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, 1998
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 juridiction 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 12, 1998.
Common Stock, $0.01 par value 15,183,000 shares
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets September 30, 1998 and
December 31, 1997 . . . . . . . . . . . . . 1
Consolidated Statements of Operations Nine Months Ended
September 30, 1998 and 1997 . . . . . . . . 2
Consolidated Statements of Operations Three Months Ended
September 30, 1998 and 1997 . . . . . . . . 3
Consolidated Statements of Cash Flows Nine Months Ended
September 30, 1998 and 1997 . . . . . . . . 4-5
Notes to Consolidated Financial Statements . 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . 12-15
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . 17
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
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of $1,847
and $500 in 1998 and 1997, respectively. . $ 5,109 $ 2,211
Accounts receivable, less allowance for
doubtful accounts of $635 in 1997. . . . 15
Prepaid insurance . . . . . . . . . . . . 276
Note receivable . . . . . . . . . . . . . 250
Other current assets. . . . . . . . . . . 281 264
Deferred tax asset. . . . . . . . . . . . 6,375
Net assets held for sale. . . . . . . . . 13,850
--------- --------
Total current assets 5,640 22,991
PROPERTY AND EQUIPMENT, net . . . . . . . . 4,969 5,010
INVESTMENT . . . . . . . . . . . . . . . . 6,779
DEPOSITS AND OTHER ASSETS . . . . . . . . . 1,914 1,992
--------- ---------
$ 19,302 $ 29,993
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt, current maturity . . . . $ 1,000 $
Notes payable . . . . . . . . . . . . . . 1,418
Accounts payable and accrued expenses . . 1,298 5,599
Accrued payroll and related liabilities . 1,643 2,110
Due to affiliate, current maturity. . . . 3,730
--------- ----------
Total current liabilities. . . . . . . 3,941 12,857
--------- ----------
LONG-TERM DEBT, less current maturity . . . 1,780 7,800
--------- ----------
DUE TO AFFILIATE, less current maturity . . 503
--------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 75,000 shares
authorized, 15,183 and 14,406 issued in
1998 and 1997, respectively. . . . . 152 145
Preferred stock, 1,000 shares authorized:
Series B, $.01 par value, 821 issued . . 8 8
Series C, $.01 par value, 135 issued . . 1
Common stock payable. . . . . . . . . . . . 2,861 1,391
Capital in excess of par value. . . . . . . 72,373 61,259
Accumulated deficit . . . . . . . . . . . . (61,814) (53,970)
--------- ----------
Total stockholders' equity . . . . . . . 13,581 8,833
--------- ----------
$ 19,302 $ 29,993
========== ==========
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
REVENUES:
Casino. . . . . . . . . . . . . . . . . . $ 4,923 $ 23,868
Food and beverage, retail and other . . . 368 469
Total revenues . . . . . . . . . . . . 5,291 24,337
COSTS AND EXPENSES:
Casino . . . . . . . . . . . 1,901 9,004
Food and beverage, retail and other . . . 91 434
Selling, general and administrative . . . 4,482 13,003
Interest. . . . . . . . . . . . . . . . . 1,012 2,469
Depreciation and amortization . . . . . . 896 3,854
Pre-opening and development costs . . . . 219 1,029
--------- ---------
Total costs and expenses . . . . . . . 8,601 29,793
--------- ---------
LOSS FROM OPERATIONS. . . . . . . . . . . . (3,310) (5,456)
--------- ---------
OTHER INCOME (LOSS):
Loss from equity investee . . . . . . . . (1,721)
Gain on sale of assets. . . . . . . . . . 6,425
--------- ---------
Total other income, net. . . . . . . . 4,704
--------- ---------
INCOME (LOSS) BEFORE DEFERRED INCOME TAXES . 1,394 (5,456)
DEFERRED INCOME TAXES . . . . . . . . . . . 6,375
--------- ---------
NET LOSS. . . . . . . . . . . . $ (4,981) $ (5,456)
========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING . . . . . . . . . . 14,890 14,029
========= =========
NET LOSS PER COMMON SHARE . . . . . . . . . $ (.33) $ (.39)
========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
<S> <C> <C>
REVENUES:
Casino. . . . . . . . . . . . . . . . . . $ $ 8,013
Food and beverage, retail and other . . . 102 146
-------- ---------
Total revenues . . . . . . . . . . . . 102 8,159
-------- ---------
COSTS AND EXPENSES:
Casino. . . . . . . . . . . . . . . . . . 3,128
Food and beverage, retail and other . . . 154
Selling, general and administrative . . . 724 4,529
Interest. . . . . . . . . . . . . . . . . 58 882
Depreciation and amortization . . . . . . 13 1,293
Pre-opening and development costs . . . . 89 422
--------- ---------
Total costs and expenses . . . . . . . 884 10,408
--------- ---------
LOSS FROM OPERATIONS. . . . . . . . . . . . (782) (2,249)
--------- ---------
OTHER LOSS,
loss from equity investee . . . . . . . . (837)
--------- ---------
LOSS BEFORE DEFERRED INCOME TAXES . . . . . (1,619) (2,249)
DEFERRED INCOME TAXES . . . . . . . . . . .
