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 March 31, 1997
[ ] 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, 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 March 31, 1997
(Unaudited) and December 31, 1996 1
Consolidated Statements of Operations Three
Months Ended March 31, 1997 and 1996 (Unaudited) 2
Consolidated Statements of Cash Flows Three Months
Ended March 31, 1997 and 1996 (Unaudited) 3-4
Notes to Consolidated Financial Statements (Unaudited) 5-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
PART II OTHER INFORMATION
-------------------------------------------------
Item 1. Legal Proceedings 15
Item 3. Default upon Senior Securities 15
Signatures 16
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)
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of
$270 in 1996 $ 753 $ 1,350
Accounts receivable, less allowance for
doubtful accounts of $553 and $527 in
1997 and 1996, respectively 83 73
Inventories 274 297
Prepaid insurance 427 615
Other current assets 438 195
---------- -----------
Total current assets 1,975 2,530
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of $18,739 and
$17,475 in 1997 and 1996, respectively 38,435 39,660
OTHER ASSETS, deposits and other 1,926 1,764
---------- -----------
$ 42,336 $ 43,954
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 14,366 $ 14,528
Notes payable 2,394 2,400
Accounts payable and other accrued expenses 8,515 9,911
Accrued payroll and related liabilities 3,627 3,755
Due to affiliate, current maturity 2,495 1,746
---------- -----------
Total current liabilities 31,397 32,340
---------- -----------
LONG-TERM DEBT, less current maturities 7,519 7,866
---------- -----------
DUE TO AFFILIATE, less current maturity,
including accrued interest of $503 503 503
---------- -----------
AMOUNT DUE UNDER REDEMPTION AGREEMENT,
including accrued interest of $324 and
$285 in 1997 and 1996, respectively 1,062 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 58,511 56,778
Accumulated deficit (56,803) (55,414)
---------- -----------
Total stockholders' equity 1,855 1,506
---------- -----------
$ 42,336 $ 43,954
========== ===========
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
Three Months Ended
March 31,
1997 1996
--------- ----------
REVENUES:
Casino $ 8,063 $ 12,837
Food and beverage, retail and other 201 381
--------- ----------
Total revenues 8,264 13,218
--------- ----------
COSTS AND EXPENSES:
Casino 2,950 5,466
Food and beverage, retail and other 145 265
Selling, general and administrative 4,236 7,003
Interest 767 1,372
Depreciation and amortization 1,264 1,802
Development costs 291 268
--------- ----------
Total costs and expenses 9,653 16,176
--------- ----------
LOSS FROM CONTINUING OPERATIONS (1,389) (2,958)
DISCONTINUED OPERATIONS,
Income from operations of discontinued
hotel management segment - 130
--------- ----------
NET LOSS $ (1,389) $ (2,828)
========= ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 13,605 12,702
========= ==========
EARNINGS (LOSS) PER COMMON SHARE
From continuing operations. . . . . . . . $ (0.10) $ (0.23)
From discontinued operations. . . . . . . $ - $ .01
--------- ----------
NET LOSS $. (0.10) $ (0.22)
========= ==========
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: --------- ----------
Net Loss $ (1,389) $ (2,828)
Adjustments to reconcile net loss to -------- ---------
net cash used in operating activities:
Depreciation and amortization 1,264 1,802
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable (10) 72
Decrease in inventories 23 44
Decrease in prepaid insurance 188 717
(Increase) decrease in other current assets (243) 300
Decrease in accounts payable and other
accrued expenses (1,358) (1,052)
Increase (decrease) in accrued payroll and
related liabilities (128) 773
-------- ---------
Total adjustments (264) 2,656
-------- ---------
NET CASH USED IN OPERATING ACTIVITIES (1,653) (172)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (39) (1,086)
Payments for deposits and other assets (162) (39)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (201) (1,125)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate 749 2,053
Proceeds from stock sold pursuant to
escrow agreement 23 158
Proceeds from sale of common stock 1,000 -
Payments on notes payable (6) (135)
Payments on long-term debt (509) (490)
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,257 1,586
-------- ---------
NET INCREASE (DECREASE) IN CASH (597) 289
CASH, beginning of period 1,350 2,316
-------- ---------
CASH, end of period $ 753 $ 2,605
======== =========
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1997 1996
------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest during
the period $ 348 $ 1,064
======= =========
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase (decrease) in amount due under
redemption agreement, including accrued
interest of $324 and $112 in 1997 and
1996 respectively $ (677) $ 463
======= =========
Common stock issued for payment of long-
term debt $ - $ 2,454
======= =========
See accompanying notes to consolidated financial statements
<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
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 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 (686) being
held in escrow are included in this calculation.
