<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
-------------------------------
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 MAY 15, 1998 351,210 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE
$.01 PER SHARE AND 912,015 SHARES OF THE REGISTRANT'S CLASS B COMMON STOCK, PAR
VALUE $.01 PER SHARE, WERE OUTSTANDING.
Page 1 of 20
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 704,252 $ 374,292
Restricted cash 599,116 612,037
Accounts receivable 659,735 629,204
Prepaid expenses and other current assets 119,877 161,502
----------- -----------
Total current assets 2,082,980 1,777,035
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 348,066 348,066
Building and building improvements 17,956,848 17,830,342
Machinery and equipment 4,453,454 4,441,026
----------- -----------
22,758,368 22,619,434
Less: accumulated depreciation and amortization 17,024,059 16,913,769
----------- -----------
Net property, plant and equipment 5,734,309 5,705,665
----------- -----------
OTHER ASSETS:
Goodwill, less accumulated
amortization of $564,000 and $528,000 156,000 192,000
Investments 5,392,122 5,324,522
Notes receivable from officer 380,055 369,375
Other assets 212,875 212,875
----------- -----------
Total other assets 6,141,052 6,098,772
----------- -----------
Total assets $13,958,341 $13,581,472
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Page 2 of 20
<PAGE> 3
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Debt obligations in default $ 4,086,136 $ 4,234,286
Current maturities of long-term debt 144,686 139,022
Short-term borrowings 211,539 355,539
Accounts payable and other accrued liabilities 4,999,065 4,765,747
Net liabilities of discontinued operations 1,280,620 1,280,620
Outstanding pari-mutuel tickets 200,114 310,763
----------- -----------
Total current liabilities 10,922,160 11,085,977
----------- -----------
LONG-TERM DEBT, less current maturities 988,656 996,671
OTHER LONG-TERM LIABILITIES 2,988,557 3,049,452
----------- -----------
Total liabilities 14,899,373 15,132,100
----------- -----------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; authorized
3,000,000 shares, 1,944,409 and 1,936,409 shares
issued and outstanding 19,444 19,364
Class B Common stock, $.01 par value; authorized
1,000,000 shares; 912,615 shares issued and outstanding 9,126 9,126
Additional paid-in capital 13,379,275 13,355,355
Accumulated deficit (5,944,897) (6,538,493)
Note receivable from related party (353,119) (345,119)
Minimum pension liability adjustment (86,079) (86,079)
Less cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
----------- -----------
Total stockholders' deficit (941,032) (1,550,628)
----------- -----------
Total liabilities and stockholders' deficit $13,958,341 $13,581,472
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
Page 3 of 20
<PAGE> 4
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The
Three Months Ended
March 31,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING REVENUE:
Pari-mutuel commissions $4,102,084 $4,214,942
Concessions 398,828 397,677
Other operating 371,642 378,845
---------- ----------
Total operating revenue 4,872,554 4,991,464
---------- ----------
OPERATING EXPENSES:
Wages, taxes and benefits 1,623,215 1,615,317
Purses 1,218,500 1,290,176
Cost of food and beverage 115,770 106,051
Administrative 326,335 270,468
General operating 888,499 1,046,066
Depreciation and amortization 146,290 133,223
---------- ----------
Total operating expenses 4,318,609 4,461,301
---------- ----------
Income from operations 553,945 530,163
---------- ----------
OTHER INCOME(EXPENSE):
Interest expense, net (101,388) (131,646)
Equity income (loss) in investments 67,600 (17,444)
Other income, net 99,439 293,333
---------- ----------
Total other income (expense) 65,651 144,243
---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 619,596 674,406
PROVISION FOR INCOME TAX 26,000 10,000
---------- ----------
INCOME FROM CONTINUING OPERATIONS 593,596 664,406
LOSS FROM OPERATIONS OF DISCONTINUED HARNESS
RACING SUBSIDIARY - (652,327)
---------- ----------
NET INCOME $ 593,596 $ 12,079
========== ==========
BASIC AND DILUTED PER SHARE DATA:
Income from continuing operations per share $ .47 $ .53
========== ==========
Loss from discontinued operations per share $ - $ (.52)
========== ==========
Net income per share $ .47 $ .01
========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 1,263,255 1,255,255
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
Page 4 of 20
<PAGE> 5
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The
Three Months Ended
March 31,
1998 1997
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 593,596 $ 12,079
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 146,290 307,784