--------- ---------
NET LOSS. . . . . . . . . . . . . . . . . . $ (1,619) $ (2,249)
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING. 15,183 14,294
========= =========
NET LOSS PER COMMON SHARE . . . . . . . . . $ (.11) $ (.16)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . $ (4,981) $ (5,456)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization. . . . . 896 3,854
Deferred taxes . . . . . . . . . . . . 6,375
Equity loss. . . . . . . . . . . . . . 1,721
Gain on sale of assets . . . . . . . . (6,425)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable. . . . . . . . . 15 (29)
Decrease in prepaid insurance . . . 276 539
(Increase) decrease in inventories. (19) (4)
Increase in other current assets. . (119) (11)
Decrease in accounts payable and
accrued expenses. . . . . . . (3,189) (268)
Decrease in accrued payroll and
related liabilities . . . . . . . (112) (1,272)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES . . . . (5,562) (2,647)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets. . . . . . . . 11,800
Payments for hotel construction costs . . . (1,100)
Payment on note receivable. . . . . . . . . (250)
Purchases of property and equipment . . . . (1,006)
Cash from hotel construction escrow . . . . 1,700
Payments for deposits and other assets. . . (139) (323)
--------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES . . . . . . . . . . . . 12,011 (1,329)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to affiliate . . . . . . . . . . . (3,299)
Advances from affiliate . . . . . . . . . . 3,190
Proceeds from sale of common stock. . . . . 1,000
Payments on notes payable . . . . . . . . . (136)
Payments on long-term debt. . . . . . . . . (252) (1,140)
--------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES . . . . . . . . . . . . (3,551) 2,914
--------- ----------
NET INCREASE (DECREASE) IN CASH . . . . . . . 2,898 (1,062)
CASH, beginning of period . . . . . . . . . . 2,211 1,350
--------- ----------
CASH, end of period . . . . . . . . . . . . . $ 5,109 $ 288
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest during
the period . . . . . . . . . . . $ 100 $ 707
======== ========
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Restructuring and conversion of Bryanston
obligations:
Issuance of preferred stock. . . . . . $ 9,732 $ 2,000
======== ========
Mortgage on the Jubilation gaming vessel. $ 3,000
========
Extinguishment of debt including accrued
interest of $3,101. . . . . . . . $ 12,732
========
Non-cash consideration received in exchange
for the sale of assets:
Investment in Buyer. . . . . . . . . . . $ 8,500
========
Assumption by Buyer of the net proceeds
of pre-financing. . . . . . . . $ 17,900
========
Assumption by Buyer of certain accounts
payable, accrued expenses, payroll
liabilities and a capital lease
obligation. . . . . . . . . . $ 2,000
========
Decrease in amount due under redemption
agreement. . . . . . . . . . . $ (897)
=========
Common stock issued for payment of note
payable . . . . . . . . . . . $ 475
=========
Common stock inssued for settlement of
certain accounts payable and accrued
expenses . . . . . . . . . . . . . $ 536
=========
</TABLE>
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"), incorporated in Delaware
on March 19, 1993, through its subsidiaries, owned and operated a gaming
vessel and constructed an adjacent hotel in Greenville, Mississippi. On
March 2, 1998, the Company sold these assets to Greenville Casino Partners,
L.P. (Buyer) (see Note 3). Included in the consideration, the Company
received a 25% partnership interest in the Buyer, whose assets include an
additional casino and hotel located in Greenville, Mississippi. The
Company, through its other subsidiaries, is also pursuing additional
gaming-related and other opportunities.
