- -------------------------------------------------------------------------------
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X
Quarterly report pursuant to section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1997
[GRAPHIC OMITTED]
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: November 7, 1997.
Class
Common Stock, $0.01 par value 14,406,204 shares
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<PAGE>
ALPHA HOSPITALITY CORPORATION
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) September 30, 1997 and
December 31, 1996................................................... 1
Consolidated Statements of Operations (Unaudited) Nine Months Ended
September 30, 1997 and 1996......................................... 2
Consolidated Statements of Operation (Unaudited) Three Months Ended
September 30, 1997 and 1996......................................... 3
Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended
September 30, 1997 and 1996......................................... 4-5
Notes to Consolidated Financial Statements (Unaudited).................. 6-12
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 13-16
PART II OTHER INFORMATION
Item 1.
Legal Proceedings...................................................... 17
Item 3.
Default upon Senior Securities........................................ 17
Signatures............................................................. 18
All items which are not applicable or to which the answer is negative have been
omitted from this report.
<PAGE>
<TABLE>
<CAPTION>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<S> <C> <C>
September 30, December 31,
1997 1996
----------------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of $270 in 1996................$ 288 $ 1,350
Accounts receivable, less allowance for doubtful accounts
of $474 and $527 in 1997 and 1996, respectively............ 102 73
Inventories .................................................. 301 297
Prepaid insurance.............................................. 76 615
Other current assets........................................... 206 195
------ -------
Total current assets....................................... 973 2,530
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of $21,300 and
$17,475 in 1997 and 1996, respectively......................... 36,812 39,660
OTHER ASSETS, deposits and other.................................... 2,087 1,764
------- -------
$ 39,872 $ 43,954
====== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt...................$ 20,293 $ 14,528
Notes payable.......................................... 1,789 2,400
Accounts payable and other accrued expenses............ 8,920 9,911
Accrued payroll and related liabilities................ 2,483 3,755
Due to affiliate, current maturity..................... 2,000 1,746
------- -------
Total current liabilities.......................... 35,485 32,340
------ ------
LONG-TERM DEBT, less current maturities..................... 961 7,866
-------- -------
DUE TO AFFILIATE, less current maturity, including
accrued interest of $503............................... 1,439 503
-------- --------
AMOUNT DUE UNDER REDEMPTION AGREEMENT,
including accrued interest of $237 and $286 in 1997
and 1996, respectively................................ 842 1,739
---------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, authorized
1,000 shares, 821 and 738 shares issued
in 1997 and 1996, respectively..................... 8 7
Common stock, $.01 par value, 25,000 shares
authorized, 14,406 and 13,478 shares issued in
1997 and 1996, respectively............................ 144 135
Capital in excess of par value......................... 61,863 56,778
Accumulated deficit.................................... (60,870) (55,414)
------ ------
Total stockholders' equity......................... 1,145 1,506
---------- --------
$ 39,872 $ 43,954
======== =======
See accompanying notes to consolidated financial statements
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
<S> <C> <C> <C>
Nine Months Ended
September 30,
1997 1996
---- ----
REVENUES:
Casino ...........................................................$ 23,868 $ 34,814
Food and beverage, retail and other..................................... 469 1,097
--------- -----------
Total revenues...................................................... 24,337 35,911
------- --------
COSTS AND EXPENSES:
Casino ........................................................... 9,004 13,329
Food and beverage, retail and other..................................... 434 1,434
Selling, general and administrative..................................... 13,003 20,324
Interest ........................................................... 2,469 3,529
Depreciation and amortization........................................... 3,854 4,788
Development costs....................................................... 1,029 217
Debt conversion fee..................................................... -- 1,019
Write-off of leasehold and improvements................................ -- 14,507
----------- -------
Total costs and expenses............................................ 29,793 59,147
------- ------
LOSS FROM CONTINUING OPERATIONS.............................................. (5,456) (23,236)
DISCONTINUED OPERATIONS,
Income from operations of discontinued hotel management
segment............................................................. -- 555
-------- ---------
NET LOSS ...........................................................$ (5,456) $ (22,681)
======= ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................................................. 14,029 13,292
======= =======
EARNINGS (LOSS) PER COMMON SHARE
From continuing operations..............................................$ (.39) $ (1.75)
From discontinued operations............................................$ -- $ .04
----------- ----------
NET LOSS ...........................................................$ (.39) $ (1.71)
========== ========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
<TABLE>
<CAPTION>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
Three Months Ended
September 30,
<S> <C> <C>
1997 1996
---- ----
REVENUES:
Casino ...........................................................$ 8,013 $ 9,493
Food and beverage, retail and other..................................... 146 292
--------- ---------
