U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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, 1997
[ ] Transition report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934
Commission file number 1-12522
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: August 13, 1997.
Class: Common Stock, $0.01 par value 14,049,325 shares
<PAGE>
ALPHA HOSPITALITY CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheets June 30, 1997
(Unaudited) and December 31, 1996.................... 1
Consolidated Statements of Operations Six
Months Ended June 30, 1997 and 1996 (Unaudited)..... 2
Consolidated Statements of Operation Three Months
Ended June 30, 1997 and 1996 (Unaudited)............ 3
Consolidated Statements of Cash Flows Six Months
Ended June 30, 1997 and 1996 (Unaudited)............ 4-5
Notes to Consolidated Financial Statements
(Unaudited)......................................... 6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 14-17
PART II OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings.................................... 18
Item 3. Default upon Senior Securities....................... 18
Signatures........................................... 19
All items which are not applicable or to which the answer is negative have
been omitted from this report.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash, including restricted cash
of $270 in 1996......................... $ 729 $ 1,350
Accounts receivable, less allowance
for doubtful accounts of $461 and
$527 in 1997 and 1996, respectively..... 80 73
Inventories................................ 292 297
Prepaid insurance.......................... 262 615
Other current assets....................... 347 195
--------- ---------
Total current assets.................... 1,710 2,530
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of $20,036 and
$17,475 in 1997 and 1996, respectively..... 37,213 39,660
OTHER ASSETS, deposits and other............... 2,079 1,764
--------- ---------
$ 41,002 $ 43,954
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt....... $ 14,209 $ 14,528
Notes payable.............................. 2,400 2,400
Accounts payable and other accrued expenses 8,291 9,911
Accrued payroll and related liabilities.... 3,704 3,755
Due to affiliate, current maturity......... 3,460 1,746
--------- ---------
Total current liabilities............... 32,064 32,340
--------- ---------
LONG-TERM DEBT, less current maturities........ 7,275 7,866
--------- ---------
DUE TO AFFILIATE, less current maturity,
including accrued interest of $503......... 503 503
AMOUNT DUE UNDER REDEMPTION AGREEMENT, --------- ---------
including accrued interest of $155 and
$285 in 1997 and 1996, respectively........ 155 1,739
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
authorized 1,000 shares, 738 issued...... 7 7
Common stock, $.01 par value, 25,000
shares authorized, 14,049 and 13,478
shares issued in 1997 and 1996,
respectively........................... 140 135
Capital in excess of par value............ 59,479 56,778
Accumulated deficit....................... (58,621) (55,414)
--------- ---------
Total stockholders' equity............. 1,005 1,506
--------- ---------
$ 41,002 $ 43,954
========= =========
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)
Six Months Ended
June 30,
------------------------
1997 1996
-------- ---------
REVENUES:
Casino .................................. $ 15,855 $ 25,321
Food and beverage, retail and other ..... 323 803
-------- ---------
Total revenues ....................... 16,178 26,124
-------- ---------
COSTS AND EXPENSES:
Casino .................................. 5,876 10,074
Food and beverage, retail and other ..... 280 1,109
Selling, general and administrative ..... 8,474 14,525
Interest ................................ 1,587 2,643
Depreciation and amortization ........... 2,561 3,445
Development costs ....................... 607 156
Debt conversion fee ..................... -- 1,019
Write-off of leasehold and improvements. -- 14,507
-------- ---------
Total costs and expenses.............. 19,385 47,478
-------- ---------
LOSS FROM CONTINUING OPERATIONS ............. (3,207) (21,354)
DISCONTINUED OPERATIONS,
Income from operations of discontinued
hotel management segment ............. -- 430
-------- ---------
NET LOSS .................................... $ (3,207) $ (20,924)
======== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ............................. 13,828 13,201
======== =========
EARNINGS (LOSS) PER COMMON SHARE
From continuing operations .............. $ (.23) $ (1.62)
From discontinued operations ............ $ -- $ .03
-------- ---------
NET LOSS .................................... $ (.23) $ (1.59)
======== =========
See accompanying notes to consolidated financial statements
2
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
Three Months Ended
June 30,
----------------------
1997 1996
-------- ---------
REVENUES:
Casino . . . . . . . . . . . . . . . . . $ 7,792 $ 12,484
Food and beverage, retail and other . . . 122 424
-------- ---------
Total revenues . . . . . . . . . . . . 7,914 12,908
-------- ---------
COSTS AND EXPENSES:
Casino . . . . . . . . . . . . . . . . . 2,926 4,949
Food and beverage, retail and other . . . 135 456
Selling, general and administrative . . . 4,238 7,401
Interest. . . . . . . . . . . . . . . . . 820 1,270
Depreciation and amortization . . . . . . 1,297 1,642
Development costs . . . . . . . . . . . . 316 61
Debt conversion fee . . . . . . . . . . . -- 1,019
Write-off of leasehold and improvements. -- 14,507
-------- ---------
Total costs and expenses . . . . . . . 9,732 31,305
-------- ---------
LOSS FROM CONTINUING OPERATIONS . . . . . . . (1,818) (18,397)
DISCONTINUED OPERATIONS,
Income from operations of discontinued