Equity in (income) loss from investments (67,600) 17,444
Deferred revenue - (88,333)
Changes in operating assets and liabilities:
Restricted cash 12,921 341,975
Accounts receivables (30,531) (4,028)
Prepaid expenses and other current assets 41,625 61,029
Other assets (10,680) (4,545)
Accounts payable
and other accrued liabilities 114,669 (98,412)
Other long-term liabilities (60,895) (35,254)
--------- ----------
Total adjustments 145,799 497,660
--------- ----------
Net cash provided by operating activities 739,395 509,739
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (138,934) (57,980)
--------- ----------
Net cash used in investing activities (138,934) (57,980)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,795 2,811
Principal payments of debt (297,296) (319,177)
Issuance of common stock 24,000 -
--------- ----------
Net cash used in financing activities (270,501) (316,366)
--------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 329,960 135,393
CASH AND CASH EQUIVALENTS, beginning of period 374,292 1,033,911
--------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 704,252 $1,169,304
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 112,650 $ 137,013
Income taxes $ 26,561 $ 13,280
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
Page 5 of 20
<PAGE> 6
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM RESULTS
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of normal
recurring accruals and deferrals) necessary to present fairly the Company's
consolidated financial position as of March 31, 1998, and the results of its
operations and its cash flows for the three month periods ended March 31, 1998
and 1997. See the Company's Annual Report on Form 10-K for a summary of the
significant accounting policies applied in the preparation of the accompanying
consolidated condensed financial statements.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated condensed financial statements as of
March 31, 1998 and December 31, 1997 and for the three month periods ended March
31, 1998 and 1997 include the accounts of the Company and its wholly-owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated in consolidation.
RECLASSIFICATIONS
Certain reclassifications were made to the 1997 financial statement
amounts to conform with the 1998 presentation.
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997
The consolidated balance sheet at December 31, 1997 is presented for
comparative purposes and was taken from the audited consolidated financial
statements for the year ended December 31, 1997.
DEBT
Long-term obligations which are in default have been classified as
current liabilities (see Note 4).
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. The Company's stock options did not have a dilutive
effect in 1998 and 1997 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.
Page 6 of 20
<PAGE> 7
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME (LOSS) PER COMMON SHARE (continued)
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. RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS
The Company's consolidated condensed financial statements have been
prepared on the basis that the Company will continue in existence. The Company
has encountered substantial cash flow and liquidity problems, has a significant
working capital deficiency and stockholders' deficit and is in default on
certain debt obligations (See Note 4).
In August of 1995, the Company reorganized and restructured its
financial and operational management team, with the addition of a Executive Vice
President and Chief Financial Officer. Management continues to monitor cost
containment and seek ways to improve operational profitability. Also, Management
is negotiating existing obligations and commitments to reduce the burden on
current cash flow from operations. Management is looking for new opportunities
to grow and expand its current product, through increasing new markets via
simulcast wagering and adding new entertainment options at its Wonderland
facility.
The above factors, however, raise substantial doubt about its ability
to continue as a going concern. The Company's ability to continue as a going
concern depends on future events including its continued success in its
reorganization efforts and the resolution of the Company's debt obligation
issues.
3. DISCONTINUED OPERATIONS
The accompanying condensed statement of operations for the three
months ended March 31, 1997 has been restated to present the Foxboro Harness
racing business as a discontinued operation.
During July 1997, the Company's harness racing subsidiary, Foxboro
Park, Inc. (including wholly owned subsidiaries), was evicted from Foxboro
Raceway (see Legal Proceedings at Item 1.).
