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 SEPTEMBER 30, 2002
------------------
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 November 1, 2002, 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
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
-----------------------------------------------
UNAUDITED
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 183,182 $ 12,355
Restricted cash 568,264 345,294
Escrowed Cash 347,654 180,608
Accounts receivable 12,363 42,825
Prepaid expenses and other current assets 218,287 136,730
Notes receivable from officers short - term portion 550,440 468,939
-----------------------------------------------
Total current assets 1,880,190 1,186,751
-----------------------------------------------
PROPERTY PLANT AND EQUIPMENT:
Land 348,066 348,066
Building and building improvements 18,946,257 18,663,406
Machinery and equipment 4,969,705 4,697,751
-----------------------------------------------
24,264,028 23,709,223
Less accumulated depreciation and amortization (19,384,859) (18,942,335)
-----------------------------------------------
Net property, plant and equipment 4,879,169 4,766,888
-----------------------------------------------
OTHER ASSETS:
Notes receivable from officers long term portion 628,846 847,593
Deferred financing costs, less accumulated amortization of
$8,303 and $121,432 at September 30, 2002 and December 31, 2001
respectively. 290,634 60,716
Other assets, net 29,391 51,171
-----------------------------------------------
Total other assets 948,871 959,480
-----------------------------------------------
Total assets $7,708,230 $6,913,119
===============================================
The accompanying notes are an integral part of
these consolidated financial statements.
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
-----------------------------------------------
UNAUDITED
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 1,218,517 $ 1,452,237
Outstanding parimutuel tickets 585,567 611,107
Purse liability 318,525 --
Note payable 82,896 --
Current maturities of long-term debt 89,159 324,525
-----------------------------------------------
Total current liabilities 2,294,664 2,387,869
Long term debt less current maturities 5,310,841 3,772,186
Accrued executive bonus long - term portion -- 54,352
Other long - term liabilities 722,574 1,104,145
-----------------------------------------------
Total liabilities 8,328,079 7,318,552
-----------------------------------------------
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 (5,808,061) (5,593,645)
Other comprehensive loss (254,851) (254,851)
Cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
-----------------------------------------------
Total stockholders' deficiency (619,849) (405,433)
-----------------------------------------------
Total liabilities and stockholders' deficiency $ 7,708,230 $ 6,913,119
===============================================
The accompanying notes are an integral part of
these consolidated financial statements.
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
September 30, September 30,
(Unaudited) 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Operating revenues:
Pari-mutuel commissions $3,064,867 $3,395,105
Other 701,715 790,463
Admissions 48,565 57,129
------------------------------------------
Total operating revenue 3,815,147 4,242,697
------------------------------------------
Operating expenses:
Wages, taxes and benefits 1,581,147 1,624,709
Purses 892,220 941,735
Cost of food and beverage 108,671 158,062
Administrative and operating 1,259,200 1,251,491
Depreciation and amortization 177,745 100,894
------------------------------------------
Total operating expenses 4,018,983 4,076,891
------------------------------------------
Income (loss) from operations (203,836) 165,806
------------------------------------------
Other income (expense):
Interest expense, net (77,230) (92,290)
Settlement of estimated liability -- 1,058,007
Other expense, net (13,019) --
------------------------------------------
Total other income (expense) (90,249) 965,717
------------------------------------------
Income (loss) before provision for income taxes (294,085) 1,131,523
Provision for income tax 1,035 19,100
------------------------------------------
Net income (loss) $ (295,120) $1,112,423
==========================================
Basic and diluted per share data:
Net income (loss) ($0.23) $0.88
==========================================
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.
