<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 JUNE 30, 1999
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 (1) 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 JUNE 30, 1999 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 22
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,713,888 $ 188,462
Restricted cash 153,274 170,052
Accounts receivable 411,974 23,496
Prepaid expenses and other current assets 2,367,573 168,964
Notes receivable from officers 83,993 151,377
------------ ------------
Total current assets 6,730,702 702,351
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 348,066 348,066
Building and building improvements 62,765,306 18,466,838
Machinery and equipment 25,931,883 4,498,547
------------ ------------
89,045,255 23,313,451
Less accumulated depreciation and amortization (49,771,127) (17,458,993)
------------ ------------
Net property, plant and equipment 39,274,128 5,854,458
------------ ------------
OTHER ASSETS:
Intangibles, net 15,412,439 220,824
Investments -- 5,849,814
Notes receivable from officers 543,505 742,016
------------ ------------
Total other assets 15,955,944 6,812,654
------------ ------------
Total assets $ 61,960,774 $ 13,369,463
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
PAGE 2 OF 22
<PAGE> 3
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 13,854,767 $ 2,395,518
Outstanding pari-mutuel tickets 525,127 622,447
Net liabilities of discontinued operations 704,420 704,420
Current maturities of long-term debt 1,590,777 350,663
Debt obligations in default 10,000 10,000
------------ ------------
Total current liabilities 16,685,091 4,083,048
LONG-TERM DEBT, less current maturities 39,797,270 5,550,847
OTHER LONG-TERM LIABILITIES 1,852,082 3,270,114
------------ ------------
Total liabilities 58,334,443 12,904,009
------------ ------------
MINORITY INTEREST IN SUBSIDIARY 2,321,100 --
------------ ------------
STOCKHOLDERS' EQUITY:
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 (3,888,428) (4,728,205)
Other comprehensive loss (249,404) (249,404)
Cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
------------ ------------
Total stockholders' equity 1,305,231 465,454
------------ ------------
Total liabilities and stockholders' equity $ 61,960,774 $ 13,369,463
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
PAGE 3 OF 22
<PAGE> 4
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For The
Three Months Ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING REVENUE:
Pari-mutuel commissions $ 3,815,197 $ 3,981,574
Restaurants 27,307,000 --
Concessions 994,310 473,274
Other (81,187) 440,383
------------ ------------
Total operating revenue 32,035,320 4,895,231
------------ ------------
OPERATING EXPENSES:
Wages, taxes and benefits 10,097,306 1,782,737
Purses 1,174,321 1,267,270
Cost of food and beverage 7,484,494 150,347
Administrative 2,530,455 376,636
General operating 7,414,623 1,023,498
Depreciation and amortization 1,310,940 156,791
------------ ------------
Total operating expenses 30,012,139 4,757,279
------------ ------------
Income from operations 2,023,181 137,952
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net (1,126,005) (116,671)
Equity income (loss) in investments -- 147,900
Other income, net (54,000) --
------------ ------------
Total other income (expense) (1,180,005) 31,299
------------ ------------
INCOME FROM OPERATIONS BEFORE
PROVISION FOR INCOME TAXES AND MINORITY INTEREST IN SUBSIDIARY 843,176 169,181
PROVISION FOR INCOME TAX 310,000 --
INCOME BEFORE MINORITY INTEREST IN SUBSIDIARY 533,176 169,181
MINORITY INTEREST IN SUBSIDIARY (166,247) --
------------ ------------
INCOME FROM CONTINUING OPERATIONS 366,929 169,181
GAIN (LOSS) FROM OPERATIONS OF DISCONTINUED
HARNESS RACING SUBSIDIARY -- 576,200
------------ ------------
NET INCOME $ 366,929 $ 745,381
============ ============
BASIC AND DILUTED PER SHARE DATA:
NET INCOME $ .29 $ .59
============ ============
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING $ 1,263,225 $ 1,263,225
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
PAGE 4 OF 22
<PAGE> 5
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For The
Six Months Ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING REVENUE:
Pari-mutuel commissions $ 7,425,713 $ 8,083,657
Restaurants 27,307,000 --
Concessions 1,326,920 871,863
Other 240,612 811,266
------------ ------------
Total operating revenue $ 36,300,245 $ 9,766,786
------------ ------------
OPERATING EXPENSES:
Wages, taxes and benefits 11,462,583 3,405,952
Purses 2,216,550 2,485,770
Cost of food and beverage 7,582,950 265,117
Administrative 2,822,886 703,426
General operating 8,070,112 1,911,542
Depreciation and amortization 1,486,321 303,081
------------ ------------