Total revenues...................................................... 8,159 9,785
-------- -------
COSTS AND EXPENSES:
Casino ........................................................... 3,128 3,255
Food and beverage, retail and other..................................... 154 325
Selling, general and administrative..................................... 4,529 5,797
Interest ........................................................... 882 886
Depreciation and amortization........................................... 1,293 1,344
Development costs....................................................... 422 60
---------- ---------
Total costs and expenses............................................ 10,408 11,667
-------- ------
LOSS FROM CONTINUING OPERATIONS.............................................. (2,249) (1,882)
DISCONTINUED OPERATIONS,
Income from operations of discontinued hotel management
segment............................................................. -- 125
----------- ---------
NET LOSS ...........................................................$ (2,249) $ (1,757)
======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................................................. 14,294 13,478
====== ======
EARNINGS (LOSS) PER COMMON SHARE
From continuing operations..............................................$ (.16) $ (.14)
From discontinued operations............................................$ -- $ .01
---------- ---------
NET LOSS ...........................................................$ (.16) $ (.13)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<S> <C> <C> <C>
(in thousands)
Nine Months Ended
September 30
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ...........................................................$ (5,456) $ (22,681)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................. 3,854 4,788
Debt conversion fee............................................ -- 1,019
Write-off of leasehold and improvements....................... -- 14,507
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable................. (29) 370
(Increase) decrease in inventories......................... (4) 216
Decrease in prepaid insurance.............................. 539 1,670
(Increase) decrease in other current assets................ (11) 901
Decrease in accounts payable and other
accrued expenses.................................... (268) (1,068)
Increase (decrease) in accrued payroll and
related liabilities........................................ (1,272) 1,137
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.......................... (2,647) 859
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................................... (1,006) (1,421)
Payments for deposits and other assets.................................. (323) (869)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES........................................ (1,329) (2,290)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate................................................. 3,190 3,220
Proceeds from sale of common stock...................................... 1,000 --
Payments on notes payable............................................... (136) (1,250)
Payments on long-term debt.............................................. (1,140) (1,494)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................... 2,914 476
---------- ----------
NET DECREASE IN CASH......................................................... (1,062) (955)
CASH, beginning of period.................................................... 1,350 2,316
-------- -------
CASH, end of period..........................................................$ 288 $ 1,361
========== =========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
<S> <C> <C> <C>
(in thousands)
Nine Months Ended
September 30,
1997 1996
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest during
the period ...........................................................$ 707 $ 2,187
====== ======
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase (decrease) in amount due under redemption agreement, including
accrued interest of $237 and $235 in 1997 and 1996
respectively........................................................$ (897) $ 1,024
====== =======
Preferred stock issued on September 30, 1997 in settlement of an
affiliated loan ....................................................$ 2,000 $ --
====== ==========
Common stock issued for payment of notes payable........................$ 475 $ --
====== ==========
Commons stock issued for settlement of certain accounts payable and
accrued expenses....................................................$ 536 $ --
====== ==========
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
======
</TABLE>
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, through its subsidiaries is engaged in (i) the ownership and
operation of a gaming vessel located in Greenville, Mississippi, and (ii) the
pursuit of 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,
warrants and convertible preferred stock are excluded in the computation since
they would have an antidilutive effect on loss per common share. Certain shares
(616) being held in escrow are included in this calculation.
Promotional Allowances - Revenues do not include the retail amount of food
and beverage of approximately $2,740, $2,942, $845 and $790 provided
gratuitously to customers, for the nine months and three months ended September
30, 1997 and 1996, respectively.
Use of Estimates - The preparation of financial statement in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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 September 30, 1997 and December 31,
1996 are as follows:
1997 1996
--------- -------
Land and building.................. $ 214 $ 214
Boat, barge and improvements....... 24,341 24,261
Leasehold and improvements......... 14,241 14,215
Gaming equipment................... 10,302 10,221
Furniture, fixtures and equipment.. 7,430 7,414
Transportation equipment........... 779 810
Construction in progress........... 805 --
-------- -----------
58,112 57,135
Less accumulated depreciation
and amortization.............. 21,300 17,475
------ ------
$ 36,812 $ 39,660
====== ======
Included in property and equipment at September 30, 1997 and December 31,
1996 is approximately $1,225 related to assets recorded under capital leases.
