U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM lO-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 33-64236
Alpha Hospitality Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3714474
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12 East 49th Street, New York, NY 10017
(Address of principal executive offices)
(212) 750-3500
(Issuer's telephone number)
Not applicable
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act during the past 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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: May 13, 1996
Class
Common Stock, $0.01 par value 13,403,325 shares
Transitional Small Business Disclosure Format (check one):
Yes _____ No X
<PAGE>
ALPHA HOSPITALITY CORPORATION
INDEX
PART I FINANCIAL INFORMATION (UNAUDITED) PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 1
Consolidated Statements of Operations
Three months ended March 31,1996
and 1995 2
Consolidated Statements of Cash Flows
Three months ended March 31,1996
and 1995 3-4
Notes to Consolidated Financial Statements 5-12
Item 2. Management's Discussion and Analysis
or Plan of Operation 13-18
All items which are not applicable or to which the answer is negative have been
omitted from this report.
i
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ---------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash, including restricted cash of $50 and $64 in 1996
and 1995, respectively ............................. $ 2,605 $ 2,316
Accounts receivable, less allowance for doubtful
accounts of $354 ................................... 631 703
Inventories ........................................... 492 536
Prepaid insurance ..................................... 1,079 1,796
Other current assets .................................. 1,049 1,349
-------- --------
Total current assets ............................ 5,856 6,700
-------- --------
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of $15,188 and
$13,385 in 1996 and 1995, respectively ................ 58,539 59,255
-------- --------
OTHER ASSETS, deposits and other ......................... 857 818
-------- --------
$ 65,252 $ 66,773
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .................. $ 11,910 $ 27,319
Notes payable ......................................... 3,839 3,816
Accounts payable and accrued expenses ................. 9,881 10,709
Accrued payroll and related liabilities ............... 3,622 2,849
Due to affiliate, current maturity .................... 2,000 2,000
-------- --------
Total current liabilities ....................... 31,252 46,693
-------- --------
LONG-TERM DEBT, less current maturities .................. 14,507 2,312
-------- --------
DUE TO AFFILIATE, less current maturity, including
accrued interest of $437 and $503 in 1996 and
1995, respectively .................................... 17,851 15,864
-------- --------
AMOUNT DUE UNDER REDEMPTION AGREEMENT,
including Accrued Interest of $112. ..................... 463 --
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 17,000 shares,
12,702 and 12,354 shares issued in 1996 and
1995 respectively .................................. 127 124
Capital in excess of par value ........................ 36,479 32,779
Common stock subscribed ............................... 1,600
Accumulated deficit ................................... (35,427) (32,599)
-------- --------
Total stockholders' equity ...................... 1,179 1,904
-------- --------
$ 65,252 $ 66,773
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
Three Months Ended
March 31,
------------------------
1996 1995
-------- --------
REVENUES:
Casino $ 12,837 $ 6,233
Food and beverage 347 298
Hotel management fees 450 545
Retail and other 34 22
-------- --------
Total revenues 13,668 7,098
-------- --------
COSTS AND EXPENSES:
Casino 5,051 3,230
Food and beverage 265 197
Hotel management costs 320 383
Selling, general and administration 7,762 4,429
Interest 1,372 601
Depreciation and amortization 1,802 978
Development costs 268 87
-------- --------
16,840 9,905
-------- --------
NET LOSS FROM OPERATIONS (3,172) (2,807)
CAPITAL LEASE RESTRUCTURING 344 --
-------- --------
NET LOSS $ (2,828) $ (2,807)
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,702 10,947
======== ========
LOSS PER COMMON SHARE $ (0.22) $ (0.26)
======== ========
See accompanying notes to consolidated financial statements
2
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,828) $(2,807)
------- -------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 1,802 978
Lease restructuring (344)
Imputed interest on long-term debt 70
Changes in operating assets and liabilities:
Decrease in accounts receivable 72 56
