U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
Transition report pursuant to section 13 or 15 (d) of the Securities Exchange
Act of 1934
Commission file number 1-12522
ALPHA HOSPITALITY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3714474
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12 East 49th Street, New York, NY 10017
(Address of principal executive offices)
(212) 750-3500
(Issuer's telephone number)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15 (d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: August 11, 1999.
Common Stock, $0.01 par value 16,788,228 shares
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets June 30, 1999 and
December 31, 1998 1
Consolidated Statements of Operations Six Months Ended
June 30, 1999 and 1998 2
Consolidated Statements of Operations Three Months Ended
June 30, 1999 and 1998 3
Consolidated Statements of Cash Flows Six Months Ended
June 30, 1999 and 1998 4 -5
Notes to Consolidated Financial Statements 6 -10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11- 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Signatures 17
All items that 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>
June 30, December 31,
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including restricted
cash of $365 and $1,619 in
1999 and 1998, respectively. . $ 2,846 $ 3,837
Other current assets. . . . 127 179
Total current assets . . 2,973 4,016
PROPERTY AND EQUIPMENT, net. . . . 4,608 4,630
DEPOSITS AND OTHER ASSETS. . . . . 1,539 1,550
$ 9,120 $ 10,196
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt, current maturity $ 1,000 $ 1,000
Accounts payable and accrued
expenses 1,217 871
Accrued payroll and related
liabilities 1,782 1,774
Total current liabilities 3,999 3,645
LONG-TERM DEBT, less current maturity 1,001 1,108
OTHER LIABILITIES 280 280
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 25,000
shares authorized, 16,788 and
15,183 issued in 1999 and 1998,
respectively 168 152
Preferred stock, 1,000 shares authorized:
Series B, $.01 par value, 821 issued 8 8
Series C, $.01 par value, 135 issued 1 1
Common stock payable 2,861
Capital in excess of par value 75,216 72,371
Accumulated deficit (71,553) (70,230)
Total stockholders' equity 3,840 5,163
$ 9,120 $ 10,196
</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>
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
REVENUES:
Casino . . . . $ $ 4,923
Food and beverage, retail and other. 92 266
Total revenues. . . . . 92 5,189
COSTS AND EXPENSES:
Casino . . . . 1,901
Food and beverage, retail and other. 91
Selling, general and administrative. 819 3,758
Interest . 81 954
Depreciation and amortization . . 22 883
Development costs. . . . . 493 130
Total costs and expenses . . . 1,415 7,717
LOSS FROM OPERATIONS. . . . . . . (1,323) (2,528)
OTHER INCOME (LOSS):
Loss from equity investee. (884)
Gain on sale of assets . . 6,425
Total other income, net. . . . 5,541
INCOME (LOSS) BEFORE DEFERRED INCOME TAXES (1,323) 3,013
DEFERRED INCOME TAX . . . . . . . 6,375
NET LOSS . . . . $ (1,323) $ (3,362)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING. . . . . . . . 16,753 14,741
NET LOSS PER COMMON SHARE, COMMON AND
DILUTED . . . . . . . . . $ (.08) $ (.23)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
<S> <C> <C>
REVENUES:
Management fees, interest and other . . .$ 49 $ 135
Total revenues. . . . 49 135
COSTS AND EXPENSES:
Selling, general and administrative. 491 780
Interest . . 39 234
Depreciation and amortization . . 11 14
Development costs. . . . 336 67
Total costs and expenses . . . 877 1,095
OTHER LOSS:
Equity investee . . . . (707)
NET LOSS . . . . . $ (828) $ (1,667)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING . . 16,788 15,072
NET LOSS PER COMMON SHARE, COMMON AND
DILUTED . . . . $ (.05) $ (.11)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . $ (1,323) $ (3,362)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization. . 22 883
Deferred tax . . . . . . . 6,375
Equity loss. . . . . . . . 884
Gain on sale of assets . . (6,425)
Changes in operating assets and liabilities:
Decrease in accounts receivable . 15
Decrease in prepaid insurance . . 276
Increase in inventories . . (19)
(Increase) decrease in other current
assets. . . . . . . . 52 (202)
Increase (decrease) in accounts payable
and accrued expenses . . . 346 (3,089)
Increase (decrease) in accrued payroll
and related liabilities. . 8 (57)
NET CASH USED IN OPERATING ACTIVITIES. . . (895) (4,721)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets. . 11,800
Payments for hotel construction costs . . (1,100)
Cash from hotel construction escrow . 1,700
(Increase) decrease for deposits and other
assets . 11 (138)
NET CASH PROVIDED BY INVESTING ACTIVITIES. . 11 12,262
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to affiliate . . . . . (3,299)