Total operating expenses 33,641,402 9,074,888
------------ ------------
Income from operations 2,658,843 691,898
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net (1,207,579) (218,059)
Equity income (loss) in investments (47,600) 215,500
Other income, net (54,000) 99,438
------------ ------------
Total other income (expense) (1,309,179) 96,879
------------ ------------
INCOME FROM OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 1,349,664 788,777
PROVISION FOR INCOME TAX 332,800 26,000
------------ ------------
INCOME BEFORE MINORITY INTEREST IN SUBSIDIARY 1,016,864 762,777
MINORITY INTEREST IN SUBSIDIARY (166,247) --
------------ ------------
INCOME FROM CONTINUING OPERATIONS 850,617 762,777
GAIN (LOSS) FROM OPERATIONS OF DISCONTINUED
HARNESS RACING SUBSIDIARY -- 576,200
------------ ------------
NET INCOME $ 850,617 $1,338,,977
============ ============
BASIC AND DILUTED PER SHARE DATA:
NET INCOME $ 0.67 $ 1.06
============ ============
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING $ 1,263,225 $ 1,263,225
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
PAGE 5 OF 22
<PAGE> 6
(Unaudited)
<TABLE>
<CAPTION>
For The
Six Months Ended
June 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 850,617 $ 1,338,977
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,486,321 303,081
Minority interest in net income of subsidiary 166,247
Equity in (income) loss from investments 47,600 (215,500)
Gain from discontinued operations -- (576,200)
Changes in operating assets and liabilities:
Restricted cash 16,778 (175,603)
Accounts receivables (258,478) 316,413
Prepaid expenses and other current assets (710,609) (312,191)
Other current assets 318,384 (78,680)
Investments 5,849,814 --
Other long term assets 198,511 --
Intangibles (7,489,575) --
Accounts payable
and other accrued liabilities 2,156,424 (49,574)
Other long-term liabilities (2,362,898) 24,249
------------ ------------
Total adjustments (581,481) (764,005)
------------ ------------
Net cash provided by operating activities 269,136 574,972
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,593,804) (418,902)
Acquisition of Business (28,868,000) --
------------ ------------
Net cash used in investing activities (30,461,804) (418,902)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt financing 35,500,000 --
Repayments of long-term debt (3,430,906) 386,080
Issuance of common stock -- 24,000
------------ ------------
Net cash used in financing activities 32,069,094 410,080
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,876,426 566,150
CASH AND CASH EQUIVALENTS, beginning of period 1,837,462 374,292
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 3,713,888 $ 940,442
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 296,409 $ 200,274
Income taxes $ 557,800 $ 26,993
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements
PAGE 6 OF 22
<PAGE> 7
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(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 June 30, 1999, and the results of its
operations and its cash flows for the six month periods ended June 30, 1999 and
1998. See the Company's Annual Report and Back Bay Restaurant's Annual Report on
Forms 10-K, included as exhibits to report, 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 June
30, 1999 and December 31, 1998 and for the six month periods ended June 30, 1999
and 1998 include the accounts of the Company, its wholly-owned subsidiaries, and
its majority-owned subsidiary. All material inter-company accounts and
transactions have been eliminated in consolidation.
During the second quarter of fiscal 1999, Back Bay Restaurant Group
(BBRG), the Company's 19% owned affiliate, acquired, through a newly formed
subsidiary, all the shares of BBRG's common stock held by non-affiliated
shareholders for cash (see Note 4). As a result of this transaction, the
Company's ownership in BBRG increased to approximately 75%. The transaction was
consummated on April 15, 1999. As a result of this change in ownership, the
balance sheet as of June 30, 1999 includes the accounts of BBRG. The statements
of income for the three and six months ended June 30, 1999 include the results
of operations for BBRG from April 15, 1999 to June 30, 1999. The unaudited pro
forma combined results of operations of the Company and BBRG for the six months
ended June 30, 1999, assuming that the transaction had occurred on January 1,
1999 are as follows:
<TABLE>
<S> <C>
Revenues $ 54.9 million
Net Income $ 0.7 million
Net Income per Share $ 0.57
</TABLE>
PAGE 7 OF 22
<PAGE> 8
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
RECLASSIFICATIONS
Certain reclassifications were made to the 1998 financial statement
amounts to conform with the 1999 presentation.