(Increase) decrease in inventories 44 (12)
Decrease in prepaid insurance 717 96
(Increase) decrease in other current assets 300 (144)
Increase (decrease) in accounts payable and
accrued expenses (708) 387
Increase in accrued payroll and related liabilities 773 736
------- -------
Total adjustments 2,656 2,167
------- -------
NET CASH USED IN OPERATING ACTIVITIES (172) (640)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,086) (440)
Payments for deposits and other assets (39) (127)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,125) (567)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate 2,053 1,028
Proceeds from notes payable 158
Payments on notes payable (135) (114)
Payments on long-term debt (490) (438)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,586 476
------- -------
NET INCREASE (DECREASE) IN CASH 289 (731)
CASH, beginning of period 2,316 1,180
------- -------
CASH, end of period $ 2,605 $ 449
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three Months Ended
March 31,
-----------------
1996 1995
------ ------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest during
the period $1,064 $ 202
====== ======
SUPPLEMENTAL SCHEDULES OF NONCASH
FINANCING ACTIVITIES:
Capital lease restructuring, includes accrued
interest of $74 $ 344 $ --
====== ======
Common stock issued for payment of long-term debt $2,454 $ --
====== ======
Amount due under redemption agreement, includes
$112 of accrued interest $ 463 $ --
====== ======
See accompanying notes to consolidated financial statements
4
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 1 - NATURE OF BUSINESS:
Alpha Hospitality Corporation (the "Company") was incorporated in Delaware
on March 19, 1993 and has adopted a December 31 year end. The Company owns and
operates dockside casinos located in Lakeshore and Greenville, Mississippi. In
addition, the Company provides services for the management of hotels and motels
located in ten states.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SELECTED SIGNIFICANT
ACCOUNTING POLICIES:
Financial Statements - The accompanying unaudited consolidated financial
statements of Alpha Hospitality Corporation and subsidiaries have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principals.
All adjustments which are of a normal and recurring nature and, in the opinion
of management, necessary for a fair presentation have been included. The
unaudited financial statements should be read in conjunction with the audited
financial statements of December 31, 1995, included in the 10-K.
Operations and Principles of Consolidation - The accompanying statements
include the accounts of the company and all of its wholly-owned subsidiaries.
All intercompany transactions and balances have been eliminated in
consolidation.
Loss Per Common Share - Loss per common share is based on the weighted
average number of common shares outstanding. The Company's outstanding stock
options and warrants are excluded in the computation since they would have an
antidilutive effect on loss per common share. Bally's 701 shares being held in
escrow are not included in this calculation until such time that the shares are
sold from escrow. (See Note 7.)
Promotional Allowances - Revenues do not include the retail amount of food
and beverage of approximately $1,066 and $917 provided gratuitously to
customers, for the three months ended March 31, 1996 and 1995, respectively.
Reclassifications - Certain amounts have been reclassified in 1995 to
conform to the 1996 presentation.
5
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 3 - NOTES PAYABLE:
Notes payable at March 31, 1996 and December 31, 1995 are comprised of the
following:
<TABLE>
<CAPTION>
Interest March 31 December 31
Rate 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revolving line of credit with payments of
principal and interest due monthly,
collateralized by funds held at the
Company's casino and guaranteed by Prime
an affiliate +2% $98 $145
Notes payable to former Cotton Club
stockholders 10% 3,293 3,293
Revolving line of credit of $500 with
payments of principal and interest due
September 1, 1996, collateralized by cash
advances 358 200
Note payable to third party with
payments of principal and interest due
monthly, collateralized by certain
vehicles 11% 69 103
Unsecured note payable 53
Employee loans Various 21 22
------ ------
$3,839 $3,816
====== ======
</TABLE>
NOTE 4 - LONG-TERM DEBT:
Long-term debt at March 31, 1996 and December 31,1995 are comprised of the
following:
<TABLE>
<CAPTION>
Interest March 31 December 31
Rate 1996 1995
---- ---- ----
<S> <C> <C> <C>
Mortgage note payable, Bryanston,
principal and interest due monthly
