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 March 31, 1998
[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: May 12, 1998.
Class
Common Stock, $0.01 par value 15,183,204 shares
<PAGE>
ALPHA HOSPITALITY CORPORATION
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets March 31, 1998 and
December 31, 1997............................... 1
Consolidated Statements of Operations Three Months Ended
March 31, 1998 and 1997......................... 2
Consolidated Statements of Cash Flows Three Months Ended
March 31, 1998 and 1997......................... 3-4
Notes to Consolidated Financial Statements ......... 5-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................... 11-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................... 15
Item 4. Submission of Matters to a Vote of Security Holders... 15
Signatures.......................................... 16
All items which are not applicable or to which the answer is negative have been
omitted from this report.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1998 1997
-------------------- -----------
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of $3,489 and $500 in
1998 and 1997, respectively.........................................$ 9,180 $ 2,211
Accounts receivable, less allowance for doubtful accounts
of $635 in 1997..................................................... 15
Prepaid insurance....................................................... 120 276
Other current assets.................................................... 186 264
Deferred tax asset...................................................... 6,375
Net assets held for sale................................................ 13,850
------------------ ------
Total current assets 9,486 22,991
PROPERTY AND EQUIPMENT, net.................................................. 4,999 5,010
INVESTMENT ........................................................... 8,323
DEPOSITS AND OTHER ASSETS.................................................... 1,865 1,992
-------------- -------
$ 24,673 $ 29,993
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable...........................................................$ 1,399 $ 1,418
Accounts payable and accrued expenses................................... 5,105 5,599
Accrued payroll and related liabilities................................. 1,824 2,110
Due to affiliate, current maturity...................................... 904 3,730
-------------- -------------
Total current liabilities........................................... 9,232 12,857
------------- ------------
LONG-TERM DEBT, less current maturities...................................... 7,800 7,800
------------- -------------
DUE TO AFFILIATE, less current maturity...................................... 503 503
----------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, series B, $.01 par value, 1,000 shares authorized,
821 issued......................................................... 8 8
Common stock, $.01 par value, 25,000 shares authorized, 14,406 issued... 145 145
Common stock payable.................................................... 1,391 1,391
Capital in excess of par value.......................................... 61,259 61,259
Accumulated deficit..................................................... (55,665) (53,970)
---------- -----------
Total stockholders' equity.......................................... 7,138 8,833
------------ -------------
$ 24,673 $ 29,993
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
Three Months Ended
March 31,
1998 1997
---- ----
REVENUES:
Casino ........................... $ 4,923 $ 8,063
Food and beverage, retail and other..... 131 201
--------- -------
Total revenues...................... 5,054 8,264
-------- ------
COSTS AND EXPENSES:
Casino ........................... 1,901 2,950
Food and beverage, retail and other..... 91 145
Selling, general and administrative..... 3,078 4,236
Interest ........................... 720 767
Depreciation and amortization........... 869 1,264
Pre-opening and development costs....... 63 291
----------- ---------
Total costs and expenses............ 6,722 9,653
--------- --------
LOSS FROM OPERATIONS......................... (1,668) (1,389)
--------- --------
OTHER INCOME (LOSS):
Loss from equity investee............... (177)
Gain on sale of assets.................. 6,525
---------
Total other income, net............. 6,348
---------
INCOME (LOSS) BEFORE DEFERRED INCOME TAXES .. 4,680 (1,389)
DEFERRED INCOME TAXES........................ 6,375
---------
NET LOSS AND COMPREHENSIVE LOSS.............. $ (1,695) $ (1,389)
========= ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... $ 14,406 $ 13,605
========= ========
NET LOSS PER COMMON SHARE.................... $ (.12) $ (.10)
========== =========
See accompanying notes to consolidated financial statements
2
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
<S> <C> <C>
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................... $ (1,695) $ (1,389)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.................................. 869 1,264
Deferred taxes................................................. 6,375
Equity loss.................................................... 177
