U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1999.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(No Fee Required)
For the transition period from to
Commission file number 1-12522
Alpha Hospitality Corporation
(Name of registrant as specified in its charter)
Delaware 13-3714474
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12 East 49th Street, New York, N.Y. 10017
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 750-3500
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 par value per share Boston Stock Exchange
Redeemable Common Stock Purchase Warrants
each redeemable common stock purchase
warrant entitling the holder to purchase
one share of common stock
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The issuer's revenues for the year ended December 31, 1999 were
$185,000.
The aggregate market value on March 20, 2000 of the voting stock
held by non-affiliates computed based on the average bid and asked prices of
such stock on that date was approximately $54,000,000.
As of March 20, 2000, 17,033,399 shares of Common Stock, $.01 par
value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format:
Yes No X
The Exhibit Index is located on Page 32.
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ITEM 1. BUSINESS
General
Alpha Hospitality Corporation (the "Company") was incorporated in
Delaware on March 19, 1993, and its subsidiaries Alpha Gulf Coast, Inc.
("Alpha Gulf") was incorporated in Delaware on May 4, 1993, Jubilation
Lakeshore, Inc. ("Jubilation Lakeshore") was incorporated in Mississippi on
December 8, 1992, Alpha Missouri, Inc. ("Alpha Missouri") was incorporated
in Delaware on March 17, 1996, Alpha Monticello, Inc. ("Alpha Monticello")
was incorporated in Delaware on May 30, 1997, Alpha Rising Sun, Inc.
("Alpha Rising Sun") was incorporated in Delaware on August 6, 1993, Alpha
St. Regis, Inc. ("Alpha St. Regis") was incorporated in Delaware on June 24,
1994, Alpha Greenville Hotel, Inc. ("Greenville Hotel") was incorporated in
Delaware on February 27, 1997, Alpha Entertainment, Inc. ("Alpha
Entertainment") was incorporated in Delaware on March 12, 1997, Alpha
Florida Entertainment, Inc. ("Alpha Florida") was incorporated in Florida on
May 26, 1998, Alpha Peach Tree Corporation ("Alpha Peach Tree") was
incorporated in Delaware on March 16, 1999 and Casino Ventures, L.L.C.
("Casino Ventures") was formed as a limited liability company in Mississippi
on June 6, 1999. As used herein, the term "Company" includes Alpha
Hospitality Corporation and such of its subsidiaries as the context requires.
The Company's principal executive offices are located at 12 East 49th Street,
New York, New York 10017, and its telephone number is 212-750-3500.
Historically, the Company had been engaged in (i) the ownership and
operation, through Alpha Gulf, of a gaming vessel in Greenville, Mississippi,
and the construction of an adjacent hotel through its Greenville Hotel
subsidiary and (ii) the pursuit of gaming related and other opportunities
through the Company's other subsidiaries.
Effective March 2, 1998, the Company sold to Greenville Casino
Partners, L.P. (the operator of another casino barge in Greenville,
Mississippi),
its Bayou Caddy's Jubilee Casino ("Jubilee") and related assets, which then
constituted substantially all the Company's operating assets, in consideration
for (i) approximately $11,800,000 in cash, (ii) a 25% limited partnership
interest in Greenville Casino Partners, L.P., (iii) the assumption of
approximately $2,000,000 of liabilities of Alpha Gulf and (iv) the assumption
of an additional approximately $23,900,000 of indebtedness (inclusive of loan
costs and loan discounts aggregating approximately $6,000,000, which was
not received by the Company) owed by Alpha Gulf and Greenville Hotel to an
institutional lender, which indebtedness had been incurred in anticipation of
the proposed sale. See Item 7, herein, for a more detailed discussion of the
sale transaction.
As a result of the Company's sale of its Alpha Gulf operations, the
Company's operations were reduced to the development of potential new
gaming operations in New York, Florida and Mississippi, and the acquisition
or development of other business operations.
Casino Operations and Gaming Activities
Development Activities
New York. The Company, through Alpha Monticello (its wholly
owned subsidiary), 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. CDL is 25%
owned by Bryanston Group, Inc. ("Bryanston"), a Georgia corporation, (see
item 13 - "Certain Relationships and Related Transactions"). Among other
things, the Memorandum 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 the Parties 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 casino to be built on the current site of the
Monticello Raceway in Monticello, New York (the "Monticello Casino"),
located approximately 90 miles from New York City. Among other things, the
Management Contract provides MML with the exclusive right to manage the
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Monticello Casino for seven (7) years from its opening and to receive certain
fees for the provision of management and related services. This agreement is
subject to final approval by the U.S. Department of the Interior and the
National Indian Gaming Commission. Additionally the land on which the
casino is to be sited requires the approval of the U.S. Department of the
Interior's Bureau of Indian Affairs and the concurrence of the Governor of the
State of New York.
By its terms, the Memorandum between CDL and Alpha Monticello
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 provision. Additionally, the Memorandum is silent as to the
effect of such termination on the continued existence of MML on the Parties'
respective 50% interests membership 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 April 3, 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 receive 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 will 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 Alpha
Monticello. Under the previous arrangement described above, Alpha
Monticello did not have any ownership stake in either of these assets nor
participate in the previously discussed development fee arrangement.
Subject to the obtaining of requisite approvals, it is anticipated that
MML will undertake the development and management of the proposed casino
in Monticello, New York, and Alpha Monticello will be responsible for the
day-to-day operations of that casino. It is intended that that casino will be
owned by the Mohawk Tribe and will be located on land to be placed in trust
for the benefit of the Mohawk Tribe.
CDL purchased the 225 acre Monticello Raceway in June 1996. The
Company has been advised by CDL that CDL plans to continue its racing
program at the Monticello Raceway and to explore other developments at the
site in addition to the proposed casino referred to above.
There can be no assurance that the project will receive all requisite
approvals. However, if such approvals are obtained, it is the Company's
current intention to proceed with the development of this gaming activity.
During 1999, 1998 and 1997, respectively, Alpha Monticello incurred
$209,000, $279,000 and $907,000, respectively, of costs, of which $0,
$75,000, and $557,000, respectively, has been capitalized, and the remaining
$209,000 $204,000 and $350,000, respectively, have been expensed as casino
development costs, which are substantially comprised of a corporate overhead
allocation.
In March 1998, CDL completed the State Environmental Quality
Review Act process with the Village of Monticello's Planning Board as lead
agency.
On March 14, 2000, New York Governor George E. Pataki
announced proposed legislation (the "Pataki Proposal")
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that, if enacted, would
affect the approval process for the construction and operation of casinos on
Indian lands within New York State. If enacted as currently proposed, the
Pataki Proposal would, among other things, alter the state's existing approval
process for compacts to be entered into on or after the date the legislation is
adopted. In the view of Management, such proposed change in the approval
process would not have any effect on the Management Contract, which was
entered into by former Governor Mario Cuomo in 1993. The Pataki Proposal
also would provide legal authority for the possession and use of slot machines
on Indian lands under a compact meeting certain standards.
