U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
XQuarterly report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 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: August 9,
2000.
Common Stock, $0.01 par value: 20,207,422 shares
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 1
Consolidated Statements of Operations
for the Six Months Ended June 30, 2000
and 1999 2
Consolidated Statements of Operations
for the Three Months Ended June 30, 2000
and 1999 3
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000
and 1999 4-5
Notes to Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Signatures 18
All items that are not applicable or to which the answer is negative
have been omitted from this report.
<PAGE> ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including restricted cash
of $373 in 1999 $ 3,120 $ 1,464
Other current assets 52 98
Total current assets 3,172 1,562
PROPERTY AND EQUIPMENT, net 4,958 4,977
DEPOSITS AND OTHER ASSETS 2,568 1,589
$ 10,698 $ 8,128
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt, current maturity $ 680 $
Accounts payable and accrued expenses 761 1,181
Accrued payroll and related liabilities 1,963 53
Total current liabilities 3,404 1,234
LONG-TERM DEBT, less current maturity 1,407 2,057
OTHER LIABILITIES 280 2,076
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 75,000
shares authorized, 17,814 and
16,803 issued and outstanding in 2000
and 1999, respectively 178 168
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 6,194 50
Capital in excess of par value 79,792 78,527
Accumulated deficit (80,566) (75,993)
Total stockholders' equity 5,607 2,761
$ 10,698 $ 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>
Six Months Ended
June 30,
2000 1999
<S> <C> <C>
REVENUES:
Other $ 55 $ 52
COSTS AND EXPENSES:
Adjustment to noncash
compensation . . (2,786)
General and administrative . . 855 819
Depreciation and amortization. 21 22
Development and start-up costs. . 334 493
Total costs and expenses. . (1,576) 1,334
INCOME (LOSS) FROM OPERATIONS . 1,631 (1,282)
OTHER INCOME (EXPENSE):
Interest income. . . . 72 40
Interest expense . . . (82) (81)
. . . . . . . (10) (41)
NET INCOME (LOSS) . . . 1,621 (1,323)
DIVIDENDS ON PREFERRED STOCK. . 6,194
NET LOSS APPLICABLE TO COMMON SHARES. . $ (4,573) $ (1,323)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 17,117 16,753
NET LOSS PER COMMON SHARE, BASIC AND
DILUTED . . $ (.27) $ (.08)
</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
June 30,
2000 1999
<S> <C> <C>
REVENUES:
Other . $ 52 $ 27
COSTS AND EXPENSES: .
Adjustment to noncash
compensation . (2,320)
Selling, general and
administrative. 435 491
Depreciation and amortization. 11 11
Development and start-up costs. 174 36
Total costs and expenses. . (1,700) 838
INCOME (LOSS) FROM OPERATIONS . 1,752 (811)
OTHER INCOME (EXPENSE):
Interest income. . . . 39 22
Interest expense . . . (41) (39)
. . . . . . . (2) (17)
NET INCOME (LOSS) . . . 1,750 (828)
DIVIDENDS ON PREFERRED STOCK. . 6,194
NET LOSS APPLICABLE TO COMMON SHARES. . $ (4,444) $ (828)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING . . . 17,287 16,788
NET LOSS PER COMMON SHARE, BASIC AND
DILUTED . .$ (.26) $ (.05)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . $ 1,621 $ (1,323)
Adjustments to reconcile net
income (loss) to net
cash used in operating activities:
Depreciation and amortization . 21 22
Noncash compensation adjustment (2,786)
Changes in operating assets
and liabilities:
Decrease in other current assets 46 52
Increase (decrease) in accounts
payable and accrued expenses. . . (418) 346
Increase in accrued payroll
and related liabilities. . . . . 114 8
NET CASH USED IN OPERATING ACTIVITIES. (1,402) (895)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (2)
(Increase) decrease in deposits
and other assets . (979) 11
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES . . . . . . . . (981) 11
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred
stock . . 3,867
Proceeds from exercise of stock
options . . . 142
Proceeds from long-term debt 30
Payments on long-term debt . (107)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES . . . 4,039 (107)
NET INCREASE (DECREASE) IN CASH 1,656 (991)
CASH, beginning of period . . . 1,464 3,837
CASH, end of period . . . . . . $ 3,120 $ 2,846
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest during
the period . $ 10 $ 36
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Loans receivable related to stock
issued in connection with the
exercise of stock options . . $ 145 $
</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, 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.
("Buyer") for approximately $40.2 million including a 25% limited
partnership interest in the Buyer. Presently the Company has nominal
revenues and is pursuing additional gaming-related and other
opportunities.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF
SELECTED SIGNIFICANT ACCOUNTING POLICIES
Financial Statements - The accompanying unaudited
consolidated financial statements of 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.
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.
