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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X]
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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
incorporation or organization) Identification No.)
190 V.F.W. PARKWAY 02151
REVERE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
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 May 10, 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.
THE WESTWOOD GROUP, INC.
FORM 10-Q
PART I FINANCIAL INFORMATION......................................... 2
Item 1: Consolidated Financial Statements*.......................... 2
Consolidated Balance Sheets as of March 31, 2004 and December 31, 2
2003.................................................................
Consolidated Statements of Operations for the three months ended
March 31, 2004 and March 31, 2003.................................. 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2004 and March 31, 2003.................................. 5
Notes to Consolidated Financial Statements........................... 6
Item 2: Management's Discussion and Analysis of Financial Conditions
and Results of Operations................................... 9
Item 3: Quantitative and Qualitative Disclosures About Market
Risk........................................................ 12
Item 4: Controls and Procedures..................................... 12
PART II OTHER INFORMATION............................................ 12
Item 1: Legal Proceedings........................................... 12
Item 2: Changes in Securities and Use of Proceeds................... 13
Item 3: Defaults Upon Senior Securities............................. 13
Item 4: Submission of Matters to a Vote of Security Holders......... 13
Item 5: Other Information........................................... 13
Item 6: Exhibits and Reports on Form 8-K............................ 13
Signature............................................................ 14
Exhibit Index........................................................ 15
- ---------------
* 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.
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2004 2003
------------ ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 80,022 $ 136,679
Restricted cash........................................... 252,051 251,164
Escrowed cash............................................. 83,519 53,994
Accounts receivable....................................... 30,743 36,968
Prepaid expenses and other current assets................. 114,248 131,186
Notes receivable from officers short term portion......... -- 147,238
------------ ------------
Total current assets................................... 560,583 757,229
------------ ------------
Property, Plant, & Equipment:
Building and building improvements........................ 19,137,044 19,137,044
Machinery and equipment................................... 4,871,800 4,871,800
Land...................................................... 348,066 348,066
------------ ------------
24,356,910 24,356,910
Less accumulated depreciation and amortization............ (20,233,988) (20,096,849)
------------ ------------
Net property, plant and equipment...................... 4,122,922 4,260,061
------------ ------------
Other Assets:
Deferred financing costs, less accumulated amortization of
$157,771 and $132,858 at March 31, 2004 and December 31,
2003 respectively......................................... 141,166 166,079
Other assets, net......................................... -- 13,715
------------ ------------
Total other assets..................................... 141,166 179,794
------------ ------------
Total assets.............................................. $ 4,824,671 $ 5,197,084
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2004 2003
------------ ------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and other accrued liabilities.............. $ 2,366,978 $ 2,056,314
Checks issued against future deposits....................... -- 206,299
Outstanding parimutuel tickets.............................. 292,423 540,404
Current maturities of long-term debt........................ 116,271 114,402
------------ -----------
Total current liabilities................................. 2,775,672 2,917,419
Long-term debt, less current maturities..................... 6,672,916 6,099,228
Other long-term liabilities................................. 662,912 706,358
------------ -----------
Total liabilities......................................... 10,111,500 9,723,005
------------ -----------
Commitments and Contingencies
Stockholders' deficiency:
Common stock, $.01 par value; authorized 3,000,000 shares,
1,944,409 shares issued................................... 19,444 19,444
Class B common stock, $.01 par value; authorized 1,000,000
shares; 912,615 shares issued............................. 9,126 9,126
Additional paid-in capital.................................. 13,379,275 13,379,275
Accumulated deficit......................................... (10,292,556) (9,531,648)
Other comprehensive loss.................................... (437,336) (437,336)
Cost of 1,593,199 common and 600 Class B common shares in
treasury.................................................. (7,964,782) (7,964,782)
------------ -----------
Total stockholders' deficiency.............................. (5,286,829) (4,525,921)
------------ -----------
Total liabilities and Stockholders' deficiency............ $ 4,824,671 $ 5,197,084
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
---------------------------
MARCH 31, MARCH 31,
2004 2003
------------ ------------
(UNAUDITED)
OPERATING REVENUES:
Pari-mutuel commissions................................... $2,401,306 $2,879,512
Admissions................................................ 25,604 27,930
Concessions and parking................................... 437,307 547,104
---------- ----------
Total operating revenue..................................... 2,864,217 3,454,546
---------- ----------
Operating expenses:
Wages, taxes and benefits................................. 1,456,839 1,528,132
Purses.................................................... 630,673 779,744
Cost of food and beverage................................. 79,357 77,387
Administrative & operating................................ 1,165,396 1,178,759
Depreciation.............................................. 137,139 151,021
---------- ----------
Total operating expenses.................................... 3,469,404 3,715,043
---------- ----------
Loss from operations...................................... (605,187) (260,497)
---------- ----------
Other expense:
Interest expense, net..................................... (105,308) (94,375)
Amortization of deferred financing costs.................. (24,913) (24,913)
Other expense, net........................................ 1,500 --
---------- ----------
Total other expense......................................... (128,721) (119,288)
---------- ----------
Loss from operations before provision for income taxes...... (733,908) (379,785)
Provision for income taxes.................................. 27,000 26,000
---------- ----------
Net loss.................................................... $ (760,908) $ (405,785)
========== ==========
Basic and diluted per share data:
Net loss.................................................... $ (0.60) $ (0.32)
---------- ----------
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.