Included in accumulated depreciation and amortization at September 30, 1997 and
December 31, 1996 was approximately $609 and $498, respectively, of amortization
related to assets recorded under capital leases.
<TABLE>
<CAPTION>
NOTE 4 - NOTES PAYABLE
Notes payable at September 30, 1997 and December 31, 1996 are comprised of
the following:
<S> <C> <C> <C> <C>
Interest
Rates 1997 1996
----------- ---- ----
Notes payable to Bryanston Group, Inc. (Bryanston),
an affiliate and former Cotton Club stockholders
of which $295 and $394 in 1997 and 1996,
respectively are non-interest bearing............... 10% 1,401 1,885
Revolving bank line of credit with payments of
principal and interest due December 1997,
collateralized by cash advances..................... 25% 370 497
Other.................................................... Various 18 18
------- -------
$ 1,789 $ 2,400
===== =====
</TABLE>
At September 30, 1997, the Company was in default of its notes payable to
Bryanston and a former Cotton Club stockholder. 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)
<TABLE>
<CAPTION>
NOTE 5 - LONG-TERM DEBT
Long-term debt at September 30, 1997 and December 31, 1996 is comprised of
the following:
<S> <C> <C> <C> <C>
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
(5.5% at September 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% 8,366 9,284
Note payable quarterly through March 2000 and
secured by assignment of
interest in the mortgage note payable to
Bryanston .......................................... 10% 1,100 1,200
Capitalized lease obligations, payable monthly, expiring
in various years through 2001....................... 10-15% 325 386
Other.................................................... 7-11% 7 68
------------ -------------
21,254 22,394
Less current portion..................................... 20,293 14,528
--------- ---------
$ 961 $ 7,866
=========== ==========
</TABLE>
Aggregate future required principal payments are approximately as follows:
Years ending September 30:
1998................................... $ 20,293
1999................................... 518
2000................................... 397
2001................................... 44
2002................................... 1
Thereafter............................. 1
-----------
$ 21,254
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. 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 616 shares of the Company's common stock
held in escrow. To the extent that the net proceeds exceeds $2,500 plus accrued
interest ($237 at September 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 September 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 $4,768. The
Company received a waiver of the defaults on the $7,800 mortgage note payable to
Bryanston through December 31, 1997. Accordingly, the mortgage notes of $11,456
and the equipment notes aggregating $8,201 are reflected in current liabilities
at September 30, 1997.
NOTE 6 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES
Accounts payable and other accrued expenses at September 30, 1997 and
December 31, 1996, are comprised of the following:
September 30 December 31
1997 1996
----------------- -----------
Construction................. $ 1,774 $ 2,121
Insurance financing.......... 20 585
Accrued professional fees.... 563 983
Accrued property taxes....... 508 708
Accrued interest............. 3,699 2,196
Other........................ 2,356 3,318
----- ------
$ 8,920 $ 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 September 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 September
30, 1997 and December 31, 1996 is $2,936 and $1,746, respectively.
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 September
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 license has a term
of two years and is subject to periodic renewal. In October 1997, the Company
received renewal of their casino license through October 1999 conditioned by the
opening of its Greenville hotel by no later than February 26, 1998. The
contractor has set a completion date of January 31, 1998 for the hotel. Failure
to retain the Greenville license could have a material adverse effect on the
Company's operations.
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.
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 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. On November 3, 1997, the Court granted the Company's motion to
dismiss with prejudice subject to the plaintiff's right to replead its complaint
within seven days.
In July 1997, Jubilation Lakeshore, Inc., Alpha Gulf Coast, Inc. and the
Company were named as third party defendants in an action brought in the United
States District Court for the Northern District of Mississippi, Greenville
Division (General Electric Capital Corporation vs. Bally Gaming, Inc.) whereas
Bally Gaming, Inc is alleging the same complaints as they asserted in the above
mentioned action in the Southern District of New York. Although the ultimate
outcome of the action cannot be determined, the Company has been advised the
recent decision in the Southern District of New York will have a positive impact
on this case.