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
principles. 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 financialstatements should be read in
conjunction with the audited consolidated financial statements as of
December 31, 1997, included in the 1997 Form 10-K.
Operations and Principles of Consolidation - The accompanying financial
statements include the accounts of the Company and all of its wholly-owned
subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation.
Investment - The Company's 25% partnership interest in Buyer is being
accounted for under the equity method of accounting. Accordingly, the
investment is recorded at cost and adjusted by the Company's proportionate
share of the Buyer's undistributed earnings or losses.
Casino Revenue - Casino revenue is the net win from gaming activities,
which is the difference between gaming wagers less the amount paid out to
patrons.
Promotional Allowances - Promotional allowances primarily consist of food
and beverage furnished gratuitously to customers. Revenues do not include the
retail amount of food and beverage of $496 and $919 for the nine months
ended September 30, 1998 and 1997, respectively, provided gratuitously to
customers. The cost of these items was $224 and $413 for the nine months
ended September 30, 1998 and 1997, respectively.
Interest Capitalization - Interest costs incurred during the construction
and development of the dockside casino, the hotel and related facilities were
capitalized as part of the cost of such assets.
Uses of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts 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 1997 to
conform to the 1998 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 September 30, 1998 and December 31, 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land and building . . . . . . . . . . $ $ 214
Boat, barge and improvements. . . . . 5,267 24,337
Leasehold improvements. . . . . . . . 82 14,240
Gaming equipment. . . . . . . . . . . 3,023 10,307
Furniture, fixtures and equipment . . 1,834 7,259
Transportation equipment. . . . . . . 760
Construction in progress. . . . . . . 2,966
-------- --------
10,206 60,083
Less accumulated depreciation and
amortization. . . . . . . . . . 5,237 22,444
-------- --------
4,969 37,639
Less amounts included in net assets held
for sale, including accumulated
depreciation and amortization of
$17,331 . . . . . . . . . . . 32,629
-------- ---------
$ 4,969 $ 5,010
======== =========
</TABLE>
In February 1998, Alpha Greenville Hotel, Inc. ("Greenville Hotel") completed
construction of its hotel at a total cost of approximately $4,000, including
capitalized interest and indirect labor and sundry costs.
On March 2, 1998, the Company sold substantially all of the assets of Alpha
Gulf Coast, Inc. ("Alpha Gulf" or "Gulf Coast") and Greenville Hotel, including
the casino barge, boarding barge, related gaming and other equipment, furniture
and improvement and related permits, licenses, leases and other agreements to
the Buyer. In exchange for such assets, the Company received from the Buyer
total consideration of approximately $40,200, including $11,800 in cash, the
assumption of approximately $2,000 of certain accounts payable, accrued
expenses, payroll liabilities and a capital lease obligation, a 25% partnership
interest in the Buyer, valued at $8,500 and the assumption by the Buyer of the
Company's obligations to repay the net proceeds from certain financing
(Pre-Closing Financing) of $17,900 (see Note 4). The Company recognized a
gain on the sale of $ 6,425.
Approximately $895 of the sale proceeds were escrowed for potential repairs to
the barge and surrounding property relative to storm damage occurring prior to
the sale. A $200 reserve for the estimate of potential repairs in excess of
insurance proceeds was recorded during the nine months ended September 30, 1998,
as a reduction to the gain on the sale.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 4 - LONG-TERM DEBT
Long-term debt at September 30, 1998 and December 31, 1997 is comprised of
the following:
<TABLE>
<CAPTION>
Interest
Rates 1998 1997
<S> <C> <C> <C>
Mortgage note payable to Bryanston,
collateralized by the Company's idle
gaming vessel with interest payable
monthly and principal payments not
to exceed $1,000 per annum, with any
unpaid balance due at maturity in
April 2005. . . . . . . . . . . 8% 2,780
Pre-closing financing (see Note 3),
collateralized by Alpha Gulf's
property and equipment and certain
related assets, net of an
uncollateralized, zero-coupon
promissory note in the stated 30 day
principal amount of LIBOR
approximately $4,900. . . . . . . +6.15% $ 19,000
Note payable, Bryanston, principal
and interest due monthly through
April 1, 1999 . . . . . . . . 10% 7,800
Capitalized lease obligations,
payable monthly, expiring in various
years through 2001. . . . . . . 10-14% 288
-------- --------
2,780 27,088
Less:
Amount included in net assets
held for sale . . . . . . 19,288
Current portion. . . . . . . . 1,000
-------- -------
$ 1,780 $ 7,800
======== =======
</TABLE>
Aggregate future required principal payments are approximately as follows:
Years ending September 30:
1999. . . . . . . . . . . . . . . . . $ 1,000
2000. . . . . . . . . . . . . . . . . 1,000
2001. . . . . . . . . . . . . . . . . 780
2002 and thereafter . . . . . . . . .
