U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-12522
ALPHA HOSPITALITY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3714474
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
12 East 49th Street, New York, NY 10017
(Address of principal executive offices)
(212) 750-3500
(Issuer=s telephone number)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Sections 13 or 15 (d) of the Securities Exchange Act during
the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: November
10, 2000.
Common Stock, $0.01 par value: 20,548,875 shares
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 1
Consolidated Statements of Operations for the Nine months
Ended September 30, 2000 and 1999 2
Consolidated Statements of Operations for the Three Months
Ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the Nine months
Ended September 30, 2000 and 1999 4-5
Notes to Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Signatures 19
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>
September 30, December 31,
2000 1999
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash, including restricted cash of
$373 in 1999 $ 2,466 $ 1,464
Other current assets 472 98
Total current assets 2,938 1,562
PROPERTY AND EQUIPMENT, net 4,949 4,977
DEPOSITS AND OTHER ASSETS 4,031 1,589
$ 11,918 $ 8,128
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt, current maturity $ 680 $ --
Accounts payable and accrued expenses 806 1,181
Accrued payroll and related liabilities 2,007 53
Total current liabilities 3,493 1,234
LONG-TERM DEBT, less current maturity 2,455 2,057
OTHER LIABILITIES 736 2,076
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 75,000
shares authorized, 20,087 and
16,803 issued and outstanding in
2000 and 1999, respectively 201 168
Preferred stock, 5,000 shares authorized:
Series B, $.01 par value, 821 issued
and outstanding 8 8
Series C, $.01 par value, 135 issued
and outstanding 1 1
Series D, $.01 par value, 3 issued
and outstanding
Common stock payable 50
Capital in excess of par value 85,710 78,527
Accumulated deficit (80,686) (75,993)
Total stockholders' equity 5,234 2,761
$ 11,918 $ 8,128
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
<S> <C> <C>
REVENUES:
Other $ 187 $ 54
COSTS AND EXPENSES:
Adjustment to noncash compensation (3,251)
General and administrative 1,206 1,262
Depreciation and amortization 33 33
Development and start-up costs 699 747
Total costs and expenses (1,313) 2,042
INCOME (LOSS) FROM OPERATIONS 1,500 (1,988)
OTHER INCOME (EXPENSE):
Interest income 144 84
Interest expense (143) (125)
1 (41)
NET INCOME (LOSS) 1,501 (2,029)
DIVIDENDS ON PREFERRED STOCK 6,194
NET LOSS APPLICABLE TO COMMON SHARES $ (4,693) $ (2,029)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,154 16,759
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (.26) $ (.12)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
<S> <C> <C>
REVENUES:
Other $ 132 $ 25
COSTS AND EXPENSES:
Adjustment to noncash compensation (465)
General and administrative 351 443
Depreciation and amortization 12 11
Development and start-up costs 365 254
Total costs and expenses 263 708
LOSS FROM OPERATIONS (131) (683)
OTHER INCOME (EXPENSE):
Interest income 72 21
Interest expense (61) (44)
11 (23)
NET LOSS $ (120) $ (706)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 20,207 16,790
NET LOSS PER COMMON SHARE, BASIC AND
DILUTED $ (.01) $ (.04)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,501 $ (2,029)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Interest amortized on loan discount 12
Depreciation and amortization 33 33
Noncash compensation adjustment (3,251)
Changes in operating assets and
liabilities:
Increase (decrease) in other
current assets (374) 22
Increase (decrease) in accounts
payable and accrued expenses (373) 247
Increase in accrued payroll and
related liabilities 158 93
NET CASH USED IN OPERATING ACTIVITIES (2,294) (1,634)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (2) (432)
(Increase) decrease in deposits and other
assets (1,930) 11
NET CASH USED IN INVESTING ACTIVITIES (1,932) (421)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock 3,867
Proceeds from exercise of warrants and stock
options 143 60
Net proceeds from long-term debt 1,218 650
Payments on long-term debt (626)
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,228 84
NET INCREASE (DECREASE) IN CASH 1,002 (1,971)
CASH, beginning of period 1,464 3,837
CASH, end of period $ 2,466 $ 1,866
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
2000 1999
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest during the period $ 10 $ 125
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Loans receivable related to stock issued in
connection with the exercise of stock options $ 145 $ --
Increase in other liabilities related to an
investment in real property holding which
the Company received from an affiliate $ 456 $ --
Issuance of stock warrants with debt $ 213 $ --
Issuance of options to purchase 30 shares of
the Company's common stock as satisfaction
of accounts payable and accrued expenses $ -- $ 50
</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 ACompany@), incorporated in
Delaware on March 19, 1993, was engaged in the ownership and operation
of a gaming vessel and constructed an adjacent hotel in Greenville,
Mississippi. On March 2, 1998, the Company sold substantially all of
these assets to Greenville Casino Partners, L.P. (ABuyer@) for
approximately $40.2 million, including a 25% limited partnership
interest in the Buyer. Presently, the Company has only nominal
revenues, but is pursuing additional gaming-related and other
opportunities. During the fourth quarter of 2000, the Company
anticipates the launching of its gaming day cruise vessel operations
out of Miami-Dade County=s Haulover Beach Park and Marina adjacent to
Bal Harbour, Florida.