Florida. On May 7, 1999, Alpha Florida was notified by Miami-
Dade County (the "County") that it had received the final approval on a lease
to dock and operate a day cruise vessel out of the County's Haulover Beach
Park and Marina adjacent to Bal Harbour, Florida. The exclusive lease is for
five years. The County may renew this exclusive agreement for two periods
of five years each. For this exclusivity, the Company has agreed to pay the
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 recently advised that legislation has been
introduced in the Florida legislature that could dramatically alter the current
state law and impose significant new restrictions or limitations on the
"cruise-
to-nowhere" industry. The state legislature will not adjourn until early May
2000; therefore, there can be no assurance that a vote will not be taken and, if
taken, would not be detrimental to the industry. Alpha Florida, in concert with
the potential lessor of the vessel intended to be used by Alpha Florida for its
operations, is awaiting final disposition of this issue before proceeding with
the final financial commitment on this undertaking. Consequently, whether
the Company (through Alpha Florida) will proceed with the development of
this gaming business opportunity remains uncertain.
On February 8, 2000, the Company completed a private placement
of preferred stock for an aggregate amount of approximately $3,900,000, net
of approximately $100,000 of closing costs, the proceeds of which were
anticipated to be used primarily for the start-up costs related to this
project and
the charter of the vessel or some other gaming related undertakings.
Mississippi. On July 8, 1999, the Company, through its subsidiary,
Jubilation Lakeshore, contributed its inactive gaming vessel, Bayou Caddy's
Jubilation Casino ("Jubilation") to Casino Ventures in exchange for $150,000
in cash, a promissory note of $1,350,000 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%. A director of the Company is a
partner in Casino Ventures and serves as its General Manager (see Item 13 -
"Certain Relationships and Related Transactions").
The Jubilation vessel has been relocated to Mhoon Landing in
Tunica, Mississippi ("Tunica"), where it is anticipated it will be refurbished
and operated as a gaming vessel. During 1999, the Company capitalized
$364,000 of costs related to the relocation and refurbishing of the vessel and
improvements to its redeployment site in Tunica. An additional $100,000 of
start-up costs were incurred in 1999.
The Company expects Casino Ventures to commence operations in
Tunica in late 2000. The Company is not required to make any further capital
contributions to Casino Ventures.
Discontinued Activities
The Bayou Caddy's Jubilee Casino. The Jubilee, originally located in
Lakeshore, Mississippi, was owned and operated by the Company's wholly-
owned subsidiary Alpha Gulf. Following the Company's acquisition (through
Jubilation Lakeshore) of the Cotton Club casino in October 1995 (see "The
Company -- Discontinued Activities -- The Jubilation Casino"), the Company
relocated the Jubilee to Greenville, Mississippi. The Jubilee reopened in
Greenville on November 17, 1995. The movement of the Jubilee to Greenville
increased the capacity at Greenville and brought an upscale facility to the
Greenville market. Management believed that the relocation of the Jubilee to
Greenville was an appropriate action designed to increase the return on the
Company's gaming assets in Mississippi.
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In April 1997, Alpha Gulf received approval from the Mississippi
Gaming Commission to make the infrastructure investment required to build
and operate a hotel on property adjacent to the Jubilee location. Greenville
Hotel entered into a long-term lease with the Board of Mississippi Levee
Commissioners to lease property, including historical landmark buildings, for
the development of a forty-one key single room and suite hotel. Management
believed that this hotel would add a new dimension to the Company's casino
patron experience and would be an added amenity to the Company's player
development program. The total cost of this project, including capitalized
interest, indirect labor and sundry costs, was approximately $4 million.
Greenville Hotel received interim financing from Bryanston to fund
construction. In February 1998, the Company completed construction of its
Greenville Hotel, and on March 2, 1998, through Alpha Gulf and Greenville
Hotel, the Company sold the Jubilee, the Greenville Hotel and other related
assets to Greenville Casino Partners, L.P. (see "Business General").
The Jubilation Casino. In October 1995, the Company (through its
subsidiary Jubilation Lakeshore) acquired the Cotton Club casino, a gaming
vessel then moored in Greenville, Mississippi. Such casino was renamed the
Jubilation Casino and was relocated from Greenville to Lakeshore,
Mississippi, where it reopened on December 21, 1995. Management hoped
that the smaller Jubilation Casino could adequately service the existing
Lakeshore market with a substantially reduced cost of operations. However,
based upon the Jubilation Casino's limited capacity, remote location and the
increasing casino development in the Biloxi and Gulfport markets (which
proved to be more attractive to casino patrons), the Jubilation Casino was
unable to overcome operating deficits. As a result, the Company closed the
Jubilation Casino in August 1996.
In August 1998, the Company relocated its idle Jubilation vessel to
a terminal in Mobile, Alabama. In July 1999, the Company contributed the
vessel to Casino Ventures (see "Casino Operations and Gaming Activities -
Development Activities - Mississippi").
Missouri. Alpha Missouri has applications pending for site approval
and a gaming license with respect to the development of a river boat gaming
facility in Louisiana, Missouri. Although existing law in Missouri does not
restrict the number of licenses the Missouri Gaming Commission may issue,
that Commission has effectively placed a moratorium on any new licenses in
the Louisiana market. The Company believes that such restriction will remain
in place for an indeterminate time. As a consequence, Alpha Missouri and the
City of Louisiana agreed to terminate the lease by Alpha Missouri of city-
owned property that was anticipated to be used for the gaming project. While
the Company has not withdrawn its application for site approval and gaming
license, it does not anticipate any action on the project in the foreseeable
future.
The Company incurred development costs of approximately $318,000
in 1997 related to its proposed development, comprised of a general corporate
overhead allocation.
Marketing
The Company concentrated its sales, marketing and promotional
activities for the Jubilee in its principal target market within a 50- mile
radius
of the Jubilee's location. The target market was reached through a combination
of billboards, radio, television and newspaper advertising and direct mail.
The Company developed an in-house mailing list of in excess
130,000 casino customers. These customers were made up of table game
players and "Slot Club" members. Table game customers were identified
through the casino's marketing representatives, and their play was monitored
to evaluate whether the customer warranted complimentary services provided
by the casino. The award of complimentary services was consistent with
standard industry practices and was based upon a customer's duration of play
and average amount wagered. The "Slot Club" was an operation that allowed
the casino's computerized tracking system to identify customers, amount of
play and other pertinent characteristics. The "Slot Club" was an ongoing
promotion where members were issued cards and accumulated points based
on the amount of their play. Such points were redeemable for food, beverages
and merchandise. Tournaments
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for blackjack, craps and poker were held,
along with other special events and promotions.
Competition
At the time of the Company's sale of the Jubilee, there were 19
casinos located on the Mississippi River. In the Greenville market, the
Company's Jubilee competed with the Las Vegas Casino, which recently has
been closed for possible removal to a new Greenville location, and the
Lighthouse Point Casino, which opened in November 1996.
After the opening of the Lighthouse Point Casino, the Jubilee's share
of the market, based on the number of player positions in the market,
improved. The Company believed that the Jubilee was well-positioned to
compete successfully with the two other casinos in the Greenville market, one
of which (the Las Vegas Casino) was owned and operated by Greenville
Casino Partners, L.P., the purchaser of Jubilee. As a result of the sale of the
Jubilee, the Company owns a 25% equity interest in Greenville Casino
Partners, L.P. In October 1998, the Las Vegas Casino was closed with plans
of a possible relocation to another site in Greenville.