Payments on long-term debt. . . (107) (32)
NET CASH USED IN FINANCING ACTIVITIES. . . (107) (3,331)
NET INCREASE (DECREASE) IN CASH. . . . (991) 4,210
CASH, beginning of period. . . . . . . 3,837 2,211
CASH, end of period . . $ 2,846 $ 6,421
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION,
cash paid for interest during the period . . . $ 36 $ 73
SUPPLEMENTAL SCHEDULES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Restructuring and conversion of Bryanston
obligations:
Issuance of preferred stock. . $ 9,732
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 indebtedness . . . $ 17,900
Assumption by Buyer of certain accounts payable,
accrued expenses, payroll liabilities and a
capital lease obligation . . $ 2,000
</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 a subsidiary, owned and operated a gaming vessel in
Greenville, Mississippi. On March 2, 1998, the Company sold the gaming vessel,
a newly-constructed adjacent hotel and other assets to Greenville Casino
Partners, L.P. ( Buyer") for approximately $40.2 million, including a 25%
partnership interest in Buyer, whose assets include an additional casino and
hotel located in Greenville, Mississippi.
On July 8, 1999, the Company contributed its dormant gaming vessel, Bayou
Caddy's Jubilation Casino, to Casino Ventures, LLC ( Casino Ventures") (see Note
8). Included in the consideration, the Company received a membership interest
in Casino Ventures, whose other asset is a leasehold interest in property
located in Mhoon Landing in Tunica, Mississippi ( Tunica"). The Company expects
Casino Ventures to commence operations in Tunica in mid year 2000.
The Company's current operations include investigating and pursuing the
development of gaming operations in New York and Florida and the potential
acquisition or development of other business operations.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SELECTED
SIGNIFICANT ACCOUNTING POLICIES
Financial Statements - The accompanying unaudited consolidated financial
statements of the Company and its 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
that 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, 1998, included in the
Company's 1998 Form 10-K.
Operations and Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant 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.
Cash - The Company maintains its cash in bank deposit accounts, which at times
may exceed federally insured limits. The company has not incurred any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash.
Casino Revenue - Casino revenue was 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 consisted of food
and beverage furnished gratuitously to customers. Revenues do not include the
retail amount of food and beverage of $496 for the six months ended June 30,
1998, provided gratuitously to customers. The cost of these items was $224 for
the six months ended June 30, 1998.
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.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SELECTED
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications - Certain amounts have been reclassified in 1998 to
conform to the 1999 presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
Details of property and equipment at June 30, 1999 and December 31, 1998
are as follows (see Note 8):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Boat, barge and improvements . $ 4,940 $ 4,940
Leasehold improvements. . . 82 82
Gaming equipment . . 3,023 3,023
Furniture, fixtures and equipment . 1,834 1,834
9,879 9,879
Less accumulated depreciation and
amortization. . . 5,271 5,249
$ 4,608 $ 4,630
</TABLE>
NOTE 4 - LONG-TERM DEBT
Long-term debt at June 30, 1999 and December 31, 1998 was comprised
of the following:
<TABLE>
<CAPTION>
Interest
Rate 1999 1998
<S> <C> <C> <C>
Mortgage note payable to Bryanston, an affiliate,
formerly collateralized by the Company's idle
gaming vessel (see Note 8) 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% $2,001 $2,108
Less current portion 1,000 1,000
$ 1,001 $1,108
</TABLE>
Years ending June 30:
2000 $ 1,000
2001 1,000
2002 and thereafter 1
$ 2,001
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 5 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES
At June 30, 1999 and December 31, 1998, accounts payable and other
accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Insurance. . . . . . . . $ 247 $ 227
Accrued professional fees. . . . 135 250
Accrued interest . . . . 48 4
Other. . . . . . . . . . 787 390
$ 1,217 $ 871
</TABLE>
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY
TRANSACTIONS
The Company's dormant gaming vessel previously located in
Lakeshore, Mississippi was relocated in 1998 to a terminal in Mobile, Alabama,
where it was moored under a month-to-month lease through the date of its
contribution to Casino Ventures in July 1999 (see Note 8).