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended
September 30, September 30,
(Unaudited) 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Operating revenues:
Pari-mutuel commissions $ 9,783,166 $10,467,895
Other 2,134,513 2,274,090
Admissions 137,219 161,916
------------------------------------------
Total operating revenue 12,054,898 12,903,901
------------------------------------------
Operating expenses:
Wages, taxes and benefits 4,638,296 4,868,669
Purses 2,648,312 2,978,350
Cost of food and beverage 390,786 382,160
Administrative and operating 3,747,601 4,018,414
Depreciation and amortization 467,038 357,660
------------------------------------------
Total operating expenses 11,892,033 12,605,253
------------------------------------------
Income from operations 162,865 298,648
------------------------------------------
Other income (expense):
Interest expense, net (304,438) (384,675)
Settlement of estimated liability -- 1,058,007
Other expense, net (44,363) (7,458)
------------------------------------------
Total other income (expense) (348,801) 665,874
------------------------------------------
Income (loss) before provision for income taxes (185,936) 964,522
Provision for income tax 28,480 52,100
------------------------------------------
Net income (loss) $ (214,416) $ 912,422
==========================================
Basic and diluted per share data:
Net income (loss) ($0.17) $0.72
==========================================
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.
THE WESTWOOD GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30, September 30,
(Unaudited) 2002 2001
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($214,418) $912,422
------------------------------------------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 467,038 357,660
Change in accounting estimate -- (1,058,007)
Changes in operating assets and liabilities:
(Increase) decrease in restricted cash (222,970) 186,479
(Increase) in escrowed cash (167,046) --
Decrease in accounts receivable 30,462 45,179
(Increase) decrease in prepaid expenses and other
current assets 167,131 (131,395)
Decrease (increase) in other assets, net 21,780 (5,081)
Increase in accounts payable and other accrued
liabilities 84,805 43,098
(Decrease) in outstanding parimutuel tickets (25,540) (92,126)
(Decrease) in accrued executive bonus long term portion (54,352) (70,155)
(Decrease) in other long term liabilities (381,571) (221,060)
------------------------------------------
Total adjustments (80,263) (945,408)
------------------------------------------
Net cash used in operating activities (294,679) (32,986)
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (554,805) (104,345)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (406,285) (218,239)
Retirement of debt (3,856,218) --
Proceeds of debt financing 5,400,000 --
(Increase) in deferred financing costs (254,432) --
Decrease in notes receivable, officers 137,246 364,701
------------------------------------------
Net cash provided by financing activities 1,020,311 146,462
------------------------------------------
Net increase in cash and cash equivalents 170,827 9,131
Cash and cash equivalents, beginning of period 12,355 141,310
------------------------------------------
Cash and cash equivalents, end of period $183,182 $150,441
==========================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $273,076 $322,561
==========================================
Income taxes $26,035 $42,265
==========================================
The accompanying notes are an integral part of
these consolidated financial statements.
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2002
(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 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, 2001.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements as of September 30,
2002 and December 31, 2001 and for the three and nine month periods ended
September 30, 2002 and 2001 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 (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. Stock options were not considered in 2002 since the
Company had a net loss and their effect would be antidilutive. The Company's
stock options did not have a dilutive effect in 2001 since the option prices per
share were deemed to be equal to or higher than the estimated average per share
market price of the Company's common stock.
The amount of potentially dilutive common shares issuable under the
Company's stock options, if any, are determined based on the treasury stock
method.
2. DEBT
Long-term debt consisted of the following:
September 30, December 31,
2002 2001
- ------------------------------------------------------------------------------------------------
9.5% Century Bank and Trust Company ("Century Bank")
term loan, 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,
refinanced with Boston Federal Savings Bank in September 2002. $4,096,711
6.5% Boston Federal Saving Bank ("Boston Federal Savings
Bank") requiring 34 monthly payments of principal and
interest of $36,461 beginning November 1, 2002
collateralized by a mortgage and security interest in all
real estate and personal property located at Wonderland
Greyhound Park. The final payment on the loan
is to be made September 1, 2005 in the amount of $5,131,586. $5,400,000
Less current maturities 89,159 326,525
-----------------------------
Long - term portion $5,310,841 $3,772,186
=============================
The maximum borrowings under the Boston Federal Savings Bank loan are
$6.5 million which includes $500,000 to be used in the going private transaction
and $600,000 for corporate purposes.
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. The note is
collateralized by a mortgage and security interest in all real estate and
personal property at Wonderland Greyhound Park.
The proceeds from the new Boston Federal Savings Bank loan were used to
pay off the Century Bank and Trust Company loan.