4
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTER ENDED MARCH 31,
-----------------------
2004 2003
---------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(760,908) $(405,785)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization............................. 162,052 175,934
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash.................... (887) 122,405
Decrease (increase) in escrowed cash...................... (29,525) 166,990
Decrease in accounts receivable........................... 6,225 4,480
Decrease (increase) in prepaid expenses and other current
assets................................................. 16,938 (1,975)
Decrease in other assets.................................. 13,715 --
Increase (decrease) in accounts payable and other accrued
liabilities............................................ 314,130 (646,298)
Decrease in checks issued against future payments......... (206,299) --
Increase (decrease) in outstanding parimutuel tickets..... (247,981) 255,365
Decrease in other long term liabilities................... (43,446) (33,875)
--------- ---------
Total adjustments........................................... (15,078) 43,026
--------- ---------
Net cash used for operating activities................. (775,986) (362,759)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ -- (3,262)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt................................ (27,909) (26,103)
Proceeds from debt financing.............................. 600,000 350,000
Decrease in notes receivable, officers.................... 147,238 44,725
--------- ---------
Net cash provided by financing activities.............. 719,329 368,622
--------- ---------
Net increase (decrease) in cash and cash equivalents........ (56,657) 2,601
Cash and cash equivalents, beginning of year................ 136,679 114,327
--------- ---------
Cash and cash equivalents, end of year...................... $ 80,022 $ 116,928
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................... $ 101,844 $ 122,607
========= =========
Income taxes................................................ $ 27,000 $ 26,000
========= =========
Non-cash investing activities: The Company recorded a capital lease obligation
of $5,729 in the quarter ending March 31, 2003.
The accompanying notes are an integral part of these consolidated financial
statements.
5
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 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 March 31, 2004 and
December 31, 2003 and for the three-month periods ended March 31, 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 and 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 March 31, 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".
6
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES -- (CONTINUED)
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 three months ended
March 31, 2004 and 2003.
2. DEBT
Long-term debt consisted of the following:
MARCH 31, DECEMBER 31,
2004 2003
---------- ------------
6.5% Boston Federal Savings Bank term loan requiring 21
monthly payments of principal and interest of $42,910
collateralized by a mortgage and security interest in all
real estate and personal property located at Wonderland
Greyhound Park. The final payment on the loan is to be
made September 1, 2005 in the amount of $6,018,735........ $6,185,721 $6,213,630
Notes payable............................................... 603,466 --
---------- ----------
Subtotal.................................................... 6,789,187 6,213,630
Less current maturities..................................... 116,271 114,402
---------- ----------
Long-term portion........................................... $6,672,916 $6,099,228
========== ==========
At March 31, 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 March 31, 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.
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 received an unsecured bridge loan in the amount of
$600,000 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 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.
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
7
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES -- (CONTINUED)
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 has
suspended briefing in this case until the proxy statement is finalized and filed
with the Securities and Exchange Commission.
8
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.
RESULTS OF OPERATIONS
The table below illustrates certain key statistics for Wonderland Park, the
Company's greyhound racing operation for the three months ended March 31, 2004
and 2003
2004 2003
------- -------
Performances................................................ 61 66
Simulcast days.............................................. 91 89
Pari-mutuel handle (thousands)
Live-on track............................................. $ 2,155 $ 2,684
Live-simulcast............................................ 4,574 5,791
Guest-simulcast........................................... 10,231 11,772
------- -------
$16,960 $20,247
======= =======
Total attendance............................................ 49,742 54,800
Average per capita on site wagering......................... $ 249 $ 264
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.
OPERATING REVENUE
Total operating revenue declined by approximately $590,000 to $2.86 million
in the quarter ended March 31, 2004 as compared to the quarter ended March 31,
2003. Parimutuel commissions declined by 17% from approximately $2.88 million to
$2.40 million during the same period. Total handle in the first quarter of 2004
was approximately $16.96 million as compared to $20.25 million in 2003, a
decline of 16%. Live-on track handle decreased 20% or about $529,000 for the
same period from approximately $2.68 million to $2.16 million in the first
quarter of 2004, with an average daily attendance of approximately 547 persons
in the first quarter of such periods compared to 615 persons in the first
quarter of 2003. Live-simulcast handle decreased by approximately $1.22 million
or 21% in the first quarter of 2004 compared to the first quarter of 2003.