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, 1999, included in
the Company=s 1999 Form 10-K.
Operations and Principles of Consolidation - The accompanying
consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation.
Investments - The Company=s 25% partnership interest in Buyer is
being accounted for under the equity method of accounting. The
Company=s 5% investment in real property holdings at Monticello
Raceway is being accounted for under the cost 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.
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 1999
to conform to the 2000 presentation.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 3 - PROPERTY AND EQUIPMENT
Details of property and equipment at September 30, 2000 and
December 31, 1999 were as follows :
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Boat, barge and improvements $ 5,322 $ 5,322
Leasehold improvements 82 82
Gaming equipment 3,023 3,023
Furniture, fixtures and equipment 1,839 1,837
10,266 10,264
Less accumulated depreciation and
amortization 5,317 5,287
$ 4,949 $ 4,977
</TABLE>
NOTE 4 - LONG-TERM DEBT
Long-term debt at September 30, 2000 and December 31, 1999 was
comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interest
Rate 2000 1999
Loan payable (a) 4% 1,048
Note payable to Bryanston
Group, Inc. ("Bryanston"),
an affiliate, with interest
payable monthly and principal
payments, commencing January
1, 2001, not to exceed $1,000
per annum, with any unpaid
balance due at maturity in
April 2005. Bryanston has
agreed, subject to certain
terms and conditions,
to subordinate its rights to
repayment of principal and
to payment of cash dividends
to the prior payment of
amounts due to the holders of
the preferred stock,
series D (see Notes 7 and 8) 8% $ 1,407 $ 1,407
Mortgage note collateralized by
the Company's inactive vessel
(see Note 6) with interest payable
monthly and principal due in
January 2001 8% 650 650
Promissory note payable, due March
2001 6% 30
3,135 2,057
Less current portion 680
$ 2,455 $ 2,057
(a) On July 31, 2000, the Company received a $1,250 loan from a third party,
which is also the holder of the Company's preferred stock, series D (see Note
7). Simultaneous with the closing of that loan, the lender also received 125
warrants exercisable at a price of $2.40 per share, which expire in July
2003. The loan accrues interest at a rate of 4% per annum, and Bryanston has
agreed, subject to certain terms and conditions, to subordinate its entitlement
to receive cash dividends in lieu of payment on preferred stock, series B and C,
owned by it and on the Company indebtedness owed to it to the prior payment
of such loan, as well as payments due with respect to the preferred stock,
series D.
Relative to the $1,250 principal amount of the loan and warrants issued, the
Company has allocated approximately $213 as the estimated value of the
warrants issued with the loan. This amount is being amortized as additional
interest expense and an increase to notes payable over the life of the loan
using the effective interest method until such loan is repaid or the warrants
are converted to common stock. At September 30, 2000, approximately $12 has
been amortized and the remaining balance of approximately $201 at September
30, 2000 is reflected as a reduction of the loan payable.