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") and collectively with
AMI (the "Parties") dated December 1, 1995, which, among other things, provides
for the establishment of Mohawk Management, LLC ("MML"), a New York limited
liability company, 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 (25% owned by Bryanston) 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 terminated on December 31, 1998, since 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. Additionally, the
Memorandum is silent as to the effect of such expiration on 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. On December 28, 1998, AMI filed for arbitration, as
prescribed by the Memorandum, to resolve any disputes by the Parties. The
Company is seeking a determination from the arbitrator that the termination of
the Memorandum merely means that the funding obligations of the Parties have
expired and that MML remains a viable entity with both AMI and CDL as 50%
owners. On or about February 8, 1999, CDL submitted its response to AMI's
demand for arbitration. Thereafter, the Parties' counsels informed the American
Arbitration Association (the AAA") that the Parties were engaged in settlement
discussions, and the AAA agreed to stay further proceedings in the arbitration
until September 24, 1999. Included in deposits and other assets as of June 30,
1999 and December 31, 1998, the Company capitalized $1,366 towards the design,
architecture and other costs of the development plans for the Monticello 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 is obligated under an employment contract with its
Chairman and Chief Executive Officer ( CEO"). 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. As of June 30, 1999, deferred
compensation payable to the Chairman and CEO is approximately $1,404.
In May 1999, the Company agreed, subject to obtaining shareholder approval, to
afford the Chairman and CEO the right to convert up to $2,000 of deferred
compensation payable to up to 1,000,000 shares of the Company's common stock at
a stock price of two dollars per share, the closing price on that day. The
Chairman and CEO's right to convert deferred compensation to the Company's
common stock shall only be exercisable only if he continues to defer his salary
and he remains employed through and including January 14, 2000 or such later
date as the Board of Directors may determine. In addition, these conversion
rights shall not be exercisable before January 14, 2000.
To comply with State requirements regarding the Company's 25%
partnership interest in Greenville Casino Partners, L.P., the Company has
received a finding of suitability from the Mississippi Gaming Commission. The
Company's finding of suitability has a term of two years and is subject to
renewal in October 1999.
In January 1996, Alpha Gulf Coast, Inc. ( Alpha Gulf"), the
Company's wholly owned subsidiary, 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 who
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. These cases have
been consolidated for discovery purposes, although only one case has been set
for trial. The scheduled trial date is March 13, 2000 in Jackson, Mississippi.
If Alpha Gulf's motion to transfer the case to another court is successful,
the trial date will be changed. 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.
The Company is involved in a dispute with Buyer regarding certain
claims and the assumption of liabilities pursuant to the terms of the Asset
Purchase Agreement dated December 17, 1997 pursuant to which the Company sold
its Bayou Caddy's Jubilee Casino and related hotel property to Buyer. The
Company claims Buyer is liable for certain liabilities relating to employees'
vacation pay, health insurance benefits and certain accounts payable. Buyer's
claims against the Company are for the Company's alleged breach of warranties
with respect to the condition of the assets purchased, alleged failure to
continue operating the casino in the normal course of business through the date
of sale and alleged failure to pay certain accounts payable. Management is
pursuing vigorously both recovery of its claims and its contest of Buyer's
claims. Although a ruling from an arbitrator is not expected for another
several months, the Company and its counsel believe that, based on information
presently available, the arbitrator will find the aggregated claims of the
Company exceed the aggregate claims of Buyer, and the arbitrator will enter
an award in favor to the Company. There can be no assurance that, in the
event of a favorable award, any resultant monies due the Company would be
collected. Accordingly, no such award has been recorded on the
Company's books as of June 30, 1999.