Gain on sale of assets......................................... (6,525)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable................. 15 (10)
Decrease in prepaid insurance.............................. 156 188
(Increase) decrease in inventories......................... (19) 23
(Increase) decrease in other current assets................ 78 (243)
Decrease in accounts payable and accrued expenses......... (1,983) (1,358)
Increase (decrease) in accrued payroll and
related liabilities........................................ 69 (128)
------------- --------
NET CASH USED IN OPERATING ACTIVITIES........................................ (2,483) (1,653)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets............................................ 11,800
Payments for hotel construction costs................................... (1,100)
Purchases of property and equipment..................................... (39)
Cash from hotel construction escrow..................................... 1,700
Payments for deposits and other assets.................................. (90) (162)
------------ --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.......................... 12,310 (201)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to affiliate................................................... (2,826)
Advances from affiliate................................................. 749
Proceeds from stock sold pursuant to escrow agreement................... 23
Proceeds from sale of common stock...................................... 1,000
Payments on notes payable............................................... (6)
Payments on long-term debt.............................................. (32) (509)
------------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.......................... (2,858) 1,257
----------- ----------
NET INCREASE (DECREASE) IN CASH.............................................. 6,969 (597)
CASH, beginning of period.................................................... 2,211 1,350
----------- ----------
CASH, end of period.......................................................... $ 9,180 $ 753
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
<S> <C> <C>
1998 1997
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest during
the period ........................................................... $ 61 $ 348
========== ========
SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
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,
including accrued interest of $324.................................. $ (677)
=========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 1 - NATURE OF BUSINESS
Alpha Hospitality Corporation (the "Company"), 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 financial statements 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 three months ended
March 31, 1998 and 1997, respectively, provided gratuitously to customers. The
cost of these items was $224 and $413 for the three months ended March 31, 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.
5
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 3 - PROPERTY AND EQUIPMENT
Details of property and equipment at March 31, 1998 and December 31, 1997
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
--------- -------
Land and building................................................... $ -- $ 214
Boat, barge and improvements........................................ 5,267 24,337
Leasehold improvements.............................................. 19 14,240
Gaming equipment.................................................... 3,023 10,307
Furniture, fixtures and equipment................................... 1,908 7,259
Transportation equipment............................................ 760
Construction in progress............................................ 2,966
-------------- -----------
10,217 60,083
Less accumulated depreciation and amortization...................... 5,218 22,444
---------- ----------
4,999 37,639
Less amounts included in net assets held for sale, including
accumulated depreciation and amortization of $17,331........... 32,629
-------------- ----------
$ 4,999 $ 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. As of March
31, 1998, restricted cash includes approximately $484 in a hotel construction
escrow which will be utilized towards the extinguishment of remaining
construction payables (see Note 6).
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 5). The Company
recognized a gain on the sale of $ 6,525.
Approximately $1,295 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 $100 reserve for the estimate of potential repairs in
excess of insurance proceeds was recorded during the three months ended March
31, 1998, as a reduction to the gain on the sale.
NOTE 4 - NOTES PAYABLE
At March 31, 1998, and December 31, 1997, notes payable are comprised of the
following:
Interest
Rate 1998 1997
---------- -------- ------
Notes payable to Bryanston of which $295
are non-interest bearing 10% $ 1,399 $ 1,399
Other Various 19
----------------------
$ 1,399 $ 1,418
======= =======
At March 31, 1998, the Company was in default of its note payable to Bryanston.
The Company received a waiver of default through January 1, 1999.