</TABLE>
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 4 - LONG-TERM DEBT (CONTINUED)
Aggregate future required principal payments are approximately as
follows:
Years ending September 30:
2001 $ 680
2002 --
2003 1,250
2004 --
2005 1,407
$ 3,337
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At September 30, 2000 and December 31, 1999, accounts payable
and accrued expenses were comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
Due to Buyer $ -- $ 462
Insurance 169 202
Accrued professional fees 200 221
Accrued interest 134 13
Other 303 283
$ 806 $1,181
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
On July 8, 1999, the Company contributed its inactive vessel,
Bayou Caddy's Jubilation Casino (the "Jubilation Casino"), to Casino
Ventures, L.L.C. ("Casino Ventures"). At the time of the
contribution, the vessel (including its gaming equipment, furniture
and other items) had a net book value of $4,149. 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,
with the principal balance due July 8, 2002. Upon repayment of the
promissory note and certain other funding to the venture, the
Company=s membership interest in Casino Ventures decreases from its
current 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 includes the accounts
of Casino Ventures until such time as the Company's membership
interest decreases to less than 50%. During the nine months ended
September 30, 2000, the Company incurred $53 of start-up costs related
to the venture. As of September 30, 2000, the vessel has been pledged
as collateral to obtain funding of $650 towards the aforementioned
costs of Casino Ventures (See Note 4). Pursuant to an amendment
agreement effective April 18, 2000, the total maximum borrowings
allowed to be collateralized by the vessel is $1,000.
The Company, through its wholly-owned subsidiary Alpha
Monticello, Inc. ("AMI"), was 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, provided 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 AMohawk
Tribe@). The Memorandum also set forth the general terms for the
funding and management obligations of CDL (25% owned by Bryanston) and
AMI 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
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)
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 provided MML with the exclusive right to manage the
Monticello Casino for seven (7) years from its opening and to receive
certain fees for the provision of management and related services.
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 contained no such provision. Additionally, the Memorandum was
silent as to the effect such termination would have on the continued
existence of MML, on the Parties' respective 50% membership interests
therein or on the Management Contract. On December 28, 1998, AMI
filed for arbitration, as prescribed by the Memorandum, to resolve any
dispute by the Parties.
In July 2000, the Parties completed a final settlement agreement
whereby Alpha's wholly-owned subsidiary will be entitled to receive
40% of any basic management fee income and 75% of any service fee
income accruing for the operation of any Native American casino
facility development at the Monticello Raceway. The net result of the
settlement entitles Alpha's subsidiary to receive approximately 47% of
all management fee and service income derived from the underlying
management contract. The original agreement contemplated an
arrangement specific to the Mohawk Tribe whereby the settlement
agreement covers all prospective federally recognized Native American
Nations.
As part of and in conjunction with such settlement, AMI acquired
five percentage points of Bryanston's ownership interest in real
property holding at Monticello Raceway for $456 plus additional
consideration if the asset is liquidated. That holding includes the
Raceway's building and equipment and approximately 200 acres of land.
Bryanston has agreed to defer payments of this liability until the
earlier of the liquidation of the asset or January 2002. The $456 is
included in other assets and other liabilities on the consolidated
balance sheet as of September 30, 2000. Additionally, Bryanston has
agreed to transfer its 25% ownership in the Raceway's parimutuel
operations to AMI. Under the previous agreement, AMI did not
participate in any of these sources of revenue. For the quarter ended
September 30, 2000, the Company's share of the Raceway's parimutuel
operations amounted to $77. Included in deposits and other assets as
of September 30, 2000 and December 31, 1999, the Company capitalized
$1,975 and $1,366, respectively, towards the design, architecture and
other costs of the development plans for the proposed Monticello
Casino.
On April 6, 2000, in a letter to New York Governor George
Pataki, the U.S. Department of the Interior and its Bureau of Indian
Affairs (the "Department") forwarded its initial Two-Part
Determination, findings wherein the Department determined that: 1) the
Monticello Casino was in the best interests of the Mohawk Tribe; and
2) that there was local support for the project. The Department has
requested the Governor's concurrence in their findings. Such
concurrence is an integral step in establishing the trust lands on
which the proposed casino would be developed. On April 19, 2000, MML
received a letter from the National Indian Gaming Commission asking
for additional information.