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 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 September 30, 1997, and December 31, 1996, the amount due under the
redemption agreement is $842 and $1,739, respectively, which includes $237 and
$286, respectively, of accrued interest, resulting from the decrease in the fair
market value of the shares of the Company's common stock in escrow at the
respective dates and the price at the date of the escrow agreement.
NOTE 9 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the nine months ended September 30,
1997, include the net loss of $5,456, the issuance on September 30, 1997 of 83
shares of the Company's preferred stock in settlement of $2,000 due to
Bryanston, the 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 $236, a decrease in the principal amount due under the redemption agreement
(see Note 8) of $848, stock issued in April 1997 as payment for notes payable of
$475 and stock issued in August 1997 and September 1997 for settlement of
certain accounts payable and accrued expenses of $211 and $325, respectively.
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 quarter. In the
event the dividend is not paid at the end of the Company's fiscal year (December
31), the dividend will be payable in common stock. As of September 30, 1997, the
Company is obligated to declare a cash dividend of $1,927 and a stock dividend
of 777 shares. As a result of the dividend not being paid by November 7, 1997,
the dividend for the quarter ended September 30, 1997 increases from $2.90 per
share to $3.77 per share. Accordingly, as of November 7, 1997, the Company's
obligation to declare a cash dividend is increased to $2,087.
11
<PAGE>
<TABLE>
<CAPTION>
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 September 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:
<S> <C> <C> <C>
September 30, December 31,
1997 1996
-------------- -------------
Pre-opening costs currently deducted for financial
reporting and amortized over 5 years for tax purposes............ $ 694 $ 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.................................................... 16,471 15,493
Valuation allowance on deferred tax asset............................. (16,471) (15,493)
-------- ------
$ -- $ --
============= =============
</TABLE>
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 Group, Inc. Summary operating
results of discontinued operations for the nine and three months ended September
30, 1996 are as follows:
Nine Months Three Months
Revenues............................................. $ 1,489 $ 440
Cost of revenues..................................... 934 315
------- --------
Income from operations of discontinued hotel
management segment, before intercompany charges.... $ 555 $ 125
======= ========
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 $37,448 and an
accumulated deficit of $60,870 at September 30, 1997. In addition, the Company
was not in compliance with certain long-term debt covenants, therefore requiring
the obligations to be classified as current liabilities.
Management recognizes that these concerns raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans to correct
these current conditions includes continuing to operate the Greenville casino
generating positive cash flow, developing its Greenville hotel and selling or
relocating the Jubilation Casino. The Company is continuing to explore
opportunities that will attain the best return to the Company from its gaming
assets. The Company is continuing to seek more favorable financing or the sale
of equity to meet its working capital requirements. Accordingly, the Company's
ability to continue as a going concern is dependent upon its ability to develop
working capital, maintain future profitable operations, and meet its creditors
demands. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Results of Operations - Casinos
Results of Operations - Alpha Gulf Coast, Inc. ("Alpha Gulf")
The following table sets forth the statements of operations before
intercompany charges for Alpha Gulf's casino operations, located in Greenville,
Mississippi, for the nine months and three months ended September 30, 1997 and
1996:
<S> <C> <C> <C> <C> <C>
Nine Months Three Months
Ended September 30 Ended September 30
-------------------- -------------------
1997 1996 1997 1996
----- ----- ---- -----
Revenues:
Casino .............................$ 23,868 $ 27,901 $ 8,013 $ 8,980
Food, beverage and other.................. 466 794 147 224
-------- -------- ------- -------
Total revenues........................ 24,334 28,695 8,160 9,204
------ ------ ------ ------
Operating expenses:
Casino ............................. 9,004 9,770 3,128 3,173
Food, beverage and other.................. 434 1,053 154 290
Selling, general and administrative....... 12,075 12,417 4,028 3,921
------ ------ ----- ------
Total operating expenses.............. 21,513 23,240 7,310 7,384
------ ------ ------ ------
Income from operations......................... 2,821 5,455 850 1,820
------- ------- ------- -----
Other expenses:
Interest ............................. 1,536 1,537 526 502
Depreciation and amortization............. 3,841 3,622 1,289 1,238
------ ------ ------ ------
Total other expenses.................. 5,377 5,159 1,815 1,740
------- ------ ------ ------
Income (loss) before intercompany charges......$ (2,556) $ 296 $ (965) $ 80
======= ======== ======= ========
</TABLE>
Nine Months Ended September 30, 1997 and 1996:
Alpha Gulf generated revenues of $24,334 and $28,695 in 1997 and 1996,
respectively. Casino revenues were $23,868 and $27,901 in 1997 and 1996,
respectively. Food, beverage and other revenues were $466 and $794 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 1997. 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 4.4%
over last year during the first nine months. 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
1997 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 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 $9,004 and $9,770,
(approximately 38% and 35% of casino revenues for each period) in 1997 and 1996,
respectively. Food, beverage and other expenses were $434 and $1,053 in 1997 and
1996, respectively. The decrease in casino expenses was due to reduced payroll
and related expenses of $451 resulting from management's personnel efficiencies
that were implemented during the second quarter of 1996 and a reduction in
expenses of $315 due to the reduced volume of casino guests as a result of the
opening of the third casino vessel mentioned above.