The Company is a party to various other legal actions that 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 and adverse effect on
the financial position, results of operations or cash flows of the Company .
On March 2, 1998, the Company entered into a supervisory hotel
management agreement with Buyer (see Note 1) for a term of ten years, pursuant
to which the Company is entitled to receive $100 per annum for management
services, payable monthly. Supervisory management fees earned for the six
months ended June 30, 1999 and 1998, amounted to $50 and $33, respectively.
On May 12, 1998, subject to shareholder approval, the Company
granted annual compensation to each of the three outside
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY
TRANSACTIONS (CONTINUED)
directors of $6 per annum plus the option to purchase 25 shares, along with 15
shares for each committee served upon, of the Company's common stock at the
current market price. Compensation expense to the three outside directors for
the six months ended June 30, 1999 and 1998, amounted to $9 and $2,
respectively.
On May 27, 1999, subject to shareholder approval, the Company
granted options to purchase up to 50 shares of the Company's common stock to
each of its three (3) outside directors and options to purchase up to 75 shares
of the Company's common stock to its employee directors, excluding the Chairman.
Additional options to purchase an aggregate amount of 434 shares, 289 of which
are subject to shareholder approval, of the Company's common stock were issued
to certain employees of the Company and other individuals performing previous
services for the Company. All of these options granted on May 27, 1999, are
exercisable at a price per share equal to the closing NASDAQ bid price of May
27, 1999, of $2.00 per share.
A director of the Company is a partner in a law firm that provides
legal services to the Company. Fees to such firm in the six months ended June
30, 1999 and 1998, amounted to $65 and $149, respectively. All such fees relate
to general corporate matters.
NOTE 7 - STOCKHOLDERS' EQUITY
The change in stockholders' equity during the six months ended June
30, 1999, includes the net loss of $1,323 and the issuance of 1,605 shares of
common stock relative to dividends owing on the Company's preferred stock,
series B. Approximately 1,483 of the issued shares of common stock related to
the dividends owed with respect to 1997, with the remaining 122 of issued
shares to be applied to dividends that are owed with respect to the 1998
dividend.
The Company's cumulative preferred stock, series B, has voting rights
of eight votes per preferred share, is convertible into 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 shares of the Company's common stock. As of
August 10, 1999, dividends in arrears on the cumulative preferred,
series B stock amounted to 1,943 shares with respect to 1998 and $1,549 with
respect to 1999. The holders of the preferred stock, series B, have agreed to a
deferral of the issuance of the shares with respect to 1998.
The Company's preferred stock series C, has voting rights of twenty-
four votes per preferred share, is convertible into twenty-four shares of
common stock for each share of preferred 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 that realize a profit in excess of $5,000.
In the event the dividend is not paid by the end of the
Company's fiscal year, the dividend will be payable in shares of the Company's
common stock. As of August 10, 1999, dividends in arrears on the cumulative
preferred stock, series C, amounted to 255 shares with respect to 1998 and $382
with respect to 1999. The sole holder of the preferred stock, series C, has
agreed to a deferral of the issuance of the shares with respect to 1998.
NOTE 8 - SUBSEQUENT EVENT
On July 8, 1999, the Company contributed its dormant vessel, Bayou
Caddy's Jubilation Casino to Casino Ventures(see Notes 1,3,4 and 6). At the
time of the contribution, the vessel (including its gaming equipment, furniture
and other items) had a net book value of $4,549. In exchange, the Company
received $150 in cash, a promissory note of $1,350 and a membership interest in
Casino Ventures. The promissory note accrues interest at an initial rate of
8.75% per annum, payable quarterly, commencing September 1, 1999, with the
principal balance due July 8, 2002. The initial interest rate of 8.75% is
adjusted daily to prime plus one percent with a minimum rate of
8,75%. Upon repayment of the promissory note, the Company's membership interest
in Casino Ventures decreases from its initial percentage of 93% to 15%. A
director of the Company is a partner in Casino Ventures and serves as its
general manager.