hotel management segment. . . . . . .. -- 301
-------- ---------
NET LOSS . . . . . . . . . . . . . . . . . $ (1,818) $ (18,096)
======== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING . . . . . . . . . . . . . . . 14,049 13,440
======== =========
EARNINGS (LOSS) PER COMMON SHARE
From continuing operations. . . . . . . . $ (.13) $ (1.37)
From discontinued operations. . . . . . . $ -- $ .02
-------- ---------
NET LOSS . . . . . . . . . . . . . . . . . $ (.13) $ (1.35)
======== =========
See accompanying notes to consolidated financial statements
3
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
-----------------------
1997 1996
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss .......................................... $ (3,207) $ (20,924)
Adjustments to reconcile net loss to -------- ---------
net cash provided by (used in)
operating activities:
Depreciation and amortization ................ 2,561 3,445
Debt conversion fee .......................... -- 1,019
Write-off of leasehold and improvements ...... -- 14,507
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable. (7) 171
Decrease in inventories ................... 5 103
Decrease in prepaid insurance ............. 353 1,134
(Increase) decrease in other current assets (152) 636
Decrease in accounts payable and other
accrued expenses ................... (1,498) (80)
Increase (decrease) in accrued payroll and
related liabilities ....................... (51) 831
-------- ---------
Total adjustments ............... 1,211 21,766
-------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,996) 842
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ......... (114) (1,358)
Payments for deposits and other assets. . (315) (707)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES . . . . (429) (2,065)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate . . . . . . . . . 1,714 2,736
Proceeds from sale of common stock. . . . 1,000 --
Payments on notes payable . . . . . . . . -- (1,193)
Payments on long-term debt. . . . . . . . (910) (1,010)
NET CASH PROVIDED BY FINANCING ACTIVITIES . . 1,804 533
-------- ---------
NET DECREASE IN CASH. . . . . . . . . . . . . (621) (690)
CASH, beginning of period . . . . . . . . . . 1,350 2,316
-------- ---------
CASH, end of period . . . . . . . . . . . . . $ 729 $ 1,626
======== =========
See accompanying notes to consolidated financial statements
4
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(in thousands)
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest during
the period. . . . . . . . . . . . . . . . $ 551 $ 1,222
========= =========
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase (decrease) in amount due under
redemption agreement, including accrued
interest of $155 and $174 in 1997 and
1996 respectively . . . . . . . . . . . $ (1,584) $ 174
======== =========
Capital lease restructuring, includes $74
of accrued interest . . . . . . . . . . $ -- $ 268
=========
Common stock issued for payment of long-
term debt . . . . . . . . . . . . . . . $ -- $ 2,454
=========
Preferred stock issued in settlement of
long-term debt, includes $41 of accrued
interest and $1,019 of debt
conversion fee. . . . . . . . . . . . . $ -- $ 21,407
=========
See accompanying notes to consolidated financial statements
5
<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 a dockside casino located in Greenville, Mississippi. The Company
is also pursuing casino development and management opportunities in Missouri
and New York.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation - 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 consolidated financial statements should
be read in conjunction with the audited consolidated financial statements as
of December 31, 1996, included in the Form 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 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. Certain shares (646) being
held in escrow are included in this calculation.
Promotional Allowances - Revenues do not include the retail amount of food
and beverage of approximately $1,895, $2,152, $976 and $1,086 provided
gratuitously to customers, for the six months and three months ended June 30,
1997 and 1996, respectively.
Impairment of Long-lived Assets- The Company periodically reviews the
carrying value of certain of its long-lived assets in relation to historical
results, as well as management's best estimate of future trends, events and
overall business climate. If such reviews indicate that the carrying value
of such assets may not be recoverable, the Company would then estimate the
future cash flows (undiscounted and without interest charges). If such
future cash flows are insufficient to recover the carrying amount of the
assets, then impairment is triggered and the carrying value of any impaired
assets would then be reduced to fair value.
Reclassifications - Certain amounts have been reclassified in 1996 to conform
to the 1997 presentation.
6
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 3 - PROPERTY AND EQUIPMENT
Details of property and equipment at June 30, 1997 and December 31, 1996
are as follows:
1997 1996
----------- -----------
Land and building . . . . . . . . . . $ 214 $ 214
Boat, barge and improvements. . . . . 24,280 24,261
Leasehold and improvements. . . . . . 14,246 14,215
Gaming equipment. . . . . . . . . . . 10,278 10,221
Furniture, fixtures and equipment . . 7,421 7,414
Transportation equipment. . . . . . . 810 810
----------- -----------
57,249 57,135
Less accumulated depreciation
and amortization . . . . . . . . . . 20,036 17,475
----------- -----------
$ 37,213 $ 39,660
=========== ===========
Included in property and equipment at June 30, 1997 and December 31, 1996 is
approximately $1,225 related to assets recorded under capital leases.