Promotional Allowances - Revenues do not include the retail amount of food
and beverage of approximately $919 and $1,066 provided gratuitously to
customers, for the three months ended March 31, 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.
<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 March 31, 1997 and December 31, 1996 are
as follows:
1997 1996
----------- -----------
Land and building . . . . . . . . . . $ 214 $ 214
Boat, barge and improvements. . . . . 24,261 24,261
Leasehold and improvements. . . . . . 14,232 14,215
Gaming equipment. . . . . . . . . . . 10,242 10,221
Furniture, fixtures and equipment . . 7,415 7,414
Transportation equipment. . . . . . . 810 810
----------- -----------
57,174 57,135
Less accumulated depreciation
and amortization . . . . . . . . . . 18,739 17,475
----------- -----------
$ 38,435 $ 39,660
=========== ===========
Included in property and equipment at March 31, 1997 and December 31, 1996 is
approximately $1,225 related to assets recorded under capital leases.
Included in accumulated depreciation and amortization at March 31, 1997 and
December 31, 1996 was approximately $535 and $498, respectively, of
amortization related to assets recorded under capital leases.
NOTE 4 - NOTES PAYABLE
Notes payable at March 31, 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 line of credit of $500
with payments of principal and
interest due June 1997,
collateralized by cash advances . . . . 25% 500 497
Other . . . . . . . . . . . . . Various 18 18
------- -------
$ 2,394 $ 2,400
At March 31, 1997, the Company was in default of its notes payable to
affiliates. The Company received a waiver of the default through December
31, 1997, of the Bryanston notes aggregating $1,399.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 5 - LONG-TERM DEBT
Long-term debt at March 31, 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 asset 10% $ 7,800 $ 7,800
Mortgage note payable in monthly
installments of $70 plus interest at
30-day commercial paper rate (5.6% at
March 31, 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% 8,846 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% 353 386
Other 7-11% 30 68
--------- --------
21,885 22,394
Less current portion 14,366 14,528
--------- --------
$ 7,519 $ 7,866
========= ========
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 5 - LONG-TERM DEBT - (Continued)
Aggregate future required principal payments are approximately as follows:
Years ending March 31:
1998. . . . . . . . . . . . . . . . . . $ 14,366
1999. . . . . . . . . . . . . . . . . . 6,931
2000. . . . . . . . . . . . . . . . . . 493
2001. . . . . . . . . . . . . . . . . . 93
2002. . . . . . . . . . . . . . . . . . 1
Thereafter. . . . . . . . . . . . . . . 1
-------------
$ 21,885
=============
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 686 shares of the
Company's common stock held in escrow. To the extent that the net proceeds
exceeds $2,500 plus accrued interest ($324 at March 31, 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 March 31, 1997, the Company was in default of nonpayment for (I) the
mortgage notes aggregating $11,456, and (ii) the equipment notes aggregating
$8,846, 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 and on the $257 equipment note through March 31, 1998.
Accordingly, the mortgage note of $3,656 and the equipment notes aggregating
$8,589 are reflected in current liabilities at March 31, 1997.
NOTE 6 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES
Accounts payable and other accrued expenses are comprised of the following:
March 31 December 31
1997 1996
----------- -----------
Construction. . . . . . . . . . $ 957 $ 1,121
Insurance financing . . . . . . 19 585
Accrued professional fees . . . 746 983
Accrued property taxes. . . . . 321 708
Accrued interest. . . . . . . . 2,615 2,196
Other . . . . . . . . . . . . . 3,857 4,318
----------- -----------
$ 8,515 $ 9,911
=========== ===========
<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 (8.50% at March 31, 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 March 31, 1997 and December 31, 1996 is $2,495 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 subsequently 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 March 31, 1997, the Company has contributed
$734 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 had initial
terms of two years and would be subject to periodic renewal. In October
1995, the Company received renewals of their casino licenses through October
1997. In July 1996, the Company closed its Lakeshore casino and surrendered
its casino license for that location. Failure to retain the Greenville
license could have a material adverse effect on the Company's operations.