through November 1998, collateralized by
the barge located in Greenville,
Mississippi, and certain other assets 10% $7,800 $7,800
</TABLE>
6
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 4 - LONG-TERM DEBT (CONTINUED):
<TABLE>
<CAPTION>
Interest March 31 December 31
Rate 1996 1995
---- ---- ----
<S> <C> <C> <C>
Motgage note payable in monthly
installments of $70 plus interest at
30-day commercial paper rate (5.83% at
March 31, 1996) plus 3.5% adjusted
quarterly, funded with weekly deposits
of $25 into a restricted cash account,
collateralized by the barge and
improvements located in
Lakeshore, Mississippi 9% $ 3,656 $ 3,736
Equipment notes payable monthly
through November 1999 and
collateralized by certain assets 11-14% 10,616 13,432
Capitalized lease obligations, payable
monthly, expiring in various years
through 2001 (See Note 10) 10-15% 616 925
Loans payable in equal
quarterly installments over 10 years
with interest at 9% per annum,
commencing in January 1996. Loans
are subordinated to the Bryanston
mortgage note payable and will be
repaid only if the Company maintains
certain financial ratios. Approximately
$2,474 is owed to Bryanston 12% 3,655 3,655
Bank notes, payable monthly through
1997, collateralized by certain
equipment 8-10% 74 83
------- ------
26,417 29,631
Less current portion 11,910 27,319
------- ------
$14,507 $ 2,312
======= =======
</TABLE>
7
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 4 - LONG-TERM DEBT (CONTINUED):
Aggregate future required principal payments are approximately as follows:
Year ending March 31:
1997 $11,910
1998 8,797
1999 2,301
2000 1,665
2001 323
Thereafter 1,421
-------
$26,417
=======
At March 31, 1996, the Company was in default of (i) its mortgage notes
payable for non-payment, (ii) the Lakeshore equipment notes aggregating
approximately $3,433 for the breach of several loan covenants and certain loans
payable aggregating approximately $3,655 for non-payment. The Company received a
waiver of the defaults of the loan payable and mortgage note payable to
Bryanston. Accordingly, the Lakeshore mortgage note payable ($3,656), the
Lakeshore equipment notes payable ($3,433) and a certain loan payable ($1,181)
are reflected in current liabilities at March 31, 1996.
At December 31, 1995, the Company was in default of (i) its mortgage notes
payable for non-payment, (ii) the equipment notes aggregating approximately
$13,432 for the breach of several loan covenants and (iii) a capital lease of
approximately $745 for non-payment. Subsequently, the Company has restructured
the aforementioned capital lease (See Note 10). Certain loans payable
aggregating approximately $3,655 went into default in 1996 due to non-payment.
The Company received a waiver of the default of the loan payable to Bryanston.
Accordingly, the mortgage notes payable ($11,536), equipment notes payable
($13,432), capital lease ($745) and a certain loan payable ($1,181) were
reflected in current liabilities at December 31, 1995.
8
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in Thousands)
NOTE 5 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES:
March 31, 1996 and December 31, 1995, accounts payable and other accrued
expenses are comprised of the following.
March 31 December 31
1996 1995
---- ----
Construction $1,425 $ 1,218
Insurance financing 986 1,585
Accrued professional fees 903 851
Accrued property taxes 463 843
Accrued interest 1,169 974
Other 4,935 5,238
------ -------
$9,881 $10,709
====== =======
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS:
The company is obligated under a $20,000 non-revolving promissory note ($19,414
and $17,361 outstanding at March 31, 1996 and December 31, 1995, respectively)
with Bryanston. The note, which bears interest at prime rate (8.5% at March 31,
1996 plus 2%, is payable at the lesser of the outstanding principal amount or
$2,000 per annum through December 31, 1999. Beginning 1996, interest accrued
monthly is due and payable by the following month. All remaining principal
and accrued interest (approximately $437 and $503 at March 31, 1996 and December
31, 1995, respectively) shall be due on December 31, 2000. Additionally,
commencing May 1, 1996 and for each of the next succeeding three years
thereafter, the Company will be required to make additional principal payments
equal to "Available Cash Flow of Maker" as defined in the note.
In accordance with Mississippi law, the Company's casino licenses have
initial terms of two years and will be subject to periodic renewal. In October
1995, the Company received renewals of their casino licenses through October
1997. Failure to retain the licenses could have a material adverse effect on the
Company's operations.