Included in accumulated depreciation and amortization at June 30, 1997 and
December 31, 1996 was approximately $572 and $498, respectively, of
amortization related to assets recorded under capital leases.
NOTE 4 - NOTES PAYABLE
Notes payable at June 30, 1997 and December 31, 1996 are comprised of the
following:
Interest
Rates 1997 1996
Notes payable to Bryanston and -------- ------- -------
former Cotton Club stockholders
of which $394 are non-interest
bearing. . . . . . . . . . . . 10% 1,876 1,885
Revolving bank line of credit of
$497 with payments of principal
and interest due September 1997,
collateralized by cash advances 25% 497 497
Other . . . . . . . . . . . . . Various 27 18
------- --------
$ 2,400 $ 2,400
======= ========
At June 30, 1997, the Company was in default of its notes payable to
Bryanston and former Cotton Club stockholders. The Company received a waiver
of the default through December 31, 1997, on the Bryanston notes aggregating
$1,399.
7
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 5 - LONG-TERM DEBT
Long-term debt at June 30, 1997 and December 31, 1996 is comprised
of the following:
Interest
Rates 1997 1996
-------- ------- -------
Mortgage note payable, Bryanston,
principal and interest due monthly
through November 1998, collateralized
by the barge and certain other assets 10% $ 7,800 $ 7,800
Mortgage note payable in monthly
installments of $70 plus interest at
30-day commercial paper rate (5.6% at
June 30, 1997) plus 3.5% adjusted
quarterly, collateralized by the boat
and improvements 9% 3,656 3,656
Equipment notes payable monthly through
November 1999 and collateralized by
certain assets 11-14% 8,490 9,284
Note payable quarterly through March
2000 and secured by assignment of
interest in the mortgage note
payable to Bryanston 10% 1,200 1,200
Capitalized lease obligations,
payable monthly, expiring in
various years through 2001 10-15% 325 386
Other 7-11% 13 68
------ ------
21,484 22,394
------ ------
Less current portion . . . . . . 14,209 14,528
-------- --------
$ 7,275 $ 7,866
======== ========
Aggregate future required principal payments are approximately as follows:
Years ending June 30:
1998. . . . . . . . . . . . . . . . . . $ 14,209
1999. . . . . . . . . . . . . . . . . . 6,706
2000. . . . . . . . . . . . . . . . . . 495
2001. . . . . . . . . . . . . . . . . . 72
2002. . . . . . . . . . . . . . . . . . 1
Thereafter. . . . . . . . . . . . . . . 1
---------
$ 21,484
=========
8
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 5 - LONG-TERM DEBT - (Continued)
In March 1997, the Company settled in an action brought against it for
alleged past due and future accelerated rentals in connection with its
Lakeshore, Mississippi, ground lease (see Note 7). In the settlement, the
Company paid $500 at closing and $1,200 in the form of a three year, 10% note
payable quarterly. The note will be secured by assignment of an interest
in the mortgage note payable to Bryanston. Additionally, the Company will
have the option to buy out the remaining obligations at reduced principal
amounts at accelerated dates, as specified in the settlement agreement.
In October 1995, the Company restructured certain equipment notes,
aggregating approximately $9,000, with unrelated parties, whereby, the
Company will pay approximately $6,500 in forty-eight monthly installments
of $166 (which includes interest of 10% per annum) commencing December 15,
1995. The balance of approximately $2,500 bears interest at 10% annum, is
due on November 15, 1999, and may either be partially or fully repaid,
pursuant to an escrow agreement from the net proceeds of the sale of 646
shares of the Company's common stock held in escrow. To the extent that the
net proceeds exceeds $2,500 plus accrued interest ($155 at June 30, 1997),
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 (see Note 8).
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 June 30, 1997, the Company was in default of nonpayment for (I) the
mortgage notes aggregating $11,456, and (ii) the equipment notes aggregating
$8,269, as well as the breach of several loan covenants. The Company
received a waiver of the defaults on the $7,800 mortgage note payable to
Bryanston through June 30, 1998. Accordingly, the mortgage note of $3,656
and the equipment notes aggregating $8,269 are reflected in current
liabilities at June 30, 1997.
NOTE 6 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES
Accounts payable and other accrued expenses at June 30, 1997 and December 31,
1996, are comprised of the following:
June 30 December 31
1997 1996
----------- ----------
Construction. . . . . . . . . . $ 1,018 $ 1,121
Insurance financing . . . . . . 354 585
Accrued professional fees . . . 665 983
Accrued property taxes. . . . . 408 708
Accrued interest. . . . . . . . 3,232 2,196
Other . . . . . . . . . . . . . 2,614 4,318
----------- ---------
$ 8,291 $ 9,911
=========== =========
9
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company is obligated under a $20,000 non-revolving promissory note with
Bryanston. The note, which bears interest at prime (8.5% at June 30, 1997)
plus 2%, is payable at the lesser of the outstanding principal amount or
$2,000 per annum through December 31, 1999. Beginning in 1996, interest is
due and payable monthly and the 1995 interest accrued on the note ($503) is
payable on the notes maturity date, December 2000. Additionally, commencing
May 1, 1996, and for each of the next succeeding three years thereafter, the
Company is required to make additional principal payments equal to "Available
Cash Flow of Maker" as defined in the note. The outstanding principal
balance at June 30, 1997 and December 31, 1996 is $3,460 and $1,746,
respectively.