Food and beverage revenues do not include the retail value of food and
beverage of approximately $2,740 and $2,942 provided gratuitously to customers
in 1997 and 1996, respectively. This decrease 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 $4,111 and $4,249,
13
<PAGE>
marketing and advertising of approximately $4,923 and $4,985, occupancy costs of
approximately $1,790 and $1,914 and operating expenses of $1,251 and $1,269 in
1997 and 1996, respectively. The reduced payroll and related costs of $138 and
operating expenses of $18 was a direct result of management's cost-cutting
measures completed during the second quarter of 1996. The $62 decrease in
marketing and advertising was the result of management's target marketing
towards specific casino customer groups.
The reduced occupancy costs from 1996 to 1997 of $124 were the result of
management's energy reduction and efficiency measures implemented in 1997.
Interest expense was primarily related to the first mortgage on the gaming
vessel, equipment financing and various capitalized leases and is consistent
from 1996 to 1997.
Depreciation and amortization was $3,854 and $3,622 in 1997 and 1996,
respectively. The increase was a direct result of additional capital
expenditures for the purchase of equipment and fixtures.
Three Months Ended September 30, 1997 and 1996:
Alpha Gulf generated revenues of $8,160 and $9,204 in 1997 and 1996,
respectively. Casino revenues were $8,013 and $8,980 in 1997 and 1996,
respectively. Food, beverage and other revenues were $147 and $224 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 1997. 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 8.0%
over last year during the same period. Alpha Gulf continues to achieve superior
market share over its competition at 43.1% with 39.0% of the available player
positions in the Greenville market. The high water experienced in April 1997 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 $3,128 and $3,173,
(approximately 39% and 35% of casino revenues for each period ) in 1997 and
1996, respectively. Food, beverage and other expenses were $154 and $290 in 1997
and 1996, respectively. The decrease in casino expenses of $45 was primarily due
to the reduced volume of business created by the entry of the third gaming
vessel in November, 1996.
Food and beverage revenues do not include the retail value of food and
beverage of approximately $845 and $790 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 $1,364 and $1,423, marketing and advertising
of approximately $1,679 and $1,462, occupancy costs of approximately $570 and
$666 and operating expenses of $415 and $370 in 1997 and 1996, respectively. The
reduced payroll and related costs of $59 was primarily due to the reduced volume
of business created by the entry of the third gaming vessel in November, 1996.
The $217 increase in marketing and advertising was the result of management's
response to increased market competition from the entry of a third casino vessel
in the Greenville market. The reduced occupancy costs from 1996 to 1997 of $96
were the result of management's energy reduction and efficiency measures
implemented in 1997.
Interest expense was primarily related to the first mortgage on the gaming
vessel, equipment financing and various capitalized leases. Interest expenses
was consistent from 1996 to 1997.
Depreciation and amortization was $1,289 and $1,238 in 1997 and 1996,
respectively. The increase was a direct result of an increase in capital
expenditures for the purchase of equipment and fixtures.
Future Operations - Alpha Gulf
Alpha Gulf's Bayou Caddy's Jubilee Casino operating results have improved
since its November 1995 relocation to Greenville. Although the Greenville gaming
market has experienced dilution due to the entry of the third casino vessel in
November 1996, Alpha Gulf's Jubilee Casino currently has the casino capacity,
food and beverage and entertainment facilities that are unique to the Greenville
area.
14
<PAGE>
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 the casino patron experience and will be an added amenity to
our player development program. In July 1997, construction commenced on the
hotel project with a projected completion date of January 31, 1998, and a total
estimated cost of $3.2 million. Construction costs incurred and deposits made
through September 30, 1997 amounted to $805 and $170, respectively. 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., an affiliate.