6
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 5 - LONG-TERM DEBT
Long-term debt at March 31, 1998 and December 31, 1997 is comprised of the
following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interest
Rates 1998 1997
--------- -------- ------
Pre-closing financing (see Note 3), collateralized
by Alpha Gulf's property and equipment and certain
related assets, net of an uncollateralized, zero-
coupon 30 day promissory note in the stated
principal amount LIBOR of approximately $4,900........... +6.15% $ 19,000
Note payable, Bryanston, principal and interest
due monthly through April 1, 1999................... 10% 7,800 7,800
Capitalized lease obligations, payable monthly, expiring
in various years through 2001....................... 10-14% 288
-------------- ----------
7,800 27,088
Less amount included in net assets held for sale......... 19,288
-------------- ---------
$ 7,800 $ 7,800
============= ==========
</TABLE>
Aggregate future required principal payments are approximately as follows:
Years ending March 31:
1999................................... $ --
2000................................... 7,800
2001...................................
2002 and thereafter....................
$ 7,800
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.
7
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 6 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES
At March 31, 1998 and December 31, 1997, accounts payable and other
accrued expenses are comprised of the following:
1998 1997
------------------ -----------
Construction................... $ 755 $ 1,021
Accrued professional fees...... 427 634
Accrued property taxes......... 42 492
Accrued interest............... 2,375 2,219
Other.......................... 1,506 3,422
---------- ---------
5,105 $ 7,788
Less amount included in net
assets held for sale...... 2,189
-------------- ---------
$ 5,105 $ 5,599
========= =========
NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company is obligated under a $20,000 non-revolving promissory note with
Bryanston. Any amounts advanced under this note bear interest at prime plus 2%,
and is payable at the lesser of the outstanding principal amount or $2,000 per
annum through December 31, 1999. Beginning in 1996, interest was payable monthly
and the 1995 interest accrued on the note ($503) was payable on the note's
maturity date, December 2000. The outstanding principal balance as of March 31,
1998, and December 31, 1997, was $904 and $3,730, respectively.
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 $83. Under the terms of the
agreement, the Company has until June 30, 1998 to remove any structures or
equipment remaining on this site.
The Company is obligated under a wharfage agreement whereby the Company's
idle gaming vessel may continue to be moored at its Lakeshore, Mississippi
location for a monthly wharfage fee of approximately $8. The wharfage fee for
the three months ended March 31, 1998 was $23.
In January 1995, the Company, through its subsidiary, Alpha St. Regis, Inc.
("Alpha St. Regis"), entered into a binding 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. 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 approvals by the U.S. Department of Interior, the
National Indian Gaming Commission and the State of New York. As of March 31,
1998 and December 31, 1997, the Company has capitalized $1,291 toward the
design, architecture and other costs of development plans for the casino. Under
the memorandum of understanding, Catskill and Alpha St. Regis committed to enter
into a definitive agreement under the terms established in the memorandum. There
can be no assurance that that the casino project will receive the required
approvals. Bryanston is a 25% member of Catskill.
In 1996, Alpha St. Regis assigned its interest, under the memorandum of
understanding with Catskill to Alpha Monticello, Inc., another wholly-owned
subsidiary of the Company.
8
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
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 March 31, 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 March 31, 1998, deferred compensation payable
to the Chairman and Chief Executive Officer is approximately $1,100. As of May
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 March
31, 1998 amount to $8.
Included in restricted cash at March 31, 1998, is $460 in a litigation
escrow established at the December 1997 Pre Closing Financing to be utilized
towards the resolution of certain contingent litigation. In anticipation of the
ultimate resolution of those issues, the balance sheet as of March 31, 1998
includes accruals approximating $130.
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 .
9
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 8 - STOCKHOLDERS' EQUITY
The change in stockholders' equity during the three months ended March
31, 1998, is the result of the net loss of $1,695. The Company's cumulative
preferred stock, series B, has voting rights of one vote 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 (see Note 9). As of May 12, 1998, dividends
in arrears on the cumulative preferred, series B, stock amounted to $774.
NOTE 9 - SUBSEQUENT EVENTS
On May 12, 1998, the Company declared a 1997 dividend on its preferred
stock, series B, of $2,861 payable in 1,071 shares of the Company's common stock
(see Note 8).
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 will be granted to the
respective outside directors for each committee served upon.