The Company was obligated under an operating lease relative to real property
located in Lakeshore, Mississippi. In August 1996, the Company was named as
a defendant in an action brought in The United States District Court for The
Southern District of Mississippi (Joseph R. Cure, Jr., Cynthia Cure
Rutherford, Michael Cure and Susan Cure Gollot v. Alpha Gulf Coast, Inc.) For
alleged past due and future accelerated rentals and other costs under this
lease. In March 1997, the Company reached settlement terms with the
plaintiffs (see Note 5).
The Company was obligated under a tideland lease which provided for a mooring
site for the Company's Lakeshore, Mississippi vessel. In December 1996, the
State of Mississippi (State) terminated the lease for nonpayment of rent.
The State offered to abate past due rents if the vessel is removed and the
improvements to the leasehold are conveyed to the State. The State allowed
until March 31, 1997 for the removal of the vessel and has extended such
arrangement on a month to month basis.
The Company is obligated under other operating leases relative to real
property and equipment.
In January 1995, the Company, through its subsidiary, Alpha St. Regis,
entered into a memorandum of understanding with Catskill Development, L.L.C.
(Catskill) pursuant to which Alpha St. Regis is to participate in the
development of, and thereafter manage, a casino to be built adjacent to the
Monticello Raceway in Sullivan County, New York. Subsequently, Alpha St.
Regis assigned its interest with Catskill Development, L.L.C. to Alpha
Monticello, Inc. It is intended that the casino will be owned by the St.
Regis Mohawk Indian Tribe (Tribe) and will be located on land to be placed
in trust for the benefit of the Tribe. The casino project is subject to
approval by the U.S. Department of Interior, the National Indian Gaming
Commission and the State of New York, as well as the execution of definitive
agreements with the Tribe. As of June 30, 1997, the Company has contributed
$773 toward the design, architecture and other costs of development plans
for the casino. Under the memorandum of understanding, Catskill and Alpha
Monticello, Inc. committed to enter into a definitive agreement of the terms
established in the memorandum, but there can be no assurance that such an
agreement will ever be consummated. Bryanston is a 25% member of Catskill.
The Company is obligated under an employment contract with its chief
executive officer. Under this agreement, the Company will accrue deferred
compensation of $250 per year. The agreement is automatically renewable for
successive twelve month periods, unless either party shall advise the other
on ninety days written notice of his or its intention not to extend the term
of the employment. In the event of termination of employment, the terminated
officer will be retained to provide consulting services for two years at
$175 per annum.
In accordance with Mississippi law, the Company's casino licenses has an
initial term of two years and is subject to periodic renewal. In October
1995, the Company received renewals of their casino licenses through October
1997. Failure to retain the Greenville license could have a material adverse
effect on the Company's operations.
10
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS - (Continued)
In January 1996, Alpha Gulf was named as a defendant in an action brought in
the Circuit Court of Hinds County, Mississippi (Amos v. Alpha Gulf Coast,
Inc.; Batiste v. Alpha Gulf Coast, Inc.; Ducre V. Alpha Gulf Coast, Inc.;
Johnston v. Alpha Gulf Coast, Inc.; Rainey v. Alpha Gulf Coast, Inc.).
Based on the theory of "liquor liability" for the service of alcohol to a
customer, Plaintiffs alleged that on January 16, 1995, a vehicle operated by
Mr. Amos collided with a vehicle negligently operated by Mr. Rainey, an
individual that was allegedly served alcoholic beverages by Alpha Gulf.
Plaintiffs alleged that they suffered personal injuries and seek compensatory
damages aggregating $17,100 and punitive damages aggregating $37,500. The
ultimate outcome of this litigation cannot presently be determined, as this
case is presently in the early phases of discovery. Accordingly, no
provision for liability to 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.
In December 1996, Alpha Gulf and the Company were named as defendants in an
action brought in the United States District Court for the Southern District
of New York (Bally Gaming, Inc. v. Alpha Hospitality Corp. and Alpha Gulf
Coast, Inc.) for allegedly engaging in conduct which would impair the
collateral held as security for certain financial obligations. Such conduct
includes the failure to pay certain monetary obligations unrelated to the
obligations secured by the collateral. Plaintiffs seek specific performance
of particular actions that Plaintiffs believe are necessary to protect the
collateral that secures the financial obligations, plus unspecified damages
and attorney's's fees, among other things. The ultimate outcome of this
case cannot presently be determined, as it is in its preliminary stages.
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 and results of operation of the Company .