On April 22, 2000, the Company was made aware of a purported
letter agreement between the Mohawk Tribe and Park Place Entertainment
("PPE"), which agreement (with two irrelevant exceptions) would
purportedly give PPE the exclusive rights to develop and manage any
casino development the Mohawk Tribe may have in the State of New York.
The validity of the aforementioned purported agreement is not clear at
this time. The Company, MML and CDL are reviewing all possible
courses of action, including litigation.
The Company is obligated under an employment contract with its
Chairman and Chief Executive Officer ("CEO"). Under this agreement,
the Company accrues 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
CEO will be retained to
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)
provide consulting services for two years at $175 per annum. As of
September 30, 2000, deferred compensation payable to the CEO was
approximately $1,716 During 1999, the Company agreed to afford the
CEO the right to convert up to $2,000 of deferred compensation payable
into up to 1,000 shares of the Company's common stock at a stock price
of two dollars per share, the closing price on the agreement date.
The CEO's right to convert deferred compensation to the Company's
common stock shall only be exercisable if he continues to defer his
salary and he remains employed through and including January 14, 2001,
or such later date as the Board of Directors may determine, provided
that, in the event of his earlier termination of employment on account
of his death or other disability, such right to convert shall be
excercisable for the 90 days following such termination. During the
nine months ended September 30, 2000, the Company has recorded a
noncash compensation income adjustment of $3,251 reflecting the
decrease since December 31, 1999 in the market price of the Company's
common stock issuable upon the exercise of such conversion rights.
The noncash compensation income adjustment has been capped to the
extent of expense previously recognized in the year ended December 31,
1999.
The CEO has agreed to defer all cash payments owing pursuant to
his employment contract with the Company until January 1, 2001. This
includes the approximately $1,716 payable as of September 30, 2000,
and future amounts accruing to the CEO. This does not effect the
CEO's rights to convert up to $2,000 of deferred compensation payable
into up to 1,000 shares of the Company's common stock.
Additionally, a former officer of the Company also has agreed to
defer all cash payments against a $266 liability owning pursuant to
his previous employment contract with the Company.
On March 29, 2000, the Company advanced $400 in exchange for a
promissory note in the same amount and an option to enter into a
Charter Agreement. On June 15, 2000, the Company exercised its right
to enter into a Charter Agreement with the issuer of the promissory
note, and applied the $400 note towards the interior construction of a
gaming day cruise vessel (the "vessel"). The Charter Agreement
requires an additional $850 to be paid towards the interior
construction of the vessel and monthly payments over a three-year
period commencing upon the completion of the construction. The
monthly payments are $41 during the first year and $47 during years
two and three, with an additional surcharge for each month of the
three-year period amounting to one dollar per each passenger during
each previous month. At the completion of the three-year period, the
Company has the option to purchase the vessel at a cost of $4,500,
towards which all previous construction payments would be applied.
Included in deposits and other assets at September 30, 2000 are $1,321
(including the $400 applied from the promissory note) of payments
related to the interior construction of the vessel and related
improvements. On September 7, 2000, the Company entered into a three
year agreement for the rental of certain furniture and equipment to be
used relative to the gaming day cruise vessel. Rental payments, which
commence upon delivery, installation and acceptance of the equipment,
will approximate $34 per month.
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 expires in November 2001.
In January 1996, the Company was named as a defendant in an
action brought in the Circuit Court of Hinds County, Mississippi (Amos
vs Alpha Gulf Coast, Inc.; Batiste vs Alpha Gulf Coast, Inc.; Ducre vs
Alpha Gulf Coast, Inc.; Johnston vs Alpha Gulf Coast, Inc.; Rainey vs
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 the Company. Plaintiffs
alleged that they suffered personal injuries and seek compensatory
damages aggregating $17.1 million and punitive damages aggregating
$37.5 million. On March 1, 2000, mediation took place between the
Company's insurance company and plaintiffs Amos, Batiste and Ducre,
with settlements being reached in all three cases for an aggregate
amount of $110 of which $85 is covered by the Company's insurance.
