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 March 31, 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: May 10, 2000.
Common Stock, $0.01 par value: 17,093,399 shares
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 . . . . . . . . . . . . . 1
Consolidated Statements of Operations for Three Months Ended
March 31, 2000 and 1999 . . . . . . . . . . 2
Consolidated Statements of Cash Flows for Three Months Ended
March 31, 2000 and 1999 . . . . . . . . . . 3-4
Notes to Consolidated Financial Statements . 5-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . 11-15
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . 16
Item 2. Changes in Securities. . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on 8-K. . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . 17
All items that are not applicable or to which the answer is negative have
been omitted from this report.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of
$375 and $373 in
2000 and 1999, respectively. . . . . . $ 4,566 $ 1,464
Other current assets. . . . . . . . . . . 287 98
Total current assets. . . . . . . . . . . . . 4,853 1,562
PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . 4,968 4,977
DEPOSITS AND OTHER ASSETS. . . . . . . . . . . . 1,970 1,589
$ 11,791 $ 8,128
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt, current maturity . . . . $ 680 $ --
Accounts payable and accrued expenses. . 1,207 1,181
Accrued payroll and related liabilities. 1,901 53
Total current liabilities . . . . . . 3,788 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, 17,093 and
16,803 issued in 2000 and 1999,
respectively 171 168
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,
4 issued and outstanding . . .
Common stock payable. . . . . . . . . 50
Capital in excess of par value . . . . . 82,258 78,527
Accumulated deficit. . . . . . . . . . . (76,122) (75,993)
Total stockholders' equity. . . . . . 6,316 2,761
$ 11,791 $ 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>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
REVENUES:
Other . . . . $ 36 $ 43
COSTS AND EXPENSES: . . . . . .
Adjustment to noncash
compensation. . . . (466)
Selling, general and
administrative . . . 420 328
Interest . . . 41 42
Depreciation and amortization . . . 10 11
Development and start-up costs. . . 160 157
Total costs and expenses . . . . . 165 538
NET LOSS . $ (129) $ (495)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING. 16,947 16,717
NET LOSS PER COMMON SHARE, BASIC
AND DILUTED $ (.01) $ (.03)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (129) $ (495)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization. . . . 10 11
Noncash compensation adjustment. . . (466)
Changes in operating assets and
liabilities:
Increase in other current assets. (44) (26)
Increase (decrease) in accounts
payable and accrued expenses . . . 26 (176)
Increase (decrease) in accrued
payroll and related liabilities 52 (31)
NET CASH USED IN OPERATING ACTIVITIES. . . . (551) (717)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in note receivable. . . . . . . . . . (400)
Payments for property and equipment. . . . . . . (1)
(Increase) decrease in deposits and other
assets 21 (89)
NET CASH USED IN INVESTING ACTIVITIES . . . (380) (89)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of preferred stock. . . 3,867
Proceeds from exercise of stock options . 136
Proceeds from long-term debt. . . . . . . 30
Payments on long-term debt. . . . . . . . (106)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES . 4,033 (106)
NET INCREASE (DECREASE) IN CASH . . . . . . 3,102 (912)
CASH, beginning of period . . . . . . . . . 1,464 3,837
CASH, end of period . . . . . . . . . . . $ 4,566 $ 2,925
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest during the period. . . . . . $ -- $ 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.
The Company 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 - NOTE RECEIVABLE
On March 29, 2000, the Company advanced $400 in exchange for a
promissory note in the same amount (see Note 7). The
note provides for interest to be received monthly at a rate of 11%
per annum, monthly receipts of principal of $5 commencing
July 2000 with the balance due at maturity in August 2002.
The consolidated balance sheet as of March 31, 2000, includes the
amount of principal to be received in the next twelve months of $48
in other current assets with the balance of $352 in deposits
and other assets.