Approximately 60 miles south of Greenville is Vicksburg, which has
four casinos: the Isle of Capri, Harrah's Vicksburg, Ameristar and Rainbow
Casino. Approximately 110 miles south of Greenville is Natchez with the Lady
Luck Natchez Casino. Approximately 60 miles north of Greenville is
Coahoma County with the Lady Luck Coahoma Casino. Tunica County is
approximately 150 miles north of Greenville and has nine casinos -- Harrah's,
Sam's Town, Fitzgerald's, Sheraton, Hollywood Casino, Gold Strike (Circus
Circus), Horseshoe Casino, Grand Casino and Bally's. Since casinos outside
a 50-mile radius of Greenville were not considered by the Company to be
within its primary competitive market, the Company did not deem the casinos
in Vicksburg, Natchez or Tunica County to be among its principal competitors.
Although the Jubilee remained competitive, at least until its sale in
March 1998, the Jubilation Casino, located on the Mississippi Gulf Coast, was
unable to compete satisfactorily with the major casino developments in the
Biloxi and Gulfport markets. This contributed to Management's decision to
close the Jubilation Casino during August 1996. (See "Casino Operations and
Gaming Activities -- Discontinued Activities-- The Jubilation Casino".)
Government Regulation
The Company's ownership and operation of its gaming properties
were subject to regulation by federal, state and local governmental and
regulatory authorities, including regulation relating to environmental
protection. During the Company's ownership and operation of its gaming
properties, the Company was not the subject of any complaints or other formal
or informal proceedings alleging any violations of government regulation.
Seasonal Fluctuations
The results of the casinos' operations were seasonal, with the greatest
activity occurring during the fair weather months of May through September.
Consequently, the Company's operating results during the calendar quarters
ending in December and March were generally not as successful as those
quarters ending in June and September, and losses resulted from time to time.
The seasonal nature of such casino's operations increased the risk that natural
disasters or the loss of the Casino for any other reason during the May through
September period would have had a materially adverse effect on the
Company's financial condition and results of operations.
Licensing
General. The gaming industry is highly regulated by each of the
states in which gaming is legal. The regulations vary on a state-by-state basis
but generally require that the operator, each owner of a substantial interest
(usually 5% or more) in the operator, members of the board of directors, each
officer and all key personnel be found suitable, and be approved, by the
applicable governing body. The failure of any present, or future, person
required to
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be approved to be, and remain, qualified to hold a license could
result in the loss of the license.
Mississippi. The ownership and operation of casino facilities in
Mississippi were and are subject to extensive state and local regulation,
primarily the licensing and regulatory control of the Mississippi Gaming
Commission and the Mississippi State Tax Commission (collectively, the
"Mississippi Authorities"). This includes the regulation of the Company in
regard to its 25% investment in Greenville Casino Partners, L.P.
Gaming licenses and findings of suitability are not transferable, are
initially issued for a two-year period and are subject to periodic renewal. Such
renewal was obtained in November 1999 for a two year period. No person may
receive any percentage of profits from a gaming subsidiary of a holding
company without first obtaining licenses, findings of suitability and approvals
from the Mississippi Gaming Commission.
The laws, regulations and supervisory procedures of Mississippi and
the Mississippi Gaming Commission seek to: (i) prevent unsavory or
unsuitable persons from having any direct or indirect involvement with
gaming at any time or in any capacity, (ii) establish and maintain responsible
accounting practices and procedures, (iii) maintain effective control over the
financial practices of licensees, including establishing minimum procedures
for internal fiscal affairs and safeguarding of assets and revenues, providing
reliable record keeping and making periodic reports to the Mississippi
Authorities, (iv) prevent cheating and fraudulent practices, (v) provide a
source of state and local revenues through taxation and licensing fees and (vi)
ensure that gaming licensees, to the extent practicable, employ Mississippi
residents. The regulations are subject to amendment and to extensive
interpretation by the Mississippi Gaming Commission. Changes in Mississippi
law or regulations may limit or otherwise materially affect the types of gaming
that may be conducted and could have an adverse effect on the Company and
the Company's Mississippi gaming operations.
Mississippi law provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Mississippi Gulf Coast or
the Mississippi River but only if the voters in a county have not voted to
prohibit gaming in that county. The law permits unlimited stakes gaming on
permanently moored vessels on a 24-hour basis and does not restrict the
percentage of space that may be utilized for gaming. There are no limitations
on the number of gaming licenses that may be issued in Mississippi.
The Company, a registered, publicly traded holding company under
Mississippi law, is required periodically to submit detailed financial and
operating reports to the Mississippi Authorities and to furnish any other
information that the Mississippi Authorities may require. The Company and
any subsidiary of the Company that operates a casino in Mississippi (a
"Mississippi Gaming Subsidiary") are subject to the licensing and regulatory
control of the Mississippi Gaming Commission. If the Company is unable to
continue to satisfy the registration requirements of Mississippi law, the
Company and its Mississippi Gaming Subsidiaries cannot own or operate
gaming facilities in Mississippi. Each Mississippi Gaming Subsidiary must
obtain gaming licenses from the Mississippi Gaming Commission to operate
casinos in Mississippi and receive a finding of suitability to have a certain
ownership interest in a casino, as described by the Mississippi Gaming
Commission. Gaming licenses and findings of suitability are issued by the
Mississippi Gaming Commission subject to certain conditions, including
continued compliance with all applicable state laws and regulations and
physical inspection of casinos prior to opening.
Licensing of Officers, Directors and Employees
Officers, directors and certain key employees of the Company and
Alpha Gulf (as the owner of the 25% interest in Greenville Casino Partners,
L.P.) must be found suitable or be licensed by the Mississippi Gaming
Commission, and employees associated with gaming must obtain work permits
that are subject to immediate suspension under certain circumstances. In
addition, any person having a material relationship or involvement with the
Company may be required to be found suitable or be licensed, in which case
such person must pay the costs and fees associated with the related
investigation. The Mississippi Gaming Commission may deny an application
for a license for any cause that it deems reasonable. Changes in licensed
positions must be reported to the Mississippi Gaming Commission. In addition
to its
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authority to deny an application for a license, the Mississippi Gaming
Commission has jurisdiction to disapprove a change in corporate officers and
has the power to require any gaming subsidiary and the Company to suspend
or dismiss officers, directors and other key employees or sever relationships
with other persons who refuse to file appropriate applications or whom the
authorities find unsuitable to act in such capacities.
Investigation of Holders of Securities and Others
Mississippi law requires any person who acquires beneficial
ownership of more than 5% of the Company's common stock to report the
acquisition to the Mississippi Gaming Commission, and such person may be
required to be found suitable. Also, any person who becomes a beneficial
owner of more than 10% of the Company's common stock, as reported in
filings under the Securities Exchange Act of 1934, as amended, must apply for
a finding of suitability by the Mississippi Gaming Commission and must pay
the costs and fees that such Commission incurs in conducting the investigation.
The Mississippi Gaming Commission has generally exercised its discretion to
require a finding of suitability of any beneficial owner of more than 5% of a
company's stock. If a stockholder who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and financial
information,
including a list of beneficial owners. Representatives of the Mississippi
Gaming Commission have indicated that institutional investors may only be
required to file summary information in lieu of a suitability finding.