9
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in Thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED):
The Company has been named as an additional defendant in an action brought
in the United States District Court for the Southern District of Mississippi
(Susan E. Wolff, et al. vs. James C. Zamecnik, et al.). Initially the Plaintiff
sought $20,000 plus punitive damages, however, a settlement has been reached
between the Plaintiff and the Company's insurance carrier, in the amount of
$5,125, subject to completion of the settlement documents and the approval of
the court. The Plaintiff had brought a declaratory judgment action against the
insurance carrier seeking a determination of the carrier's liability under the
Company's insurance policies. Subsequently, the primary insurance carrier
initiated a declaratory judgment action against Alpha Gulf and the Company
(Commerce & Industry Company vs. Alpha Gulf Coast, Inc. and Alpha Hospitality
Corporation, Inc.: United States District Court for the Southern District of
Mississippi Jackson Division) seeking a determination that it is entitled to
reimbursement from Alpha Gulf Coast, Inc. and the Company. The declaratory
judgment action appears to have been brought in response to issues raised by the
primary insurance carrier as to timely notice of the incident and possible
spoilation of evidence. The Company has moved to intervene in the declaratory
judgment action brought by the Plaintiff and has moved to dismiss the insurance
carrier's declaratory judgment action on jurisdictional grounds. In both
declaratory judgment actions, Alpha Gulf and the Company are asserting either
cross claims or counterclaims against the insurance carriers involved. The
ultimate outcome of the declaratory judgment litigation cannot presently be
determined. Accordingly, no provision for any liability to the Company that may
result upon adjudication has been made in the accompanying consolidated
financial statements. However, the liability under the underlying personal
liability action has been set by settlement at $5,125, subject to documentation
and court approval.
In January 1996, the Company was named as a defendant in an action brought
in the Circuit Court of Hinds County, Mississippi (Amos vs. Alpha Gulf Coast,
Inc.; Batiste vs. Alpha Gulf Coast, Inc.; Ducie vs. Alpha Gulf Coast, Inc.;
Johnson vs. Alpha Gulf Coast, Inc.; Ramez vs. Alpha Gulf Coast, Inc.). Mr. Amos
alleges that on January 16, 1995 a vehicle operated by him collided with a
vehicle negligently operated by an individual that was served alcoholic
beverages by the Company. The defendant seeks compensating damages of $1,800 and
punitive damages of $7,500. The remaining defendants allege that they were
passengers in the vehicle operated by Mr. Amos and that they suffered personal
injuries. They seek compensating damages of $1,800 each and punitive damages of
$7,500 each. The ultimate outcome of this litigation cannot presently be
determined. Accordingly, no provision for liability of the Company that may
result upon adjudication has been made in the accompanying consolidated
financial statements. The Company believes that the risk referred to in this
paragraph is adequately covered by insurance and, therefore, will not have a
material adverse effect on the Company's financial position and results of
operations.
10
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in Thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED):
The Company is a party to various other legal actions which arise in the
normal course of business. In the opinion of the Company's management, the
resolution of these other matters will not have a material adverse effect on the
financial position of the Company.
NOTE 7 - AMOUNT DUE UNDER REDEMPTION AGREEMENT:
Effective October 15, 1995, the Company restructured certain equipment
notes, aggregating approximately $9,000, with unrelated parties. Pursuant to the
restructuring requirements, the Company will repay approximately $6,500 in 48
monthly installments of $166, which includes interest of 10% per annum,
commencing December 15, 1995. The balance of $2,500 bears interest at 10% per
annum, is due on November 15, l999, and may either be partially or fully repaid,
pursuant to an escrow agreement, from the net proceeds from the sale of
approximately 701 shares of the Company's common stock held in escrow. To the
extent that the net proceeds exceeds $2,500 plus accrued interest, the excess
will be applied to the $6,500 portion of the debt. However, if the net proceeds
are less than the $2,500 plus accrued interest, then the Company will be
required to remit the balance due at maturity. The escrow agreement provides for
the unrelated party to have full voting rights pertaining to the escrowed shares
and the right to sell any or all of the shares. The Company has the right of
first refusal to purchase the shares that the unrelated party desires to sell.
The debt is collateralized by the Company's barge and certain gaming equipment.
At March 31, l996, the amount due under the redemption agreement is $463,
which includes $112 of accrued interest, resulting from the decrease in the fair
market value of the stock at March 31, 1996 ($3.00) and the price at the date of
the agreement ($3.50).
NOTE 8 - STOCKHOLDERS' EQUITY:
Changes in stockholders' equity during the three months ended March 31,
1996 include the net loss of 2,828, common stock with a value of $2,454 issued
to a creditor and placed in escrow, pursuant to the October 15, 1995
restructuring of certain equipment notes and an increase in amount due under
redemption agreement of $351.