NOTE 4 - PROPERTY AND EQUIPMENT
Details of property and equipment at March 31, 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 . . 1,838 1,837
10,265 10,264
Less accumulated depreciation and
amortization. . 5,297 5,287
$ 4,968 $ 4,977
</TABLE>
NOTE 5 - LONG-TERM DEBT
Long-term debt at March 31, 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 agreed to
subordinate its rights to repayment
of principal to amounts due to
the holders of the preferred stock,
series D (see Note 8). . . . . 8% $ 1,407 $ 1,407
Mortgage note collateralized by
the Company's gaming vessel
(see Note 7) 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 March 31:
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 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At March 31, 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 $ 462
Insurance . . . . . . . . . . . 190 202
Accrued professional fees . . . 206 221
Accrued interest. . . . . . . . 54 13
Other . . . . . . . . . . . . . 295 283
$ 1,207 $ 1,181
</TABLE>
NOTE 7 - 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 Notes 3 and 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. The initial interest rate of 8.75% is adjusted daily to prime
plus one percent with a minimum rate of 8.75%. Upon repayment of
the promissory note 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 quarter ended March 31, 2000, the Company incurred
$45 of start-up costs. As of March 31, 2000, the vessel
has pledged as collateral to obtain funding of $650 towards the
aforementioned costs of Casino Ventures (See Note 5). 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"), is party to a General Memorandum
of Understanding (the "Memorandum") with Catskill Development,
LLC ("CDL" and, collectively with AMI, the "Parties") dated
December 1, 1995, which, among other things, provides for the
establishment of Mohawk Management, LLC ("MML"), a New
York limited liability company, for the purpose of entering into
an agreement to manage a proposed casino on land to be owned
by the St Regis Mohawk Indian Tribe (the "Mohawk Tribe"). The
Memorandum also sets forth the general terms for the funding
and management obligations of CDL (25% owned by Bryanston) and
AMI with regard to MML. In January 1996, MML was
formed with each of CDL and AMI owning a 50% membership interest
in MML. On July 31, 1996, MML entered into a Gaming
Facility Management Agreement with the Mohawk Tribe (the "Management
Contract") for the management of a casino to be
built on the current site of Monticello Raceway in Monticello,
New York (the "Monticello Casino"). Among other things, the
Management Contract provides MML with the exclusive right to manage
the Monticello Casino for seven (7) years from its
opening and to receive certain 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 contains no such
provision. Additionally, the Memorandum is silent as to the
effect of such termination on the continued existence of MML, on
the Parties' respective 50% membership therein or on the
Management Contract. On December 28, 1998, AMI filed for
arbitration, as prescribed by the Memorandum, to resolve any
disputes by the Parties. As of September 15, 1999, AMI and CDL
reached a tentative settlement, and the original memorandum
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
or understanding is in the process of being revised. At the request
of both Parties, the American Arbitration Association agreed
to stay further proceedings in the arbitration until May 19, 2000, so
that the Parties could finalize these arrangements. Upon the
effectiveness of this proposed settlement, AMI would be entitled
to receive 40% of MML's basic management fee income and
50% of the service fee income accruing to MML for professional
services rendered. The net result of the proposed settlement
would entitle AMI to received approximately 45% of all management
fee and service income derived from the underlying
management contract.
In a related transaction, Bryanston, subject to the receipt
of all necessary governmental approvals by AMI, has agreed
to transfer to AMI five percentage points of its ownership interest
in its 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 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 either of these undertakings nor the
previously discussed development fee arrangement. Included in
deposits and other assets as of March 31, 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 and
is continuing its review of the Management Contract.
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 March 31, 2000, deferred compensation payable to the
Chairman and CEO was approximately $1,592. 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 or in the event
of his earlier termination of employment on account of his death
or other disability, for the 90 days following such termination,
conversion rights shall not be exercisable before January 14, 2001
or the earlier termination of his employment or account of his
death or other disability. During the quarter ended March 31, 2000,
the Company has recorded a noncash compensation income
adjustment of $466 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 $1,592 payable as of March 31, 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. Additionally, a former officer of the
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
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.
The Company has the option, through June 15, 2000, to exercise
its right to enter into a Charter Agreement with the
issuer of its $400 note receivable (see Note 3). If the Company
does elect to enter into this agreement, the Company may apply
the $400 note receivable towards the purchase of a gaming day cruise vessel.
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 March 31, 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.
Commencing in the year ended December 31, 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 and 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)
NOTE 8 - STOCKHOLDERS' EQUITY
The changes in stockholders' equity during the three months ended
March 31, 2000, included the net loss of $129 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.