Page 7 of 20
<PAGE> 8
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
3. DISCONTINUED OPERATIONS (continued)
The remaining net liabilities of the Company's discounted operations
at March 31, 1998, are comprised of the following:
<TABLE>
<CAPTION>
March 31, 1998
--------------
<S> <C>
Cash and restricted cash $ 326,808
Accounts receivable and other 148,691
Less liabilities:
Creditors Trust Agreement Promissory
Obligations and other liabilities 423,493
Trade Payables 816,446
Outstanding pari-mutuel tickets 516,180
----------
$1,280,620
==========
</TABLE>
The loss from operations of the Company's harness racing business for
the three months ended March 31, 1997 is summarized as follows:
<TABLE>
<S> <C>
Operating revenues $ 2,568,435
Operating expenses (3,220,762)
-----------
$ (652,327)
===========
</TABLE>
In February 1998 the Company executed an Assignment for the Benefit of
Creditors ("AFBC") for Foxboro Park, Inc., Foxboro Harness, Inc. and Foxboro
Thoroughbred, Inc. (collectively, the "Foxboro Entities"). The AFBC was executed
to provide a mechanism for the liquidation of its assets and the distribution of
proceeds to its creditors. Provided that 70% in amount and 50% in number of the
Foxboro Entities creditors become Assenting Creditors, the Company shall
partially subordinate its claims.
4. DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
8-3/4% MSCGAF Trust term loan requiring monthly
payments of principal and interest of $42,298
until maturity in January 1998, collateralized
by a mortgage and security interest in all real
estate and personal property located at
Wonderland Park, by all of the stock of
Wonderland Park, and guaranteed by three
subsidiaries of the Company, including
Wonderland Park. $2,297,490 $ 2,381,286
</TABLE>
Page 8 of 20
<PAGE> 9
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
4. DEBT (continued)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Line of credit, interest at 10% requiring monthly
payments of interest plus $16,000 principal
until maturity at February 1, 1998
collateralized by a second mortgage and security
interest in all real estate and personal
property located at Wonderland Park and by
approximately 401,000 shares of BBRG common
stock held by the Company. 1,503,645 1,568,000
6%BBRG Term Note, payable in equal quarterly
payments of principal and interest of
approximately $36,000 beginning April 1, 1999,
collateralized by certain tangible personal
property and licenses. 970,000 970,000
14.25% Subordinated Notes due August, 1997. 285,000 285,000
Margin agreement due on demand collateralized by
88,000 shares of BBRG stock held by the Company. 120,650 117,855
7.5% Promissory Note, payable in 60 monthly
payments of principal and interest of $2,003,
commencing April, 1995. 42,693 47,838
---------- ----------
Total 5,219,478 5,369,979
Less:
Current maturities 144,686 139,022
Debt obligations in default 4,086,136 4,234,286
---------- ----------
Long-term debt $ 988,656 $ 996,671
========== ==========
</TABLE>
The above MSCGAF Trust term loan and the $1.5 million line of credit
matured on January 31, 1998 and February 1, 1998, respectively. The lenders have
made a demand for the entire principal and interest amounts due on the notes.
Accordingly, the debt is in default and the related collateral, represented by a
first and second mortgage on the Wonderland property and the pledge of 401,000
shares of BBRG common stock, is subject to possible foreclosure proceedings. The
Company is seeking to refinance these notes with another lender and has made
monthly installment payments on these notes consistent with the terms prior to
maturity.
Page 9 of 20
<PAGE> 10
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
4. DEBT (continued)
In May 1994, Foxboro Park, Inc. ("Foxboro") settled certain litigation
regarding the Creditor Trust Agreement and entered into a Settlement Agreement.
Foxboro had pledged 100% of the distributions of the Foxboro Park Capital
Improvement Trust Funds as payment towards the Creditors Trust Agreement debt.
All receipts from the Capital Improvements Trust Funds have been distributed as
principal payments. The Creditors Trust Agreement promissory obligation has been
reclassified under net liabilities of discontinued operations at March 31, 1998
and December 31, 1997.