Any person who fails or refuses to apply for a finding of suitability
or a license within 30 days after being ordered to do so by the Mississippi
Gaming Commission may be found unsuitable. Any person found unsuitable
and who holds, directly or indirectly, any beneficial ownership of the
securities
of the Company beyond such time as the Mississippi Gaming Commission
prescribes may be guilty of a misdemeanor. The Company is subject to
disciplinary action if, after receiving notice that a person is unsuitable
to be a
stockholder or to have any other relationship with the Company or its
Mississippi Gaming Subsidiaries, the Company: (i) pays the unsuitable person
any dividend or other distribution upon the voting securities of the Company;
(ii) recognizes the exercise, directly or indirectly, of any voting rights
conferred by securities held by the unsuitable person; (iii) pays the unsuitable
person any remuneration in any form for services rendered or otherwise,
except in certain limited and specific circumstances; or (iv) fails to
pursue all
lawful efforts to require the unsuitable person to divest himself of the
securities, including, if necessary, the immediate purchase of the
securities for
cash at a fair market value.
The Company may be required to disclose to the Mississippi Gaming
Commission upon request the identities of the holders of any debt securities.
In addition, the Mississippi Gaming Commission under Mississippi law may,
in its discretion: (i) require disclosure of holders of debt securities of
corporations registered with the Mississippi Gaming Commission, (ii)
investigate such holders and (iii) require such holders to be found suitable to
own such debt securities. Although the Mississippi Gaming Commission
generally does not require the individual holders of obligations such as notes
to be investigated and found suitable, the Mississippi Gaming Commission
retains the discretion to do so for any reason, including, but not limited to, a
default or where the holder of the debt instrument exercises a material
influence over the gaming operations of the entity in question. Any holder of
debt securities required to apply for a finding of suitability must pay all
investigative fees and costs of such Commission in connection with such an
investigation.
Required Records
The Company must maintain a current stock ledger in Mississippi that
the Mississippi Gaming Commission may examine at any time. If any
securities of the Company are held in trust by an agent or by a nominee, the
record holder may be required to disclose the identity of the beneficial owner
to the Mississippi Gaming Commission. A failure to make such disclosure may
be grounds for finding the record holder unsuitable. The Company must also
render maximum assistance in determining the identity of the beneficial
owner.
Mississippi law requires that the certificates representing securities
of a publicly traded corporation (as defined under Mississippi law) bear a
legend to the general effect that such securities are subject to Mississippi law
and the regulations of the Mississippi Gaming Commission. The Mississippi
Gaming Commission has the power to impose
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additional restrictions on the
holders of the Company's securities at any time.
Approval of Corporate Matters and Foreign Gaming Operations
Substantially all loans, leases, sales of securities and similar financing
transactions by a Mississippi Gaming Subsidiary must be reported to and/or
approved by the Mississippi Gaming Commission. Changes in control of the
Company through merger, consolidation, acquisition of assets, management
or consulting agreements or any form of takeover cannot occur without the
prior approval of the Mississippi Gaming Commission.
The Mississippi legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting securities and
other takeover defense tactics that affect corporate gaming licensees in
Mississippi and corporations whose stock is publicly traded that are affiliated
with those licensees may be injurious to stable and productive corporate
gaming. The Mississippi Gaming Commission has established a regulatory
scheme to ameliorate the potentially adverse effects of these business practices
upon Mississippi's gaming industry and to further Mississippi's policy to: (i)
assure the financial stability of corporate gaming operators and their
affiliates;
(ii) preserve the beneficial aspects of conducting business in the corporate
form; and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in some circumstances, required from the
Mississippi Gaming Commission before the Company may make exceptional
repurchases of voting securities above the current market price of its common
stock (commonly called "greenmail") or before a corporate acquisition
opposed by management may be consummated. Mississippi's gaming
regulations also require prior approval by the Mississippi Gaming Commission
if the Company adopts a plan of recapitalization proposed by its Board of
Directors opposing a tender offer made directly to the stockholders for the
purpose of acquiring control of the Company.
Neither the Company nor any subsidiary may engage in gaming
activities in Mississippi while also conducting gaming operations outside of
Mississippi without approval of the Mississippi Gaming Commission. The
Mississippi Gaming Commission may require determinations that, among
other things, there are means for the Mississippi Authorities to have access to
information concerning the out-of-state gaming operations of the Company
and its affiliates.
Sanctions
If the Mississippi Gaming Commission were to decide that a
Mississippi Gaming Subsidiary had violated a gaming law or regulation, the
Mississippi Gaming Commission could limit, condition, suspend or revoke the
license of such Subsidiary. In addition, the Mississippi Gaming Subsidiary, the
Company and the persons involved could be subject to substantial fines for
each separate violation. On the basis of any such violation, the Mississippi
Gaming Commission could appoint a supervisor to operate the casino
facilities, and under certain circumstances, earnings generated during the
supervisor's appointment (except the reasonable rental value of the casino
facilities) could be forfeited to the State of Mississippi. Limitations,
conditioning or suspension of any gaming license or the appointment of a
supervisor could (and revocation of any gaming license would) materially and
adversely affect the Company's and the Mississippi Gaming Subsidiary's
gaming operations.
To comply with the Mississippi Gaming Commission's requirements
regarding the Company's 25% partnership interest in Greenville Casino
Partners, L.P., the Company retained its finding of suitability in November
1999 for a two year period. During its compliance review in 1997, in
connection with the Company's license renewal, the Mississippi Gaming
Commission noted several administrative reporting deficiencies. A show cause
hearing was held on December 2, 1997, at which Management explained its
position to the Mississippi Gaming Commission staff. This issue was settled
by the Company agreeing to address the noted deficiencies in future reporting.
Fees and Taxes
License fees and taxes, computed in various ways depending on the
type of gaming involved, are payable
<PAGE>
to the State of Mississippi and to the
counties and cities in which a Mississippi Gaming Subsidiary's operations have
been conducted. Depending upon the particular fee or tax involved, these fees
and taxes are payable either monthly, quarterly or annually and are based upon
(i) a percentage of the gross gaming revenues received by the casino operation,
(ii) the number of slot machines operated by the casino or (iii) the number of
tables games operated by the casino. The license fee payable to the State of
Mississippi based upon "gaming receipts" (generally defined as gross receipts
less payouts to customers as winnings) equals 4% of gaming receipts of
$50,000 or less per month, 6% of gaming receipts over $50,000 and less than
$134,000 per month, and 8% of gaming receipts over $134,000 per month.
The foregoing license fees are allowed as a credit against the Company's
Mississippi income tax liability for the year paid.
New York
The Federal Indian Gaming Law (as it relates to the Company's
proposed operation in New York State) provides for a comprehensive, detailed
scheme for the control of gaming operations in the state and the issuance of
licenses for gaming, both to gaming facilities and to persons involved in
certain gaming related activities. Each of the supervising governmental
agencies is authorized to promulgate rules and regulations applicable to the
administration of gaming related laws. With respect to the Company's
agreement with the Mohawk Tribe relating to the proposed Monticello Casino,
the State of New York has provided for regulation of Indian gaming casinos
through the New York State Racing and Wagering Board. Additionally, in
connection with its potential operations in New York State, the required
documentation has been filed with the National Indian Gaming Commission.