--------
$ 2,780
========
In connection with and in anticipation of the Company's sale of
substantially all of the assets of Alpha Gulf and Greenville Hotel (see Note
3), the Company obtained $17,900 of net proceeds from certain financing
(Pre-Closing Financing) on December 30, 1997, net of closing costs of $1,100 and
loan discounts of $4,900. The loan discounts represented an uncollateralized,
zero-coupon promissory note which the Company executed and delivered to the
pre-closing lender, in the stated principal amount of $4,900, representing
additional unfunded financing. Although no proceeds were received by the
Company in conjunction with such promissory note, under the terms of the sale,
the Buyer assumed such promissory note. Accordingly, upon consummation
of such sale on March 2, 1998, the Company was relieved of all Pre-Closing
Financing obligations.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 4 - LONG-TERM DEBT(CONTINUED)
On June 30, 1998, the Company restructured it obligations to Bryanston
Group, Inc. (Bryanston) by extinguishing its notes payable of $7,800, $1,399 and
$432 (See Note 6) plus accrued interest on the notes aggregating $3,101 , in
exchange for the issuance of preferred stock (see Note 7) and a $3,000
mortgage note on the Company's idle gaming vessel located in Lakeshore,
Mississippi.
NOTE 5 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES
At September 30, 1998 and December 31, 1997, accounts payable and other
accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Construction. . . . . . . . . . $ 4 $ 1,021
Accrued professional fees . . . 326 634
Accrued property taxes. . . . . 492
Accrued interest. . . . . . . . 31 2,219
Other . . . . . . . . . . . . . 937 3,422
------- --------
1,298 7,788
Less amount included in net
assets held for sale. . . 2,189
------- --------
$ 1,298 $ 5,599
</TABLE>
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Pursuant to the Company's restructuring of its obligations to Bryanston
(see Notes 4 and 7), the June 30, 1998 principal balance of $432 and accrued
interest of $507 under a $20,000 non-revolving promissory note with Bryanston,
was extinguished.
The Company, through its wholly owned subsidiary Alpha Monticello, Inc.
("AMI"), is party to a General Memorandum of Understanding (the "Memorandum")
with Catskill Development, LLC ("CDL") (the "Parties") dated December 1, 1995
which, among other things, provides for the establishment of Mohawk Management,
LLC, a New York limited liability company ("MML") for the purpose of entering
into an agreement to manage a proposed casino on land to be owned by the St
Regis Mohawk Indian Tribe (the "Mohawk Tribe"). The Memorandum also sets forth
the general terms for the funding and management obligations of CDL and AMI
respectively, with regard to MML. In January 1996, MML was formed with each
of CDL and AMI owning a 50% membership interest in MML. On July 31, 1996, MML
entered into a Gaming Facility Management agreement with the Mohawk
Tribe (the "Management Contract") for the management of a casino to be built on
the current site of Monticello Raceway in Monticello, New York (the "Monticello
Casino"). Among other things, the Management Contract provides MML with the
exclusive right to manage the Monticello Casino for seven (7) years from its
opening and to receive certain management fees for the provision of such
service. In accordance with Federal law, this agreement is subject to final
approval by the National Indian Gaming Commission. By its terms, the
Memorandum between CDL and AMI would terminate, if by December 31, 1998, all
of the governmental approvals necessary for the construction and operation of
the Monticello Casino were not obtained by MML. The Management Contract
between MML and the Mohawk Tribe contains no such provision. Additonally, the
Memorandum is silent as to the effect of such expiration to the continued
existence of MML, the Parties respective 50% ownership therein and the
Management Contract. As of the date hereof all such approvals have not been
obtained, and there can be no assurance that they will be obtained on or before
December 31, 1998. For the nine and three months ended September 30, 1998,
the Company incurred casino development costs of $154 and $48, respectively,
which relates to a general overhead allocation compared to $276 and $95
for the same periods in 1997. As of September 30, 1998, and December 31, 1997,
the Company has capitalized $1,366 and $1,291,respectively, towards the design,
architecture and other costs of development plans for the casino.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
The Company was obligated under a tideland lease which provided for a mooring
site for the Company's idle gaming vessel in Lakeshore, Mississippi. Pursuant
to a lease termination and mutual release agreement, the State of Mississippi
terminated the lease for a settlement of approximately $91. In August 1998,
under the terms of the agreement, the Company removed all structures and
equipment remaining on this site.