The consolidated financial statements of the Company will include the
accounts of Casino Ventures until such time as the Company's membership interest
decreases to less than 50%.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (dollars 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 acquisitions of new business
operations, including those which have 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 improvements and related
permits, licenses, leases and other agreements to Greenville Casino Partners,
L.P. ( Buyer"). In exchange for such assets, the Company received from 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 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 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 six and three months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
(unaudited) (unaudited)
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Casino . . . $ $4,923 $ $
Food, beverage and other . 3 107 13
Total revenues . 3 5,030 13
Operating expenses:
Casino . . . 1,901
Food, beverage and other . 91
Selling, general and
administrative. . 145 2,810 48 200
Total operating expenses 145 4,802 48 200
Income (loss) from operations (142) 228 (48) (187)
Other expenses:
Loss from equity investee. 884 707
Interest . . 797 187
Depreciation and amortization 12 873 6 9
Total other expenses. . 12 2,554 6 903
Loss before intercompany
charges, deferred income
tax and gain on
sale of assets . . $ (154) $ (2,326) $ (54) $(1,090)
</TABLE>
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (dollars in
thousands)(CONTINUED)
Six and Three Months Ended June 30, 1999:
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. Additionally, for the six and three
months ended June 30, 1999, Alpha Gulf did not operate the Bayou Caddy's Jubilee
Casino. Accordingly, the 1998 revenues and operating expenses are greater than
1999.
Selling, general and administrative expenses for the six and three
months ended June 30, 1999, consist of payroll and related expenses of
approximately $57 and $28, respectively, occupancy costs of approximately $18
and $9, respectively, a general corporate overhead allocation of $44 and $0,
respectively, and other operating expenses of $26 and $11, 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
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 25 table games and 800 slots which
represents 54.4% of the devices in the Greenville market. The two hotels offer
56 rooms and 41 rooms and suites, respectively. Since the acquisition of
substantially all of the assets of Alpha Gulf and Greenville Hotel, management
has been advised that Buyer has incurred significant operating losses resulting
in a substantial working capital deficiency and partners' deficiency of
approximately $1.4 million through December 31, 1998. Buyer decided to close
temporarily the Las Vegas Casino in October 1998 in an effort to decrease
expenses and improve the operating performance of the Bayou
Caddy's Jubilee Casino. Nonetheless, management has been advised that Buyer
continues to incur operating losses and anticipates incurring operating
losses in 1999.
Currently, management has been advised that Buyer plans to reopen the Las Vegas
Casino during 1999 if sufficient capital can be raised to allow both of its
boats to be operated contiguously under one gaming license. Buyer believes that
the contiguous operation of the two casinos will yield increased market share
and operating cash flows. Additionally, management has been advised that Buyer
is pursuing other capital sources and modifying its debt service requirements in
such a manner intended to provide additional working capital. However, there
can be no assurance that Buyer will be able to attract the necessary capital,
modify its debt service requirements or otherwise fund the cost of mooring and
operating these boats in a contiguous manner. Furthermore, Buyer's independent
public accountants' have issued their reports, dated March 26, 1999, with an
explanatory paragraph relating to Buyer's ability to continue
as a going concern. In light of these developments and in accordance with its
policy on impairment of long-lived assets, the Company adjusted the carrying
value of its remaining 25% partnership interest in Buyer to zero during the
fourth quarter of 1998.
Interest expense for the six and three months ended June 30, 1998, was
primarily attributable to the Pre-Closing Financing, notes payable 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. The amounts
due to Bryanston were extinguished June 30, 1998, pursuant to a restructuring
and refinancing of the Company's debts with Bryanston.
Other Operations:
In connection with the sale of the hotel on March 2, 1998, the Company
entered into a supervisory management agreement with Buyer for a term of ten
(10) years whereby the Company will be entitled to receive $100 per annum for
management services.