Additional changes were the exercise of options to purchase 260 shares
of the Company's common stock at an average exercise
price of $1.08 per share and the issuance of 30 shares of the
Company's common stock as satisfaction of certain accounts payable
and accrued expenses of $50.
The preferred stock, series D, is convertible into shares of
the Company's commons 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 divided 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. As of May 5, 2000, dividends in arrears
on the cumulative preferred stock, series B, amounted to
1,943 shares with respect to 1998, 451 shares with respect to
1999 and 774 with respect to 2000. The holders of the preferred
stock, series B, have agreed to a deferral of the issuance of
the shares of common stock with respect to the dividend payable for
1998 and 1999.
The Company's preferred stock series C, has voting rights of
twenty-four votes per preferred share, is convertible into
twenty-four shares of common stock for each share of preferred
stock and carries a dividend of $5.65 per share. In addition, the
terms of the preferred shares include a provision allowing the
Company the option of calling the preferred shares based upon the
occurrence of certain capital events that realize a profit in
excess of $5,000. In the event the dividend is not paid by the end of
the Company's fiscal year, the dividend will be payable in
shares of the Company's common stock. As of May 5, 2000,
dividends in arrears on the cumulative preferred stock,
series C, amounted to 255 shares with respect to 1998, 111 shares with
respect to 1999 and 191 with respect to 2000. The sole holder
of the preferred stock, series C, has agreed to a deferral of the
issuance of the shares of common stock with respect to the
dividend payable for 1998 and 1999.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (dollars in thousands)
The following discussion of the historical consolidated
financial condition and results of the operations of the Company
should be read in conjunction with the Consolidated Financial
Statements and the Notes to such financial statements included
elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking
statements, which involves risks and uncertainties
primarily relative to the speculative nature of the Company's
proposed casino development 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
On March 2, 1998, the Company sold substantially all of the
assets of Alpha Gulf and Greenville Hotel, including the
casino barge, boarding barge, related gaming and other equipment,
furniture and improvements and related permits, licenses,
leases and other agreements, to Greenville Casino Partners, L.P.
("Buyer"). In exchange for such assets, the Company received
from Buyer total consideration of $40,200, including approximately
$11,800 in cash, the assumption of approximately $2,000
of certain accounts payable, accrued expenses, payroll liabilities
and a capital lease obligation, a 25% partnership interest in Buyer
and the assumption of the Company's obligations to repay $17,900.
General and administrative expenses of $33 and $97, respectively,
for the three months ended March 31, 2000 and 1999,
consisted of payroll and related expenses of approximately $17 and
$28, respectively, occupancy costs of approximately $7 and
$14, respectively, a general corporate overhead allocation of $0 and
$44, respectively, and other operating expenses of $7 and
$11, respectively.
Included in the consideration received in exchange for the
sale of the Bayou Caddy's Jubilee Casino, Alpha Gulf
received a 25% partnership interest in Buyer, whose primary
assets include: the Las Vegas Casino, the Bayou Caddy's Jubilee
Casino, the Key West Inn and the Greenville Inn and Suites.
The complement of the currently operating gaming devices is 25
table games and 800 slots which represents 54.4% of the devices
in the Greenville market. The two hotels offer 56 rooms and
41 rooms and suites, respectively. Since the acquisition of
substantially all of the assets of Alpha Gulf and Greenville Hotel,
management has been advised that Buyer has incurred significant
operating losses resulting in a substantial working capital
deficiency and partners' deficiency. Buyer decided to close
the Las Vegas Casino in October 1998 in an effort to decrease
expenses and improve the operating performance of the Bayou Caddy's
Jubilee Casino. However, management has been advised
that, despite such action, Buyer continues to incur operating
losses. More recently, management has been advised that Buyer
plans to reopen the Las Vegas Casino if sufficient capital can
be raised to allow both of its boats to be operated contiguously
under one gaming license. It is management's understanding that
Buyer believes that the contiguous operation of the two casinos
will yield increased market share and operating cash flows.
Additionally, management has been advised that Buyer is pursuing
other capital sources and seeking to modify its debt service
requirements in a manner intended to provide additional working
capital. However, there can be no assurance that Buyer will be
able to attract the necessary capital, modify its debt service
requirements or otherwise fund the cost of mooring and operating
these boats in a contiguous manner. In light of these
developments and in accordance with its policy on impairment of
long-lived assets, the Company adjusted the carrying value
of its remaining 25% partnership interest in Buyer to zero during
the fourth quarter of 1998.