The Company was obligated under a wharfage agreement allowing for the
Company's idle gaming vessel to be moored at its Lakeshore, Mississippi
location for a monthly wharfage fee of approximately $8 through its removal in
August 1998. The wharfage fee for the nine months ended September 30, 1998 was
$60.
The Company is obligated under a monthly contract for mooring fees of
approximately $6 for the mooring and maintenance of the Jubilation Casino at a
terminal in Mobile, Alabama where the Company relocated the vessel in August of
1998.
The Company is obligated under an employment contract with its Chairman and
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.
Included in restricted cash at September 30, 1998, is $1,250 pledged as
collateral on behalf of the Chairman and Chief Executive Officer of the Company.
Although not currently anticipated, any drawing upon such cash will be recorded
as a reduction in the balance of deferred compensation payable to the Chairman
and Chief Executive Officer. As of September 30, 1998, deferred compensation
payable to the Chairman and Chief Executive Officer is approximately $1,217.
As of November 12, 1998, no such drawings have occurred.
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.
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.
On March 2, 1998, the Company entered into a supervisory hotel management
agreement with the Buyer (see Note 3) for a term of ten years whereby the
Company will receive $100 per annum for management services, payable monthly.
Supervisory management fees earned for the period March 2, 1998 through
September 30, 1998 amount to $58.
On May 12, 1998, the Company approved compensation to each of the three
outside directors of $6 per annum plus the option to purchase 25 shares of the
Company's common stock at the current market price. Additional options to
purchase 15 shares of the Company's common stock were granted to the
respective outside directors for each committee served upon.
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, results of operations or cash flows of the Company.
On September 15, 1998, $250 was advanced to Southern Classic, Inc.
("Southern") pursuant to a promissory note maturing January 30, 1999, which
accrues interest at 9 1/4% per annum. The note is guaranteed by certain owners
of Southern. In addition, Southern's Chief Financial Officer serves on the
Board of Directors of the Company.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 7 - STOCKHOLDERS' EQUITY
The change in stockholders' equity during the nine months ended September
30, 1998, includes the net loss of $ 4,981 and the issuance on June 30, 1998 of
135 shares of preferred stock, series C, in settlement of $9,732 of net
obligations (see note 4). The preferred stock series C, has voting rights of
twenty-four votes per preferred share, is convertible to twenty-four shares
of common stock and carries a dividend of $5.65 per share. In addition, the
terms of the preferred shares include a provision allowing the Company the
option of calling the preferred shares based upon the occurrence of certain
capital events which realize a profit in excess of $5,000. As of November 12,
1998, dividends in arrears on the cumulative preferred series C stock amounted
to $191.
The Company's cumulative preferred stock, series B, has voting rights of
eight votes per preferred share, 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. On December 17, 1997, the
Company declared a 1996 dividend of $1,391, payable in 777 shares of the
Company's common stock which were issued in April 1998. On May 12, 1998, the
Company declared a 1997 dividend of $2,861, payable in 1,071 shares of the
Company's common stock. As of November 12, 1998, dividends in arrears on the
cumulative preferred, series B stock amounted to $2,322.
NOTE 8 - DEFERRED INCOME TAXES
The deferred income taxes of $6,375 represents the utilization of the
Company's net operating loss carryforwards to offset the estimated taxable gain
on sale of assets.