NOTE 8 - AMOUNT DUE UNDER REDEMPTION AGREEMENT
The amount due under the redemption agreement (see Note 5) is adjusted for
changes in the market value of the Company's underlying common stock, not to
exceed the original debt incurred, until the common stock is sold by the
unrelated party.
At June 30, 1997, and December 31, 1996, the amount due under the redemption
agreement is $155 and $1,739, respectively, which includes $155 and $285,
respectively, of accrued interest, resulting from the decrease in the fair
market value of the 646 shares of the Company's common stock in escrow at
June 30, 1997, and the price at the date of the escrow agreement.
NOTE 9 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the six months ended June 30, 1997,
include the net loss of $3,207, a sale on March 12, 1997 of 571 shares of
the Company's $.01 par value common stock for $1,000, common stock sold under
the redemption agreement for $122 and a decrease in the amount due under the
redemption agreement (see Note 8) of $1,584.
The Company's preferred stock has voting rights, is convertible to eight
shares of common stock for each share of preferred stock and carries a
dividend of $2.90 per share, payable quarterly, which increases to $3.77 per
share if the cash dividend is not paid within 30 days of the end of each
fiscal year. In such event, the dividend will be payable in common stock.
As of August 13, 1997, the dividend has not been paid. Accordingly, the
Company is obligated to declare a stock dividend of approximately 850 shares.
11
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 10 - 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 June 30, 1997 and December 31, 1996, 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:
June 30, December 31,
1997 1996
-------- --------
Pre-opening costs currently deducted
for financial reporting and
amortized over 5 years for tax
purposes . . . . . . . . . . . . . . . . $ 790 $ 984
Net operating loss carryforward. . . . . . . 15,452 14,153
Differences between financial and
tax depreciation methods. . . . . . . . . (725) (805)
Differences between financial
and tax basis of assets and
liabilities . . . . . . . . . . . . . . . 850 990
Other. . . . . . . . . . . . . . . . . . . . 200 171
-------- --------
Deferred tax asset . . . . . . . . . . . . . 16,567 15,493
Valuation allowance on deferred tax asset . (16,567) (15,493)
-------- --------
$ -- $ --
======== ========
The Company has available for federal income tax purposes, a net operating
loss carryover of approximately $44,148 expiring in the years 2008 through
2012.
NOTE 11 - DISCONTINUED OPERATIONS
On December 31, 1996, the Company sold its hotel management subsidiary,
Alpha Hotel Management Company, Inc., to Bryanston. Summary operating
results of discontinued operations for the six and three months ended June
30, 1996 are as follows:
Six Months Three Months
---------- ------------
Revenues. . . . . . . . . . . . . . . . $ 1,049 $ 599
Cost of revenues. . . . . . . . . . . . 619 298
-------- --------
Income from operations of discontinued hotel
management segment, before intercompany charges $ 430 $ 301
======== ========
12
<PAGE>
NOTE 12 - CONTINUING OPERATIONS
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered
significant losses from operations and has a working capital deficit of
$30,857 and an accumulated deficit of $59,124 at June 30, 1997. In addition,
the Company was not in compliance with certain long-term debt convenants,
therefore requiring the obligations to be classified as current liabilities.
Management recognizes that these concerns raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans to
correct these current conditions includes continuing to operate the
Greenville casino generating positive cash flow, developing its Greenville
hotel and refinance all or part of its debt, and management of an Indian
caino in New York and selling or relocating the Jubilation Casino.
Accordingly, the Company's ability to continue as a going concern is
dependent upon its ability to develop working capital, attain future
profitable operations, and meet its creditors demands. The consolidated
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(in thousands)
Results of Operations - Casinos
Results of Operations - Alpha Gulf
The following table sets forth the statements of operations before
intercompany charges for Alpha Gulf's casino operations, located in
Greenville, Mississippi, for the six months and three months ended
June, 1997 and 1996:
Six Months Three Months
Ended June 30 Ended June 30
------------------- -------------------
1997 1996 1997 1996
Revenues: -------- -------- -------- --------
Casino . . . . . . . . . . . $ 15,855 $ 18,921 $ 7,792 $ 9,360
Food, beverage and other. . . 319 569 118 293
-------- -------- -------- --------
Total revenues . . . . . . 16,174 19,490 7,910 9,653
-------- -------- -------- --------
Operating expenses:
Casino . . . . . . . . . . . 5,876 6,596 2,926 3,346
Food, beverage and other. . . 280 763 135 305
Selling, general and administrative 8,047 8,763 4,176 4,529
-------- -------- -------- --------
Total operating expenses. . 14,203 16,122 7,237 8,180
-------- -------- -------- --------
Income from operations. . . . . 1,971 3,368 673 1,473
-------- -------- -------- --------
Other expenses:
Interest. . . . . . . . . . . 1,010 1,035 522 525
Depreciation and amortization 2,552 2,384 1,288 1,156
-------- -------- -------- --------
Total other expenses. . . . 3,562 3,419 1,810 1,681
-------- -------- -------- --------
Income (loss) before intercompany
charges $ (1,591) $ (51) $ (1,137) $ (208)
======== ======== ======== =======
Six Months Ended June 30, 1997 and 1996:
Alpha Gulf generated revenues of $16,174 and $19,490 in 1997 and 1996,
respectively. Casino revenues were $15,855 and $18,921 in 1997 and 1996,
respectively. Food, beverage and other revenues were $319 and $569 in 1997
and 1996, respectively. The decrease in casino revenues was primarily the
result of the entry of the third casino vessel to the Greenville market in
November 1996 and high water in the month of April. The entry of the third
casino vessel in the Greenville market to date has not increased the market
volume to absorb the additional player positions. The market growth during
this period was only 2.61% over last year during the first six months of 1997.