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 June 30, 2000 and December 31, 1999
are as follows :
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
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 5,308 5,287
$ 4,958 $ 4,977
</TABLE>
NOTE 4 - LONG-TERM DEBT
Long-term debt at June 30, 2000 and December 31, 1999 was comprised of
the following:
<TABLE>
<CAPTION>
Interest
Rate 2000 1999
<S> <C> <C> <C>
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 7and 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
. . . . . . . . . . . . . . 2,087 2,057
Less current portion. . . . . . 680
. . . . . . . . . . . . . . $ 1,407 $ 2,057
</TABLE>
Aggregate future required principal payments are approximately as follows:
Years ending June 30:
2001 . . . . . . . . . . . . . . . . . $ 680
2002 . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . 1,407
$ 2,087
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At June 30, 2000 and December 31, 1999, accounts payable and accrued expenses
were comprised of the following:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Due to Buyer $ $ 462
Insurance 175 202
Accrued professional fees 210 221
Accrued interest 86 13
Other 290 283
$ 761 $ 1,181
</TABLE>
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED
PARTY TRANSACTIONS
On July 8, 1999, the Company contributed its
inactive vessel, Bayou Caddy's Jubilation Casino, to Casino Ventures,
L.L.C. ("Casino Ventures") (See Note 4). 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 six months ended June 30, 2000, the Company
incurred $45 of start-up costs. As of June 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 "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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND RELATED
PARTY TRANSACTIONS (CONTINUED)
The Parties reached a tentative settlement of their
dispute, and at the request of both Parties, the American Arbitration
Association agreed to stay further proceedings in the arbitration until
August 18, 2000, so that the Parties could finalize such settlement. 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 the casino. The net result of the settlement
will entitle 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 was granted five percentage points of Bryanston's ownership
interest in real property holdings at Monticello Raceway. That holding
includes the Raceway's building and equipment and approximately 200
acres of land. AMI is also to be granted the right to receive 25% of all
net development fees earned by CDL in the development of these
holdings. Additionally, subject to approval by the New York State
Racing and Wagering Board, 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 nor the previously discussed development fee arrangement.
Included in deposits and other assets as of June 30, 2000 and December
31, 1999, the Company capitalized $1,366 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 provide consulting services for two
years at $175 per annum. As of June 30, 2000, deferred compensation
payable to the Chairman and CEO was approximately $1,654. During
1999, the Company agreed to afford the Chairman and 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 Chairman and
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 concert shall be
excercisable for the 90 days following such termination, conversion
rights shall not be exercisable before January 14, 2001 or the earlier
termination of his employment on account of his death or other
disability. During the six months ended June 30, 2000, the Company
has recorded a noncash compensation income adjustment of $2,786
reflecting the decrease in the market price of the Company's common
stock since December 31, 1999.
On September 30, 1999, the Chairman and CEO
agreed to defer all cash payments owing pursuant to his employment
contract with the Company until January 1, 2001. This includes the
approximately $1,654 payable as of June 30, 2000, and future amounts
accruing to the Chairman and CEO. This does not effect the Chairman
and 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.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 6 - COMMITMENTS, CONTINGENCIES AND
RELATED PARTY TRANSACTIONS (CONTINUED)
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 until January 1, 2001.
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 June 30, 2000 are $979
(including the $400 applied from the promissory note) of payments
related to the interior construction of the vessel and related
improvements.
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 expiring 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
June 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 consolidated financial statements. The Company believes
that the remaining risk referred to in this paragraph is adequately
covered by insurance.
The Company is involved in a dispute with
Greenville Casino Partners, L.P. ("Buyer") regarding an agreement
dated December 17, 1997, pursuant to which the Company sold the
Bayou Caddy's Jubilee Casino and related hotel property to Buyer. The
Company claims Buyer is liable for certain liabilities. Buyer has
counterclaimed that the Company breached some of its warranties,
failed to continue operating the casino in the normal course of business
through the date of sale and also failed to pay certain accounts payable.
Management is vigorously pursuing the Company's own claims and is
also contesting Buyer's claims. An arbitration hearing was held in
March 1999, at which time each side presented its final arguments. The
Company is awaiting the arbitrator's decision The Company and its
counsel believe, based on information presently available, that the
arbitrator will find that the total of the Company's claims exceed the
total of Buyer's claims so that the net result will be in the Company's
favor. However, in light of Buyer's uncertain financial condition, there
can be no assurance that, in the event of a favorable award, any resultant
monies due the Company would be collected.
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.
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 financial position, results
of operations or cash flows of the Company.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share data)
NOTE 7 - STOCKHOLDERS' EQUITY
The changes in stockholders' equity during the six
months ended June 30, 2000, included net income of $1,621 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 six
months ended June 30, 2000, 1.25 shares of the preferred stock, Series
D, were converted into 718 shares of the Company's common stock.
Additional changes 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 $2,786 reduction of capital in excess of par value reflecting
the noncash compensation income adjustment (see Note 6); the
declaration of dividends on cumluative 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.
The preferred stock, series D, (see Note 8) 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 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.