Employees
As of December 31, 1999, the Company employed 9 full-time
employees, including the Company's Chairman and Chief Executive Officer
and those executives not presently compensated directly by the Company (see
"Item 11 - Executive Compensation Policy").
ITEM 2. PROPERTIES
The Company maintains its executive office at leased premises located at 12
East 49th Street, New York, New York, 10017. This lease expires October 1,
2004.
Other Properties
Approximate
Location Principal Use Area Owned/Leased Expires
Hancock County Warehousing 3 acres Leased 4/30/03
Waveland, MS and with option
parking to purchase
Washington
County Accounting offices 10,000 Leased Month to
Greenville, MS and warehouse square feet Month
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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 $110,000, of which
$85,000 is covered by the Company's insurance. The remaining $25,000,
representing the cost to the Company, is included in accounts payable and
accrued expenses as of December 31, 1999. Settlement discussions are
underway by the Company's insurance company with plaintiffs Johnston and
Rainey; however, neither case has been settled at the time of this filing.
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.
Alpha Monticello is engaged in an arbitration proceeding in
connection with its development and management agreements with respect to
the proposed casino in Monticello, New York (See "Item 1 - Business -
Casino Operations and Gaming Activities - Development Activities").
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 Jubilee and related hotel property to
Buyer. The Company claims Buyer is liable for certain liabilities and certain
accounts payable. 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 arbitrator
expects to render a decision in late March or early April 2000. 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.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY
HOLDERS
None
<PAGE>
ITEM 5. MARKET INFORMATION
Market Prices
The Company's Common Stock and its Redeemable Common Stock Purchase
Warrants (the "Warrants") are traded on the Automated Quotation System of
the National Association of Securities Dealers, Inc. ("NASDAQ") under the
symbols "ALHY", on the Boston Stock Exchange under the symbols "ALH"
and "ALHW" and on the OTC BB under the symbol "ALHYW".
The following table sets forth the high and low sale prices for Common
Stock and Warrants as reported by NASDAQ.
<TABLE>
<CAPTION>
Common Stock Warrants
High Low High Low
<S> <C> <C> <C> <C>
1999 Quarters:
Fourth . . . . . . . . . . . .$6.69 $2.50 $3.38 $1.25
Third. . . . . . . . . . . . 4.44 3.00 2.38 .88
Second . . . . . . . . . . . 5.00 1.50 .375 .0625
First. . . . . . . . . . . . . 2.81 1.19 .0625 .0625
1998 Quarters:
Fourth . . . . . . . . . . . . $1.56 $ .50 $.0625 $.0625
Third. . . . . . . . . . . . . 2.06 .50 .125 .0625
Second . . . . . . . . . . . . 2.50 1.50 .1875 .0625
First. . . . . . . . . . . . . 3.00 1.63 .375 .0625
</TABLE>
As of March 20, 2000, 17,033,399 shares of Common Stock and 960,000
shares of Preferred Stock were issued and outstanding. The outstanding shares
of Common Stock were held of record by approximately 800 persons,
including ownership by nominees who may hold for multiple beneficial
owners.
Dividends
The Company has not, since its inception, declared or paid any dividends
on its shares of Common Stock. Under Section 170(a) of the General
Corporation Law of Delaware (the "GCL"), the Corporation is, and has been,
proscribed from declaring or paying any dividends upon any shares of its
capital stock except to the extent of (1) its surplus (as defined under the GCL)
or (2) in the case of no such surplus, its net profits for the fiscal year in
which
the dividend is declared and/or the preceding fiscal year. As the Company has
no surplus (as defined under the GCL) or net profits, the Company is
foreclosed from declaring or paying any dividends even if it had otherwise
been inclined to do so. There can be no assurance that the Company will have
any surplus (as defined in the GCL) or that the Company will achieve any net
profits and even if the Company has such a surplus or achieves net profits, the
Company will not determine to retain all available funds to expand the
Company's business or for other corporate purposes. Management has no
current intent to declare or pay any dividends on the shares of Common Stock.
Additionally, the Company is, and since its inception in 1993 has been,
subject to loan covenants that have generally prohibited the declaration or
payment of any cash dividends. Although proceeds from the pre-closing
financing in connection with the sale of the assets of Alpha Gulf and
Greenville Hotel were used to discharge loans pursuant to the terms of which
the Company was prohibited from declaring or paying any cash dividends on
its shares of capital stock, such prohibition was replaced with restrictive
covenants with respect to such pre-closing financing that effectively reinstated
such prohibition. Upon consummation of the sale of the Jubilee and the
Greenville Hotel, such pre-closing
<PAGE>
financing was assumed by Greenville
Casino Partners, L.P., effectively relieving the Company from such
prohibition. However, there can be no assurance that the Company will
declare or pay any dividends of the shares of its capital stock or will not
obtain
financing under terms that could prohibit the declaration of payment of any
dividends on its capital stock.
The Company's cumulative Series B Preferred Stock has voting rights
of eight votes per preferred share, is convertible is to eight shares of Common
Stock for each share of preferred stock and carries a dividend of $2.90 per
share, payable quarterly, which increases to $3.77 per share if the cash
dividend is not paid within 30 days of the end of each quarter. In the
event the
dividend is not paid at the end of the Company's fiscal year (December 31),
the dividend will be payable in shares of Common Stock instead of cash. On
December 17, 1997, the Company declared a dividend of $1,391,000 with
respect to the outstanding shares of the Series B Preferred Stock for 1996,
which was paid by the issuance of 777,000 shares of the Company's Common
Stock in April 1998 as payment of such dividend. On May 12, 1998, the
Company declared a dividend of $2,861,000 with respect to the outstanding
shares of the Series B Preferred Stock for 1997, which was paid by the
issuance of approximately 1,605,000 shares of Common Stock in January
1999 as payment of such dividend. As of December 31, 1999, dividends in
arrears on the outstanding Series B Preferred Stock amounted to
approximately 1,943,000 shares for 1998 and approximately 451,000 shares
for 1999.
On June 30, 1998, the Company issued 135,000 shares of cumulative
Series C Preferred Stock, in settlement of $9,729,000 of net obligations. The
Series C Preferred Stock has voting rights of twenty-four votes per preferred
share, is convertible into twenty-four shares of Common Stock and carries a
dividend of $5.65 per share. In addition, the terms of the Series C Preferred
Stock includes a provision granting the Company the right to call such stock
based upon the occurrence of certain capital events which realize a profit in
excess of $5,000,000. In the event the dividend on the Series C Preferred
Stock is not paid by the end of the Company's fiscal year (December 31), the
dividend is payable in shares of Common Stock instead of cash. As of
December 31, 1999, dividends in arrears on the outstanding Series C Preferred
Stock amounted to approximately 255,000 shares for 1998 and approximately
117,000 shares for 1999.
On February 8, 2000, the Company issued 4,000 shares of its 7%
convertible Series D Preferred Stock (the "Series D Preferred Stock") for an
aggregate price of $3,900,000, net of approximately $100,000 of closing costs.