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2002
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
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 new statute,
the Company and the other area racetracks are permitted to continue to provide
simulcast broadcasting of thoroughbred racing to their patrons until December
2005. This legislation also provides that the Company is to pay premiums for the
right to simulcast interstate thoroughbred and harness racing ranging from 3% to
7% for the benefit of the purse accounts at the Commonwealth's two commercial
horse racetracks. In addition, to the extension and expansion of simulcast
broadcasting, this statute provides for a "purse pool," which will be funded by
taxes, fees and assessments with a minimum of $400,000 being credited to the
purse accounts of each racetrack with any remaining portion being apportioned
among the racetracks pursuant to a formula to be devised by the State Racing
Commission. All unclaimed simulcast wagers collected at each racetrack are to be
deposited with the Massachusetts State Racing Commission for payment to the
purse account of the individual racetracks responsible for such unclaimed
wagers. The Westwood Group also received a one-time grant of $300,035 during
2000 from the Commonwealth for the purpose of funding capital improvements and
repairs to its facility and equipment. Finally, the new 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 new legislation has materially benefited the
Company's overall racing operations since November 2001.
Management has worked diligently over the past decade in attempting to
convince the Governor and the Massachusetts state legislature of the need to
allow the Commonwealth's commercial recetracks to offer their patrons expanded
gaming opportunities. The Massachusetts state legislature took no action on
gaming in the years 2000 and 2001, and no gaming legislation is anticipated in
2002. On October 3, 2002, the Governor of Massachusetts issued an executive
order establishing a commission to study the potential expansion of legalized
gaming in Massachusetts. This commission is to report its findings to the
Governor by no later than December 31, 2002. The Westwood Group cannot predict
the final recommendations of this commission and/or whether legislation
expanding legalized gaming will ever be enacted or if enacted, will be on
favorable terms.
On October 25, 2002, the Company filed a preliminary proxy statement
and an accompanying Schedule 13E-3 with the Securities and Exchange Commission
in order to effectuate a 1,500 for 1 reverse stock split of its capital stock.
If the proposed reverse stock split is approved by a majority of the Company's
stockholders, then holders of less than 1,500 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.
The reverse stock split will (i) cause the Westwood Group to redeem
shares held by approximately 400 holders of record of Common Stock, (ii) not
eliminate record holders who hold 1,500 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 1,500 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 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 $6,000, which amount reflects the highest payment to be received by any
stockholder as a result of the consummation of the proposed reverse stock split.
3
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2002
(Unaudited)
Wonderland currently conducts live racing six nights per week.
Wonderland also offers simulcast wagering afternoons and evenings throughout the
year.
The table below illustrates certain key statistics for Wonderland Park, the
Company's greyhound racing operation, for the three months ended September 30,
2002 and 2001.
2002 2001
-------------------------------------
Performances 84 88
Simulcast days 92 92
Pari-mutuel handle (thousands)
Live-on track $4,228 $5,610
Live-simulcast 7,256 8,724
Guest-simulcast 12,237 11,703
-------------------------------------
$23,721 $26,037
-------------------------------------
Total attendance 67,489 76,762
Average per capita on site wagering $244 $226
OPERATING REVENUE
Total operating revenue declined by $428,000 to $3.82 million in the
quarter ended September 30, 2002 as compared to the quarter ended September 30,
2001. Parimutuel commissions declined by 10% from $3.40 million to $3.07 million
during the same period. Total handle in the third quarter of 2002 was
approximately $23.7 million as compared to $26.0 million in 2001, a decline of
9%. Live-on track handle decreased 24.6% or about $1.38 million for the same
period from $5.61 million to $4.23 million in the third quarter of 2002, with an
average daily attendance of approximately 803 persons in the third quarter of
such periods compared to 872 persons in the third quarter of 2001.
Live-simulcast handle decreased by $1.47 million or 16.8% in the third quarter
of 2002 compared to the third quarter of 2001. However, guest-simulcast handle
increased by $534,000 or 4.6% from the 2001 amount. Net admissions revenue
decreased by 15.3%. Most of this decrease is associated with decreased
attendance, and the remainder with increased promotional discounts. Other
operating revenue consists of food and beverage, program sales, lottery, parking
and gift shop sales and was approximately $702,000 for the three months ended
September 30, 2002 decreasing by approximately $88,000 from approximately
$790,000 for the three months ended September 30, 2001. Parimutuel commissions
for the three months ended September 30, 2002 included approximately $38,000
deposited into the Greyhound Capital Improvements Trust Fund, $51,000 into the
Greyhound Adoption Fund, and $50,000 into the Greyhound Promotional Trust Fund.