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 on 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 nine and three month periods ended
September 30, 1997 for continuing administration, insurance and compensation
settlements with former employees were $796 and $411, respectively. Interest
expense primarily related to the debt on the idle gaming vessel and equipment,
amounted to $645 and $225, respectively, for the nine and three month periods
ended September 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 nine and three month periods ended September 30, 1997, Alpha
Monticello has incurred casino development costs of $276 and $95, 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 $243 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.
15
<PAGE>
Liquidity and Capital Resources
For the nine months ended September 30, 1997, the Company had net cash used
in operating activities of $2,647. These uses were the result of the net loss of
$5,456 less non-cash expenses of $3,854 (depreciation and amortization) and a
net decrease in working capital or $1,045. The decrease in working capital
consisted primarily of a decrease in prepaid expenses of $539, a decrease in
accounts payable and other accrued expenses of $268 and a decrease in payroll
and related liabilities of $1,272.
Cash used in investing activities of $1,329 consisted of $201 in purchases
of property and equipment, $975 of Alpha Greenville Hotel construction costs and
deposits and $153 of other assets.
Cash provided by financing activities of $2,914 was attributable to $3,190
in advances under the $20,000 non-revolving promissory note with Bryanston,
proceeds of $1,000 from the sale of common stock and the $1,276 principal
reduction of long term debt and notes payable. $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. 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 September 30, 1997, the Company was in default of its 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 September 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 $4,768. The
Company received a waiver of the defaults on the $7,800 mortgage note payable to
Bryanston through December 31, 1997. Accordingly, the mortgage notes of $11,456
and the equipment notes aggregating $8,201 are reflected in current liabilities
at September 30, 1997.
Continuing Operations
The Company continues to suffer net losses from its operations and
development activities and has a working capital deficit of $37,448 and an
accumulated deficit of $60,870 at September 30, 1997. 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 income from operations despite the entry of a third gaming
vessel into the Greenville, Mississippi gaming market. Furthermore, the
Jubilation Lakeshore incurred continuing expenses of $797 in addition to its
continued interest expense of $645. Management is continuing to seek resolution
with the Jubilation Lakeshore creditors and continues to review other venues to
operate the Jubilation and has reduced further its continuing costs of
maintaining 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, 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.
16
<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.
In July 1997, Jubilation Lakeshore, Inc., Alpha Gulf Coast, Inc. and the
Company were named as third party defendants in an action brought in the United
States District Court for the Northern District of Mississippi, Greenville
Division (General Electric Capital Corporation vs. Bally Gaming, Inc.) whereas
Bally Gaming, Inc is alleging the same complaints as they asserted in the above
mentioned action in the Southern District of New York. Although the ultimate
outcome of the action cannot be determined, the Company has been advised the
recent decision in the Southern District of New York will have a positive impact
on this case.
There have been no other material developments during such period to any
existing legal proceeding.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of November 7, 1997, the Company was in default of its mortgage notes
payable of $11,456,000 and equipment notes payable aggregating approximately
$8,201,000, for non-payment. The total arrearage of principal and interest
payments on the aforementioned debt is approximately $23,000,000.
17
<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: November 7, 1997 /s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: November 7, 1997 /s/ JAMES A. CUTLER
James A. Cutler
Chief Financial Officer
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Alpha
Hospitality Corporation Form 10-Q for the quarter ended September 30, 1997.
</LEGEND>
<CIK> 0000906780
<NAME> Alpha Hospitality Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 288
<SECURITIES> 0
<RECEIVABLES> 576
<ALLOWANCES> 474
<INVENTORY> 301
<CURRENT-ASSETS> 973
<PP&E> 58,112
<DEPRECIATION> 21,300
<TOTAL-ASSETS> 39,872
<CURRENT-LIABILITIES> 35,485
<BONDS> 0
0
8
<COMMON> 144
<OTHER-SE> 993
<TOTAL-LIABILITY-AND-EQUITY> 39,872
<SALES> 0
<TOTAL-REVENUES> 24,337
<CGS> 0
<TOTAL-COSTS> 24,910
<OTHER-EXPENSES> 4,883
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,469
<INCOME-PRETAX> (5,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,456)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> 0
<FN>
Tag 30 Other Expenses- amount includes depreciation and amortization of $3,854
and development costs of $1,029.
</FN>
</TABLE>