11
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in Thousands)
NOTE 9 - INCOME TAXES:
The Company and all of its subsidiaries file a consolidated federal
income tax return. Income tax expense is allocated pursuant to the separate tax
attributes of each subsidiary. At March 31, 1996 and December 31, 1995, the
Company's deferred federal tax asset is comprised of the tax benefit (cost)
associated with the following items based on the 35% tax rate currently in
effect (dollars in thousands):
March 31 December 31
1996 1995
---- ----
Pre-opening costs currently deducted for financial
reporting and amortized aver 5 years for tax purposes $1,754 $1,788
Net operating loss carry forward 13,108 11,524
Differences between financial and tax depreciation
methods (1,862) (2,077)
Differences between financial and tax basis of assets
and liabilities 1,756 1,737
Interest capitalized for financial reporting and
expensed for tax purposes (221) (224)
Other (77) (77)
-------- --------
Deferred tax asset 14,458 12,671
Valuation allowance on deferred tax asset (14,458) (12,671)
-------- --------
$ -- $ --
======== ========
The Company has available for federal income tax purposes, a net operating
loss carryover of approximately $37,450 of which $883, $7,407, $24,637 and
$4,523 will expire in the years 2008, 2009, 2010, and 2011 respectively.
NOTE 10 - SUBSEQUENT EVENT:
Effective April 12, 1996, the Company restructured its capital sign lease
of approximately $745, with an unrelated party. The terms of this restructure
reduces the lease principal amount to $475 and forgives approximately $74 of
accrued interest. The effective rate of the restructured lease is 10%, per
annum, with a four year term.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations - Casinos
Results of Operations - Alpha Gulf
The following table sets forth the statement of operations for the Alpha
Gulf's casino operations before income taxes for the three months ended March
31, 1996 and 1995 (in thousands):
Three Months Ended March 31
---------------------------
1996 1995
------- -------
Revenues:
Casino $9,562 $6,233
Food, beverage and other 276 320
------- -------
Total revenues 9,838 6,553
------- -------
Operating expenses:
Casino 3,117 3,230
Food, beverage and other 181 l97
Selling, general and administration 4,644 4,035
------- -------
Total operating expenses 7,942 7,462
------- -------
Income (loss) from operations 1,896 (909)
------- -------
Other expenses:
Interest 510 498
Depreciation and amortization 1,229 978
------- -------
Total other expense 1,739 1,476
------- -------
Income (loss) before intercompany
charges and deferred income tax credit $ 157 ($2,385)
======= =======
Three Months Ended March 31, 1996 and 1995:
Alpha Gulf generated revenues of $9,838 and $6,553 in 1996 and 1995,
respectively. Casino revenues were $9,562 and $6,233 in 1996 and 1995,
respectively. Food, beverage and other revenues were $276 and $320 in l996 and
1995, respectively. This increase in casino revenues is primarily due to the
relocation of the Alpha Gulf's Bayou Caddy's Jubilee Casino from Lakeshore,
Mississippi to Greenville, Mississippi in November 1995. During this period the
Jubilee Casino achieved 50% market share in the Greenville market. In addition
the Greenville market increased by 15% over the same period last year.
At the locations referred to above, Alpha Gulf's casino operating expenses
were $3,117 and $3,230, (33% and 52% of Casino revenues) in 1996 and 1995,
respectively. Food, beverage, retail and other expenses were $181 and $197 (66%
and 62% of food, beverage, retail and other revenues) in 1996 and 1995,
respectively.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Food and beverage revenue does not include the retail value of food and beverage
of approximately $1,066 and $917 provided gratuitously to customers in 1996 and
1995, respectively. The reduced casino expenses incurred in 1996 when compared
to 1995 of $ll3 was the result of management's reduction of staffing levels. The
reduction of food, beverage and other costs are directly related to the reduced
volume of business.