<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 operations of the Company.
NOTE 8 - AMOUNT DUE UNDER REDEMPTION AGREEMENT
The amounts due under the redemption agreement (see Note 5) are 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 March 31, 1997, and December 31, 1996, the amounts due under the
redemption agreement are $1,062 and $1,739, respectively, which includes
$324 and $285, respectively, of accrued interest, resulting from the decrease
in the fair market value of the 686 shares of the Company's common stock in
escrow at March 31, 1997, and the price at the date of the escrow agreement.
NOTE 9 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the three months ended March 31, 1997,
include the net loss of $1,389, 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 $23 and a decrease in the amount due under the
redemption agreement (see Note 8) of $715.
The Company's preferred stock 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 May 13, 1997, the dividend
has not been paid. Accordingly, the Company is obligated to declare a stock
dividend of approximately 630 shares.
<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 March 31, 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 (dollars in thousands):
March 31, December 31,
1997 1996
-------- --------
Pre-opening costs currently deducted
for financial reporting and amortized
over 5 years for tax purposes $ 835 $ 984
Net operating loss carry forward 14,639 14,153
Differences between financial and tax
depreciation methods (750) (805)
Differences between financial and tax
basis of assets and liabilities 900 990
Other 195 171
-------- --------
Deferred tax asset 15,819 15,493
Valuation allowance on deferred tax asset (15,819) (15,493)
-------- --------
$ - $ -
======== ========
The Company has available for federal income tax purposes, a net operating
loss carryover of approximately $41,827 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 three months ended March 31, 1996 are as
follows:
Net Sales . . . . . . . . . . . . . . . . . . . . $ 450
Cost of sales . . . . . . . . . . . . . . . . . . 320
--------
Income from operations of discontinued hotel
management segment, before intercompany charges . $ 130
========
<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 three months ended March 31, 1997 and 1996:
Three Months
Ended March 31,
1997 1996
-------- ----------
Revenues:
Casino . . . . . . . . . . . . . . $ 8,063 $ 9,562
Food, beverage and other. . . . . . 201 276
-------- ----------
Total revenues . . . . . . . . . 8,264 9,838
-------- ----------
Operating expenses:
Casino . . . . . . . . . . . . . . 2,950 3,532
Food, beverage and other. . . . . . 145 181
Selling, general and administrative 3,871 4,229
-------- ----------
Total operating expenses . . . . 6,966 7,942
-------- ----------
Income from operations. . . . . . . . 1,298 1,896
-------- ----------
Other expenses:
Interest . . . . . . . . . . . . .. 488 510
Depreciation and amortization . . . 1,264 1,229
-------- ----------
Total other expenses . . . . . . 1,752 1,739
-------- ----------
Income (loss) before intercompany
charges $ (454) $ 157
======== ==========
Three Months Ended March 31, 1997 and 1996:
Alpha Gulf generated revenues of $8,264 and $9,838 in 1997 and 1996,
respectively. Casino revenues were $8,063 and $9,562 in 1997 and 1996,
respectively. Food, beverage and other revenues were $201 and $276 in 1997
and 1996, respectively. This decrease in revenues was primarily due to the
high water experienced in March as a result of flooding on the Ohio River
earlier in the month. This high water severely reduced customer travel and
parking for all three Greenville casinos. As a result the Greenville gaming
revenues for the month of March were $474 less than March of 1996, and
accordingly Alpha Gulf experienced $208 less in gaming revenues. In
addition, the third gaming vessel, that opened in November 1996, has diluted
the existing gaming market without having any significant impact on expanding
the Greenville gaming market. The decrease in all other revenues is directly
related to the reduction in casino patron traffic.
Alpha Gulf's casino operating expenses were $2,950 and $3,532, (approximately
37% of casino revenues for each period ) in 1997 and 1996, respectively.
Food, beverage and other expenses were $145 and $181 (approximately 72% and
66% 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 $230 resulting from management's personnel efficiencies that were
implemented during the second quarter of 1996 and a reduction in expenses of
$352 due to the reduced gaming revenue.