Alpha Gulf continues to achieve superior market share over its competition
at 41.0%, with 39.0% of the available player positions in the Greenville
market. The high water experienced in April had a significant impact on
accessibility to the casinos by their patrons. The food and beverage
revenues are reflective of Alpha Gulf's player development program focusing
on player parties, which showcase the food and entertainment facilities of
the Jubilee Casino. The player parties are by invitation only and are
complimentary to the casino's guests.
Alpha Gulf's casino operating expenses were $5,876 and $6,596,
(approximately 37% and 35% of casino revenues for each period) in 1997 and
1996, respectively. Food, beverage and other expenses were $280 and $763
(approximately 88% and 134% of food, beverage and other revenues) in 1997
and 1996, respectively. The decrease in casino expenses was due to reduced
payroll and related expenses of $380 resulting from management's personnel
efficiencies that were implemented during the second quarter of 1996 and a
reduction in expenses of $340 due to the reduced gaming revenues.
Food and beverage revenues do not include the retail value of food and
beverage of approximately $1,895 and $1,492 provided gratuitously to
customers in 1997 and 1996, respectively. This increase is due to the
player development program discussed above. The operating costs associated
with these services are allocated to the casino costs which in turn reduced
the food and beverage costs.
Selling, general and administrative expenses consists of payroll and related
benefits of approximately $2,747 and $2,827, marketing and advertising of
approximately $3,244 and $3,503, occupancy costs of approximately $1,220 and
$1,235 and
14
<PAGE>
operating expenses of $836 and $1,198 in 1997 and 1996,
respectively. The reduced payroll and related costs of $80 and operating
expenses of $362 was a direct result of management's cost-cutting measures
completed during the second quarter of 1996. The $259 decrease in
marketing and advertising was the result of management's target marketing
towards specific casino customer groups.
Occupancy costs were consistent from 1996 to 1997 with an decrease of $15.
Interest expense was primarily related to the first mortgage on the gaming
vessel, equipment financing and various capitalized leases. The decrease of
$25 in 1997 when compared to 1996 is attributable to a reduction of the
principal outstanding on certain equipment notes payable.
Depreciation and amortization was $2,552 and $2,384 in 1997 and 1996,
respectively. The increase was a direct result of an increase in capital
expenditures related to the relocation of the gaming vessel to Greenville,
Mississippi and the purchase of equipment and fixtures.
Three Months Ended June 30, 1997 and 1996:
Alpha Gulf generated revenues of $7,910 and $9,653 in 1997 and 1996,
respectively. Casino revenues were $7,792 and $9,360 in 1997 and 1996,
respectively. Food, beverage and other revenues were $118 and $293 in 1997
and 1996, respectively. This decrease in casino revenues was primarily the
result of the entry of the third casino vessel to the Greenville market in
November 1996 and high water in the month of April. the entry of the third
casino vessel in the Greenville market to date has not increased the market
volume to absorb the addition player positions. The market growth during
this period was only 3.9% over last year during the same period. Alpha Gulf
continues to achieve superior market share over its competition at 41.5%
with 39.0% of the available player positions in the Greenville market. The
high water experienced in April had a significant impact on the accessibility
to the casinos by their patrons. The food and beverage revenues are
reflective of Alpha Gulf's player development program which focuses on player
parties showcasing the food and entertainment facilities of the Jubilee
Casino. The player parties are by invitation only and are complimentary to
the casino's guests.
Alpha Gulf's casino operating expenses were $2,926 and $3,346, (approximately
38% and 36% of casino revenues for each period ) in 1997 and 1996,
respectively. Food, beverage and other expenses were $135 and $305
(approximately 114% and 104% of food, beverage and other revenues) in 1997
and 1996, respectively. The decrease in casino expenses was due to reduced
payroll and related expenses of $150 resulting from management's personnel
efficiencies that were implemented during the second quarter of 1996 and a
reduction in expenses of $270 due to the reduced gaming revenue.
Food and beverage revenues do not include the retail value of food and
beverage of approximately $975 and $748 provided gratuitously to customers
in 1997 and 1996, respectively.
The reduction of food, beverage and other costs are primarily attributable
to the reduced volume of food, beverage and other revenues.
