10-Q 1 b51483wge10vq.txt THE WESTWOOD GROUP, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________________ TO ___________________ COMMISSION FILE NUMBER: 0-1590 THE WESTWOOD GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-1983910 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 190 V.F.W. PARKWAY, REVERE, MASSACHUSETTS 02151 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 781-284-2600 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (L) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECKMARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER ( AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT) YES NO X AS OF AUGUST 4, 2004, 351,210 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.01 PER SHARE AND 912,015 SHARES OF THE REGISTRANT'S CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING. -2- PAGE PART I FINANCIAL INFORMATION NUMBER ITEM 1: Consolidated Financial Statements * 3 Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 4 Consolidated Statements of Operations for the three months ended June 30, 2004 and June 30, 2003 5 Consolidated Statements of Operations for the six months ended June 30, 2004 and June 30, 2003 6 Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and June 30, 2003 7 Notes to Consolidated Financial Statements 8 ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 11 ITEM 3: Quantitative and Qualitative Disclosures About Market Risk 15 ITEM 4: Controls and Procedures 15 PART II OTHER INFORMATION 16 ITEM 1: Legal Proceedings 16 ITEM 2: Changes in Securities and Use of Proceeds 17 ITEM 3: Defaults Upon Senior Securities 17 ITEM 4: Submission of Matters to a Vote of Security Holders 17 ITEM 5: Other Information 17 ITEM 6: Exhibits and Reports on Form 8-K 17 SIGNATURE 18 EXHIBIT INDEX 19 ---------- *The Consolidated Balance Sheet at December 31, 2003 has been taken from the audited financial statements at that date. All other financial statements are unaudited. -3- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE WESTWOOD GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements. -4- THE WESTWOOD GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements. -5- THE WESTWOOD GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements. -6- THE WESTWOOD GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements. -7- THE WESTWOOD GROUP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Non-cash investing activities: The Company recorded a capital lease obligation of $26,310 in 2003. The accompanying notes are an integral part of these consolidated financial statements. -8- THE WESTWOOD GROUP, INC. AND SUBSIDIARIES JUNE 30, 2004 (UNAUDITED) 1. BASIS OF PRESENTATION INTERIM RESULTS In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of results of operations for the interim periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating results for interim periods are not necessarily indicative of results that may be expected for an entire fiscal year. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements as of June 30, 2004 and December 31, 2003 and for the three- and six- month periods ended June 30, 2004 and 2003 include the accounts of the Company and its wholly-owned subsidiaries. All material inter-company accounts and transactions have been eliminated in consolidation. LOSS PER COMMON SHARE The Company follows Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, issued by the Financial Accounting Standards Board. Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common shares and potentially dilutive common shares, consisting of stock options with an exercise price below the average market price of common shares. Stock options were not considered in 2004 or 2003 since the Company had a net loss and their effect would be antidilutive. The amount of potentially dilutive common shares issuable under the Company's stock options, if any, are determined based on the treasury stock method. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. STOCK-BASED COMPENSATION At June 30, 2004, the Company continued to account for stock-based compensation plans using the intrinsic value method. The Company accounts for stock based compensation plans in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", and SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure". All stock options were fully vested as of the beginning of the periods presented. As a result, There is no pro-forma expense for the six months ended June 30, 2004 or 2003. -9- 2. DEBT Long-term debt consisted of the following:

