company to provide simulcast
broadcasting has been extended until September 30, 2001. If the current
legislation expires and new legislation is not enacted, it would have a material
adverse effect on the revenues and business of the Company. Over the course of
the last several months, the Company and the owners of other Massachusetts race
tracks have been working to enact legislation which would permit the Company and
those other racetracks to provide simulcast broadcasting of thoroughbred racing
on a more frequent basis. Additionally, the Company and the other track owners
are seeking to amend the current racing statutes to provide for a decrease in
the parimutuel taxes paid to the Commonwealth. The Company and the other owners
have proposed that the funds available from the parimutuel tax decrease be made
available for increases in purses and the Capital Improvement and Promotional
Trust Funds as well as the establishment of a Greyhound Adoption Fund.
Additionally, the proposal provides for account wagering, satellite wagering and
other revisions to the racing statute. The Company cannot assure you that either
the simulcast or the parimutuel tax legislation will be adopted or that the
current legislation is extended past September 30, 2001.
The Company is trying to adapt and survive in a dramatically changing
environment, one in which the Company and the racing industry nationally have
experienced significant declines in on-site attendance and dollars wagered. The
Company continues to be negatively impacted by a strong Massachusetts state
lottery, two Indian Casinos in Connecticut and slot machines at the Lincoln,
Rhode Island greyhound track. The casinos and track are in close proximity to
the Massachusetts border and therefore rely upon their ability to attract
Massachusetts patrons. Wonderland is at a competitive disadvantage when compared
with other New England greyhound racetracks in that it can offer only a very
limited amount of simulcasting from thoroughbred racetracks. Management has
worked diligently over the last several years in attempting to convince the
Governor and the Legislature of The Commonwealth of Massachusetts of the need to
allow the Commonwealth's commercial racetracks to offer their patrons expanded
gaming opportunities. The Massachusetts state legislature took no action on
gaming in the year 2000 and no gaming legislation is anticipated in 2001. The
Company cannot predict whether such legislation will ever be enacted or enacted
on favorable terms.
Management continues to examine the full range of strategic alternatives
available in an effort to maximize shareholder value, including the benefits and
disadvantages of remaining a public company, particularly in light of the lack
of a meaningful trading market for its common stock.
The table below illustrates certain key statistics for Wonderland Park, the
Company's greyhound racing operation, for the three months ended June 30, 2001
and 2000.
2001 2000
---- ----
Performances 91 91
Simulcast days 91 91
Pari-mutuel handle (thousands)
Live-on track $ 5,833 $ 6,211
Live-simulcast 8,597 10,431
Guest-simulcast 13,282 13,406
------- -------
$27,712 $30,048
======= =======
Total attendance 78,607 83,723
Average per capita on site wagering $ 243 $ 234
Page 8 of 13
9
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2001
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
OPERATING REVENUE
Total operating revenue declined by $177,000 to $4.55 million in the
quarter ended June 30, 2001 as compared to the quarter ended June 30, 2000.
Parimutuel commissions declined by 4% from $3.82 million to $3.67 million during
the same period. Total handle in the second quarter of 2001 was approximately
$27.7 million as compared to $30.0 million in 2000. Live-on track handle
decreased 6.1% or about $378,000 from $6.2 million to $5.8 million in 2001, with
an average daily attendance of approximately 873 persons in 2001 compared to 920
persons in 2000. Live-simulcast handle decreased by $1.8 million or 17.6% in the
second quarter of 2001 compared to the second quarter of 2000. Guest-simulcast
handle decreased by $124,000 or 9% from 2000.
The decrease in admissions revenue, when associated discounts are added
back, approximates the decline in attendance of 9.4% Other operating revenue
consists of food and beverage, program sales, lottery, parking and gift shop
sales. It stood at approximately $820,000 for the three months ended June 30,
2001 decreasing by approximately $10,000 from approximately $830,000 for the
three months ended June 30, 2000. Parimutuel commission for the three months
ended June 30, 2001 included approximately $62,000 deposited each into the
Greyhound Capital Improvements Trust Fund and the Greyhound Promotional Trust
Fund. During same period of 2000 this figure amounted to $64,000.
OPERATING EXPENSES
Operating expenses of approximately $4.5 million for the three months ended
June 30, 2001 increased by approximately $205,000 from approximately $4.3
million for the three months ended June 30, 2000. Increased utilities costs and
real estate taxes were primarily responsible for the increase.
INTEREST EXPENSE
Interest expense increased by approximately $101,000 for the three months
ended June 30, 2001 from $83,000 in the three months ended June 30, 2000 to
approximately $184,000 in the three months ended June 30, 2001. The increase is
the result of interest accrued on the litigation settlement with a totalisator
vendor described in "Legal Proceedings" section the Company's Form 10-K for the
fiscal year ended December 31, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $6,000 to $128,000 in
the three months ended June 30, 2001, from $122,000 in the comparable period in
2000.
INCOME TAX PROVISION
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during the first six months of 2001 and 2000 primarily
due to the utilization of available net operating loss carryforwards in 2000 and
the net loss in 2001. The provision for taxes of $33,000 and $133,000 in the
first six months of 2001 and 2000, respectively, represents estimated state
taxes .
Page 9 of 13
10
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2001
(UNAUDITED)
The table below illustrates certain key statistics for Wonderland Park, the
Company's greyhound racing operation, for the six months ended June 30, 2001 and
2000.