Selling, general and administrative expenses consists of payroll and related
benefits of approximately $1,353 and $1,398, marketing and advertising of
approximately $1,797 and $1,913, occupancy costs of approximately $608 and
$622 and operating expenses of $418 and $596 in 1997 and 1996, respectively.
The reduced payroll and related costs of $45 and operating expenses of $178
was a direct result of management's cost-cutting measures completed during
the second quarter of 1996. The $116 decrease in marketing and advertising
was the result of management's target marketing towards specific casino
customer groups. Occupancy costs were consistent from 1996 to 1997 with an
decrease of $14.
Interest expense was primarily related to the first mortgage on the gaming
vessel, equipment financing and various capitalized leases. The decrease of
$3 in 1997 when compared to 1996 is attributable to a reduction of the
principal outstanding on certain equipment notes payable.
Depreciation and amortization was $1,280 and $1,156 in 1997 and 1996,
respectively. The increase was a direct result of an increase in capital
expenditures related to the relocation of the gaming vessel to Greenville,
Mississippi and the purchase of equipment and fixtures.
Future Operations - Alpha Gulf
Alpha Gulf's Bayou Caddy's Jubilee Casino operating results have improved
since its relocation to Greenville. Although the Greenville gaming market
has experienced dilution due to the entry of the third casino vessel in
November 1996, Alpha
15
<PAGE>
Gulf's Jubilee Casino currently has the casino capacity, food and beverage
and entertainment facilities that are unique to the Greenville area.
In April 1997, Alpha Gulf received approval from the Mississippi Gaming
Commission for its infrastructure investment requirement to build and
operate a hotel on property adjacent to its Greenville casino location.
Alpha Greenville Hotel, Inc., a newly formed, wholly owned subsidiary of
Alpha Hospitality Corporation, entered into a long term lease with the Board
of Mississippi Levee Commissioners to lease property including historical
landmark buildings for the development of a forty-one key single room and
suite hotel. This hotel will add a new dimension to our casino patron
experience and will be an added amenity to our player development program.
The total cost of this project is $3.2 million. Although the permanent
source of financing this project has not been identified at this time,
Alpha Greenville Hotel has received interim financing from Bryanston Group,
Inc. to begin construction.
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
were terminated on October 30, 1995. After its relocation to Lakeshore,
Mississippi the Jubilation reopened for business December 21, 1995. As a
result of losses from operations and declining revenues, which would only
improve with a substantial investment of funds for the construction of
additional amenities, the Jubilation casino was closed in July 1996.
The continuing costs incurred during the six months and three month periods
ending June 30, 1997 for continuing administration and insurance were $385
and $251, respectively. Interest expense amounted to $420 and $195,
respectively, for the six month and three month periods ending June 30, 1997.
Casino Development
New York - Alpha Monticello
On January 19, 1996, the Company, through its subsidiaries, entered into a
memorandum of understanding with Catskill Development, L.L.C. ("Catskill")
regarding the development and management of a casino to be built adjacent to
the Monticello Raceway in Sullivan County, New York, which is owned and
operated by Catskill. The development and management of this casino will be
undertaken by Mohawk Management L.L.C., of which the Company's wholly-owned
subsidiary, Alpha Monticello, owns 50%. Alpha Monticello will be responsible
for the day-to-day operation of the planned casino. It is intended that the
casino will be owned by the St. Regis Mohawk Tribe and will be located on
land to be placed in trust for the benefit of the Tribe.
On August 2, 1996, Mohawk Management L.L.C. executed an agreement with the
St. Regis Mohawk Tribe for the management of the proposed casino referred to
above for a period of seven years. The Tribe has submitted this agreement
to the National Indian Gaming Commission for its approval.
During the six month and three month periods ending June 30, 1997, Alpha
Monticello has incurred casino development costs of $181 and 98,
respectively, which relates to a general corporate overhead allocation.
Missouri - Alpha Missouri
Alpha Missouri has not commenced operations. Alpha Missouri has
applications pending for site approval and a gaming license with respect to
the development of a riverboat gaming facility in Louisiana, Missouri. It
has incurred development costs of approximately $200 and $87 in 1997 and
1996, respectively, related to its proposed development of a riverboat
casino in Louisiana, Missouri. These costs are substantially comprised of a
general corporate overhead allocation. Although existing law in Missouri
does not restrict the number of licenses the Missouri Gaming Commission may
issue, the Commission has effectively placed a moratorium on any new licenses
in the Louisiana market area. The Company believes such a restriction will
remain in place until a market assessment of the existing approved license
can be made.
Hotel Management - Alpha Hotel Management Company, Inc. ("Alpha Hotel")
On December 31, 1996, to reduce the Company's debts to Bryanston, the
Company sold Alpha Hotel Management Company, Inc. to Bryanston for $3,000
and realized a $2,849 gain after tax. The sale price was based upon an
independent valuation of Alpha Hotel.