The Series D Preferred Stock 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 Series D
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 Series D Preferred Stock 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 on the Series D Preferred Stock
is 3,300,000 shares. In the event such limitation prevents the conversion of
any Series D Preferred Stock, 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 Series D Preferred Stock contains no voting rights prior to
its conversion to Common Stock.
Although the Company is not subject to loan covenants restricting its
right to declare or pay cash dividends on shares of preferred stock, there can
be no assurance that the Company will be able to do so or, even if able to do
so, will elect to do so. Management anticipates that, even if the Company has
sufficient surplus and/or net profits to declare and pay a cash dividend on
shares of preferred stock, its decision whether to do so will depend upon its
determination as to whether it is in the best interests of the Company to pay
such dividend in cash or in shares of Common Stock.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31, 1999, 1998, 1997, 1996 and 1995
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Revenues $ 185 $ 5,424 $ 31,633 $ 44,520 $ 27,639
Loss from
continuing
operations $(5,763) $(13,399) $ (1,774) $ (26,309)$ (19,344)
Loss per common
share from
continuing
operations,
basic and
diluted $ (.34) $ (1.09) $ (.23) $ (1.98) $ (1.82)
December 31,
1999 1998 1997 1996 1995
Total assets $ 8,128 $ 10,196 $ 29,993 $ 43,954 $ 66,774
Long-term debt $ 2,057 $ 2,108 $ 8,088 $ 22,394 $ 29,632
Stockholders'
equity $ 2,761 $ 5,163 $ 8,833 $ 1,506 $ 1,904
</TABLE>
See Management's Discussion and Analysis of Financial Condition and
Results of Operations and Consolidated Financial Statements.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
COMPANY
Casino Operations
Mississippi:
On May 14, 1993, the Company, through its subsidiary, Alpha Gulf,
acquired certain of the assets of B.C. of Mississippi, Inc. ("B.C."), including
B.C.'s leasehold interests under certain lease agreements, certain other assets
incidental to the development and ownership of the Jubilee and B.C.'s interest
in certain related license applications, approvals and permits. The Jubilee
commenced gaming operations in Lakeshore, near Waveland, Hancock
County, Mississippi, on January 12, 1994. In October 1995, the Company
consummated the acquisition of The Cotton Club Casino (subsequently
renamed the Jubilation Casino) at its original location in Greenville,
Mississippi. Immediately following such acquisition, the Company relocated
the Jubilee to Greenville and the Jubilation Casino to Lakeshore. Management
believed that these relocations were appropriate in order to increase the return
on the Company's gaming assets, since Management believed that the Jubilee
would better serve the larger Greenville market and that the Jubilation Casino
would adequately serve the smaller Lakeshore market. The Jubilee reopened
in Greenville on November 17, 1995, and the Jubilation Casino reopened in
Lakeshore on December 21, 1995. In August 1996, the Jubilation Casino was
closed due to its inability to overcome operating deficits.
In or about September 1997, Buyer approached the Company with an
offer to purchase the Company's casino operations and assets in Greenville,
Mississippi. During the negotiations of the financial terms of the transactions
it became apparent that it would be impossible for all conditions precedent to
the closing of such transaction to be effected prior to December 31, 1997 (the
expiration of the financing commitment of Buyer's proposed lender).
Therefore, the Company and Buyer proceeded to negotiate terms with the
lender to lend funds to both Buyer and the Company on or before December
31, 1997 in contemplation of the sale taking place thereafter.
On December 30, 1997, Alpha Gulf and Greenville Hotel obtained
certain financing (the "Pre-Closing Financing") from Credit Suisse First
Boston Mortgage Capital, L.L.C. (the "Pre-Closing Lender"), pursuant to
which Alpha Gulf and Greenville Hotel borrowed $17.9 million ($23.9 million
less loan costs and loan discounts of approximately $6 million), and
concurrently therewith Alpha Gulf applied the net proceeds therefrom to the
payment and discharge of approximately $20 million of the Company's
indebtedness, including $16 million of secured debt. Such borrowing is herein
referred to as the "Pre-Closing Principal Loan." Under the terms of the sale
agreement providing for the sale of the Jubilee and Greenville Hotel (the "Sale
Agreement"); (a) Buyer assumed the Pre-Closing Principal Loan upon closing
the sale of the casino assets and (b) the outstanding principal amount of such
Loan was applied and credited against $26.5 million in cash that would
otherwise have been payable to Alpha Gulf at such closing.
Additionally, in conjunction with and as part of the Pre-Closing
Financing, Alpha Gulf and Greenville Hotel executed and delivered to the Pre-
Closing Lender an unsecured, zero-coupon promissory note (the "Pre-Closing
Subordinated Debt") in the stated principal amount of approximately $4.9
million, representing additional unfunded financing. Although no proceeds
were received by Alpha Gulf or Greenville Hotel in conjunction with such
promissory note, under the terms of the Sale Agreement, Buyer assumed such
promissory note upon closing of the sale of the casino assets.
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 Buyer. In exchange
for such assets, the Company received from Buyer total consideration of $40.2
million, including approximately $11.8 million in cash, the assumption of
approximately $2 million 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 obligation to repay the net
proceeds from the Pre-Closing Financing of $17.9 million.
<PAGE>
Results of Operations -- Alpha Gulf:
The following table sets forth the statements of operations for
Alpha Gulf's
Jubilee before intercompany charges and deferred income tax for the years
ended December 31, 1999, 1998 and 1997 (dollar amounts in thousands):
<TABLE>
<CAPTION>
1999 1998(1) 1997
<S> <C> <C> <C>
Revenues:
Casino . . . . . . . . . . . . $ $ 4,923 $ 31,048
Food and beverage, retail
and other. . . . . . . . . . . 15 140 570
Total revenues . . . . . . . 15 5,063 31,618
Operating expenses:
Casino . . . . . . . . . . . . 1,901 12,029
Food and beverage, retail and
other. . . . . . . . . . . . 91 569
Selling, general and
administrative . . . . . . . 237 3,211 16,765
Total operating expenses . . 237 5,203 29,363
Income (loss) from operations . . . (222) (140) 2,255
Other expenses:
Loss from equity investee. .. 8,500
Depreciation and
amortization . . . . . . . . 17 890 5,076
Interest . . . . . . . . . . . 797 2,009
Total other expenses . . . . 17 10,187 7,085
Loss before intercompany
charges, deferred income
taxes and gain
on sale of assets . . . . . . . $ (239) $(10,327)$ (4,830)
<F1>
1 Relates only to the period through March 2, 1998, when the Jubilee was sold.
</TABLE>
Years Ended December 31, 1999, 1998 and 1997:
The 1998 activity for casino, food and beverage revenues and expenses
represented Alpha Gulf's operation of the Jubilee through the date of its sale
on March 2, 1998. For the year ended December 31, 1997, Alpha Gulf
operated the Jubilee for that entire year. Accordingly, the 1998 revenues and
operating expenses are less than 1997, and the 1999 selling, general and
administrative expenses are less than 1998.
Selling, general and administrative expenses for the year ended December
31, 1998, included costs of payroll and related expenses of approximately
$1,243,000, marketing and advertising expenses of approximately $930,000,
occupancy costs of approximately $352,000 and other operating expenses of
$686,000.