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998
The consolidated balance sheet at December 31, 1998 is presented for
comparative purposes and was taken from the audited consolidated financial
statements for the year ended December 31, 1998.
INTANGIBLES, NET
Intangible assets consist of goodwill, trade names and trademarks, and
deferred financing costs which are being amortized over the lesser of forty
years or their useful lives
DEBT
Long-term obligations which are in default have been classified as
current liabilities (see Note 3).
INCOME 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 per share of common stock
is computed by dividing the net income 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 1999 and
1998 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 8 OF 22
<PAGE> 9
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME 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. DISCONTINUED OPERATIONS
In 1996 litigation ensued between Foxboro Realty Associates, LLC, ET
AL. ("FRA") and the Company, its subsidiary Foxboro Park, Inc., ET AL., over
Foxboro's right to occupy Foxboro Raceway. The Court issued an execution
pursuant to which Foxboro was evicted from the racetrack on July 31, 1997 (see
Legal Proceedings at Item 1). As a result, the Company discontinued its harness
racing operations.
The remaining liabilities of the Company's discontinued operations at
June 30, 1999, are comprised of the following:
<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
Creditors Trust Agreement Promissory $174,451
Obligations and other liabilities:
Trade Payables 53,598
Outstanding pari-mutuel tickets 476,371
--------
$704,420
========
</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 will
subordinate its claims except for those claims relating to certain contingent
litigation matters. Creditors must file a written assent with the Assignee in
order to become an Assenting Creditor. Assenting Creditors agree that the
submission of an assent to this AFBC will operate as a release of any claims,
that could be asserted by an Assenting Creditor seeking to avoid the corporate
separateness of the Company or any affiliate of the Company and the Foxboro
Entities.
Additionally Assenting Creditors agree not to institute or continue a
suit against the Foxboro Entities or any other proceeding at law or in equity or
otherwise on account of any debt due and owing to the Assenting Creditor from
the Foxboro Entities, nor will the Assenting Creditor transfer its claim without
the written approval of the Assignee. Each Assenting Creditor accepts in lieu of
its claim against the Foxboro Entities the rights acquired in the AFBC.
PAGE 9 OF 22
<PAGE> 10
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
3. DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ----------
<S> <C> <C>
9.67% Finova senior term loan, interest payable monthly in arrears,
beginning May 5, 1999, collateralized by leasehold mortgages
on various restaurants, UCC filings on Furniture, Fixtures,
and Equipment of BBRG and Subsidiaries, and all outstanding
stock held by BBRG in its subsidiaries 27,500,000 --
12.50% DDJ Capital, senior subordinated note, interest payable
quarterly in arrears, beginning July 5, 1999, collateralized
by leasehold mortgages on various restaurants, UCC filings on
Furniture, Fixtures, and Equipment of BBRG and Subsidiaries,
and all outstanding stock held by BBRG in its subsidiaries.
Security interest subordinated only to senior credit facility 8,117,000 --
9.5% Century Bank and Trust Company ("Century Bank") term loan,
requiring 84 monthly payments of principal and interest of
$58,319 beginning August 1, 1998 collateralized by a mortgage
and security interest in all real estate and personal property
located at Wonderland Greyhound Park and by 125,000 shares of
BBRG common stock held by the Company. 4,785,557 4,904,828
6.0% BBRG Term Note, payable in equal quarterly payments of
principal and interest beginning in 1999, collateralized by
certain tangible personal property and licenses. 970,000 970,000
7.5% Promissory Note, payable in 60 monthly payments of principal
and interest of $2,003, commencing April, 1995. 15,490 26,682
14-1/4% Subordinated Notes, due August, 1997 10,000 10,000
----------- ----------
$41,398,047 $5,911,510
Less:
Current maturities 1,590,777 350,663
Debt obligations in default 10,000 10,000
----------- ----------
Long-term portion $39,797,270 $5,550,847
=========== ==========
</TABLE>
PAGE 10 OF 22
<PAGE> 11
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
3. DEBT (CONT.)
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. In 1997 the Note was amended requiring equal quarterly payments of
principal and interest beginning April 1, 1999 of approximately $36,000 with
interest at 6%.