During same period of 2001 such amounts were $57,000, $0, and $57,000
respectively.
OPERATING EXPENSES
Operating expenses of approximately $4.02 million for the three months
ended September 30, 2002 decreased by approximately $58,000 from approximately
$4.08 million for the three months ended September 30, 2001. The decrease is
mainly the result of the decline in purse expense related to handle decline. A
decline in food and beverage costs of approximately $49,000 is the result of
admission declines during the third quarter.
4
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2002
(Unaudited)
INTEREST EXPENSE
Interest expense decreased by approximately $15,000 for the three
months ended September 30, 2002 from $92,000 in the three months ended September
30, 2001 to approximately $77,000 in the three months ended September 30, 2002.
This decrease is the result more favorable financing terms and the discharge of
certain liabilities resulting from the loan refinancing transaction.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $77,000 to
$178,000 in the three months ended September 30, 2002, from approximately
$101,000 in the comparable period in 2001. The increase was the result of
increased investment in the track facility during this period, writeoff of
deferrred financing fees related to the Century Bank debt and amortization of
new deferred finance costs.
INCOME TAX PROVISION
The Company's provision for income taxes was less than the statutory
federal tax rate of 34% during the first nine months of 2002 and 2001 primarily
due to the net loss in 2002 and the utilization of available net operating loss
carryforwards in 2001. The provision for taxes of $1,035 and $19,100 in the
three months ended September 30, 2002 and 2001, respectively, represents state
taxes.
The table below illustrates certain key statistics for Wonderland Greyhound
Park, the Company's greyhound racing operation, for the nine months ended
September 30, 2002 and 2001.
2002 2001
-------------------------------------
Performances 251 259
Simulcast days 273 272
Pari-mutuel handle (thousands)
Live-on track $12,946 $16,427
Live-simulcast 23,606 26,360
Guest-simulcast 37,548 37,467
-------------------------------------
$74,100 $80,254
-------------------------------------
Total attendance 203,339 224,203
Average per capita on site wagering $248 $240
OPERATING REVENUE
Total operating revenue declined by approximately $849,000 to $12.1
million in the nine months ended September 30, 2002 as compared to $12.9 million
for the nine months ended September 30, 2001. Parimutuel commissions declined by
6.5% from $10.5 million to $9.8 million during the same period. Total handle in
the first nine months of 2002 was approximately $74.1 million as compared to
$80.2 million for such period in 2001, a decline of 8%. Live-on track handle
decreased 21.2% or about $3.5 million from $16.4 million in the first nine
months of 2001 to $12.9 million for such period in 2002, with an average
attendance of approximately 810 persons for such period in 2002 compared to 866
persons for such period in 2001. Live-simulcast handle decreased by $2.8 million
or 10.4% in the first nine months of 2002. Guest-simulcast handle increased by
$81,000 or 0.2% from the first nine months of 2001.
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2002
(Unaudited)
Net admissions revenue decreased by 15.3%. Other operating revenue
consists of food and beverage, program sales, lottery, parking and gift shop
sales was approximately $2.1 million for the nine months ended September 30,
2002 decreasing by approximately $140,000 or 6% from approximately $2.3 million
for the nine months ended September 30, 2001. Parimutuel commissions for the
nine months ended September 30, 2002 included approximately $106,000 deposited
into the Greyhound Capital Improvements Trust Fund, $94,000 into the Greyhound
Adoption Fund and $151,000 into the Greyhound Promotional Trust Fund. During
same period of 2001 such amounts were $176,000, $0, and $176,000 respectively.
OPERATING EXPENSES
Operating expenses of approximately $11.9 million for the nine months
ended September 30, 2002 decreased by approximately $713,000 from approximately
$12.6 million for the nine months ended September 30, 2001. The decrease is the
result of cost savings in payroll and operations of approximately $500,000 as
well as decreased purses due to handle declines of approximately $6 million.