16
<PAGE>
Liquidity and Capital Resources
For the six months ended June 30, 1997, the Company had net cash used in
operating activities of $1,996. These uses were the result of the net loss
of $3,207 less non-cash expenses of $2,561 (depreciation and amortization)
and a net increase in working capital or $1,350. The increase in working
capital consisted primarily of a decrease in prepaid expenses of $201, a
decrease in accounts payable and other accrued liabilities of $1,498 and a
decrease in payroll and related liabilities of $53.
Cash used in investing activities of $429 consisted of $114 in purchases of
property and equipment$170 associated with the development of the Greenville
Hotel and $145 in other development costs.
Cash provided by financing activities of $1,804 was attributable primarily
to $1,714 in advances under the $20,000 non-revolving promissory note with
Bryanston, proceeds of $1,000 from the sale of common stock and the $910
principal reduction of long term debt. $500 of the $1,000 proceeds from the
sale of common stock was used in connection with the March 1997 settlement of
an operating lease relative to the real property located in Lakeshore (Joseph
R. Cure, Jr., Cynthia Cure Rutherford, Michael Cure and Susan Cure Gollot
v. Alpha Gulf Coast, Inc.). The remaining $500 was used for working capital
requirements for development.
Although the Company is subject to continuing litigation from which the
ultimate outcome cannot presently be determined at this time, Management
believes any additional liabilities that may result from these cases will
not be in an amount that will materially increase the liabilities of the
Company as presented in the attached financial statements.
At June 30, 1997, the Company was in default of it notes payable to
Bryanston and former Cotton Club stockholders. The Company received a
waiver of default through December 31, 1997 on the Bryanston notes
aggregating $1,399.
At June 30, 1997, the Company was in default for nonpayment on (i) the
mortgage notes aggregating $11,456, and (ii) the equipment notes aggregating
$3,433. In addition, the Company was in default of certain loan covenants
not relating to payments which pertained to equipment notes amounting to
$4,836. The Company received a waiver of the defaults on the $7,800
mortgage note payable to Bryanston through December 31, 1997. Accordingly,
the mortgage note of $3,656 and the equipment notes aggregating $8,269 are
reflected in current liabilities at June 30, 1997.
Continuing Operations
The Company continues to suffer net losses from its operating and
development activities and has a working capital deficit of $30,354 and an
accumulated deficit of $58,621 at June 30, 1997. The Company was not in
compliance with certain long term debts which are included in current
liabilities. The Company's Greenville, Mississippi casino operation
continues to achieve positive cash flow from operations despite the entry of
a third gaming vessel into the Greenville, Mississippi gaming market. The
Jubilation Lakeshore incurred continuing expenses of $458 in addition to its
continued interest expense of $420. Management is continuing to seek
resolution with the Jubilation Lakeshore creditors and continues to review
other venues to operate the Jubilation and has further reduced its continuing
costs of maintaining the Jubilation. The Company does not anticipate any
material costs to be incurred in its development activities in Missouri or
New York until the projects recieve the necessary regulatory approvals to
proceed.
Management recognizes that these concerns raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans to
correct these current conditions includes continuing to operate the
Greenville casino generating positive cash flow, developing its Greenville
hotel, selling or relocating the Jubilation Casino and continuing to explore
opportunities in attaining more favorable financing or the sale of equity to
meet its working capital requirements. Accordingly, the Company's ability to
continue as a going concern is dependent upon its ability to develop working
capital, maintain future profitable operations, and meet its creditors
demands. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 on file with the Securities and Exchange Commission.
There have been no other material developments during such period to any
existing legal proceeding.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of August 13, 1997, the Company was in default of its Lakeshore mortgage
note payable of $3,656,000 and equipment notes payable aggregating
approximately $8,269,000, for non-payment. The total arrearage of principal
and interest payments on the aforementioned debt is approximately
$14,300,000.
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: August 13, 1997
/s/ STANLEY S. TOLLMAN
-----------------------
Stanley S. Tollman
Chairman and CEO
Dated: August 13, 1997 /s/ JAMES A. CUTLER
-----------------------
James A. Cutler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alpha Hospitality Corporation Form 10-Q for the Quarter Ended June 30, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 729
<SECURITIES> 0
<RECEIVABLES> 541
<ALLOWANCES> 461
<INVENTORY> 292
<CURRENT-ASSETS> 347
<PP&E> 57,249
<DEPRECIATION> 20,036
<TOTAL-ASSETS> 41,002
<CURRENT-LIABILITIES> 32,064
<BONDS> 0
0
7
<COMMON> 140
<OTHER-SE> 858
<TOTAL-LIABILITY-AND-EQUITY> 41,002
<SALES> 0
<TOTAL-REVENUES> 16,178
<CGS> 0
<TOTAL-COSTS> 14,630
<OTHER-EXPENSES> 3,168<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,587
<INCOME-PRETAX> (3,207)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,207)
<EPS-PRIMARY> (0.232)
<EPS-DILUTED> 0
<FN>
<F1>Footnote #1, Tag #30:
Amount includes depreciation and amortization of $2,561,000 and development
costs of $607,000.
</FN>
</TABLE>