Guest-simulcast handle decreased by approximately $1.54 million or 13% from the
2003 amount. Net admissions revenue decreased by 8%. This decrease is associated
with decreased attendance. Other operating revenue consists of food and
beverage, program sales, lottery, parking and gift shop sales and was
approximately $437,000 for the three months ended March 31, 2004 decreasing by
approximately $110,000 from approximately $547,000 for the three months ended
March 31, 2003. Parimutuel commissions for the three months ended March 31, 2004
included approximately $26,000 deposited into the Greyhound Capital Improvements
Trust Fund, $11,000 into the Greyhound Adoption Fund, and $36,000 into the
Greyhound Promotional Trust Fund. During same period of 2003 such amounts were
$35,000, $12,000 and $40,000 respectively.
9
OPERATING EXPENSES
Operating expenses of approximately $3.5 million for the three months ended
March 31, 2004 decreased by approximately $246,000 from approximately $3.72
million for the three months ended March 31, 2003. The decrease resulted from
reductions in payroll expense and a decline in purse expense occasioned by the
decline in handle.
INTEREST EXPENSE
Interest expense increased by approximately $10,000 for the three months
ended March 31, 2004 from $94,000 in the three months ended March 31, 2003 to
approximately $105,000 in the three months ended March 31, 2004. The increase
was the result of increased borrowings on the Company's loan facility.
INCOME TAX PROVISION
The Company's provision for income Taxes was less than the statutory
federal tax rate of 34% during the three months ended March 31, 2004 and 2003
primarily due to the Company's net loss in both periods. The Company's provision
of $27,000 and $26,000 for income taxes for the three months ended March 31,
2004 and 2003, respectively, represents state and other related taxes.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, the Company had a working capital deficit of
approximately $2.2 million and a stockholders' deficit of approximately $5.3
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 from maintenance and enhancement of the
racing facility at Wonderland, and for debt service requirements. The Company's
cash and cash equivalents totaled approximately $80,000 at March 31, 2004,
compared with approximately $137,000 at December 31, 2003. The Company's cash
used by operations was approximately $776,000 during the first quarter of 2004
as compared to cash used by operations of approximately $366,000 during the
corresponding period in 2003. Non-cash items included in the Company's net loss
in the first quarter of 2004 consisted of depreciation and amortization expense
of $162,000.
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 received an unsecured bridge loan in the amount of
$600,000 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 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 21, 2003, the Westwood Group filed a preliminary proxy statement
and an accompanying Schedule 13E-3, which was subsequently amended on October 3,
2003, October 31, 2003, December 5, 2003 and December 19, 2003, with the
Securities and Exchange Commission in order to effectuate a 500 for 1 reverse
stock split of its capital stock. Once the preliminary proxy statement is
finalized, the Westwood Group intends to mail the definitive proxy statement to
its stockholders. If the proposed reverse stock split is approved by the
Westwood Group's stockholders at a special meeting of the stockholders on a date
to be determined, then holders of less than 500 shares immediately prior to such
meeting will be cashed out at a per
10
share purchase price equal to $4.00, thereby reducing the number of its
stockholders to under 300 and, consequently, allowing the Westwood Group to
change its status from a public to a private company and to relieve the Westwood
Group 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 Westwood Group
to install slot machines at its Wonderland racetrack facility.
The reverse stock split would (i) cause the Westwood Group to redeem shares
held by approximately 375 holders of record of Common Stock, (ii) not eliminate
record holders who hold 500 or more shares of Common Stock and Class B Common
Stock, (iii) reduce the number of shares, on a pro-rata basis, held by the
holders of record who hold 500 or more shares of Common Stock and Class B Common
Stock, and (iv) change the percent of Common Stock held by the remaining
stockholders to 100%.
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 forward-
looking statements. Such factors include, among others, the following: general
economic and business conditions; industry trends, changes in business strategy
or development plans; availability and quality of management; and availability,
terms and employment of capital. 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
11
capital and capital expenditures needs and provide for its obligations, and
(iii) the statements contained 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 March 31, 2004 and, based on that evaluation, concluded that the Company's
disclosure controls and procedures were effective as of March 31, 2004.
During the three month period ended March 31, 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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that arise in the
ordinary course of its business.
On 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
12
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 has
suspended briefing in this case until the proxy statement is finalized and filed
with the Securities and Exchange Commission.
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.
13
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 May 17, 2004
14
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.