INTEREST EXPENSE
Interest expense decreased by approximately $80,000 for the nine months
ended September 30, 2002 from $384,000 in the nine months ended September 30,
2001 to approximately $304,000 in the nine months ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, the Company had a working capital deficit of
approximately $414,000, and a stockholders' deficit of approximately $620,000.
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 $183,000
at September 30, 2002, compared with $12,000 at December 31, 2001.
The Company generated a cash deficit from operations of approximately
$295,000 during the first nine months of 2002 as compared to a deficit of
$33,000 during the corresponding period in 2001. Non-cash items included in the
Company's net loss in the first nine months of 2002 consist of depreciation
and amortization expense of $467,000. Changes in working capital accounts
including restricted cash, accounts payable and other accrued liabilities used
approximately $547,000 of cash in the first nine months of 2002.
Net cash used in investing activities in 2002 of approximately $555,000
represents additions to property, plant and equipment.
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.
Financing activities in 2002 generated approximately $1.0 million of
cash in the course of the refinancing of the Company's long term debt.
The Company is currently undertaking a capital improvements program to
improve its track and patron facilities. It is anticipated that these
expenditures will be fully funded by the Capital Improvement Trust fund and a
grant program contained in the racing legislation enacted in November 2001.
The Company received a short-term working capital advance from Charles
F. Sarkis, an officer of the Company, of $300,000 in March 2002. This funding
accrued interest at a rate of 12% and was repaid with a portion of the proceeds
received in connection with the loan transaction with Boston Federal Savings
Bank.
7
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2002
(Unaudited)
The Company believes that it will generate enough cash from operations
to satisfy its anticipated obligations during 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.
ESCROWED CASH
Escrowed cash is related to the operations of Wonderland and includes
amounts held by The Commonwealth of Massachusetts in trust funds (for capital
improvements and advertising/promotion). Wonderland funds these costs and
requests reimbursements from the trust funds. Wonderland is reimbursed upon
approval by the Commonwealth.
REVENUE RECOGNITION
The Company's annual revenues are mainly derived from the net
commission that it receives from wagers made by patrons during its live-on track
racing performances, live and guest-simulcast racing performances and from
admission and concession charges at such performances. Inter-track receivables
and payables are dependent on the accuracy of an independent totalistar vendor.
This vendor's system has been independently reviewed and deemed reliable.
FORWARD-LOOKING STATEMENTS
Certain statements contained throughout this quarterly report
constitute "forward-looking statements" as that term is defined under the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from those contemplated or
projected, forecasted, estimated or budgeted in or expressed or implied by such
foward-looking statements. Such factors include, among others, the following:
general economic and business conditions; industry trends, changes in business
strategy or development plans; availability and quality of management; and
availability, terms and employment of capital. 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 IN THIS ITEM.
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 2002
(Unaudited)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material exposure to market risk that could affect
its future results of operations and financial condition. Risks and
uncertainties, including those not presently known to us or that we currently
deem immaterial, may impair our business. The Company does not use derivative
products and does not have any material monetary assets. (See Item 2, "Liquidity
and Capital Resources").
The preceding discussion of the financial condition and results of
operations of the Company should be read in conjunction with the interim
consolidated financial statements and the notes thereto included in Part I,
Item 1 of this Quarterly Report on Form 10-Q and the consolidated financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Form 10-Q, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer (its principal
executive officer and principal financial officer), of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.
There have been no significant changes in the Company's internal controls or in
other factors, which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
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) Exhibit
- ------------- ---------------------------------------------------
Exhibit
Number Description
- ------------- ---------------------------------------------------
(99.1) Certification 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
7
SIGNATURE
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 November 14, 2002 /s/ Richard P. Dalton
-------------------------------------------
Richard P. Dalton President,
Chief Executive Officer and Director
(Principal Financial and Accounting Officer)
CERTIFICATIONS
I, Richard P. Dalton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Westwood Group
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly;
4. The registrant other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have;
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves Management or other
employees have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 14, 2002
/s/ Richard P. Dalton
-----------------------------
Chief Executive Officer
(Principal Executive Officer
and Principal Financial Officer)
8