Deferred income taxes does not bear a normal relationship to income before
deferred income taxes because the estimated tax gain exceeds the estimated
financial statement gain due to the differences between the financial statement
and tax bases of Alpha Gulf's assets.
NOTE 9 -SUMMARIZED FINANCIAL INFORMATION
The following is summarized financial information of Greenville Casino
Partners, L.P. for the period March 2, 1998 through September 30, 1998:
Net Revenues . . . . . . . . . $ 28,631
Costs and expenses . . . . . . 31,582
Gross margin . . . . . . . . . (2,951)
Interest expense, net. . . . . 3,934
----------
Net loss . . . . . . . . . . $ (6,885)
==========
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (in thousands)
The following discussion of the historical consolidated financial
condition and results of the operations of the Company should be read in
conjunction with the Consolidated Financial Statements and the Notes to such
financial statements included elsewhere in this Form 10-Q. This Form 10-Q
contains forward-looking statements which involves risks and uncertainties
primarily relative to the speculative nature of the Company's proposed casino
development project and the potential future acquisition of a new business
operation which has not yet been identified. The Company's actual results
may differ significantly from the results discussed in these forward-looking
statements.
Results of Operations
Casino Operations
On March 2, 1998, the Company sold substantially all of the assets of
Alpha Gulf and Greenville Hotel, including the casino barge, boarding barge,
related gaming and other equipment, furniture and improvement and related
permits, licenses, leases and other agreements to Greenville Casino Partners,
L.P. (Buyer). In exchange for such assets, the Company received from the
Buyer total consideration of $40,200, including approximately $11,800 in cash,
the assumption of approximately $2,000 of certain accounts payable, accrued
expenses, payroll liabilities and a capital lease obligation, a 25% partnership
interest in the Buyer and the assumption of the Company's obligations to repay
the net proceeds from the December 1997 Pre-Closing Financing of $17,900.
Alpha Gulf (the Company's primary operating subsidiary)
The following table sets forth the statements of operations for Alpha Gulf
before intercompany charges, deferred income tax and gain on sale of assets for
the nine and three months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Casino . . . . . . . . $ 4,923 $ 23,868 $ $ 8,013
Food, beverage and
other . . . . . . . 113 466 6 147
------- -------- ------- --------
Total revenues . . . 5,036 24,334 6 8,160
------- -------- ------- --------
Operating expenses:
Casino . . . . . . . . 1,901 9,004 3,128
Food, beverage and
other . . . . . . 91 434 154
Selling, general and
administrative. . . 2,971 12,075 161 4,028
-------- -------- ------- --------
Total operating
expenses. . . . 4,963 21,513 161 7,310
-------- -------- ------- --------
Income (loss) from
operations. . . . . 73 2,821 (155) 850
-------- -------- ------- --------
Other expenses:
Loss from equity
investee. . . . . 1,721 837
Interest . . . . . . 797 1,536 526
Depreciation and
amortization . . . 882 3,841 9 1,289
------- -------- ------- --------
Total other
expenses. . . . 3,400 5,377 846 1,815
------- -------- ------- --------
Loss before intercompany
charges, deferred income
taxes and gain on sale
of assets . . . . $ ( 3,327) $ (2,556) $ (1,001) $ (965)
========= ======== ======== =========
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (in thousands)(CONTINUED)
Nine and Three Months Ended September 30, 1998:
The 1998 activity for casino, food and beverage revenues and expenses
represents Alpha Gulf's operation of its Bayou Caddy's Jubilee Casino through
the date of its sale on March 2, 1998. For the nine and three months ended
September 30, 1997, Alpha Gulf operated its Bayou Caddy's Jubilee Casino for
those entire respective periods. Accordingly, the 1998 revenues and operating
expenses are less than 1997.
Selling, general and administrative expenses for the nine and three months
ended September 30, 1998 consist of payroll and related expenses of
approximately $1,170 and $74, respectively, marketing and advertising of
approximately $930 and $0, respectively, occupancy costs of approximately $407
and $12, respectively, and other operating expenses of $464 and $75,
respectively.