2001 2000
-------- --------
Performances 171 176
Simulcast days 180 182
Pari-mutuel handle (thousands)
Live-on track $ 10,818 $ 11,344
Live-simulcast 17,636 20,653
Guest-simulcast 25,764 25,711
-------- --------
$ 54,218 $ 57,708
======== ========
Total attendance 147,441 161,308
Average per capita on site wagering $ 248 $ 230
OPERATING REVENUE
Total operating revenue declined by $300,000 to $8.66 million in the six
months ended June 30, 2001 as compared to the six months ended June 30, 2000.
Parimutuel commissions declined by 2.6% from $7.26 million to $7.07 million
during the same period. Total handle in the first six months of 2001 was
approximately $54.2 million as compared to $57.7 million in 2000. Live-on track
handle decreased 4.6% or about $526,000 from $11.3 million in 2000 to $10.8
million in 2001, with an average attendance of approximately 862 persons in 2001
compared to 917 persons in 2000. Live-simulcast handle decreased by $3.0 million
or 14.6% in the first six months of 2001. Guest-simulcast handle decreased by
$53,000 or 0.2% from 2000.
The decrease in admissions revenue, when associated discounts are added
back, approximates the decline in attendance of 9.4% Other operating revenue
consists of food and beverage, program sales, lottery, parking and gift shop
sales. It stood at approximately $1,484,000 for the six months ended June 30,
2001 decreasing by approximately $89,000 from approximately $1,572,000 for the
six months ended June 30, 2000. Parimutuel commission for the six months ended
June 30, 2001 included approximately $124,000 deposited each into the Greyhound
Capital Improvements Trust Fund and the Greyhound Promotional Trust Fund. This
figure amounted to $126,000 for the same period in 2000.
OPERATING EXPENSES
Operating expenses of approximately $8.5 million for the six months ended
June 30, 2001 increased by approximately $780,000 from approximately $7.7
million for the six months ended June 30, 2000. Increased utilities costs ,
professional services, and real estate taxes were primarily responsible for the
increase.
INTEREST EXPENSE
Interest expense increased by approximately $58,000 for the six months
ended June 30, 2001 from $234,000 in the six months ended June 30, 2000 to
approximately $292,000 in the six months ended June 30, 2001. The increase is
the result of interest accrued on the litigation settlement with a totalisator
vendor that is described in "Legal Proceedings" on the 2000 Form 10-K.
Page 10 of 13
11
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2001
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $6,000 to $257,000 in
the six months ended June 30, 2001, from $251,000 in the comparable period in
2000.
INCOME TAX PROVISION
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during the first six months of 2001 and 2000 primarily
due to the utilization of available net operating loss carryforwards in 2000 and
the net loss in 2001. The provision for taxes of $33,000 and $133,000 in the
first six months of 2001 and 2000, respectively, represents estimated state
taxes.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had a working capital deficit of
approximately $2.4 million, and a stockholders' deficit of approximately $1.97
million. Historically, the Company's primary sources of capital to finance its
businesses have been its cash flow from operations and credit facilities.
Currently, no additional credit facility exists. 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 $13,000 at June 30, 2001, compared with $141,000 at
December 31, 2000. The Company generated cash flows from operations of
approximately $85,000 during the first six months of 2001 as compared to
$257,000 during the corresponding period in 2000. Non cash items included in the
Company's net income in the first six months of 2001 consist of depreciation and
amortization expense of $257,000. Changes in working capital accounts including
restricted cash, accounts payable and other accrued liabilities provided
approximately $53,000 of cash in the first six months of 2001.
Net cash used in investing activities in 2001 of approximately $46,000
represents investments and additions to the property, plant and equipment.
Financing activities in 2001 include $168,000 of funds used to reduce
outstanding balances on long term debt.
The Company has suffered recurring losses and has a significant working
capital deficit and stockholders' deficit as of June 30, 2001, which raises
substantial doubts as to the ability of the Company to continue as a going
concern. The Company believes that if the new simulcast broadcasting legislation
is enacted as currently proposed, such legislation may provide the Company the
opportunity to be more competitive in its current arena and very likely improve
its overall revenue position.
In addition, management has taken steps to bring the Company's expense
structure in line with the reduced revenue levels being achieved. The Company
has begun to pursue several opportunities to lease parcels of its real property
surrounding the Wonderland racing facility to third parties for non-racing
activities. The Company believes that such leasing arrangements, if achieved,
will provide the Company with a new viable source of revenue which will enhance
its overall revenue levels. Management has also begun to implement a cost
reduction program, pursuant to which the Company has identified certain
operational and administrative costs that it believes can be reduced, and has
taken steps to implement such reductions. The Company will continue to use its
commercially reasonable efforts to reduce its costs to meet forecasted revenues.
There can be no assurance that the Company will succeed in achieving these
revenue enhancing and cost reduction objectives, and its failure to do so may
have a material adverse effect on its business, prospects, financial condition,
and operating results and the Company's ability to continue as a going concern.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
Page 11 of 13
12
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2001
(UNAUDITED)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
None
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
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) None (b) Reports on Form 8-K None
Page 12 of 13
13
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 2001
(UNAUDITED)
Pursuant to the requirement 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 August 14, 2001 /s/ Richard P. Dalton
-----------------------------------
Richard P. Dalton President,
Chief Executive Officer and
Director (Principal Financial and
Accounting Officer)
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