In May 1994, holders of approximately $19,300,000 of the Company's
14.25% Subordinated Notes (the "Notes") exchanged them for approximately 887,000
shares of BBRG common stock. The shares were exchanged in full settlement of
principal, accumulated interest and default premiums due in respect of such
Notes. Holders of approximately $285,000 of the Notes elected not to participate
in the exchange. Subsequent to March 31, 1998 the Company negotiated a
settlement with a bondholder of $100,000. The Company paid $150,000 in full
settlement of principal, accumulated interest and default premiums due in
respect to such Note. The remaining Notes continue to be in default.
In May 1994, the Company entered into an agreement with BBRG to
transfer the operations under the Concessions Agreement and the Management
Agreement to the Company in return for a six year term note in the amount of
$970,000. On January 5, 1998 the Note was amended requiring equal quarterly
payments of principal and interest beginning April 1, 1999 of approximately
$36,000 with interest at 6%.
5. SHORT-TERM BORROWINGS
The Company had $211,539 and $355,539 outstanding at March 31, 1998
and December 31, 1997, respectively, under a short-term borrowing arrangement.
The note bears interest at 12% per annum and requires weekly principal and
interest payments of $12,000 with a maturity date of August 7, 1998.
6. INVESTMENTS
During 1994, the Company and Back Bay Restaurant Group, Inc.("BBRG")
jointly pursued a series of transactions, the effect of which resulted in the
control of BBRG no longer resting with the Company. Accordingly, the Company's
investment in BBRG has been accounted for under the equity method.
Page 10 of 20
<PAGE> 11
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
6. INVESTMENTS (continued)
The following unaudited financial information summarizes the financial
position and results of operations of BBRG:
<TABLE>
<CAPTION>
March 29, December 28,
1998 1997
--------- ------------
<S> <C> <C>
(In thousands)
Balance sheet data:
Current assets $ 3,478 $ 4,050
Noncurrent assets 39,000 39,022
Current liabilities 10,810 11,786
Noncurrent liabilities 4,287 4,274
Net equity 27,381 27,012
</TABLE>
<TABLE>
<CAPTION>
Thirteen Weeks Ended
March 29, March 30,
1998 1997
--------- ---------
<S> <C> <C>
(In thousands)
Earnings data:
Net sales $23,126 $21,896
Income from restaurant operations 2,618 2,190
Net income (loss) 356 (89)
Company's equity in net income (loss) 68 (17)
</TABLE>
Page 11 of 20
<PAGE> 12
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Performances 103 113
Simulcast days 90 90
Pari-mutuel handle (thousands)
Live-on track $ 8,283 $ 9,953
Live-simulcast 9,796 8,603
Guest-simulcast 13,500 12,747
-------- --------
Total $ 31,579 $ 31,303
======== ========
Total attendance 103,821 117,044
======== ========
Average per capita on site wagering $ 210 $ 194
======== ========
</TABLE>
OPERATING REVENUE
The Company is still experiencing a decline in total attendance,
caused by a variety of factors including a general decline in the pari-mutuel
racing industry 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.
Total operating revenue decreased to $4.873 million in the quarter
ended March 31, 1998 as compared to $4.991 million in the same period of 1997.
Pari-mutuel commissions decreased by approximately $113,000 or 2.7% to $4.102
million for the three months ended March 31, 1998 from $4.215 million in 1997.
Total handle in first quarter of 1998 was approximately $31.6 million as
compared to $31.3 million in 1997. Guest-simulcast handle increased by
approximately $753,000 or 5.9% from $12.7 million in the first quarter of 1997
to $13.5 million in the corresponding period in 1998. Live-on track handle
decreased by approximately $1.7 million or 16.8% in 1998 as compared to 1997,
while Live-simulcast handle increased by approximately $1.2 million or 13.7%.
The decrease in pari-mutuel commission revenue is attributable to the
decrease in Live-on track handle which was offset by increases in Live-simulcast
handle and Guest-simulcast handle as well as an increase in the commission rate.
Wonderland had ten fewer live racing performances in 1998 as compared to 1997,
with an average attendance of approximately 1,008 persons, while average
attendance was approximately 1,034 persons in 1997.