Jubilation Lakeshore (exclusive of Casino Ventures - See "Future
Operations"):
The Company acquired the Cotton Club of Greenville, Inc.
(d/b/a Cotton Club Casino) on October 26, 1995. The Cotton
Club Casino operations in Greenville were terminated on October
30, 1995. After its relocation to Lakeshore, the Cotton Club,
renamed the Jubilation Casino, reopened for business on December
21, 1995, and has been closed since August 1996. In August
1998, the Company relocated the casino vessel to Mobile, Alabama,
where it was moored at a terminal. 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.
<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)
Jubilation Lakeshore (exclusive of Casino Ventures - See "Future
Operations"): (CONTINUED)
The continuing costs incurred during the three months ended
March 31, 2000, for administration, insurance,
compensation, vessel mooring and relocation were $8 compared to $62
for the same period in 1999. Interest expense for the three
months ended March 31, 2000 and 1999 amounted to $28 and $42,
respectively, which related to a note payable to Bryanston.
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 year ended December 31, 2000,
the Company no longer accrues the management fees
as the likelihood of collection is remote.
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.
<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:
The Company, through its wholly-owned subsidiary Alpha Monticello,
is party to a General Memorandum of Understanding (the "Memorandum")
with Catskill Development, LLC ("CDL" and, collectively with Alpha
Monticello, the "Parties") dated December 1, 1995, which, among
other things, provides for the establishment of Mohawk Management, LLC
("MML"), a New York limited liability company, for the purpose
of entering into an agreement to manage a proposed casino
on land to be owned by the St Regis Mohawk Indian Tribe (the "Mohawk
Tribe"). The Memorandum also sets forth the general
terms for the respective funding and management obligations of
CDL (25% owned by Bryanston) and Alpha Monticello with
regard to MML. In January 1996, MML was formed with each of CDL
and Alpha Monticello owning a 50% membership interest. On July 31,
1996, MML entered into a Gaming Facility Management Agreement with
the Mohawk Tribe (the "Management Contract") for the management
of a proposed casino to be built on the current site of Monticello Raceway in
Monticello, New York (the "Monticello Casino"). Among other
things, the Management Contract provides MML with the
exclusive right to manage the Monticello Casino for seven (7) years
from its opening and to receive certain fees for the provision
of management and related services.
By its terms, the Memorandum 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. As of the date hereof, all such approvals
have not been obtained. The Management Contract between MML and
the Mohawk Tribe contains no such termination
provision. Additionally, the Memorandum is silent as to the
effect of such termination on the continued existence of MML, on
the Parties' respective 50% membership interests therein or
on the Management Contract. On December 28, 1998, Alpha
Monticello filed for arbitration, as prescribed by the
Memorandum, to resolve certain disputes between the Parties. As of
September 15, 1999, Alpha Monticello and CDL reached a
tentative settlement, and the original Memorandum is in the process
of being revised. At the request of both Parties, the
American Arbitration Association agreed to stay further proceedings in the
arbitration until May 19, 2000, so that the Parties could
finalize these arrangements. Upon the effectiveness of this proposed
settlement, Alpha Monticello would be entitled to receive 40%
of MML's basic management fee income and 50% of the service
fee income accruing to MML for professional services rendered.
The net result of the proposed settlement would entitle Alpha
Monticello to received approximately 45% of all management fee
and service fee income derived from the underlying management contract.
In a related transaction, Bryanston has agreed, subject to
the receipt of all necessary governmental approvals by Alpha
Monticello, to transfer to Alpha Monticello 5 percentage points
of its ownership interest in its real property holdings at the
Monticello Raceway. That holding includes the Raceway's building
and equipment and approximately 200 acres of land. Alpha
Monticello would also granted the right to 25% of all 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 Alpha
Monticello. Under the previous arrangement, Alpha Monticello did
not have any ownership stake in either of these assets nor
participate in the previously discussed development fee arrangement.
For the three months ended March 31, 2000 and 1999, the Company
incurred casino development costs of $64 and $57,
respectively, which related to a general overhead allocation.