The remaining $25, representing the cost to the Company, is included
in accounts payable and accrued expenses as of September 30, 2000.
Although the Company's insurance company has initiated settlement
discussions with Plaintiffs Johnston and Rainey, neither case has been
settled nor can there be any assurance that settlements can be
reached. Accordingly, no provision for liability to the Company that
may result upon adjudication has been made in the accompanying
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED)
consolidated financial statements. The Company believes that the
remaining risk referred to in this paragraph is adequately covered by
insurance.
The Company was involved in a dispute with Greenville Casino
Partners, L.P. ("Buyer") regarding an agreement dated December 17,
1997. In September 2000, an arbitrator awarded the Company a net
amount of $136 in satisfaction of all claims and counterclaims of the
dispute, which has not been accrued, due to the uncertainty of
collection.
On March 2, 1998, the Company entered into a supervisory hotel
management agreement with Buyer for a term of ten years, pursuant to
which the Company is entitled to receive $100 per annum for management
services, payable monthly. Commencing in the quarter ended September
30, 2000, the Company no longer accrues the management fees as the
likelihood of collection is remote.
The Company is a party to various other legal actions that have
arisen 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 consolidated financial position,
results of operations or cash flows of the Company.
NOTE 7 - STOCKHOLDERS' EQUITY
The changes in stockholders= equity during the nine months ended
September 30, 2000, included net income of $1,501 and the sale of 4
shares of its 7% convertible preferred stock, series D, for an
aggregate price of $3,867, net of closing costs of $133. During the
nine months ended September 30, 2000, 1.25 shares of the preferred
stock, Series D, were converted into 718 shares of the Company's
common stock. Additional changes to stockholders' equity during the
nine months ended September 30, 2000 were the exercise of options to
purchase 131 shares of the Company's common stock at an average
exercise price of $1.09 per share; a $3,251 reduction of capital in
excess of par value reflecting the noncash compensation income
adjustment (see Note 6); the issuance of 2,393 shares of the Company's
common stock in connection with dividends declared on cumulative
preferred stock, series B (see below); and the issuance of 30 shares
of the Company's common stock in satisfaction of certain accounts
payable and accrued expenses of $50; a $456 increase in capital in
excess of par value related to Bryanston's contribution of real
property (see Note 6) and a $213 increase in capital in excess of par
value to record the estimated value of 125 warrants issued with debt
payable to the holder of preferred stock, Series D.
The preferred stock, series D, is convertible into shares of the
Company's common stock at a conversion price of the lesser of $6 per
share or a price based upon the prevailing market price of the
Company's common stock, and accrues dividends at a rate of 7% per
annum. In the event the preferred stock is not converted into shares
of the Company's stock by February 8, 2005, there will be a mandatory
redemption at that time, payable in shares of the Company's common
stock at the same aforementioned conversion price. The dividends are
payable in arrears on the earlier of the date of conversion of a share
of preferred stock, series D, or the date of redemption. At the
Company's option, the dividends are payable in the form of cash or
shares of the Company's common stock. The maximum aggregate total
number of shares of the Company's common stock issuable relative to
the conversions and payments of dividends is 3,300 shares. In the
event such limitation prevents the conversion of any preferred stock,
series D, the dividend rate will increase to 15% per annum to be
payable in cash in arrears, semi-annually on June 30 and December 31.
The preferred stock, series D, contains no voting rights prior to its
conversion to common stock. In connection with a loan to the Company
(see Note 4) the holders of the preferred stock, series D, received
125 warrants exercisable at a price of $2.40 per share, which expire
in July 2003.
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. On May 12, 2000,
the Company declared dividends on the cumulative preferred stock,
series B, for the 1999 and 1998 fiscal years amounting to 450 and
1,943, respectively, of shares of the Company's common stock. These
shares were issued in July 2000. As of November 10, 2000, dividends
in arrears on the cumulative preferred stock, series B,
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data)
NOTE 7 - STOCKHOLDERS' EQUITY(CONTINUED)
amounted to $2,322 with respect to 2000.