Concessions revenue was essentially unchanged in the first quarter of
1998 as compared to
Page 12 of 20
<PAGE> 13
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
corresponding period in 1997 at approximately $398,000. Other operating revenue
consists of program sales, admissions, parking and gift shop sales. These
revenues decreased by approximately $7,000 or 2% in 1998 as compared to 1997 to
approximately $372,000 from approximately $379,000.
Pari-mutuel commission for the three months ended March 31, 1998
included approximately $73,640 deposited each into the Greyhound Promotional
Trust Fund and the Greyhound Capital Improvements Trust Fund.
OPERATING EXPENSES
Operating expenses of approximately $4.319 million for the three
months ended March 31 1998 decreased by approximately $143,000 from
approximately $4.461 million for the three months ended March 31, 1997.
The Company realized savings in general operating expenses due to
lower audio-visual, utility and occupancy costs. The Company also incurred lower
purse expense due to the decrease in on-track handle. These cost savings were
partially offset by increased expenses associated with wages, administrative and
food costs.
INTEREST EXPENSE
Interest expense decreased by approximately $30,000 for the three
months ended March 31, 1998, from $132,000 in the three months ended March 31,
1997 to approximately $101,000 in the three months ended March 31, 1998. The
decrease is due to the reduction of outstanding debt. (See Liquidity and Capital
Resources-General).
EQUITY INCOME (LOSS) IN INVESTMENTS
The Company owns approximately 673,000 or 19% of the outstanding
shares of the Back Bay Restaurant Group, Inc. ("BBRG"). During 1994, the Company
and BBRG jointly pursued a series of transactions, the effect of which resulted
in the control of BBRG no longer resting with the Company. Accordingly, the
Company's investment in BBRG for the three month periods ended March 31, 1998
and 1997 has been accounted for under the equity method. The equity income
(loss) in investments represents the Company's proportionate share of BBRG's net
earnings or loss.
OTHER INCOME, NET
Page 13 of 20
<PAGE> 14
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
Other income, net decreased by approximately $194,000 to approximately
$99,000 during the
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
first quarter of 1998 as compared to approximately $293,000 for the
corresponding period in 1997. The decrease is attributable to the realization of
asset recovery proceeds in the first quarter of 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased approximately $13,000 to
$146,000 in the three months ended March 31, 1998, from $133,000 in the
comparable period in 1997. Depreciation and amortization are expensed on a
straight-line basis over the estimated life of the asset Depreciation has
increased as additions have been made to fixed assets.
INCOME TAX PROVISION
The Company's provision for income taxes is less than the statutory federal tax
rate of 34% during the first quarter of 1998 and 1997 primarily due to the
utilization of available net operating loss carryforwards. The provision for
taxes of $26,000 and $10,000 in the first quarter of 1998 and 1997,
respectively, represents estimated state taxes and federal alternative minimum
tax.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company has a working capital deficit of
approximately $8.8 million, a stockholders' deficit of approximately $941,000
and is in default on certain debt obligations totalling approximately $4.1
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 $704,000
at March 31, 1998, compared with $374,000 at December 31, 1997. The Company
generated cash flows from operations of approximately $739,000 during the first
quarter of 1998, as compared to $510,000 during the corresponding period in
1997. Non cash items included in the Company's net income in the first quarter
of 1998 consist of depreciation and amortization expense of $146,000 and equity
in income from investments of approximately $68,000. Changes in working capital
accounts including restricted cash, accounts payable and other accrued
liabilities provided approximately $67,000 of cash in the first quarter of 1998.
Net cash used in investing activities in 1998 of $138,934 represents investments
and additions to the property, plant and equipment. Financing activities in 1998
include approximately $297,000 of funds used to reduce outstanding balances on
long term debt.
GENERAL
Page 14 of 20
<PAGE> 15
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
In May 1994, holders of approximately $19,300,000 of the Company's
14.25% Subordinated Notes (the "Notes") exchanged them for approximately 887,000
shares of BBRG common stock. The shares were exchanged in full settlement of
principal, accumulated interest and default premiums due in respect of such
Notes. Holders of approximately $285,000 of the Notes elected not to participate
in the exchange. Subsequent to March 31, 1998 the Company paid $150,000 in full
settlement of $100,000 in principal and all accumulated interest and default
premiums to an individual bondholder. The remaining Notes continue to be in
default and matured in 1997.