At June 30, 2004, the Company had drawn down a total of $6,340,000 from the Boston Federal Savings Bank loan and $160,000 was available for use. The remaining amounts available under this agreement can only be used to assist the Company for transaction costs to become a private company. The Loan, Reimbursement, and Security Agreement, dated as of September 3, 2002, by and between Wonderland Greyhound Park Realty, LLC and Boston Federal Savings Bank, contains certain restrictive covenants including the maintenance of certain financial ratios and debt coverage requirements. As of June 30, 2004 the Company was in compliance with these covenants. The note is collateralized by a mortgage and security interest in all real estate and personal property at Wonderland Greyhound Park. 3. ADVANCES ON DEBT TO BE FINALIZED In March 2004, Wonderland Greyhound Park Realty LLC received a commitment from a group of investors, one of whom being Charles F. Sarkis, to loan the Company up to $2.5 million to be used for short term working capital purposes in consideration for a second mortgage on the real property located at Wonderland Greyhound Park. In the first six months of 2004, the Company received unsecured advances in the amount of $1,000,000 which bear interest at 10% per annum from this group of investors, but to date have not finalized the transaction contemplated by the proposed commitment. In July 2004, the Company received an additional $150,000 of unsecured advances, increasing the aggregate amount received from this group of investors to $1,150,000. Accrued interest on the advances totaled $29,966 at June 30, 2004. As these negotiations continue, the Company is currently seeking to raise all or the remaining portion of the $2.5 million from other potential investors. However, there can be no assurance that the Company will be able to successfully consummate any such loan transaction. The Company's ability to continue as a going concern will depend in part on its ability to consummate this proposed debt financing. 4. GOING PRIVATE TRANSACTION On August 10, 2004, the Company filed a definitive proxy statement and an accompanying Schedule 13E-3 with the Securities and Exchange Commission in order to effectuate a 500 for 1 reverse stock split of its capital stock. The definitive proxy statement was mailed to the stockholders of the Company on or about August 11, 2004. A special meeting of the Company's stockholders is currently scheduled to be held on September 20, 2004 to vote upon the proposed reverse stock split. If the proposed reverse stock split is approved by the Company's stockholders at the special meeting, then holders of less than 500 shares immediately prior to such meeting will be cashed out at a per share purchase price equal to $4.00, thereby reducing the number of its stockholders to under 300 and, consequently, allowing the Company to change its status from a public to a private company and to relieve the Company of the administrative burden and cost and competitive disadvantages associated with filing reports and otherwise complying with the requirements of registration under the federal securities laws and to permit small stockholders to receive a fair price for their shares without having to pay brokerage commission. In addition to receiving the cash payment of $4.00 per share, each record holder being redeemed in connection with the proposed reverse stock split will be entitled to receive an additional cash payment if, within one calendar year from the date of the special meeting of the stockholders, the Massachusetts state legislature enacts legislation that expands legalized gaming in The Commonwealth of Massachusetts and such legislation authorizes the Company to install slot machines at its Wonderland racetrack facility. If such legislation is enacted, the Board of Directors of the Company will engage an independent financial advisor, and in consultation with this advisor, will determine the incremental increase in the valuation of the Company as a direct result of the installation and operation of a certain number of slot machines at its Wonderland racetrack facility, and based upon such valuation, will pay each redeemed record holder any increase in value above the $4.00 per share cash payment received in connection with the reverse stock split, which will be payable at such time and in such manner as determined by the Board of Directors. - 10 - 5. LITIGATION The Company is involved in various legal proceedings that arise in the ordinary course of business. On March 6, 2003, the Company received an inquiry from the Securities Division of the Office of the Secretary of The Commonwealth of Massachusetts. According to the Securities Division, it had received an anonymous letter from a stockholder of the Company raising certain allegations concerning the then proposed 1,500-to-1 reverse stock split. The Company's counsel answered all of the Securities Division's questions and provided the requested materials. On March 18, 2003, which was one day prior to the scheduled meeting to approve the proposed 1,500-to-1 reverse stock split, the Company received an Administrative Complaint and Ex Parte Motion for a Temporary Order to Cease and Desist from the Securities Division. The Administrative Complaint claimed that the Company failed to disclose certain information to the stockholders in the prior proxy statement, which the Securities Division alleged to be "material." Specifically, the Securities Division alleged that the Company failed to disclose: (i) the existence of loans from the principal of Alouette Capital to the Company and Mr. Sarkis; (ii) that Alouette Capital was not a registered broker dealer; and (iii) the extent of the Company's lobbying activities with respect to the passage of gaming legislation. The stockholders' meeting scheduled for March 19, 2003 to approve the proposed going private transaction was adjourned in order to permit the Company to address this matter, and the stockholders' vote was never taken. On April 1, 2003, a class action complaint was filed by a stockholder of the Company