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 March 31, 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
incorporation or organization) number)
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 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 March 31, 1999 and
December 31, 1998 . . . . . . . . . . . . . 1
Consolidated Statements of Operations Three Months Ended
March 31, 1999 and 1998 . . . . . . . . . . 2
Consolidated Statements of Cash Flows Three Months Ended
March 31, 1999 and 1998 . . . . . . . . . . 3-4
Notes to Consolidated Financial Statements . 5-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . 10-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . 16
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>
March 31, December 31,
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of $1,621
and $1,619 in
1999 and 1998, respectively. . . . . .$ 2,925 $ 3,837
Other current assets. . . . . . . . . . . 205 179
Total current assets 3,130 4,016
PROPERTY AND EQUIPMENT, net . . . . . . . . 4,619 4,630
DEPOSITS AND OTHER ASSETS . . . . . . . . . 1,639 1,550
$ 9,388 $ 10,196
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt, current maturity . . . . $ 1,000 $ 1,000
Accounts payable and accrued expenses. . 695 871
Accrued payroll and related liabilities. 1,743 1,774
Total current liabilities . . . . . . 3,438 3,645
LONG-TERM DEBT, less current maturity. . . 1,002 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. . . . . . . . . . . (70,725) (70,230)
Total stockholders' equity. . . . . . 4,668 5,163
$ 9,388 $ 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>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
REVENUES:
Casino . . . . $ $ 4,923
Food and beverage, retail and other . . . 43 131
Total revenues . . . . . . . . . . . . 43 5,054
COSTS AND EXPENSES:
Casino . . . . 1,901
Food and beverage, retail and other . . . 91
Selling, general and administrative . . . 328 3,078
Interest . . . 42 720
Depreciation and amortization . . . . . . 11 869
Development costs . . . . . . . . . . . . 157 63
Total costs and expenses . . . . . . . 538 6,722
OTHER INCOME (LOSS):
Loss from equity investee . . . . . . . . (177)
Gain on sale of assets. . . . . . . . . . 6,525
Total other income, net. . . . . . . . 6,348
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE DEFERRED INCOME TAX . . . . . . (495) 4,680
DEFERRED INCOME TAX . . . . . . . . . . . . 6,375
NET LOSS . . . . $ (495) $ (1,695)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING. 16,717 14,406
NET LOSS PER COMMON SHARE, COMMON AND
DILUTED. . . $ (.03) $ (.12)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (495) $ (1,695)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization. . . . 11 869
Deferred tax . . . . . . . . . . . . 6,375
Loss from equity investee. . . . . . 177
Gain on sale of assets . . . . . . . (6,525)
Changes in operating assets and
liabilities:
Decrease in accounts receivable . 15
Decrease in prepaid insurance . . 156
Increase in inventories . . . . . (19)
(Increase) decrease in other
current assets. . (26) 78
Decrease in accounts payable and
accrued expenses. (176) (1,983)
Increase (decrease) in accrued
payroll and related
liabilities. . . . . (31) 69
NET CASH USED IN OPERATING ACTIVITIES. . . . (717) (2,483)
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
Payments for deposits and other assets. . . (89) (90)
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES . . . . . . . . . . . (89) 12,310
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to affiliate . . . . . . . . . . (2,826)
Payments on long-term debt. . . . . . . . (106) (32)
NET CASH USED IN FINANCING ACTIVITIES . . . (106) (2,858)
NET INCREASE (DECREASE) IN CASH . . . . . . (912) 6,969
CASH, beginning of period . . . . . . . . . 3,837 2,211
CASH, end of period . . . . . . . . . . . . $ 2,925 $ 9,180
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION, cash paid for
interest during the period $ 36 $ 61
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
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 1 - NATURE OF BUSINESS
Alpha Hospitality Corporation (the "Company"), incorporated in Delaware on
March 19, 1993, through its subsidiaries, owned and operated a gaming vessel
and constructed an adjacent hotel in Greenville, Mississippi. On March 2, 1998,
the Company sold these assets to Greenville Casino Partners, L.P. (Buyer).
Included in the consideration, the Company received a 25% partnership
interest in Buyer, whose assets include an additional casino and hotel located
in Greenville, Mississippi. The Company's current operations include
investigating and pursuing the development of potential new gaming operations in
New York, the potential acquisitions of manufactured housing, restaurant and
gaming operations 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 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 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 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 for the three months ended March
31, 1998, provided gratuitously to customers. The cost of these items was
$224 for the three months ended March 31, 1998.