The Company, through a separate subsidiary, also owned a casino (the
Jubilation Casino) previously located in Lakeshore, Mississippi, which has been
closed since July 1996. In August 1998, the Company relocated that casino to
Mobile, Alabama, where it was moored at a terminal pursuant to a month to month
lease through July 1999 (see Future Operations - Casino Ventures). The costs
for continuing administration, insurance, settlements with former employees and
the mooring and casino relocation of the vessel incurred during the six and
three month ended June 30, 1999 were $145 and $83, respectively, compared to
$288 and $123 for the same periods in 1998. Interest expense in 1999 related
to debt on the idle vessel.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in
thousands)(CONTINUED)
Future Operations:
General:
Proposals or prospects for new casinos, other gaming activities or other
opportunities may be presented to the Company, or the Company may otherwise
become aware of such opportunities (any such new casinos, other gaming
activities or other opportunities being hereinafter sometimes referred to as New
Opportunities"). The Company will continue to investigate and evaluate New
Opportunities and, subject to available resources, may choose to pursue and
develop one or more New 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 Opportunities will be presented to, or otherwise come to
the attention of, the Company, that the Company will elect to pursue or develop
any New Opportunities or that any New Opportunities that the Company may elect
to pursue or develop will actually come to fruition or (even if brought to
fruition) will be profitable.
As a result of the sale of Bayou Caddy's Jubilee Casino, 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 ("Business Combination") with
an operating business ("Acquired Business"). To the extent the Company's
financial and other resources are not devoted to, or reserved for, the
development of any New Opportunities, 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 as an operating company 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 (see Note 6 to Consolidated Financial Statements):
The Company, through its wholly owned subsidiary AMI, is party to a
Memorandum with CDL, which, among other things, provides for the establishment
of MML for the purpose of entering into an agreement to manage a proposed casino
on land to be owned by 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 terminated on December 31, 1998, since 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. Additionally, the Memorandum is silent as to the
effect of such expiration on 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. On December 28, 1998, AMI
filed for arbitration as prescribed by the Memorandum to resolve any disputes by
the Parties. The Company is seeking a declaration from the arbitrator that the
termination of the Memorandum merely means that the funding obligations of the
Parties have expired and that MML remains a viable entity with both AMI and CDL
as 50% owners. On or about February 8, 1999, CDL submitted its response to
AMI's demand for arbitration. Thereafter, the Parties' counsels informed the
American Arbitration Association (the AAA") that the Parties were engaged in
settlement discussions, and the AAA agreed to stay further proceedings in the
arbitration until September 24, 1999. For the six months ended
June 30, 1999 and 1998, the Company incurred casino development costs of $113
and $100, respectively, which related to a general overhead allocation. As of
June 30, 1999, and December 31, 1998, the Company has capitalized $1,366
towards the design, architecture and other costs of development plans for the
Monticello Casino.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (dollars in
thousands)(CONTINUED)
Future Operations (CONTINUED)
Manufactured Housing:
In December 1998, the Company, through its wholly owned subsidiary,
Alpha Peach Tree Corporation, entered into letters of intent to acquire all of
the issued and outstanding shares of Sunstate Manufactured Homes of Georgia,
Inc. d.b.a. Peach State Homes and its affiliated company, South Georgia Frames
Unlimited, two closely held corporations engaged in the manufacture and sale of
single family homes. On March 26, 1999, the Company executed definitive
agreements governing the proposed acquisition, which remained subject to certain
conditions, including satisfactory completion of the Company's due diligence
review.
Upon completion of its due diligence (as approved by the Company's
Board of Directors) relative to this transaction, the Company has decided not to
consummate this proposed acquisition. Development costs incurred by the Company
with respect to this proposed transaction amounted, for the six and three months
ended June 30, 1999, to $295 and $223, respectively, ,which amounts included a
general corporate overhead allocation of $132 and $60, respectively.
Krawdaddy's:
In December 1998, the Company entered into a memorandum of
understanding with Equity Services, Inc. to exchange the Company's dormant
Jubilation vessel (see Future Operations - Casino Ventures) berthed in Mobile,
Alabama, plus cash for the ownership of "Krawdaddy's", an operating truck stop
with a restaurant and video poker room in Port Allen, Louisiana.
The transactions contemplated by such memorandum of understanding
were subject to a number of conditions, including that definitve agreements
covering such transactions be entered into by January 31, 1999. No definitive
agreements were entered into by that date, and the parties have not agreed to
any extension of that date. The proposed transaction as originally contemplated
in the memorandum of understanding will not proceed. Although, the parties have
continued discussions with respect to other possible transactions. There can,
however, be no assurance that such discussions will continue and, even if
continued, will result in any agreement with respect to a prospective
acquisition.