against the Company and its Board of Directors in the Court of Chancery in the State of Delaware seeking to enjoin the proposed reverse stock split on the basis that is not fair to the stockholders and that the proxy statement omits information alleged to be "material." As a result of the Administrative Complaint filed by the Securities Division, the proposed 1,500-to-1 reverse stock split was indefinitely suspended. On April 8, 2003, the Company filed an answer in response to the Securities Division's complaint, which denied each of the allegations set forth in the complaint, and between April and June 2003, the Company and the Securities Division negotiated a settlement. On June 17, 2003, the Company filed a Motion to Dismiss the Court of Chancery class action lawsuit for mootness on the grounds that the previously proposed going private transaction was never completed. On October 23, 2003, the same plaintiffs filed a supplemented and amended complaint with the Court of Chancery in the State of Delaware alleging that the proposed reverse stock split described in this proxy statement is not fair to the stockholders of the Company and that the proxy statement omits information that the plaintiffs allege to be "material." The plaintiffs amended the complaint to include Mr. Cassin, as a co- defendant. The plaintiffs allege that the $4.00 pre share price valuation of the Company's Common Stock and Class B Common Stock being paid to stockholders being redeemed in the proposed reverse stock split is not fair and allege that the fair value of the Company's Common Stock exceeds $5.00 per share; the Board of Directors of the Company breached its fiduciary duties to the stockholders; and the Company is violating Delaware corporate law by proposing to issue fractional shares to some stockholders and paying other stockholders cash in lieu of fractional shares. In addition, the plaintiffs allege that this proxy statement fails to disclose all material facts regarding the description of the Company's real estate, the RM Bradley appraisal reports, the lobbying expenses and the reasons for the proposed 500-for-1 stock split. The plaintiffs are seeking an injunction that would prevent the Company from completing the proposed reverse stock split and damages. The Company disputes all of the allegations set forth in the complaint, and on November 10, 2003, it filed a Motion to Dismiss for failure to state a claim. The Company's opening brief in support of its Motion to Dismiss was filed on February 3, 2004, and the plaintiffs' answering brief in opposition to the Motion to Dismiss was filed on March 1, 2004. The Court of Chancery suspended briefing in this case until after the definitive proxy statement was finalized and filed with the Securities and Exchange Commission. - 11 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this quarterly report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under "Results of Operations" and elsewhere in this quarterly report. OVERVIEW On August 10, 2004, the Company filed a definitive proxy statement and an accompanying Schedule 13E-3 with the Securities and Exchange Commission in order to effectuate a 500 for 1 reverse stock split of its capital stock. The definitive proxy statement was mailed to the stockholders of the Company on or about August 11, 2004. A special meeting of the Company's stockholders is currently scheduled to be held on September 20, 2004 to vote upon the proposed reverse stock split. If the proposed reverse stock split is approved by the Company's stockholders at the special meeting, then holders of less than 500 shares immediately prior to such meeting will be cashed out at a per share purchase price equal to $4.00, thereby reducing the number of its stockholders to under 300 and, consequently, allowing the Company to change its status from a public to a private company and to relieve the Company of the administrative burden and cost and competitive disadvantages associated with filing reports and otherwise complying with the requirements of registration under the federal securities laws and to permit small stockholders to receive a fair price for their shares without having to pay brokerage commission. In addition to receiving the cash payment of $4.00 per share, each record holder being redeemed in connection with the proposed reverse stock split will be entitled to receive an additional cash payment if, within one calendar year from the date of the special meeting of the stockholders, the Massachusetts state legislature enacts legislation that expands legalized gaming in The Commonwealth of Massachusetts and such legislation authorizes the Company to install slot machines at its Wonderland racetrack facility. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003 The table below illustrates certain key statistics for Wonderland Park, the Company's greyhound racing operation for the three months ended June 30, 2004 and 2003