Selling, general and administrative expenses consists primarily of payroll
and related benefits of approximately $2,900 and $3,300, marketing and
advertising of approximately $1,500 and $800, and occupancy costs of
approximately $150 and $275 in 1996 and 1995, respectively. The reduced payroll
and related costs of $400 was a direct result of management's cost-cutting
measures instituted during the first quarter of 1995. The $700 increase in
marketing and advertising was principally the result of management focusing on
marketing programs that continue to demonstrate successful results and
elimination of unsuccessful programs. The reduction of occupancy costs of $125
is primarily due to less ground lease costs assumed in Greenville and reduced
insurance costs.
Interest expense was primarily related to the first mortgage on the gaming
vessel, equipment financing and various capitalized leases.
Depreciation and amortization was $1,200 and $1,000 in 1996 and 1995,
respectively.
Future Operations - Alpha Gulf
Alpha Gulf's Bayou Caddy's Jubilee Casino operating results have improved
since its relocation to Greenville. The gaming revenues achieved to date by the
Jubilee Casino in Greenville far exceed the revenues of its predecessor gaming
vessel at that site. Alpha Gulf's casino operations in Greenville have become a
major factor in the Greenville market and has helped to expand that market.
A third gaming vessel has announced that it will be opening in the last
quarter of this year in Greenville. It is unknown at this time what impact this
third gaming vessel will have on the Greenville casino market. Management
believes that this third gaming vessel will negatively impact Alpha Gulf's
current market achievement but to what extent this act will have on future
revenues is uncertain at this time.
Results of Operations - Jubilation
The Company acquired the Jubilation gaming vessel (formerly known as the
Cotton Club) on October 26, 1995. The vessel's operations in Greenville was
terminated on October 30, 1995. After its relocation to Lakeshore, Mississippi
the Jubilation reopened for business December 21, 1995. The following table sets
forth the statement of operations for the Jubilation casino operations before
income taxes and intercompany charges for the three months ended March 31, 1996
(in thousands):
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Revenues:
Casino $3,276
Food, beverage and other 101
-------
Total revenues 3,377
-------
Expenses:
Casino 1,934
Food, beverage and other 84
Selling, general and administrative 2,606
-------
Total operating expenses 4,624
-------
Loss from operations (1,247)
-------
Other expenses:
Interest 245
Capital lease restructuring (344)
Depreciation and amortization 574
-------
Total and other expenses 475
-------
Loss before intercompany charges and
deferred income tax credit ($1,722)
=======
Three Months Ended March 31, 1996
The Jubilation experienced a loss from operations of $1,247 during the
three month period ended March 31, 1996. Due to the seasonal nature of the
Mississippi Gulf Coast gaming market the Company anticipates improvement in its
gaming revenues, during the quarters ending in June and September. Although
Management has significantly reduced its operating costs during this period,
Management continues to be uncertain as to the profitability of the Jubilation
Casino, on an annual basis. The seasonal nature of the Lakeshore site increases
the risk of natural disasters or the loss of the Jubilation Casino from service
for any other reason during the May through September period ("Hurricane
Season"), which would have a material adverse effect on the Company's financial
condition. The Company continues to have discussions with potential purchasers
of the Jubilation Casino. These discussions are ongoing and no assurance can be
given that such discussions will be successful.
Results of Operations - Casino Development (See Liquidity and Capital Resources)
Alpha Missouri has not commenced operations. It has incurred development
costs of approximately $68 and $4 during the three months ended March 31, 1996
and 1995, respectively, related to its proposed development of a riverboat
casino in Louisiana, Missouri. During the current period the Company made its
presentation to the Missouri gaming authorities for immediate consideration for
its gaming license in connection with the Louisiana, Missouri project. The
Company does not anticipate any action by the Missouri gaming authorities until
June of this year, at the earliest.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Results of Operations - Casino Development (See Liquidity and Capital
Resources) (Continued)
During the three months ended March 31, 1996 and 1995, respectively, Alpha
St. Regis (St. Regis) incurred approximately $188 and $35, of costs primarily
associated with its participation with the Catskill Development, L.L.C. to
develop a casino adjacent to the Monticello Raceway in Sullivan County, New
York. Upon completion of the project, and subject to governmental and Tribal
approvals, St. Regis will be the operator of the casino. Pursuant to an
agreement with Catskill Development, L.L.C., St. Regis will receive 50% of
all management fees plus certain administrative fees related to management of
the casino.