Included in the consideration received in exchange for the sale of the Bayou
Caddy's Jubilee Casino, Alpha Gulf received a 25% partnership interest in the
Buyer whose primary assets include: the Las Vegas Casino, the Bayou Caddy's
Jubilee Casino, the Key West Inn and the Greenville Inn and Suites. The
combined complement of gaming devices is 37 table games and 1,427 slots which
represents 67.4% of the devices in the Greenville market. The two hotels offer
56 roomsand 41 rooms and suites, respectively. For the period March 2, 1998,
through September 30, 1998, and the three months ended September 30, 1998, the
Company's proportionate share of the Buyer's undistributed losses amounted to
$1,721 and $837, respectively.
Interest expense for the nine months ended September 30, 1998 was primarily
attributable to the Pre-Closing Financing, amounts due to Bryanston and a
capital lease. The Pre-Closing Financing and the capital lease were
extinguished in March 1998 with the proceeds from the March 2, 1998 sale of
substantially all of the assets of Alpha Gulf and Greenville Hotel.
Accordingly, the interest expense for the three months ended September 30,
1998, is solely attributable to amounts due to Bryanston.
Other Operations:
In connection with the sale of the hotel on March 2, 1998, the Company entered
into a supervisory management agreement with the Buyer for a term of ten (10)
years whereby the Company will receive $100 per annum for management services.
Supervisory management fees earned for the period March 2, 1998 through
September 30, 1998 and the three months ended September 30, 1998, amounted to
approximately $58 and $25, respectively.
The Company, through a separate subsidiary, also owns a casino (the
Jubilation Casino) previously located in Lakeshore, Mississippi, which has
been closed since July 1996. In August 1998, the Company relocated the
casino to Mobile, Alabama, where it is being moored at a terminal. The
Company does not currently have plans to re-open or operate the Jubilation
Casino. The continuing costs incurred during the nine and three month periods
ended September 30, 1998 were $588 and $300 , respectively, for continuing
administration, insurance and the casino relocation, compared to $645 and $225
for the same periods in 1997.
Future Operations - General:
The Company, through its wholly owned subsidiary Alpha Monticello, Inc.
("AMI"), is party to a General Memorandum of Understanding (the "Memorandum")
with Catskill Development, LLC ("CDL") dated December 1, 1995 which, among other
things, provides for the establishment of Mohawk Management, LLC, a New York
limited liability company ("MML") for the purpose of entering into an agreement
to manage a proposed casino on land to be owned by the St Regis Mohawk Indian
Tribe (the "Mohawk Tribe"). The Memorandum also sets forth the general terms
for the funding and management obligations of CDL and AMI respectively, with
regard to MML. In January 1996, MML was formed with each of CDL and AMI
owning a 50% membership interest in MML. On July 31, 1996, MML entered into a
Gaming Facility Management agreement with the Mohawk Tribe (the "Management
Contract") for the management of a casino to be built on the current site
of Monticello Raceway in Monticello, New York (the "Monticello Casino").
Among other things, the Management Contract provides MML with the exclusive
right to manage the Monticello Casino for seven (7) years from its opening and
to receive certain management fees for
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (in thousands)(CONTINUED)
Future Operations - General (CONTINUED)
the provision of such service. In accordance with Federal law, this agreement
is subject to final approval by the National Indian Gaming Commission. By
its terms, the Memorandum between CDL and AMI would terminate, if by December
31, 1998, all of the governmental approvals necessary for the construction
and operation of the Monticello Casino were not obtained by MML. The Management
Contract between MML and the Mohawk Tribe contains no such provision.
Additonally, the Memorandum is silent as to the effect of such expiration to the
continued existence of MML, the Parties respective 50% ownership therein and
the Management Contract. As of the date hereof all such approvals have not
been obtained, and there can be no assurance that they will be obtained on or
before December 31, 1998. For the nine and three months ended September 30,
1998, the Company incurred casino development costs of $154 and $54,
respectively, which relates to a general overhead allocation compared to $276
and $95 for the same periods in 1997. As of September 30, 1998, and December
31, 1997, the Company has capitalized $1,366 and $1,291, respectively,
towards the design, architecture and other costs of development plans for the
casino.