As of March 31, 2000 and December 31, 1999, the Company had
capitalized $1,366 towards the design, architecture and other
costs of development plans for the 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 Monticello Casino would be
developed. On April 19, 2000, MML received a letter from the National
Indian Gaming Commission asking for additional information and
is continuing its review of the Management Contract.
<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)
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 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.
The Company was advised earlier this year that legislation
had been introduced in the Florida legislature that could
dramatically alter the current law allowing the "cruise-to-nowhere"
industry. However, on April 28 , 2000, the Company received
notification that the State Senator who introduced the bill into
the senate has pulled the bill from committee and it will not be
brought to the floor for a vote. Among the Company's plans for
obtaining a vessel for its permanent berth at the Haulover Marina,
is an option the Company has, through June 15, 2000, to exercise
its right to enter into a Charter Agreement with the issuer of
its $400 note receivable. If the Company does elect to enter
into this agreement, the Company may apply the $400 note
receivable towards the purchase of the gaming day cruise vessel.
The projected start time frame for the cruise-to- nowhere is early Fall.
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 $95 and $28 were incurred
with respect to this project during the three months
ended March 31, 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
three months ended March 31, 2000, the Company incurred $45
of start-up costs related to insurance, vessel repairs and
miscellaneous administrative costs. Casino Ventures'
interest expense for the three months ended March 31, 2000,
not eliminated in consolidation, amounted to $13. 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 2000. 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 three months ended March 31, 2000, the Company had
net cash used in operating activities of $551. The uses
were the result of a net loss of $129 plus depreciation of $10,
an adjustment to noncash compensation of $466 and a net decrease
in working capital of $34. The decrease in working capital
consisted primarily of a net decrease in other current assets of $44,
an increase in accounts payable and other accrued expenses of $26
and an increase in payroll and related liabilities of $52.
Cash used in investing activities of $380 consisted of $1 of
payments for property and equipment, a $400 increase in
deposits and other assets related to a promissory note and a $19
of other decreases in deposits and other assets.
Cash provided by financing activities of $4,033 was attributable
to $3,867 of proceeds from the issuance of preferred
stock, $136 of proceeds from the exercise of options to purchase
the Company's common stock and $30 of proceeds from long-term debt.
The proceeds from the issuance of preferred stock is 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.
Although the Company is subject to continuing litigation, the
ultimate outcome of which cannot presently be determined,
Management believes any additional liabilities that may result
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.
Year 2000 Compliance
The Company has not made significant expenditures in connection
with the Year 2000 computer problem because it
does not believe that the Year 2000 problem will have a
materially adverse effect on the Company's operations.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 on file with the
Securities and Exchange Commission.
There have been no other material developments to any
existing legal proceeding during the current quarterly period.
ITEM 2. CHANGES IN SECURITIES
On February 8, 2000, the Company privately sold 4,000 shares
of its 7% convertible series D preferred stock. 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 common 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 payment of dividends is 3,300,000 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 into common stock.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
Report filed February 15, 2000 . . . . Item 5 - Other Events
Report filed April 28, 2000. . . . . . Item 5 - Other Events
<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: May 10, 2000 /s/ STANLEY S. TOLLMAN
Stanley S. Tollman
Chairman and CEO
Dated: May 10, 2000 /s/ ROBERT STEENHUISEN
Robert Steenhuisen
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alpha Hospitality Corporation Form 10Q for the quarter ended March 31, 2000.
</LEGEND>
<CIK> 0000906780
<NAME> ALPHA HOSPITALITY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,566
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,853
<PP&E> 10,265
<DEPRECIATION> 5,297
<TOTAL-ASSETS> 11,791
<CURRENT-LIABILITIES> 3,788
<BONDS> 2,087
0
9
<COMMON> 171
<OTHER-SE> 6,136
<TOTAL-LIABILITY-AND-EQUITY> 11,791
<SALES> 0
<TOTAL-REVENUES> 36
<CGS> 0
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<OTHER-EXPENSES> 590<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> (129)
<INCOME-TAX> 0
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<FN>
<F1>Includes depreciation and amortization of $10 and development and start-up
costs of $160.
</FN>
</TABLE>