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. As of June 30, 1999, a balance of $10,000 remains unpaid and in
default.
In July 1998, the Company obtained long-term debt financing for
$5,000,000 with Century Bank. The proceeds were used to repay previously
outstanding indebtedness, including approximately $275,000 of subordinated debt,
$2,381,000 of a realty trust term loan, $1,568,000 of a line of credit note,
$118,000 on a margin agreement, and $356,000 of a short-term note payable. The
remaining proceeds were used to pay other liabilities. The note agreement
contains certain restrictive covenants including the maintenance of certain
financial ratios and debt coverage requirements. The note is collateralized by a
mortgage and security interest in all real estate and personal property at
Wonderland Greyhound Park and by 125,000 shares of BBRG common stock held by the
Company.
4. INVESTMENTS
On March 26, 1999, a majority of BBRG's shareholders approved a merger agreement
("the Merger Agreement"), by and between BBRG and SRC Holdings, Inc. (the
"Acquiror"), a Delaware corporation formed by Charles F. Sarkis, BBRG's Chairman
and Chief Executive Officer, pursuant to which the Acquiror would be merged (the
"Merger") with and into BBRG, with BBRG being the surviving company. The Merger
was consummated April 15, 1999. Pursuant to the Merger, the holders of BBRG's
common stock, other than the Company, Mark L. Hartzfeld, Francis P. Bissaillon,
Ann Marie Lagrotteria, and Richard P. Dalton (collectively, the "Affiliated
Shareholders"), received $10.25 in cash in exchange for each share of common
stock of BBRG held by them. The Affiliated Shareholders continued to own stock
in the surviving corporation. As of the date of the Merger, the Company holds
74.58% of the common stock of BBRG. Following the Merger, BBRG no longer meets
the requirements of a public company.
PAGE 11 OF 22
<PAGE> 12
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
5. INDUSTRY SEGMENTS
The Company operations are classified into two segments: greyhound racing and
full service restaurants. The full service restaurant segment has only been
consolidated since April 15, 1999 and no prior period information is applicable.
The Company only operated in the United States.
The following table shows sales, operating income and other financial
information by industry segment:
<TABLE>
<CAPTION>
June 30, 1999 Greyhound Racing Full Service Restaurants Consolidated
- ------------- ---------------- ------------------------ ------------
<S> <C> <C> <C>
Sales $ 8,993,245 $27,307,000 $36,300,245
Operating Income (Loss) $ 662,843 $ 1,996,000 $ 2,658,843
Capital Expenditures $ 91,804 $ 1,502,000 $ 1,593,804
Depreciation and Amortization $ 339,321 $ 1,147,000 $ 1,486,321
Identifiable Assets at June 30, 1999 $ 7,393,707 $54,567,067 $61,960,774
</TABLE>
6. DEBT FINANCING
The amount required to fund the purchase of Shares from selling Stockholders
pursuant to the Merger Agreement, consummate the Merger, and to pay all related
fees and expenses of the transaction, was estimated to be approximately $38
million.
Borrowings of $27.5 million pursuant to the Senior Credit Facility were
available (i) to consummate the Merger, (ii) to refinance all existing
indebtedness of the Company and its Subsidiaries, (iii) to pay all transaction
costs, and (iv) any remainder, for working capital, including the construction
and/or renovation of new restaurant locations. The repayment of the Senior
Credit Facility is unconditionally, jointly and severally, guaranteed by
all of the Surviving Corporation's Subsidiaries.
The Loan will bear interest at a rate of 9.67%. For any period in which an event
of default under the definitive loan agreement exists, the loan shall bear
interest at the rate described above plus 3.0% per annum. Accrued and unpaid
interest on the Loan is payable monthly in arrears. Voluntary prepayments
are subject to premium charges, and there are certain involuntary prepayments,
not subject to any premium charges, that may occur, subject to the terms set
forth in the FINOVA Commitment Letter.