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. - 13 - OPERATING REVENUE Total operating revenue declined by approximately $1.16 million to $5.98 million in the six months ended June 30, 2004 as compared to $7.14 million in the six months ended June 30, 2003. Parimutuel commissions declined by 16% from approximately $5.90 million to $4.98 million during the same period. Total handle in the first six months of 2004 was approximately $35.32 million as compared to $42.81 million in 2003, a decline of 17%. Live-on track handle decreased 25% or about $1.5 million for the same period from approximately $6.26 million to $4.72 million in the first six months of 2004, with an average daily attendance of approximately 584 persons in the first six months of such periods compared to 654 persons in the first six months of 2003. Live-simulcast handle decreased by approximately $3.39 million or 27% in the first six months of 2004 compared to the first six months of 2003. Guest-simulcast handle decreased by approximately $2.55 million or 11% from the 2003 amount. Net admissions revenue decreased by 16%. This decrease is associated with decreased attendance. Other operating revenue consisting of food and beverage, program sales, lottery, parking and gift shop sales was approximately $944,000 for the six months ended June 30, 2004 decreasing by approximately $231,000 from approximately $1.18 million for the six months ended June 30, 2003. Parimutuel commissions for the six months ended June 30, 2004 included approximately $54,000 deposited into the Greyhound Capital Improvements Trust Fund, $24,000 into the Greyhound Adoption Fund, and $77,000 into the Greyhound Promotional Trust Fund. During same period of 2003 such amounts were $60,000, $31,000 and $91,000 respectively. OPERATING EXPENSES Operating expenses of approximately $7.02 million for the six months ended June 30, 2004 decreased by approximately $1.03 million from approximately $8.06 million for the six months ended June 30, 2003. The decrease resulted from reductions in payroll expense, decline in purse expense occasioned by the decline in handle, and reductions in operating expenses and professional fees. INTEREST EXPENSE Interest expense increased by approximately $37,000 for the six months ended June 30, 2004 from $202,000 in the six months ended June 30, 2003 to approximately $239,000 in the six months ended June 30, 2004. The increase was the result of increased borrowings on the Company's loan facility, as well as borrowings on the Company's unsecured bridge loan. INCOME TAX PROVISION The Company's provision for income Taxes was less than the statutory federal tax rate of 34% during the six months ended June 30, 2004 and 2003 primarily due to the Company's net loss in both periods. The Company's provision of $27,000 and $33,500 for income taxes for the six months ended June 30, 2004 and 2003, respectively, represents state and other related taxes. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2004, the Company had a working capital deficit of approximately $3.3 million and a stockholders' deficit of approximately $5.8 million. Historically, the Company's primary sources of capital to finance its businesses have been its cash flow from operations and credit facilities. The Company's capital needs are primarily for maintenance and enhancement of the racing facility at Wonderland, and for debt service requirements. The Company's cash and cash equivalents totaled approximately $290,000 at June 30, 2004, compared with approximately $137,000 at December 31, 2003. The Company's cash used by operations was approximately $937,000 during the first six months of 2004 as compared to cash used by operations of approximately $445,000 during the corresponding period in 2003. Non-cash items included in the Company's net loss in the first six months of 2004 consisted of depreciation and amortization expense of $324,000. On September 3, 2002, Wonderland Greyhound Park Realty, LLC, a subsidiary of the Company, entered into a $6,500,000 Loan, Reimbursement and Security Agreement with Boston Federal Savings Bank. This loan is collateralized by a mortgage on all real and personal property located at Wonderland Greyhound Park. A portion of the proceeds from this loan transaction was used to refinance the Company's then existing credit facility with Century Bank and Trust Company. The Company is the guarantor of the loan from Boston Federal Savings Bank. In March 2004, Wonderland Greyhound Park Realty LLC received a commitment from a group of investors, one of whom being Charles F. Sarkis, to loan the Company up to $2.5 million to be used for short term working capital purposes in consideration for a second mortgage on the real property located at Wonderland Greyhound Park. The Company has received an unsecured loan in the aggregate amount of $1,150,000 at a 10% interest rate from this group of investors, but to date have not finalized the transaction contemplated by the proposed commitment. As these negotiations continue, the Company is currently seeking to raise all or - 14 - the remaining portion of the $2.5 million from other potential investors. However, there can be no assurance that the Company will be able to successfully consummate any such loan transaction. The Company's ability to continue as a going concern will depend in part on its ability to consummate this proposed debt financing. On August 10, 2004, the Company filed a definitive proxy statement and an accompanying Schedule 13E-3 with the Securities and Exchange Commission in order to effectuate a 500 for 1 reverse stock split of its capital stock. The definitive proxy statement was mailed to the