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. As of
August 10, 2000, dividends accruing on the cumulative preferred stock,
series C, amounted to $382 with respect to 1998, $763 with respect to
1999 and $573 with respect to 2000.
NOTE 8 - SUBSEQUENT EVENT
In October 2000, Alpha Florida Entertainment, Inc. ("Alpha
Florida"), a wholly-owned subsidiary of the Company formed for the
purpose of constructing and operating a gaming day cruise vessel,
merged into Alpha Florida Entertainment, L.L.C. ("Alpha Florida LLC").
Also, in October 2000, the Company received $900 from an unrelated
third party in exchange for a 25% interest in Alpha Florida LLC, with
the Company retaining the remaining 75% interest. In addition, the
Company will receive a monthly management fee in the amount of 5% of
gross revenue.
<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 consolidated 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
projects and the potential future acquisitions of new business
operations, including those that 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
Alpha Gulf
In 1998, the Company sold substantially all of the assets of
Alpha Gulf and Greenville Hotel to Greenville Casino Partners, L.P.
("Buyer"). In exchange for such assets, the Company received, among
other consideration, a 25% limited partnership interest in Buyer.
However, shortly after the sale, the Company was advised by Buyer that
it had incurred significant operating losses resulting in substantial
working capital and partners' deficiencies. Despite attempted
remedial actions, Buyer continued to incur losses. In light of these
developments, the Company adjusted the carrying value of its limited
partnership interest in Buyer to zero during the fourth quarter of
1998. While the Company has been advised that Buyer is pursuing other
capital sources, seeking to modify its debt service requirements and
continuing its operations, there can be no assurance that the Company
will ever realize any benefit from its 25% limited partnership
interest.
The continuing general and administrative expenses of $31 and
$189 for the nine months ended September 30, 2000 and 1999,
respectively, consisted of payroll and related expenses of
approximately $17 and $83, respectively, occupancy costs of
approximately $12 and $27, respectively, a general corporate overhead
allocation of $0 and $44, respectively, and other operating expenses
of $2 and $35, respectively.
Jubilation Lakeshore:
On July 8, 1999, the Company contributed the idle gaming vessel
to Casino Ventures in exchange for $150 cash, a promissory note of
$1,350 plus a membership interest in Casino Ventures. Upon repayment
of the promissory note and other funding to the venture, the Company's
membership interest in Casino Ventures decreases from its current
percentage of 93% to 15%. The consolidated financial statements of
the Company include the amounts of Casino Ventures until such time as
the Company's membership interest decreases to less that 50%. See
"Future Operations" for a discussion of Casino Ventures' operating
plan for the vessel.
The continuing costs (exclusive of Casino Ventures - See "Future
Operations - Casino Ventures") incurred during the nine months ended
September 30, 2000, for administration, insurance, compensation,
vessel mooring and relocation were $25 compared to $156 for the same
period in 1999. Interest expense for the nine months ended September
30, 2000 and 1999 amounted to $84 and $125, respectively, which
related to a note payable to Bryanston Group, Inc. an affiliate.
Other:
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. Commencing in the
quarter ended September 30, 2000, the Company no longer accrues the
management fee as the likelihood of collection is remote.
During the nine months ended September 30, 2000, the Company
recorded a noncash compensation income adjustment of $3,251 (see Note
6).
During the quarter ended September 30, 2000, the Company's share
of operations from Monticello Raceway amounted to $77 (see Future
Operations - Monticello).
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (dollars in thousands)
Results of Operations (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.
Except to the extent the Company may pursue any New Opportunity,
as a result of the sale of Bayou Caddy's Jubilee Casino, the Company
has been, since March 1998, 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:
Monticello:
The Company, through its wholly-owned subsidiary Alpha
Monticello, Inc. ("AMI"), was 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, provided 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 set forth the general terms for the
funding and management obligations of CDL (25% owned by Bryanston)
and AMI 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 provided MML with the exclusive right to
manage the Monticello Casino for seven (7) years from its opening and
to receive certain fees for the provision of management and related
services.