NOTE 10 - 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 11 -SUMMARIZED FINANCIAL INFORMATION
The following is summarized financial information of Greenville Casino
Partners, L.P. for the period March 2, 1998 through March 31, 1998:
Net Revenues........................................... $ 4,419
Costs and expenses..................................... 4,560
---------
Gross margin........................................... (141)
Interest expense, net.................................. (568)
----------
Net loss.......................................... $ (709)
==========
10
<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.
Results of Operations - 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 three months ended March 31, 1998 and 1997:
Three Months
Ended March 31,
1998 1997
---- ----
Revenues:
Casino ........................... $ 4,923 $ 8,063
Food, beverage and other................ 94 201
------------ --------
Total revenues...................... 5,017 8,264
---------- -------
Operating expenses:
Casino ........................... 1,901 2,950
Food, beverage and other................ 91 145
Selling, general and administrative..... 2,610 3,871
---------- -------
Total operating expenses............ 4,602 6,966
---------- -------
Income from operations....................... 415 1,298
------------ -------
Other expenses:
Loss from equity investee............... (177)
Interest ........................... (610) (488)
Depreciation and amortization........... (864) (1,264)
------------ --------
Total other expenses................ (1,651) (1,752)
----------- --------
Loss before intercompany charges,
deferred income taxes
and gain on sale of assets.............. $ (1,236) $ (454)
=========== ==========
Three Months Ended March 31, 1998:
Casino, food and beverage revenues and expenses represent activity from
Alpha Gulf's operation of its Bayou Caddy's Jubilee Casino through the date of
its sale on March 2, 1998. Accordingly, the 1998 revenues and operating expenses
are less than 1997.
11
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (in thousands) (CONTINUED)
Three Months Ended March 31, 1998: (CONTINUED)
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 rooms and
41 rooms and suites, respectively. For the period March 2, 1998 through March
31, 1998, the Company's proportionate share of the Buyer's undistributed losses
amounted to $177.
Selling, general and administrative expenses for the three months ended
March 31, 1998 consist of payroll and related expenses of approximately $960 ,
marketing and advertising of approximately $930 , occupancy costs of
approximately $ 378 and other operating expenses of $342. Approximately $180 of
the payroll and related expenses, occupancy costs and other expenses pertain to
the period (March 2, 1998 through March 31, 1998) subsequent to the sale of the
Bayou Caddy's Jubilee Casino.
Interest expense was primarily attributable to the Pre-Closing Financing, a
note payable to Bryanston and a capital lease. The increase in 1998 of $122 as
compared to 1997 is primarily the result of the higher interest rate associated
with the Pre Closing Financing and an increase in the total debt outstanding
through the date of the sale on March 2, 1998.
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 March 31, 1998 amounted to approximately $8.
The Company, through a separate subsidiary, also owns a casino (the
Jubilation Casino) located in Lakeshore, Mississippi, which has been closed
since July 1996. The Company does not currently have plans to re-open or operate
the Jubilation Casino. The continuing costs incurred during the three month
period ending March 31, 1998 and 1997 were $166 and $251, respectively, for
continuing administration and insurance, and $195 for interest expense in 1997.
Future Operations - General:
Through its subsidiary Alpha Monticello, the Company is a fifty percent
owner in a joint venture management company which would operate the prospective
gaming activity in New York State (such prospective gaming activity being
hereinafter sometimes referred to as the "Proposed Gaming Development") (see
"Casino Development"). Subject to the Company's confirmation that the Proposed
Gaming Development is financially viable, the Company intends to pursue the
requisite licenses and other approvals and the availability of such appropriate
financing, either from the Company's own resources or from third parties, as may
be necessary to further develop the same. There can be no assurance that the
joint venture will elect to pursue further the Proposed Gaming Development. Even
if the joint venture elects to pursue the same, there can be no assurance the
Proposed Gaming Development will be brought to fruition or that, even if brought
to fruition, the Proposed Gaming Development will be successful or profitable.
If not brought to fruition, capitalized costs of approximately $1,291 will be
charged to operations.