Effective May 1, 1996, the Company terminated its stock acquisition
agreement with Doc Holliday, Inc., which owns and operates Doc Holliday Casino,
located in Central City, Colorado.
Hotel Management - Alpha Hotel Management Company, Inc. ("Alpha Hotel")
The following table sets forth selected financial data of Alpha Hotel
Management Company, Inc. (Alpha Hotel) for the three months ended March 31, 1996
and 1995 (in thousands):
Three Months Ended March 31
1996 1995
---- ----
Income Statement Data:
Management fees $450 $545
---- ----
Operating expenses:
Direct payroll and related expenses 308 330
Selling, general and administrative 23 69
---- ----
331 399
---- ----
Income from management fees before
intercompany charges and income taxes $119 $146
==== ====
Results of Operations
March 31, 1996 Compared to March 31, 1995:
Total management fees decreased during the three months ended March 31,
1996 compared to the three months ended March 31, 1995 by approximately $95
(17.49%). The decrease was principally from the net result of $24 increase in
fees from continuing management agreements and a decrease of $119 related to the
loss of five management agreements (which related to hotels whose ownership
changed). The increase in fees earned was the result of increases in the hotels'
gross revenues on which the management fees are based. The factors that
influence such gross revenues are general economic conditions, competitive
changes in geographic regions, foreign exchange rates relative to the strength
of U.S. dollar, the price of gasoline, air fares and general weather conditions.
Direct payroll and related costs decreased 6.7% to $308 for the three
months ended March 31, 1996 from $330 for the three months ended March 31, 1995.
The decrease was the result of a reduction in staffing to accomodate the
decrease in management contracts being serviced.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Selling, general and administrative expenses decreased to $23 for the three
months ended March 31, 1996 from $69 for the three months ended March 31, 1995.
This decrease is a result of office relocation to a less expensive area.
Liquidity and Capital Resources
During the three months ended March 31, 1996 cash used in operations of
$172 was primarily attributable to the net loss of approximately $2,828, less
depreciation and amortization of $1,802, a decrease in prepaid insurance of
$717, an increase in accrued payroll and related liabilities of $773 and a
decrease in accounts payable and accrued expenses of $708.
During the three months ended March 31, 1995, net cash used in operations
was approximately $640 which was primarily attributable to depreciation and
amortization of $978, an increase in accounts payable and accrued expenses of
$387, an increase in accrued payroll and related liabilities of $736, and a
net loss of $2,807.
The Company has been named as an additional defendant in an action brought
in the United States District Court for the Southern District of Mississippi
(Susan E. Wolff, et al. v. James C. Zamecnik, et al.). Initially the Plaintiff
sought $20,000 plus punitive damages, however, a settlement has been reached
between the Plaintiff and the Company's insurance carrier, in the amount of
$5,125, subject to completion of the settlement documents and the approval of
the court. The Plaintiff had brought a declaratory judgement action against the
insurance carrier seeking a determination of the carrier's liability under the
Company's insurance policies. Subsequently, the primary insurance carrier
initiated a declaratory judgment action against Alpha Gulf and the Company
(Commerce & Industry Company v. Alpha Gulf Coast, Inc. and Alpha Hospitality
Corporation, Inc.; United States District Court for the Southern District of
Mississippi, Jackson Division) seeking a determination that it is entitled to
reimbursement by Alpha Gulf Coast, Inc. and the Company. The declaratory
judgment action appears to have been brought in response to issues raised by the
primary insurance carrier as to timely notice of the incident and possible
spoilation of evidence. The Company has moved to intervene in the declaratory
judgment action brought by the Plaintiff and has moved to dismiss the insurance
carrier's declaratory judgment action on jurisdictional grounds. In both
declaratory judgment actions, Alpha Gulf and the Company are asserting either
cross claims or counterclaims against the insurance carriers involved. The
ultimate outcome of the declaratory judgment litigation cannot presently be
determined. Accordingly, no provision for any liability to the Company that may
result upon adjudication has been made in the accompanying consolidated
financial statements. However, the liability under the underlying personal
liability action has been set by settlement at $5,125, subject to documentation
and court approval.