FINOVA obtained valid and perfected first priority liens on all property
constituting security for the loan, free and clear of any liens other than the
liens permitted under the definitive loan agreement. Pursuant to such collateral
requirement, FINOVA required satisfactory evidence that the Surviving
Corporation has good and marketable title to all of its properties and that
there is good and marketable title to all of the issued and outstanding capital
stock of the Surviving Corporation and its Subsidiaries.
PAGE 12 OF 22
<PAGE> 13
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
6. DEBT FINANCING (cont)
The Subordinated Debt provided to the Acquiror by DDJ is in the form of senior
subordinated notes, which will mature seven years and three months from the date
of issuance (which was the date of the Merger). Interest on the Notes accrues at
a rate of 12.50% per annum, payable quarterly in arrears. DDJ shall be entitled
to additional interest totaling 6.25% per annum, payable quarterly in arrears,
at the Acquiror;s option, in cash or additional Notes. As additional
consideration for purchasing the Notes, DDJ shall be entitled to receive 1% of
the equity in the Surviving Corporation (on a fully diluted basis following the
Merger). The Notes will be redeemable prior to maturity at the option of the
Acquiror in minimum principal amounts of $1 million at the prices listed in the
DDJ Commitment Letter. The Notes are senior subordinated obligations of the
Acquiror subordinate in right of payment only to permitted senior bank
indebtedness of the Acquiror. The repayment of the Notes will be
unconditionally, jointly and severally, guaranteed by all of the Surviving
Corporation's Subsidiaries.
It is anticipated that borrowing for the transactions resulting from the Merger
Agreement described above will be repaid from funds generated internally by the
Acquiror (including, after the Merger, funds generated by the Surviving
Corporation), or other sources, including the proceeds of the sale of debt or
equity securities or the sale of assets. No decisions have been made concerning
the repayment of such borrowings and decisions will be based on the Acquiror's
review from time to time of the advisability of particular actions, as well as
on prevailing interest rates and financial and other economic conditions.
PAGE 13 OF 22
<PAGE> 14
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Consolidated Company had revenues of $36.3 million, operating expenses of
$33.6 million, and operating income of approximately $2.7 million in the six
months ending June 30, 1999. These figures include:
A. Back Bay Restaurant Group ("BBRG") figures for the period from January 1,
1999 to April 14, 1999 accounted for under the equity method in which the
Company recognized only its ownership percentage (19.5%) share of BBRG net
income for that period.
B. Back Bay Restaurant Group ("BBRG") figures for the period from April 15,
1999 to June 30, 1999 accounted for under the consolidations method in
which the Company recognized the entirety of BBRG's income statement items
for that period in order to properly reflect the change in ownership
resulting from the merger.
A meaningful comparative discussion of year to date results must exclude the
figures applicable to the BBRG or full service restaurant segment. Therefore,
the following management discussion will deal only with the operations of the
Wonderland Greyhound Park or greyhound racing segment.
The table below illustrates certain key statistics for Wonderland Park, the
Company's greyhound racing operation, for the three months ended June 30, 1999
and 1998.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Performances 91 106
Simulcast days 91 90
Pari-mutuel handle (thousands)
Live-on track $ 6,730 $ 8,598
Live-simulcast 11,638 8,911
Guest-simulcast 13,632 12,866
-------- --------
Total $ 32,000 $ 30,375
======== ========
Total attendance 93,117 110,819
======== ========
Average per capita on site wagering $ 219 $ 194
======== ========
</TABLE>
PAGE 14 OF 22
<PAGE> 15
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998.
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 for the greyhound park decreased to $4.728
million in the quarter ended June 30, 1999 as compared to $4.894 million in the
same period of 1998. Pari-mutuel commissions decreased by approximately $0.2
million or 4% to $3.815 million for the three months June 30, 1999 from $3.982
million in 1998. Total handle in second quarter of 1999 was approximately $32.0
million as compared to $30.4 million in 1998. Guest-simulcast handle increased
by approximately $767,000 or 6% from $12.8 million in the second quarter of 1998
to $13.6 million in the corresponding period in 1999. Live-on track handle
decreased by approximately $1.9 million or 21.7% in 1999 as compared to 1998,
while Live-simulcast handle increased by approximately $2.7 million or 30.6%.