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 1998 to
conform to the 1999 presentation.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 3 - PROPERTY AND EQUIPMENT
Details of property and equipment at March 31, 1999 and December 31, 1998 are
as follows:
<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. . . . . . . . . . 5,260 5,249
$ 4,619 $ 4,630
</TABLE>
NOTE 4 - LONG-TERM DEBT
Long-term debt at March 31, 1999 and December 31, 1998 is comprised of the
following:
<TABLE>
<CAPTION>
Interest
Rate 1999 1998
<S> <C> <C> <C>
Mortgage note payable to
Bryanston, an affiliate,
collateralized by the
Company's idle gaming vessel
with interest payable monthly
and principal payments
not to exceed $1,000 per annum,
with any unpaid balance due at
maturity in April 2005. . 8% $ 2,002 $ 2,108
2,002 2,108
Less current portion . . . . . 1,000 1,000
$ 1,002 $ 1,108
</TABLE>
Aggregate future required principal payments are approximately as follows:
<TABLE>
<CAPTION>
<S> <C>
Years ending March 31:
2000. . . . . . . . . . . . . . . . . $ 1,000
2001. . . . . . . . . . . . . . . . . 1,000
2002 and thereafter . . . . . . . . . 2
$ 2,002
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 5 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES
At March 31, 1999 and December 31, 1998, accounts payable and other accrued
expenses are comprised of the following:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
Insurance . . . . . . . . . . . $ 180 $ 227
Accrued professional fees . . . 150 250
Accrued interest. . . . . . . . 9 4
Other . . . . . . . . . . . . . 356 390
$ 695 $ 871
</TABLE>
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
The Company's idle gaming vessel previously located in Lakeshore,
Mississippi was relocated in 1998 to a terminal in Mobile, Alabama, where it
is currently moored under a month to month lease.
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 May 21, 1999. Included in deposits and other assets as of
March 31, 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. 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, 1999, is $1,256 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, 1999, deferred compensation
payable to the Chairman and Chief Executive Officer is approximately $ 1,341.
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 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.
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. 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 three to five 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.
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 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 whereby the Company
will receive $100 per annum for management services, payable monthly.
Supervisory management fees earned for the three months ended March 31, 1999
and 1998, amounted to $25 and $8, respectively.
On May 12, 1998, subject to shareholder approval, the Company approved
annual compensation to each of the three outside 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 three months
ended March 31, 1999, amounted to $4.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
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 three months ended March
31, 1999 and 1998, amounted to $15 and $10 , respectively. All such fees relate
to general corporate matters.
NOTE 7 - STOCKHOLDERS' EQUITY
The change in stockholders' equity during the three months ended March 31,
1999, includes the net loss of $495 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 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 shares common stock. As of March 31, 1999,
dividends in arrears on the cumulative preferred, series B stock amounted to
1,943 shares.
The Company's preferred stock series C, has voting rights of twenty-four
votes per preferred share, is convertible to 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 common stock. As of March 31, 1999,
dividends in arrears on the cumulative preferred stock, series C, amounted to
255 shares.
<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 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 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 three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1999 1998
<S> <C> <C>
Revenues:
Casino . . . . . . . . . $ $ 4,923
Food, beverage and other. 3 94
Total revenues . . . . 3 5,017
Operating expenses:
Casino . . . . . . . . . 1,901
Food, beverage and other. 91
Selling, general and
administrative. 97 2,610
Total operating expenses. 97 4,602
Income from operations. . . (94) 415
Other expenses:
Loss from equity investee. . (177)
Interest . . (610)
Depreciation and amortization (6) (864)
Total other expenses . (6) (1,651)
Loss before intercompany
charges, deferred income
taxes and gain on sale of
assets . . $ (100) $ ( 1,236)
</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)
Three Months Ended March 31, 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 three months ended
March 31, 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 three months ended March
31, 1999, consist of payroll and related expenses of approximately $28,
occupancy costs of approximately $14, a general corporate overhead allocation of
$44 and other operating expenses of $11.
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
temporarily close 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 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 three months ended March 30, 1998, was primarily
attributable to the Pre-Closing Financing, amounts due to Bryanston and a
capital lease. The Pre-Closing Financing and the capital lease were
extinguished in March 1998 with the proceeds from the March 2, 1998 sale of
substantially all of the assets of Alpha Gulf and Greenville Hotel. 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 receive $100 per annum for management services.
Supervisory management fees earned for the three months ended March 31, 1999
and 1998, amounted to approximately $25 and $8, respectively.
The Company, through a separate subsidiary, also owns a casino (the Jubilation
Casino) previously located in Lakeshore, Mississippi, which has been closed
since July 1996. In August 1998, the Company relocated that casino to Mobile,
Alabama, where it is being moored at a terminal pursuant to a month to month
lease. The Company does not currently have plans to re-open or operate the
Jubilation Casino (see Future Operations for a discussion of management's
proposal involving the Jubilation vessel). The continuing costs incurred
during the three month ended March 31, 1999 and 1998 were $62 and $166,
respectively, for continuing administration, insurance, settlements with
former employees and the mooring and casino relocation of the vessel.