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 August 10, 2000, dividends in arrears
on the cumulative preferred stock, series B, amounted to $1,548 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 for 1998, $763 with respect to 1999 and
$382 with respect to 2000.
NOTE 8 - SUBSEQUENT EVENT
On July 31, 2000, the Company received $1,250
in a first tranche of a prospective $2,000 loan pursuant to an agreement
entered into with the holder of the Company's preferred stock, Series D,
(see Note 7). The remaining $750, subject to certain events, is
scheduled to be received in one additional draw on August 31, 2000.
Simultaneous with the closing of the first tranche, the lender also
received 125 warrants exercisable at a price of $2.40 per share, which
expire in July 2003. An additional 75 warrants will be issued upon
completion of the remaining funding contemplated in the second
tranche. The loan accrues interest at a rate of 4% and Bryanston has
agreed, subject to certain terms and conditions, to subordinate its
entitlement to receive payment on the preferred stock, series B and C,
owned by it 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 (see Note 4).
<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
Buyer 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 the 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 $59 and $145 for the six months ended June 30, 2000 and
1999, respectively, consisted of payroll and related expenses of
approximately $34 and $57, respectively, occupancy costs of
approximately $14and $18, respectively, a general corporate overhead
allocation of $0 and $44, respectively, and other operating expenses of
$11 and $26, 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") incurred during the six months ended June
30, 2000, for administration, insurance, compensation, vessel mooring
and relocation were $16 compared to $145 for the same period in 1999.
Interest expense for the six months ended June 30, 2000 and 1999
amounted to $56 and $81, respectively, which related to a note payable
to Bryanston.
<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)
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. During the six months ended June 30, 2000 the Company
recorded management fees of $50.
During the six months ended June 30, 2000, the
Company recorded a noncash compensation income adjustment of
$2,786. (see Note 6)
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:
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
<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:
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.
The Parties reached a tentative settlement of their
dispute, and at the request of both Parties, the American Arbitration
Association agreed to stay further proceedings in the arbitration until
August 18, 2000, so that the Parties could finalize such settlement. 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 the casino. The net result of the settlement
will entitle 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 was granted five percentage points of Bryanston's ownership
interest in real property holdings at Monticello Raceway. That holding
includes the Raceway's building and equipment and approximately 200
acres of land. AMI is also to be granted the right to receive 25% of all
net development fees earned by CDL in the development of these
holdings. Additionally, subject to approval by the New York State
Racing and Wagering Board, 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 nor the previously discussed development fee arrangement.
Included in deposits and other assets as of June 30, 2000 and December
31, 1999, the Company capitalized $1,366 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.
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
<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)
Company exercised its right and entered into a Charter Agreement with
the issuer of the promissory note and has applied the $400 note towards
the interior construction of 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. Interior design and
construction has started on the vessel and the projected opening for the
cruise-to-nowhere is Fall 2000. Included in deposits and other assets at
June 30, 2000 are $979 (including the $400 applied from the promissory
note) of payments related to the construction of the vessel and related
improvements.
On February 8, 2000, the Company completed a
private placement of preferred stock for an aggregate amount of
approximately $3,867, net of approximately $133 of closing costs, the
proceeds of which were anticipated to be used primarily for start-up
costs related to this project and the charter of the vessel or other gaming
related undertakings.
Development costs of approximately $116 and $84
were incurred with respect to this project during the six months ended
June 30, 2000 and 1999, respectively, which represent a general
corporate overhead allocation.
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
anticipated to be refurbished and operated as a gaming vessel. During
the six months ended June 30, 2000, the Company incurred $45 of start-
up costs related to insurance, vessel repairs and miscellaneous
administrative costs. Casino Ventures' interest expense for the six
months ended June 30, 2000, not eliminated in consolidation, amounted
to $26. 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 six months ended June 30, 2000, the
Company had net cash used in operating activities of $1,402. The uses
were the result of net income of $1,621 plus depreciation of $21, less
an adjustment to noncash compensation of $2,786 and a net increase in
working capital of $258. The increase in working capital consisted
primarily of a net decrease in other current assets of $46, a decrease in
accounts payable and other accrued expenses of $418 and an increase
in payroll and related liabilities of $114.
Cash used in investing activities of $981 consisted
of $2 of payments for property and equipment and $979 of payments
related to the cruise to nowhere project.
Cash provided by financing activities of $4,039
was attributable to $3,867 of net proceeds from the issuance of preferred
stock, $142 of proceeds from the exercise of options to purchase the
Company's common stock and $30 of proceeds from long-term debt.
The $3,867 of proceeds from the issuance of
preferred stock in February 2000, the loan of $1,250 received on July
31, 2000 and the additional loan of $750, subject to certain events,
scheduled to be received on August 31, 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.
Except as disclosed above, there have been no other
material developments to any existing legal proceeding during the
current quarterly period.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the
Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: August 9, 2000 /s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: August 9, 2000 /s/ ROBERT STEENHUISEN
Robert Steenhuisen
Chief Accounting Officer