The decrease in pari-mutuel commission revenue is attributable to the
decrease in Live-on track handle which was offset by an increase in
Live-simulcast handle and Guest-simulcast handle as well as an increase in the
commission rate. Wonderland had fifteen fewer live racing performances in 1999
as compared to 1998, with an average attendance of approximately 1,023 persons,
while average attendance was approximately 1,045 persons in 1998.
Concessions revenue increased to $1.3 million for the six months ended June 30,
1999 as opposed to $0.9 million for June 30, 1998. This increase came about
largely because of increased parking fees put into effect in early 1999.
OPERATING EXPENSES
Operating expenses including the consolidated subsidiary totalled approximately
$30.0 million for the three months ended June 30, 1999. This figure included
$4.7 million for the Wonderland Greyhound Park, a decrease of approximately
$56,000 from approximately $4.317 million for the three months ended June 30,
1998.
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. In addition, there were cost
savings associated with wages, administrative and food costs.
INTEREST EXPENSE
Consolidated interest expense was $1.13 million during April through
June 1999; the portion attributable to greyhound racing was $0.12 million ,
essentially unchanged from the 1998 second quarter.
PAGE 15 OF 22
<PAGE> 16
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the consolidated group was $1.31
million in the second quarter of 1999. The greyhound racing portion increased
approximately $20,000 to $177,000 in the three months ended June 30, 1999, from
$157,000 in the comparable period in 1998. 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 consolidated group recorded a tax provision of $310,000 of which
$30,000 was attributable to the greyhound racing segment.
PAGE 16 OF 22
<PAGE> 17
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998.
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 for the greyhound park decreased to 8,993
million in the quarter ended June 30, 1999 as compared to $9.767 million in the
same period of 1998. Pari-mutuel commissions decreased by approximately $657,000
or 8% to $7.426 million for the six months ended June 30, 1999 from $8.084
million in 1998. Total handle in this period of 1999 was approximately $61.344
million as compared to $61.954 million in 1998. Guest-simulcast handle decreased
by approximately $447.000 or 2% from $26.4 million in the first and second
quarters of 1998 to $25.9 million in the corresponding period in 1999. Live-on
track handle decreased by approximately $3.9 million or 23.7% in 1999 as
compared to 1998, while Live-simulcast handle increased by approximately $3.8
million or 20.5%.
OPERATING EXPENSES
Consolidated group operating expenses were $33.641 million for the six
months ended June 30, 1999. Greyhound racing segment operating expenses of
approximately $8.330 million for the six months ended June 30, 1999 decreased by
approximately $744,000 from approximately 9.075 million for the six months ended
June 30, 1998.
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. In addition, there were cost
savings associated with wages, administrative and food costs.
INTEREST EXPENSE
Interest expense for the consolidated group was $1.2 million. Interest
expense for the greyhound racing segment decreased by approximately $18,000 for
the six months ended June 30, 1999 from $218,059 in the six months ended June
30, 1998 The decrease is due to the reduction of outstanding debt. (See
Liquidity and Capital Resources-General).
PAGE 17 OF 22
<PAGE> 18
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OTHER INCOME, NET
Consolidated group other income was $102,000. The greyhound racing
segment had other loss of $47,600 which represents 19% of the first quarter loss
of the full service restaurant segment ( which had not been acquired at that
time) accounted for under the equity method. Year to date June 1998 other income
for the greyhound racing segment includes two quarters of the full service
restaurant segment accounted for under the equity method at the pro rata of 19%
ownership.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the consolidated group was $1.49
million., of which the greyhound racing segment's share had increased
approximately $49,000 to $352,000 in the six months ended June 30, 1999.
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 and second quarters of 1999 and 1998 primarily due
to the utilization of available net operating loss carryforwards. The
consolidated group had a provision for taxes of $333,000 of which the greyhound
racing segment had $53,000 and $26,000 in the first and second quarters of 1999
and 1998, respectively. This represents estimated state taxes and federal
alternative minimum tax.