stockholders of the Company on or about August 11, 2004. A special meeting of the Company's stockholders is currently scheduled to be held on September 20, 2004 to vote upon the proposed reverse stock split. If the proposed reverse stock split is approved by the Company's stockholders at the special meeting, then holders of less than 500 shares immediately prior to such meeting will be cashed out at a per share purchase price equal to $4.00, thereby reducing the number of its stockholders to under 300 and, consequently, allowing the Company to change its status from a public to a private company and to relieve the Company of the administrative burden and cost and competitive disadvantages associated with filing reports and otherwise complying with the requirements of registration under the federal securities laws and to permit small stockholders to receive a fair price for their shares without having to pay brokerage commission. In addition to receiving the cash payment of $4.00 per share, each record holder being redeemed in connection with the proposed reverse stock split will be entitled to receive an additional cash payment if, within one calendar year from the date of the special meeting of the stockholders, the Massachusetts state legislature enacts legislation that expands legalized gaming in The Commonwealth of Massachusetts and such legislation authorizes the Company to install slot machines at its Wonderland racetrack facility. If such legislation is enacted, the Board of Directors of the Company will engage an independent financial advisor, and in consultation with this advisor, will determine the incremental increase in the valuation of the Company as a direct result of the installation and operation of a certain number of slot machines at its Wonderland racetrack facility, and based upon such valuation, will pay each redeemed record holder any increase in value above the $4.00 per share cash payment received in connection with the reverse stock split, which will be payable at such time and in such manner as determined by the Board of Directors. The reverse stock split would (i) cause the Westwood Group to redeem shares held by approximately 370 holders of record of Common Stock, (ii) not eliminate record holders who hold 500 or more shares of Common Stock and Class B Common Stock, (iii) reduce the number of shares, on a pro-rata basis, held by the holders of record who hold 500 or more shares of Common Stock and Class B Common Stock, and (iv) change the percent of Common Stock held by the remaining stockholders to 100%. There have been no other material changes to our contractual obligations and lease commitments since December 31, 2003. CRITICAL ACCOUNTING POLICIES In accordance with the U.S. Securities and Exchange Commission Release Nos. 33-8040, 34-45149 and R-60, the Company's Critical Accounting Policies are as follows: USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates that could impact on the Company's results of operations include those relating to contractual obligations and other accrued expenses. Actual results could differ from those estimates. REVENUE RECOGNITION The Company's annual revenues are mainly derived from the net commission that it receives from wagers made by patrons during its live-on track racing performances, live and guest-simulcast racing performances and from admission and concession charges at such performances. Inter-track receivables and payables are dependent on the accuracy of an independent totalistar vendor. This vendor's system has been independently reviewed and deemed reliable. FORWARD-LOOKING STATEMENTS Certain statements contained throughout this quarterly report constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those contemplated or projected, forecasted, estimated or budgeted in or expressed or implied by such forwardlooking statements. Such factors include, among others, the following: general economic and business conditions; industry trends, changes in business strategy or development plans; availability and quality of management; and availability, terms and employment of capital. Special attention should be paid to such forward-looking statements including, but not limited to, statements relating to (i) the Company's ability to execute its business strategy, (ii) the Company's ability to obtain sufficient resources to finance its working capital and capital expenditures needs and provide for its obligations, and (iii) the statements contained - 15 - in this item. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no material exposure to market risk that could affect its future results of operations and financial condition. Risks and uncertainties, including those not presently known to us or that we currently deem immaterial, may impair our business. The Company does not use derivative products and does not have any material monetary assets. ITEM 4. CONTROLS AND PROCEDURES The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). The rules refer to the controls and other procedures designed to ensure that information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded processed, summarized and reported within the time periods specified. The Company's management, including the Company's Chief Executive Officer, performed an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of