The MSCGAF note matured on January 31, 1998. The lender has made a
demand for the entire principal and interest amounts due on the note aggregating
approximately $2.4 million. Accordingly, the debt is in default and the related
collateral represented by a first mortgage on the Wonderland property is subject
to possible foreclosure proceedings. The Company is seeking to refinance this
note with another lender and has made monthly installment payments on this note
consistent with the terms prior to maturity.
In May 1994, Foxboro Park, Inc. ("Foxboro") settled certain litigation
regarding the Creditor Trust Agreement and entered into a Settlement Agreement
of approximately $2.2 million. Foxboro has pledged 100% of the distributions of
the Foxboro Park Capital Improvement Trust Funds as payments towards these
amounts. All receipts from the Capital Improvements Trust Funds have been
distributed as payments. The entire obligation has been included as a current
liability at March 31, 1998 and December 31, 1997 under net liabilities of
discontinued operations.
The line of credit with an outstanding balance of $1.5 million at
March 31, 1998 matured on February 1, 1998. The lender has made a demand for the
entire principal and interest amounts due aggregating approximately $1.5
million. Accordingly, the debt is in default and the related collateral,
represented by a second mortgage on the Wonderland property and 401,000 shares
of BBRG common stock, is subject to possible foreclosure proceedings. The
Company is seeking to refinance this obligation with another lender and has made
monthly installment payments on this obligation consistent with the terms prior
to maturity.
Included in the current portion of long term debt is outstanding
indebtedness under a margin agreement of approximately $121,000 at March 31,
1998. The indebtedness is collateralized by 88,000 shares of BBRG common stock.
Short-term borrowing arrangements totaling approximately $212,000 at
March 31, 1998, mature in 1998.
In May 1994, the Company entered into an agreement with BBRG to
transfer the operations under the Concession Agreement and the Management
Agreement to the Company in, return for a six year term note in the amount of
$970,000. On January 5, 1998, the Note was amended to require equal quarterly
payments of principal and interest beginning April 1, 1999 of approximately
$36,000 with interest at 6%.
Page 15 of 20
<PAGE> 16
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
The Company and its subsidiaries have several immediate needs for
cash. Financing arrangements consist of current maturities of long -term debt,
including obligations in default, totaling $4.23 million and short-term
borrowing arrangements of approximately $212,000. There can be no assurance that
the Company's efforts to provide additional liquidity or to renew and extend
existing financial arrangements will be successful. Management anticipates that
unless its efforts are successful, the Company will not have sufficient cash to
cover operating expenses and scheduled debt payments during 1998.
RACING OPERATIONS
In order to meet the requirements for renewal of the racing license
for 1999, the Company's racing subsidiary must demonstrate it is financially
stable and capable of disposing its obligations on a timely basis. Although
management is optimistic that it will be able to demonstrate financial stability
in its application for the 1999 racing license, there can be no assurance that
the Racing Commission will continue to grant a license to conduct racing on the
schedule presently maintained at Wonderland.
Page 16 of 20
<PAGE> 17
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions that arise
in the ordinary course of its business.
On October 3, 1996, Foxboro Realty Associates, LLC, Foxboro Stadium
Associates Limited Partnership, and New England Patriots, L.P. filed a complaint
against Foxboro Park, Inc., Foxboro harness, Inc. and The Westwood Group, Inc.
(collectively "Foxboro Park") in Norfolk Superior Court in Massachusetts. The
complaint sought a declaratory judgment with respect to the right to occupy the
Foxboro Raceway, as well as specific performance of an agreement relating to the
use of hospitality facilities at the Raceway.
On October 8, 1996, Foxboro Park filed an answer to the complaint as
well as counterclaims which assert that Foxboro Park has a long-term right to
occupy the Raceway and is entitled to substantial monetary damages. On that day,
Foxboro Park also filed a related complaint in Norfolk Superior Court against
Robert K. Kraft, Foxboro Realty Associates LLC, New Foxboro Corp., and Thomas L.