Haulover Beach Park and Marina:
On May 7, 1999, a subsidiary of the Company, Alpha Florida
Entertainment, Inc. ( Alpha Florida") was notified by Miami-Dade County (the
County") that it had received the final approval on a lease to dock and operate
a day cruise vessel out of the County's Haulover Beach Park and Marina adjacent
to Bal Harbour, Florida. The exclusive lease is for five years. The County may
renew this exclusive agreement for two periods of five years each. For this
exclusivity, the Company has agreed to pay the
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (dollars in
thousands)(CONTINUED)
Future Operations (CONTINUED)
Haulover Beach Park and Marina:(CONTINUED)
County a minimum guaranteed monthly base rent, a per-passenger fee and a
percentage of retail merchandise sold in the facility. The lease commences upon
the inaugural cruise.
Casino Ventures:
On July 8, 1999, the Company, through its subsidiary, Jubilation
Lakeshore, Inc., entered into an agreement with Casino Ventures, LLC ( Casino
Ventures"). Pursuant to that agreement, the Company contributed its dormant
gaming vessel, Bayou Caddy's Jubilation Casino to Casino Ventures in exchange
for $150 in cash, a promissory note of $1,350 plus a membership interest in
Casino Ventures.
The vessel will be refurbished and redeployed to Mhoon Landing in Tunica,
Mississippi. The Company expects Casino Ventures to commence operations in
Tunica in mid year 2000. The Company is not required to make any further
capital contributions to Casino Ventures.
Liquidity and Capital Resources
For the six months ended June 30, 1999, the Company had net cash
used in operating activities of $895. The uses were the result of a net loss of
$1,323 plus depreciation of $22 and a net decrease in working capital of $406.
The decrease in working capital consisted primarily of a net decrease in other
current assets of $52, an increase in accounts payable and other accrued
expenses of $346 and an increase in payroll and related liabilities of $8.
Cash provided by investing activities of $11 consisted of a decrease in
deposits and other assets.
Cash used in financing activities of $107 was attributable to repayments
of the mortgage note payable to Bryanston.
The cruise vessel to be utilized in connection with the Haulover Beach
Park and Marina transaction may require financing. In the event it is required,
there can be no assurances such financing will be obtained by the Company.
Although the Company is subject to continuing litigation, the ultimate
outcome of which cannot presently be determined, management believes any
additional liabilities that may result form these cases in excess of insurance
coverage will not be in an amount that will materially increase the liabilities
of the Company as presented in the attached consolidated 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 materially
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, 1998 on file with the Securities and Exchange
Commission.
In January 1996, Alpha Gulf Coast, Inc. ( Alpha Gulf"), the
Company's wholly owned subsidiary, 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 who
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. These cases have been
consolidated for discovery purposes, although only one case has been
set for trial. The scheduled trial date is March 13, 2000 in Jackson,
Mississippi. If Alpha Gulf's motion to transfer the case to another court is
successful, the trial date will be changed. 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.
There have been no other material developments to any existing legal
proceeding during the current quarterly period.
<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 its behalf by the undersigned, thereunto duly
authorized.
Dated: August 11, 1999 /s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: August 11, 1999 /s/ ROBERT STEENHUISEN
Robert Steenhuisen
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alpha Hospitality Corporation Form 10Q for the quarter ended June 30, 1999.
</LEGEND>
<RESTATED>
<CIK> 0000906780
<NAME> ALPHA HOSPITALITY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,846
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,973
<PP&E> 9,879
<DEPRECIATION> 5,271
<TOTAL-ASSETS> 9,120
<CURRENT-LIABILITIES> 3,999
<BONDS> 2,001
0
9
<COMMON> 168
<OTHER-SE> 3,663
<TOTAL-LIABILITY-AND-EQUITY> 9,120
<SALES> 0
<TOTAL-REVENUES> 92
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,334<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> (1,323)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,323)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,323)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
<FN>
<F1>Amount includes Depreciation and Amoritization of $22 and development costs
of $493.
</FN>
</TABLE>