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 contained no such provision. Additionally, the Memorandum was
silent as to the effect such termination would have on the continued
existence of MML, on the Parties' respective 50% membership interests
therein or on the Management Contract. On December 28, 1998, AMI
filed for arbitration, as prescribed by the Memorandum, to resolve any
dispute by the Parties.
<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)
Casino Development (CONTINUED):
In July 2000, the Parties completed a final settlement agreement
whereby Alpha's wholly-owned subsidiary will be entitled to receive
40% of any basic management fee income and 75% of any service fee
income accruing for the operation of any Native American casino
facility development at Monticello Raceway. The net result of the
settlement entitles Alpha's subsidiary to receive approximately 47% of
all management fee and service income derived from the underlying
management contract. The original agreement contemplated an
arrangement specific to the Mohawk Tribe whereby the settlement
agreement covers all prospective federally recognized Native American
Nations.
As part of and in conjunction with such settlement, AMI acquired
five percentage points of Bryanston's ownership interest in real
property holding at Monticello Raceway for $456 plus additional
consideration if the asset is liquidated. That holding includes the
Raceway=s building and equipment and approximately 200 acres of land.
Bryanston has agreed to defer payment of this liability until the
earlier of the liquidation of the asset or January 2002. The $456 is
included in other assets and other liabilities on the consolidated
balance sheet as of September 30, 2000. Additionally, Bryanston has
agreed to transfer its 25% ownership in the Raceway's parimutuel
operations to AMI. Under the previous agreement, AMI did not
participate in any of these sources of revenue. For the quarter ended
September 30, 2000, the Company's share of the Raceway's parimutuel
operations amounted to $77. Included in deposits and other assets as
of September 30, 2000 and December 31, 1999, the Company capitalized
$1,975 and $1,366, respectively, towards the design, architecture and
other costs of the development plans for the proposed Monticello
Casino.
On April 6, 2000, in a letter to New York Governor George
Pataki, the U.S. Department of the Interior and its Bureau of Indian
Affairs (the "Department") forwarded its initial Two-Part
Determination, findings wherein the Department determined that: 1) the
Monticello Casino was in the best interests of the Mohawk Tribe; and
2) that there was local support for the project. The Department has
requested the Governor's concurrence in their findings. Such
concurrence is an integral step in establishing the trust lands on
which the proposed casino would be developed. On April 19, 2000, MML
received a letter from the National Indian Gaming Commission asking
for additional information.
On April 22, 2000, the Company was made aware of a purported
letter agreement between the Mohawk Tribe and Park Place Entertainment
("PPE"), which agreement (with two irrelevant exceptions) would
purportedly give PPE the exclusive rights to develop and manage any
casino development the Mohawk Tribe may have in the State of New York.
The validity of the aforementioned purported agreement is not clear at
this time. The Company, MML and CDL, are reviewing all possible
courses of action, including litigation.
Haulover Beach Park and Marina:
On May 7, 1999, a subsidiary of the Company, 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 gaming 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
County a minimum guaranteed monthly base rent, a per-passenger fee and
a percentage of retail merchandise sold in the facility. The lease
will not commence until the inaugural cruise on or about November 24,
2000.
Among the Company's plans for obtaining a vessel for its
permanent berth at the Haulover Marina, was an option the Company had
to exercise its right to enter into a Charter Agreement with the
issuer of a $400 note. On June 15, 2000, the Company exercised its
right and entered into a Charter Agreement with the issuer of the
promissory note and applied the $400 note towards the interior
construction of the 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 (CONTINUED)
Casino Development: (CONTINUED)
The Charter Agreement requires an additional $850 to be paid
towards the interior construction of the vessel and monthly payments
over a three-year period commencing upon the completion of the
construction. The monthly payments are $41 during the first year and
$47 during years two and three, with an additional surcharge for each
month of the three-year period amounting to one dollar per each
passenger during each previous month. At the completion of the three-
year period, the Company has the option to purchase the vessel at a
cost of $4,500, towards which all previous construction payments would
be applied. Interior design and construction has started on the
vessel and the projected opening for the gaming day cruise vessel is
on or about November 24, 2000. Included in deposits and other assets
at September 30, 2000 are $1,321 (including the $400 applied from the
promissory note) of payments related to the construction of the vessel
and related improvements.