Food and beverage revenues do not include the retail value of food and
beverage of approximately $920 and $1,066 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 $1,394 and $1,429, marketing and advertising of
approximately $1,447 and $1,590, occupancy costs of approximately $612 and
$608 and operating expenses of $418 and $602 in 1997 and 1996, respectively.
The reduced payroll and related costs of $35 and operating expenses
<PAGE>
of $184 was a direct result of management's cost-cutting measures completed
during the second quarter of 1996. The $143 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 increase of $4.
Interest expense was primarily related to the first mortgage on the gaming
vessel, equipment financing and various capitalized leases. The decrease of
$22 in 1997 when compared to 1996 is attributable to a reduction of the
principal outstanding on certain equipment notes payable.
Depreciation and amortization was $1,264 and $1,229 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. 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 operation in Greenville has
become a major factor in the Greenville market and has helped to expand that
market.
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. The total cost of this project is $3.2 million. The permanent
source of financing this project has not been identified 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 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 three month period ending March 31,
1997 were $251 for continuing administration and insurance, and $195 for
interest expense.
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. 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 1997, Alpha Monticello has incurred casino development costs of $83
which relates to a general corporate overhead allocation.
<PAGE>
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 $75 and $68 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.
Hotel Management - Alpha Hotel Management Company, Inc. ("Alpha Hotel")
On December 31, 1996, 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.
Liquidity and Capital Resources
For the three months ended March 31, 1997, the Company had net cash used in
operating activities of $1,653. During this period, the Company experienced
a net loss of $1,389. The negative aggregate net cash flow from operating
activities resulted from a non-cash item of $1,264 and a negative net change
in operating assets and liabilities of $1,528. The non-cash expense
consisted of depreciation and amortization. The change in operating assets
and liabilities primarily consisted of a decrease in prepaid insurance of
$188 and an increase in other current assets of $243, a decrease in accounts
payable and other accrued expenses of $1,358 and a decrease in accrued
payroll and related liabilities or $128.
Cash used in investing activities of $201 consisted of $39 in purchases of
property and equipment and $162 in payments for deposits and other assets.
Cash provided by financing activities of $1,257 was attributable primarily
to $749 in advances under the $20,000 non-revolving promissory note with
Bryanston, proceeds of $1,000 from the sale of common stock and the principal
reduction of notes payable and long term debt of approximately $515.
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 March 31, 1997, the Company was in default of nonpayment for (i) the
mortgage notes aggregating $11,456, and (ii) the equipment notes aggregating
$8,846, 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 and on the $257 equipment note through December 31, 1997.
Accordingly, the mortgage note of $3,656 and the equipment notes aggregating
$8,589 are reflected in current liabilities at March 31, 1997.
The Company continues to suffer losses from operations, a working capital
deficit and an accumulated deficit. In addition, 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 $251 in addition to its
continued interest expense of $195. Management is continuing to seek
resolution with the Jubilation Lakeshore creditors and continues to review
other venues to operate the Jubilation.
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, developing future casino locations in Missouri and 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.
<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 May 13, 1997, the Company was in default of its Lakeshore mortgage note
payable of $3,656,000 and equipment notes payable aggregating approximately
$8,589,000, for non-payment. The total arrearage of principal and interest
payments on the aforementioned debt is approximately $14,000,000.
<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 13, 1997
/s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: May 13, 1997 /s/ JAMES A. CUTLER
James A. Cutler
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 753
<SECURITIES> 0
<RECEIVABLES> 736
<ALLOWANCES> (653)
<INVENTORY> 274
<CURRENT-ASSETS> 1,975
<PP&E> 55,910
<DEPRECIATION> 17,475
<TOTAL-ASSETS> 42,336
<CURRENT-LIABILITIES> 31,397
<BONDS> 24,279
0
7
<COMMON> 140
<OTHER-SE> 1,708
<TOTAL-LIABILITY-AND-EQUITY> 42,336
<SALES> 0
<TOTAL-REVENUES> 8,264
<CGS> 0
<TOTAL-COSTS> 7,331
<OTHER-EXPENSES> 1,555<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 767
<INCOME-PRETAX> (1,389)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,389)
<EPS-PRIMARY> (0.102)
<EPS-DILUTED> 0
<FN>
<F1>Footnote#1, Tag#30 - Amount includes depreciation and amortization of
$1,264,000 and development costs of $291,000.
</FN>
</TABLE>