The continuing general and administrative costs for the year ended
December 31, 1999 consisted of payroll and related expenses of approximately
$100,000, occupancy costs of approximately $34,000 and other expenses of
$103,000, which included a corporate overhead allocation of approximately
$58,000.
Included in the consideration received in exchange for the sale of the
Jubilee, Alpha Gulf received a 25%
<PAGE>
partnership interest in Buyer, whose
primary assets included the Las Vegas Casino, the Jubilee, the Key West Inn
and the Greenville Inn and Suites. The combined complement of the currently
operating gaming devices is 25 table games and 800 slots, which represent
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 in 1999 and 1998
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 Jubilee.
Nonetheless, Management has been advised that Buyer continued to incur
operating losses and anticipates incurring operating losses in 2000. Currently,
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 attempting to modify its debt service requirements in a
manner designed 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 vessels 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 in 1998.
Interest expense for the year ended December 31, 1998, was
primarily attributable to the Pre-Closing Financing, amounts due to Bryanston
and a capital lease. The Pre-Closing Financing and the capital lease were
extinguished in March 1998 with the proceeds from the March 2, 1998 sale of
substantially all of the assets of Alpha Gulf and Greenville Hotel. A portion
of the amounts due to Bryanston were extinguished on June 30, 1998, pursuant
to a restructuring and refinancing of the Company's debts with Bryanston.
Results of Operations -- Jubilation Lakeshore:
The Company acquired the Cotton Club of Greenville, Inc. (d/b/a
Cotton Club Casino) on October 26, 1995. The Cotton Club Casino's
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 $150,000 cash, a promissory note of $1,350,000 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 will include the amounts of
Casino Ventures until such time as the Company's membership interest
decreases to less than 50%. See "Future Operations" for a discussion of
Casino Ventures' operating plan for the vessel.
Years Ended December 31, 1999 (exclusive of Casino Ventures - see "Future
Operations"), 1998 and 1997:
The continuing costs incurred during the years ended December 31,
1999, 1998 and 1997 for administration, insurance, compensation, settlements
with former employees and vessel mooring and relocation were $185,000,
$744,000 and $993,000, respectively. Interest expense, primarily related to the
debt on the idle gaming vessel and equipment, amounted to $146,000,
$108,000 and $870,000 for the years ended December 31, 1999, 1998 and
1997, respectively. In connection with the Company's annual review of the
carrying value of its long-lived assets and in accordance with its policy on
impaired long-lived assets, in 1998 the Company recorded a write-down in the
amount of $327,000 with respect to certain of the Jubilation Lakeshore's
impaired property and equipment.
<PAGE>
Future Operations
General:
Proposals or prospects for new casinos, other gaming activities or
other opportunities may be presented to the Company, or the Company may
otherwise become aware of such opportunities (any such new casino, other
gaming activities or other opportunities being hereinafter sometimes referred
to as "New Opportunities"). The Company will continue to investigate and
evaluate New Opportunities and, subject to available resources, may choose
to pursue and develop one or more New Opportunities if the same is deemed
to be in the best interest of the Company and its stockholders. However, there
can be no assurance that any New Opportunity will be presented to, or
otherwise come to the attention of, the Company, that the Company will elect
to pursue or develop any New Opportunity or that any New Opportunity that
the Company may elect to pursue or develop will actually come to fruition or
(even if brought to fruition) will be profitable.
Except to the extent the Company may pursue any New Opportunity,
as a result of the sale of the Jubilee, 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 (a "Business Combination") with
an operating business (an "Acquired Business"). To the extent the Company's
financial and other resources are not devoted to, or reserved for, the
development of any New Opportunity, the business objective of the Company
will be to effect a Business Combination with an Acquired Business that the
Company believes has significant growth potential. The Company intends to
seek to utilize available cash, equity, debt or a combination thereof in
effecting
a Business Combination. While the Company may, under certain
circumstances, explore possible Business Combinations with more than one
prospective Acquired Business, in all likelihood, until other financing provides
additional funds, or its stature matures, the Company may be able to effect
only a single Business Combination in accordance with its business objective,
although there can be no assurance that any such transaction will be effected.
Casino Development:
The Company, through its wholly owned subsidiary 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 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. This agreement is subject to final
approval by the U.S. Department of the Interior and the National Indian
Gaming Commission. Additionally the land on which the casino is to be sited
requires the approval of the U.S. Department of the Interior's Bureau of Indian
Affairs and the concurrence of the Governor of the State of New York (See
"Development Activities - New York").
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
<PAGE>
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 April 3, 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 receive 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 will 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 Alpha
Monticello. Under the previous arrangement described above, Alpha
Monticello did not have any ownership stake in either of these assets nor
participate in the previously discussed development fee arrangement. For the
years ended December 31, 1999, 1998 and 1997, the Company incurred casino
development costs of $209,000, $204,000 and $350,000, respectively, which
related to a general overhead allocation. As of December 31, 1999 and 1998,
the Company had capitalized $1,366,000 towards the design, architecture and
other costs of development plans for the Casino.
Manufactured Housing:
In December 1998, the Company, through its wholly-owned
subsidiary Alpha Peach Tree, entered into letters of intent to acquire all
of the
issued and outstanding shares of Sunstate Manufactured Homes of Georgia,
Inc. ("Sunstate") dba Peach State Homes and its affiliated company, South
Georgia Frames Unlimited, Inc. ("South Georgia"), two closely held
corporations engaged in the manufacture and sale of single family homes. On
March 26, 1999, the Company executed definitive agreements governing the
acquisition, which remained subject to certain conditions, including
satisfactory completion of the Company's due diligence review.
Upon completion of its due diligence (as approved by the Company's
Board of Directors) relative to this transaction, the Company decided not to
consummate this proposed acquisition. Development costs for the year ended
December 31, 1999 incurred by the Company with respect to the proposed
transaction amounted to $341,000, which included a general corporate
overhead allocation of $132,000.
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 recently advised that legislation has been
introduced in the Florida legislature that could dramatically alter the current
law allowing the "cruise-to-nowhere" industry. The state legislature will not
adjourn until early May 2000; therefore, there can be no assurance that a vote
will not be taken and, if taken, would not be detrimental to the industry.
Alpha
Florida, in concert with the potential lessor of the vessel intended to be used
by Alpha Florida for its operations, is awaiting final disposition of this
issue
before proceeding with the final financial commitment on this undertaking.
Consequently, whether the Company (through Alpha Florida) will proceed
with the development of the gaming business opportunity remains uncertain.
<PAGE>
On February 8, 2000, the Company completed a private placement
of preferred stock for an aggregate amount of approximately $3,900,000, net
of approximately $100,000 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 $194,000 were incurred with respect to this project during the year
ended December 31, 1999, which costs included a general corporate overhead
allocation of $153,000.
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 $150,000 in cash, a promissory note of $1,350,000,
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 will 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 year ended December 31, 1999, the
Company capitalized $364,000 of costs related to the refurbishment of the
vessel and improvements to its new site in Tunica. An additional $100,000 of
start-up costs were incurred during the year. Casino Ventures' interest
expense for the year ended December 31, 1999, not eliminated in
consolidation, amounted to $22,000. This was substantially attributable to a
$650,000 mortgage note payable secured by the vessel.