Aronson and moved to consolidate that case with the earlier filed case. Foxboro
Park also moved to add Robert K. Kraft as a party defendant to the counterclaims
in the earlier case.
On November 17, 1996, Foxboro Realty Associates LLC filed a summary
process complaint against Foxboro Park in Norfolk Superior Court. This complaint
sought to evict Foxboro Park from the Foxboro Raceway. On November 18, 1996,
Foxboro Park filed an answer asserting numerous defenses and counterclaims
against Foxboro Realty Associates LLC and moved to consolidate this case with
the first action.
Trial commenced on a jury waived basis on April 16, 1997, the Court
entered an order finding, inter alia that Foxboro Park is not entitled to
possession of the premises. On June 24, 1997, the Court entered judgment against
Foxboro Park in the declaratory judgment and summary process actions. After
denying Foxboro Park's motion for a new trial and request for a stay of judgment
in those actions, the Court issued an execution pursuant to which Foxboro Park
was evicted from the Raceway on July 31, 1997. Foxboro Park has not occupied the
Raceway since that date.
Foxboro Harness, Inc. returned its license to conduct a harness horse
racing meeting for calendar year 1997 to the Massachusetts State Racing
Commission on August 12, 1997, as the eviction at Foxboro Park prevented it from
completing its racing meeting.
Page 17 of 20
<PAGE> 18
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
ITEM 1. LEGAL PROCEEDINGS (continued)
On April 30, 1997, Foxboro park's fraud and related claims trial
commenced. On May 29, 1997, the jury returned its verdict in favor of Robert
Kraft on Foxboro Park's fraud claim against him. The jury returned a verdict in
favor of Foxboro Park on Foxboro Realty Associate's claim against Foxboro Park
for use and occupancy charges for the period from May 29, 1997 through December
31, 1997. On June 13, 1997, the Court issued findings against Foxboro Park on
its remaining claims with the exception of Foxboro Park's claim against Foxboro
Stadium Associates and New England Patriots L.P. for breach of contract. With
respect to that claim, the Court entered judgment in favor of Foxboro Park in
the amount of $74,843. Foxboro Park moved for a new trial on its fraud and
related claims. That motion was denied.
On January 27, 1998, Foxboro Park appealed to the Appeals Court from
all adverse rulings and judgments. On February 2, 1998, Foxboro Realty
Associates LLC et al, and Aronson and New Foxboro Corp. appealed to the Appeals
Court from all adverse rulings. The appeals now are before the Appeals Court
with briefs anticipated to be filed in late 1998. Management believes that an
unfavorable outcome from the Foxboro Realty Associates LLC et al appeal is
unlikely and does not expect the outcome to materially impact operations or the
Company's financial condition.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On February 25, 1998 the Company received a demand letter from the
lender demanding payment of the entire principal balance of approximately $1.5
million plus accrued interest of approximately $12,000 relating to the line of
credit.
March 3, 1998 the Company received a demand letter from the bank, as
servicing agent for the MSCGAF Realty Trust, demanding payment of the entire
principal balance of approximately $2.3 million plus accrued interest of
approximately $69,000 relating to the MSCGAF Trust term loan.
The Company has made monthly installment payments on these notes
consistent with the terms prior to the notice of demand, accordingly the debt is
in default and the lender has threatened foreclosure on the related collateral,
represented by a first and second mortgage on the Wonderland property and the
pledge of 401,000 shares of BBRG common stock.
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
Page 18 of 20
<PAGE> 19
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
(a) Exhibit
27. Financial data schedules.
(b) Reports on Form 8-K
None
Page 19 of 20
<PAGE> 20
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
MARCH 31, 1998
(UNAUDITED)
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WESTWOOD GROUP, INC.
Date May 19, 1998 /s/ Richard P. Dalton
----------------------------------
Richard P. Dalton
President
Date May 19, 1998 /s/ Richard G. Egan, Jr.
----------------------------------
Richard G. Egan, Jr.
Chief Financial Officer,
Treasurer
Page 20 of 20
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