PAGE 18 OF 22
<PAGE> 19
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Consolidated group has a working capital deficit
of approximately $10 million and a stockholders' surplus of $1.3 million.
At June 30, 1999, the Company, not taking account of the Back Bay
Restaurant Group merger, has a working capital deficit of approximately $2.27
million, a stockholders' surplus of approximately $885,000 thousand and is in
default on certain debt obligations totalling approximately $10,000.
Historically, the Company's primary sources of capital to finance its businesses
have been its cash flow from operations and credit facilities. The Company's
capital needs are primarily from maintenance and enhancement of the racing
facility at Wonderland, and for debt service requirements.
At June 30, 1999, the Consolidated group had Cash and Cash equivalents
of approximately $3.7 million.
The Company's cash and cash equivalents totaled approximately $151,000
at June 30, 1999, compared with $188 thousand at December 31, 1998. For the
Consolidated group changes in working capital accounts including restricted
cash, accounts payable and other accrued liabilities yielded approximately $0.6
million of cash in the first half of 1999. This was primarily because of an
increase in intertrack receivables. Net cash used in investing activities in
1999 for the consolidated group was $30.4 million, representing funds used for
the acquisition of non-affiliated stock.
RACING OPERATIONS
In order to meet the requirements for renewal of racing licenses in
2000, the Company's racing subsidiary must demonstrate, amongst other criteria,
it is a financially stable entity, capable of disposing of its obligations on a
timely basis. Although management is optimistic that it will be able to
demonstrate financial stability in their application for 2000 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.
In the event that the Company is not successful in obtaining a Year
2000 racing license, the adverse impact on the Company's financial results and
position would be material.
PAGE 19 OF 22
<PAGE> 20
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(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.
In 1996 litigation ensured between Foxboro Realty Associates, LLC, ET
AL. ("FRA") and the Company, its subsidiary Foxboro Park, Inc., ET AL., in
Norfolk Superior Court in Massachusetts over Foxboro's right to occupy Foxboro
Raceway. The Court issued an execution pursuant to which Foxboro was evicted
from the racetrack on July 31, 1997. The parties appealed to the Appeals Court
on January 27, 1998. The Company expects the appeals to be decided sometime
during calendar year 1999.
On July 8, 1998, Foxboro Route 1 Limited Partnership, ET AL., filed a
civil action in Suffolk Superior Court in Massachusetts against The Westwood
Group, Inc., Wonderland Greyhound Park, Inc., ET AL., seeking payment for use
and occupancy of Foxboro Raceway, and other damages, from 1992 through July
1997.
The ultimate outcome of such pending litigation cannot be determined at
this time, however it is the opinion of the Company's management, any liability
under such pending litigation would not materially affect its financial
condition or operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
PAGE 20 OF 22
<PAGE> 21
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
(a) Exhibit
The Company's December 31, 1998 Annual Report on Form 10K
BBRG's December 31, 1998 Annual Report on Form 10K
(B) REPORTS ON FORM 8-K
None
PAGE 21 OF 22
<PAGE> 22
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
JUNE 30, 1999
(Unaudited)
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WESTWOOD GROUP, INC.
Date August , 1999 /s/ Richard P. Dalton
------------------------------
Richard P. Dalton
President, Chief Executive
Officer and Director
(Principal Financial and
Accounting Officer)
PAGE 22 OF 22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 3,867,162
<SECURITIES> 0
<RECEIVABLES> 411,974
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,730,702
<PP&E> 89,045,255
<DEPRECIATION> 49,771,127
<TOTAL-ASSETS> 61,960,774
<CURRENT-LIABILITIES> 16,685,091
<BONDS> 39,897,270
0
0
<COMMON> 28,570
<OTHER-SE> 1,236,661
<TOTAL-LIABILITY-AND-EQUITY> 61,960,774
<SALES> 0
<TOTAL-REVENUES> 32,035,320
<CGS> 0
<TOTAL-COSTS> 30,012,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,126,005
<INCOME-PRETAX> 843,176
<INCOME-TAX> 310,000
<INCOME-CONTINUING> 366,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,929
<EPS-BASIC> 0.290
<EPS-DILUTED> 0.290
</TABLE>