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,
12
<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)
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.
Casino Development
New York - Alpha Monticello and Alpha St.Regis(Proposed Gaming Development)
On January 19, 1995, the Company, through its subsidiary, Alpha St. Regis,
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. In 1996, Alpha
St. Regis assigned its interest to Alpha Monticello. On August 2, 1996, Mohawk
Management L.L.C. executed an agreement with the St. Regis Mohawk Tribe (the
"Tribe") for the management of the proposed casino. The Tribe has submitted this
agreement to the National Indian Gaming Commission for its approval. 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, Inc. will be responsible for the day-to-day operations. The
agreement contemplates that the casino will be owned by the Tribe and will be
located on land to be placed in trust of the benefit of the Tribe.
In March 1998, Catskill completed the State Environmental Quality Review
Act process with the Village of Monticello's Planning Board as Lead Agency.
For the three months ended March 31, 1998 and 1997, incurred casino
development costs of $63 and $83, respectively, which relates to a general
corporate overhead allocation.
Liquidity and Capital Resources
For the three months ended March 31, 1998, the Company had net cash used in
operating activities of $2,483 . The uses were the result of a net loss of
$1,695 plus noncash items of $896 and a net decrease in working capital of
$1,684. The noncash items were $869 of depreciation and amortization, the
Company's proportionate share of undistributed losses of an equity investee of
$177 , a gain on sale of assets of $6,525 and $6,375 of deferred taxes. The
decrease in working capital consisted primarily of a decrease in prepaid
insurance and other current assets of $234, a decrease in accounts payable and
other accrued expenses of $1,983 and an increase in payroll and related
liabilities of $69 .
Cash provided by investing activities of $12,310 consisted of proceeds for
the sale of assets of $11,800, cash from the hotel construction escrow of
$1,700, hotel construction costs of $1,100 and payments for deposits and other
assets of $90.
Cash used in financing activities of $2,858 was attributable to $2,826 in
net payments under the $20,000 non-revolving promissory note with Bryanston and
$32 of payments on long-term debt.
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.
13
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (in thousands) (CONTINUED)
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.
14
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On February 23, 1998, the Company had its annual meeting.
(b) The following Directors were elected:
For Against Withheld
Stanley S. Tollman 4,623,016 0 0
Sanford Freedman 4,623,016 0 0
Thomas W. Aro 4,623,016 0 0
Brett G. Tollman 4,623,016 0 0
James A. Cutler 4,623,016 0 0
Matthew B. Walker 4,623,016 0 0
The second order of business was the approval of the appointment of Rothstein,
Kass & Company, P.C. as the Corporation's independent certified public
accountants for the ensuing year, as follows:
For Against Abstained
4,622,616 400 0
The third order of business was the proposal to approve the Sale of the
Company's Bayou Caddy's Jubilee Casino and Greenville Hotel, as follows:
For Against Abstained
9,391,991 400 0
15
<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: May 13, 1998
/s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: May 13, 1998
/s/ ROBERT STEENHUISEN
Robert Steenhuisen
Chief Accounting Officer
16
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alpha Hospitality Corporation Form 10Q for the quarter ending 03/31/98
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9180
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,486
<PP&E> 10,217
<DEPRECIATION> 5,218
<TOTAL-ASSETS> 24,673
<CURRENT-LIABILITIES> 9,232
<BONDS> 9,346
0
8
<COMMON> 145
<OTHER-SE> 6,985
<TOTAL-LIABILITY-AND-EQUITY> 7,138
<SALES> 0
<TOTAL-REVENUES> 5,054
<CGS> 0
<TOTAL-COSTS> 5,070
<OTHER-EXPENSES> 932(1)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 720
<INCOME-PRETAX> 4,680
<INCOME-TAX> 6,375
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,695)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
<FN> Footnote 1 - Tag #30, amount includes depreciation and amoritization
of $869 and pre-opening and development costs of $63
</FN>
</TABLE>