Additionally, proposals or prospects for new casinos or other gaming
activities may be presented to the Company, or the Company may otherwise
become aware of such opportunities (any such new casino or other gaming
activities being hereinafter sometimes referred to as "New Gaming
Opportunities"). The Company will continue to investigate and evaluate New
Gaming Opportunities and, subject to available resources, may choose to pursue
and develop one or more New Gaming Opportunities if the same is deemed to be
in the best interest of the Company and its stockholders. However, there can
be no assurance that any New Gaming Opportunity will be presented to, or
otherwise come to the attention oF the Company, that the Company will elect
to pursue or develop any New Gaming Opportunity or that any New Gaming
Opportunity that the Company may elect to pursue or develop will actually
come to fruition or, even if brought to fruition, will be profitable.
Except to the extent the Company may pursue the Proposed Gaming Development of
any New Gaming Opportunity, as a result of the sale, the Company has been
effectively transformed to serve as a holding company and a vehicle to effect
acquisitions, whether by merger, exchange of capital stock, acquisition of
assets or other similar business combination (a "Business Combination") with
an operating business (an "Acquired Business"). To the extent the Company's
financial and other resources are not devoted to, or reserved for, the
development of the Proposed Gaming Development and/or any New Gaming
Opportunity, the business objective of the Company will be to effect a
Business Combination with an Acquired Business that the Company believes has
significant growth potential. The Company intends to seek to utilize
available cash, equity, debt or a combination thereof in effecting a Business
Combination. While the Company may, under certain circumstances, explore
possible Business Combinations with more than one prospective Acquired
Business, in all likelihood, until other financing provides additional funds,
or its stature matures, the Company may be able to effect only a single
Business Combination in accordance with its business objective, although there
can be no assurance that any such transaction will be effected.
Liquidity and Capital Resources
For the nine months ended September 30, 1998, the Company had net cash used in
operating activities of $5,562. The uses were the result of a net loss of
$4,981 plus noncash items of $2,567 and a net decrease in working capital of
$3,148. The noncash items were $896 of depreciation and amortization, the
Company's proportionate share of undistributed losses of an equity investee
of $1,721, a gain on sale of assets of $6,425 and $6,375 of deferred taxes. The
decrease in working capital consisted primarily of a net decrease in accounts
receivable, prepaid insurance, inventories and other current assets of
$153 , a decrease in accounts payable and other accrued expenses of $3,189 and
a decrease in payroll and related liabilities of $112.
Cash provided by investing activities of $12,011 consisted of proceeds from
the sale of assets of $11,800, cash from the hotel construction escrow of
$1,100, hotel construction costs of $1,700, payments for deposits and other
assets of $139 and amounts advanced under a promissory note of $250.
Cash used in financing activities of $3,551 was attributable to $3,299 in
net payments under the $20,000 non-revolving promissory note with Bryanston,
repayments of the mortgage payable to Bryanston and $252 of payments on long-
term debt.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (in thousands)(CONTINUED)
Liquidity and Capital Resources (CONTINUED)
Although the Company is subject to continuing litigation, the ultimate
outcome of which 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.
Year 2000 Compliance
The Company does not anticipate making significant expenditures in connection
with Year 2000 and believes the Year 2000 will not have a material adverse
effect on the Company's operations.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
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, 1997 on file with the Securities and Exchange Commission.
There have been no other material developments during such period to any
existing legal proceeding.
ITEM 2. CHANGES IN SECURITIES
On June 30, 1998, the Company issued 135 shares of preferred stock series C.
The preferred stock series C has voting rights of twenty-four votes per
preferred share, is convertible to twenty-four shares of common stock and
carries a dividend of $5.65 per share.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
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 12, 1998
/s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: November 12, 1998
/s/ ROBERT STEENHUISEN
Robert Steenhuisen
Chief Accounting Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alpha Hospitality Corporation Form 10Q for the quarter ended September 30, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,109
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,640
<PP&E> 10,206
<DEPRECIATION> 5,237
<TOTAL-ASSETS> 19,302
<CURRENT-LIABILITIES> 3,941
<BONDS> 1,780
0
9
<COMMON> 152
<OTHER-SE> 13,420
<TOTAL-LIABILITY-AND-EQUITY> 19,302
<SALES> 0
<TOTAL-REVENUES> 5,291
<CGS> 0
<TOTAL-COSTS> 6,474
<OTHER-EXPENSES> 1,115<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,012
<INCOME-PRETAX> 1,394
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,981)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> 0
<FN>
<F1>Amount includes depreciation and amortization of $896 and pre-opening and
development costs of $219.
</FN>
</TABLE>