June 30, 2004 and, based on that evaluation, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2004. During the three month period ended June 30, 2004, there were no significant changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. - 16 - PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 3. LITIGATION The Company is involved in various legal proceedings that arise in the ordinary course of business. On March 6, 2003, the Company received an inquiry from the Securities Division of the Office of the Secretary of The Commonwealth of Massachusetts. According to the Securities Division, it had received an anonymous letter from a stockholder of the Company raising certain allegations concerning the then proposed 1,500-to-1 reverse stock split. The Company's counsel answered all of the Securities Division's questions and provided the requested materials. On March 18, 2003, which was one day prior to the scheduled meeting to approve the proposed 1,500-to-1 reverse stock split, the Company received an Administrative Complaint and Ex Parte Motion for a Temporary Order to Cease and Desist from the Securities Division. The Administrative Complaint claimed that the Company failed to disclose certain information to the stockholders in the prior proxy statement, which the Securities Division alleged to be "material." Specifically, the Securities Division alleged that the Company failed to disclose: i) the existence of loans from the principal of Alouette Capital to the Company and Mr. Sarkis; (ii) that Alouette Capital was not a registered broker dealer; and (iii) the extent of the Company's lobbying activities with respect to the passage of gaming legislation. The stockholders' meeting scheduled for March 19, 2003 to approve the proposed going private transaction was adjourned in order to permit the Company to address this matter, and the stockholders' vote was never taken. On April 1, 2003, a class action complaint was filed by a stockholder of the Company against the Company and its Board of Directors in the Court of Chancery in the State of Delaware seeking to enjoin the proposed reverse stock split on the basis that is not fair to the stockholders and that the proxy statement omits information alleged to be "material." As a result of the Administrative Complaint filed by the Securities Division, the proposed 1,500-to-1 reverse stock split was indefinitely suspended. On April 8, 2003, the Company filed an answer in response to the Securities Division's complaint, which denied each of the allegations set forth in the complaint, and between April and June 2003, the Company and the Securities Division negotiated a settlement. On June 17, 2003, the Company filed a Motion to Dismiss the Court of Chancery class action lawsuit for mootness on the grounds that the previously proposed going private transaction was never completed. On October 23, 2003, the same plaintiffs filed a supplemented and amended complaint with the Court of Chancery in the State of Delaware alleging that the proposed reverse stock split described in this proxy statement is not fair to the stockholders of the Company and that the proxy statement omits information that the plaintiffs allege to be "material." The plaintiffs amended the complaint to include Mr. Cassin, as a co- defendant. The plaintiffs allege that the $4.00 pre share price valuation of the Company's Common Stock and Class B Common Stock being paid to stockholders being redeemed in the proposed reverse stock split is not fair and allege that the fair value of the Company's Common Stock exceeds $5.00 per share; the Board of Directors of the Company breached its fiduciary duties to the stockholders; and the Company is violating Delaware corporate law by proposing to issue fractional shares to some stockholders and paying other stockholders cash in lieu of fractional shares. In addition, the plaintiffs allege that this proxy statement fails to disclose all material facts regarding the description of the Company's real estate, the RM Bradley appraisal reports, the lobbying expenses and the reasons for the proposed 500-for-1 stock split. The plaintiffs are seeking an injunction that would prevent the Company from completing the proposed reverse stock split and damages. The Company disputes all of the allegations set forth in the complaint, and on November 10, 2003, it filed a Motion to Dismiss for failure to state a claim. The Company's opening brief in support of its Motion to Dismiss was filed on February 3, 2004, and the plaintiffs' answering brief in opposition to the Motion to Dismiss was filed on March 1, 2004. The Court of Chancery suspended briefing in this case until after the definitive proxy statement was finalized and filed with the Securities and Exchange Commission. - 17 - ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification by Principal Executive Officer and Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K None. - 18 - Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WESTWOOD GROUP, INC. /s/ Richard P. Dalton -------------------------------------- Richard P. Dalton President, Chief Executive Officer and Director (Principal Executive, Financial and Accounting Officer) Date August 16, 2004 - 19 - 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.

WESTWOOD GROUP INC 10-Q