In January 1996, the Company was named as a defendant in an action brought
in the Circuit Court of Hinds County, Mississippi (Amos vs. Alpha Gulf Coast,
Inc.; Batiste vs. Alpha Gulf Coast, Inc.; Ducie vs. Alpha (Gulf Coast, lnc.;
Johnson vs. Alpha Gulf Coast, Inc.; Ramez vs. Alpha Gulf Coast, lnc.). Mr. Amos
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
alleges that on January 16, 1995 a vehicle operated by him collided with a
vehicle negligently operated by an individual that was served alcoholic
beverages by the Company. The defendant seeks compensating damages of $1,800 and
punitive damages of $7,500. The remaining defendants allege that they were
passengers in the vehicle operated by Mr. Amos and that they suffered personal
injuries. They seek compensating damages of $1,800 each and punitive damages of
$7,500 each. The ultimate outccme of this litigation cannot presently be
determined. Accordingly, no provision for liability of the Company that may
result upon adjudication has been made in the accompanying consolidated
financisl statements. The Company believes that the risk referred to in this
paragraph is adequately covered by insurance and, therefore, will not have a
material adverse effect on the Company's financial position and results of
operations.
The Company is obligated under a $20,000 non-revolving promissory note
($19,414 and $17,361 outstanding at March 31, 1996 and December 31, 1995,
respectively) with Bryanston. The note, which bears interest at prime rate
(8.5% at March 31, 1996) plus 2%, is payable at the lesser of the outstanding
principal amount or $2,000 per annum through December 31, 1999. Beginning 1996,
interest accrued monthly shall be due and payable by the following month. All
remaining principal and accrued interest(approximately $437 and $503 at March
31, 1996 and December 31, 1995, respectively) shall be due December 31, 2000.
Additionally, commencing May 1, 1996 and for each of the next succeeding three
years thereafter, the Company will be required to make additional principal
payments equal to "Available Cash Flow of Maker" as defined in the note.
The Company has adopted SFAS 121. The impact on the Company's financial
position and results of operations is not expected to be material.
At March 31, 1996, the Company was in default of (i) its mortgage notes
payable for non-payment, (ii) the Lakeshore equipment notes aggregating
approximately $3,433 for the breach of several loan covenants and certain loans
payable aggregating approximately $3,655 for non-payment. The Company received a
waiver of the defaults of the loan payable and mortgage note payable to
Bryanston. Accordingly, the Lakeshore mortgage note payable ($3,656), the
Lakeshore equipment notes payable ($3,433) and a certain loan payable ($1,181)
are reflected in current liabilities at March 31, 1996.
The Company continues to suffer significant losses from operations and has
a working capital deficit and accumulated deficit. In addition, the Company was
not in compliance with certain long-term debts (described above) which are
included in current liabilities. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management plans include
continuing to operate the Greenville Casino profitable (See Future Operations -
Alpha Gulf), sell certain assets located in Lakeshore, develop future casino
locations in Missouri and New York and continue to reduce and monitor operating
expenses.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on behalf by the undersigned, thereunto duly
authorized.
Dated: May 14, 1996
/s/ Stanley S. Tollman
----------------------------------
Stanley S. Tollman, President and
Chief Executive Officer
Dated: May 14, 1996
/s/ James A. Cutler
------------------------
James A. Cutler
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alpha Hospitality Corporation Form 10-Q for the Quarter ended March 31,1996
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2605
<SECURITIES> 0
<RECEIVABLES> 985
<ALLOWANCES> (354)
<INVENTORY> 492
<CURRENT-ASSETS> 5,856
<PP&E> 73,727
<DEPRECIATION> (15,188)
<TOTAL-ASSETS> 65,252
<CURRENT-LIABILITIES> 31,252
<BONDS> 32,821
0
0
<COMMON> 127
<OTHER-SE> 1,052
<TOTAL-LIABILITY-AND-EQUITY> 65,252
<SALES> 0
<TOTAL-REVENUES> 13,668
<CGS> 0
<TOTAL-COSTS> 13,398
<OTHER-EXPENSES> 1,726 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,372
<INCOME-PRETAX> (2,828)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,828)
<EPS-PRIMARY> (0.223)
<EPS-DILUTED> 0
<FN>
<F1> Footnote #1, Tag 30- Amount includes depreciation and amortization of
$1,803,000 development costs of $268,000 and capital lease restructuring of
($344,000)
</FN>
</TABLE>