Interest expense of $42 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 casino, 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 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 Opportunity or that any New Opportunity 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 ( 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 any New 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:
The Company, through its wholly owned subsidiary AMI, is party to a Memorandum
with CDL dated December 1, 1995, 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, Catskill 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 May 21, 1999. For the three months ended March 31, 1999 and 1998, the
Company incurred casino development costs of $57 and $63, respectively, which
relates to a general overhead allocation. As of March 31, 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 ("Alpha Peach Tree"), entered into letters of intent
to acquire all of the issued and outstanding shares of Sunstate Manufactured
Homes of Georgia, Inc. ("Sunstate") d.b.a. Peach State Homes and its
affiliated company, South Georgia Frames Unlimited ("South Georgia"),
two closely held corporations engaged in the manufacture and sale of single
family homes. On March 26, 1999, the Company executed the definitive
agreements governing the acquisition.
Sunstate and South Georgia currently own and operate three manufacturing
facilities in Adel, Georgia. Additionally, Sunstate, through two majority
owned subsidiaries, has recently developed five retail centers in which they
hold a majority interest. The retail centers feature the Peach State, Navigator
and Crown Royale lines currently produced by Sunstate.
These agreements provide for a purchase price of $9,809. The purchase price
will be paid with a combination of cash and Company stock. Upon closing, the
Company will expand its Board to add two new board members. The selling
shareholders of Sunstate, certain of whom will remain in their current
management capacity, will nominate the additional Board members.
Although, on March 26, 1999, the Company (through its subsidiary, Peach Tree)
entered into definitive agreements with respect to the acquisitions of Sunstate
and South Georgia, the consummation of such acquisitions remain subject to
various conditions, including: (a) the satisfactory completion of the
Company's due diligence (as approved by the Company's Board of Directors);
and (b) the obtainment of acceptable financing by the Company. Accordingly,
there can be no assurance that such acquisitions will be consummated.
The Company plans to seek other opportunities in the industry, including
additional manufacturing and retail operations and residential parks.
Krawdaddy's:
In December 1998, the Company entered into a memorandum of understanding with
Equity Services, Inc. ("EQS") to exchange the Company's dormant Jubilation
vessel, berthed in Mobile, Alabama, for the ownership of "Krawdaddy's", an
operating truck stop with a restaurant and video poker room in Port Allen,
Louisiana. The proposed transaction would involve an exchange of the casino
vessel and its equipment for all the assets of the Krawdaddy's operation, which
includes the real estate and fixtures a participation interest of approximately
49% in the revenue from the video poker machines. Such memorandum of
understanding, provided that the Company would assume $3,300 of existing debt
or, if such debt cannot be assumed, will pay $3,000 to EQS to enable EQS to
discharge such debt and that the Company will issue 100,000 shares of of the
Company's common stock as part of the consideration for such acquisition.
The transactions contemplated by such memorandum or understanding were
conditioned upon a number of conditions, including that definitive agreements
covering the proposed transaction were entered into by January 31, 1999 or the
parties had agreed to extend such date. No definitive agreements were
entered into by that date, and the parties have not agreed to any extension
of that date. Although it now appears that the proposed transaction as
originally contemplated in the memorandum of understanding will not proceed as
therein contemplated, the parties have continued discussions with respect to a
possible transaction that would include the Krawdaddy's in Port Allen,
Louisiana, as well as two similar facilities in Vinton, Louisiana. 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.
Liquidity and Capital Resources
For the three months ended March 31, 1999, the Company had net cash used in
operating activities of $717. The uses were the result of a net loss of $495
plus depreciation of $11 and a net increase in working capital of $233. The
increase in working capital consisted primarily of a net decrease in other
current assets of $26, a decrease in accounts payable and other accrued
expenses of $176 and a decrease in payroll and related liabilities of $31.
Cash used in investing activities of $89 consisted of payments for deposits
and other assets.
Cash used in financing activities of $106 was attributable to repayments of
the mortgage payable to Bryanston.
The closing of each of the Manufactured Housing and Krawdaddy's acquisitions
are conditional upon obtaining the financing of all or some of the cash
requirements related to the respective purchase prices. There can be no
assurances any such financing will be obtained by the Company. Additionally, 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 at this time, 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.
There have been no other material developments during the current quarterly
period to any existing legal proceeding.
<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 11, 1999
/s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: May 11, 1999
/s/ ROBERT STEENHUISEN
Robert Steenhuisen
Chief Accounting Officer
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 ended March 31, 1999
</LEGEND>
<CIK> 0000906780
<NAME>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,925
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,130
<PP&E> 9,879
<DEPRECIATION> 5,260
<TOTAL-ASSETS> 9,388
<CURRENT-LIABILITIES> 3,438
<BONDS> 2,002
0
9
<COMMON> 168
<OTHER-SE> 4,491
<TOTAL-LIABILITY-AND-EQUITY> 4,668
<SALES> 0
<TOTAL-REVENUES> 43
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 496<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> (495)
<INCOME-TAX> 0
<INCOME-CONTINUING> (495)
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<CHANGES> 0
<NET-INCOME> (495)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
<FN>
<F1>Includes selling, general and administrative of $328, depreciation and
amortization of $11 and development costs of $157.
</FN>
</TABLE>