On September 7, 2000, the Company entered into a three year
agreement for the rental of certain furniture and equipment to be used
relative to the gaming day cruise vessel. Rental payments, which
commence upon delivery, installation and acceptance of the equipment,
will approximate $34 per month.
In October 2000, Alpha Florida merged into Alpha Florida LLC.
Also, in October 2000, the Company received $900 from an unrelated
third party in exchange for a 25% interest in Alpha Florida LLC, while
retaining the remaining 75% interest. In addition, the Company will
receive a monthly management fee amounting to 5% of gross revenue.
Development costs of approximately $466 and $166 were incurred
with respect to this project during the nine months ended September
30, 2000 and 1999, respectively, which includes a general corporate
overhead allocation of $300 and $166, respectively.
Casino Ventures:
On July 8, 1999, the Company, through its subsidiary, Jubilation
Lakeshore (see "Results of Operation - Jubilation Lakeshore"), entered
into an agreement with Casino Ventures, pursuant to which the Company
contributed its inactive gaming vessel, the Jubilation Casino, to
Casino Ventures in exchange for $150 in cash, a promissory note of
$1,350, plus a membership interest in Casino Ventures. Upon repayment
of the promissory note and other funding to the venture, the Company=s
membership interest in Casino Ventures will decrease from its current
percentage of 93% to 15%. The consolidated financial statements of
the Company include the accounts of Casino Ventures until such time as
the Company's membership interest decreases to less than 50%.
The Jubilation Casino has been relocated to Mhoon Landing in
Tunica, Mississippi ("Tunica") where it is being refurbished and
anticipated to be operated as a gaming vessel. During the nine months
ended September 30, 2000, the Company incurred $53 of start-up costs
related to insurance, vessel repairs and miscellaneous administrative
costs. Casino Ventures' interest expense for the nine months ended
September 30, 2000, not eliminated in consolidation, amounted to $39.
This was substantially attributable to a $650 mortgage note payable
secured by the vessel. Pursuant to an amendment agreement effective
April 18, 2000, the total maximum borrowings allowed to be
collateralized by the vessel is $1,000.
The Company expects Casino Ventures to commence operations in
Tunica in 2001. The Company is not required to make any further
capital contributions to Casino Ventures.
<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)
Liquidity and Capital Resources
For the nine months ended September 30, 2000, the Company had net
cash used in operating activities of $2,294. The uses were the result
of net income of $1,501 plus depreciation and amortization and noncash
interest of $45, less an adjustment to noncash compensation of $3,251
and a net increase in working capital of $589. The increase in
working capital consisted primarily of a net increase in other current
assets of $374, a decrease in accounts payable and other accrued
expenses of $373 and an increase in payroll and related liabilities of
$158.
Cash used in investing activities of $1,932 consisted of $2 of
payments for property and equipment, $1,321 of payments related to
the gaming day cruise vessel project and $609 paid towards development
plans for the proposed Monticello Casino.
Cash provided by financing activities of $5,228 was attributable
to $3,867 of net proceeds from the issuance of preferred stock, $143
of proceeds from the exercise of options to purchase the Company's
common stock and $1,218 of net proceeds from long-term debt.
The $3,867 of proceeds from the issuance of preferred stock in
February 2000 loan, and a loan with net proceeds of $1,188 received in
July 2000 are anticipated to be utilized primarily in connection with
the Haulover Beach Park and Marina transaction or other gaming related
business opportunities. In the event additional financing is required,
there can be no assurances such financing will be obtained by the
Company.
The Company believes, although there can be no assurance, that
existing cash and anticipated cash from future borrowings and
operations will be sufficient to satisfy on-going operations,
liquidity and capital requirements for the next twelve months. In the
event additional financing 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 that any additional liabilities that may result from pending
litigation 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.
<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, 1999 on file with the Securities and
Exchange Commission.
There have been no 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: November 10, 2000 /s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: November 10, 2000 /s/ ROBERT STEENHUISEN
Robert Steenhuisen
Chief Accounting Officer
</TABLE>