The Company expects Casino Ventures to commence operations in
Tunica in mid-year 2000. The Company is not required to make any further
capital contributions to Casino Ventures.
Louisiana Truckstop/Video Poker:
In December 1998, the Company entered into a memorandum of
understanding with Equity Service, Inc. ("Equity") to exchange the
Company's then-dormant Jubilation vessel plus cash for the ownership of an
operating truckstop and video poker room in Port Allen, Louisiana. The
proposed transaction as originally contemplated in the memorandum of
understanding will not proceed. However, the parties have been continuing
their discussions with respect to the possible acquisition of other
truckstop/video poker properties Equity has under development There can,
however, be no assurance that these discussions will result in any agreement
with respect to a prospective acquisition.
Liquidity and Capital Resources
For the year ended December 31, 1999, the Company had net cash
used in operating activities of $2,033,000. The uses were the result of a net
loss of $5,763,000 plus depreciation of $38,000, noncash compensation of
$3,251,000 and a net decrease in working capital of $516,000. The decrease
in working capital consisted primarily of a net decrease in other current assets
of $81,000, an increase in accounts payable and other accrued expenses of
$360,000 and an increase in payroll and related liabilities of $75,000.
Cash used in investing activities of $424,000 consisted of $385,000
of payments for property and equipment and a $39,000 increase in deposits
and other assets.
Cash provided by financing activities of $9,000 was attributable to
$650,000 of proceeds from long-term debt on the idle gaming vessel, $60,000
of proceeds from the exercise of warrants to purchase the Company's common
stock less $701,000 of repayments of the note payable to Bryanston.
In February 2000, the Company received an aggregate amount of
approximately $3,900,000,
<PAGE>
net of approximately $100,000 of closing costs,
from the issuance of preferred stock, which is anticipated to be utilized
primarily in connection with the Haulover Beach Park and Marina
transaction, the acquisition of truckstops and video poker
operations in Louisiana or some other gaming related business
acquisition. 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.
ITEM 8. FINANCIAL STATEMENTS
See Index to Financial Statements attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE
EXCHANGE ACT
The table below sets forth certain information with respect to
the directors and executive officers of the Company.
Name Age Position with the
Company
Stanley S. Tollman. . . . . . 68 Chairman of the Board and
Chief Executive Officer
Thomas W. Aro . . . . . . . . 57 Vice President, Secretary
and Director
Brett G. Tollman. . . . . . . 38 Vice President and
Director
Craig Kendziera . . . . . . . 45 Treasurer
Robert Steenhuisen. . . . . . 42 Chief Accountant and
Assistant Secretary
James A. Cutler . . . . . . . 48 Director
Matthew B. Walker . . . . . . 49 Director
Herbert F. Kozlov. . . . . . 47 Director
Stanley S. Tollman has served as Chairman of the Board
of Directors and Chief or Co-Chief Executive Officer of the
Company since its formation. Since March 1995, Mr. Tollman
has also served as President. He served as Chairman of the
Tollman-Hundley Hotel Group from 1979 to June 1996. He
currently serves as Chairman of Bryanston, a hotel management
company, and of Trafalgar Tours International, a tour operator.
The business addresses of Bryanston and Trafalgar Tours
International are, respectively, 1886 Route 52, Hopewell
Junction, New York and 5
<PAGE>
Reid Street, Hamilton, Bermuda.
Thomas W. Aro has served as a Director of the Company
since February 1, 1994, and as Vice President of the Company
since its formation. Mr. Aro also serves as Chief Operating
Officer of the Company's subsidiary Alpha Gulf. He has served
as Executive Vice President of the Tollman-Hundley Hotel Group
since 1982 and served as Executive Vice President of Bryanston
from 1989 through March 1996.
Brett G. Tollman served as a Vice President of the
Company from its formation until October 29, 1993, and was re-
elected to that position and was selected a Director of the
Company on February 1, 1994. He served as Executive Vice
President of the Tollman-Hundley Hotel Group from 1984 to
June 1996. Mr. Tollman currently serves as President of
Tollman-Hundley Hotel Group. He also serves as Director and
President of Bryanston. Mr. Tollman is the son of Stanley S.
Tollman, the Chairman of the Board and Chief Executive Officer
of the Company.
Craig Kendziera has served as Treasurer of the Company
since his appointment on May 12, 1998. He also have served as
the Corporate Controller of the Tollman-Hundley Hotel Group
since June 1992 and a Director, Vice President, Treasurer and
Corporate Controller of Bryanston since March 6, 1998.
Robert Steenhuisen has served as Chief Accountant of the
Company from his appointment on May 12, 1998. He also has
served as the Chief Accountant for the Tollman-Hundley Hotel
Group since May 1992 and a Director, Vice President, Assistant
Secretary and Chief Accountant of Bryanston since March 2,
1998.
James A. Cutler served as Treasurer and Chief Financial
Officer of the Company from its formation until his resignation
on March 6, 1998. He also served as Secretary of the Company
from October 29, 1993 to February 1, 1994. Mr. Cutler was
elected a Director of the Company on June 12, 1996. He served
as Senior Vice President and Treasurer of the Tollman-Hundley
Hotel Group until June 1997. He now serves as President and
Chief Executive Officer of Truckee Resorts, Inc., a company
engaged in the community development business. Mr. Cutler
agreed to continue to serve as a Director of the Company.
Matthew B. Walker has served as a Director of the
Company since December 1995. He is an independent
businessman involved in international business ventures,
including the Brazilian-based Walker Marine Oil Supply
Business, to which he has been a consultant since 1988. Mr.
Walker co-founded the Splash Casino in Tunica, Mississippi, in
February 1993, where he remained employed until October 1995.
In February 1994, he co-founded the Cotton Club Casino in
Greenville, Mississippi, where he remained employed and as a
shareholder until October 1995. In addition, since 1972, Mr.
Walker has been involved in numerous real-estate transactions as
a consultant and has managed E.B. Walker & Son Lumber
Company, a family-owned lumber business in Alabama.
Herbert F. Kozlov has served as a Director of the
Company since his appointment upon the resignation of Mr.
Sanford Freedman in March of 1998. Mr. Kozlov is a partner is
the law firm of Parker, Duryee Rosoff & Haft, where he has been
a partner since 1989. Mr. Kozlov is also a director of HMG
Worldwide Corporation and Worldwide Entertainment & Corp.
Parker Duryee Rosoff & Haft provides legal services to the
Company and receives fees for such services from the Company.
Each Director is elected for a period of one year at the
Company's annual meeting of stockholders and serves until
his/her successor is duly elected by the stockholders. Vacancies
and newly created directorships resulting from any increase in the
number of authorized directors may be filled by a majority vote
of Directors then in office. Officers are elected by and serve at
the pleasure of the Board of Directors. Directors are reimbursed
for expenses incurred in connection with the performance of their
duties.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all cash compensation for
services rendered in all capacities to the Company and its
subsidiaries for the fiscal years ended December 31, 1999, 1998
and 1997, paid to the Company's Chief Executive Officer and one
executive officer (collectively the "Named Executive Officers")
whose total compensation exceeded $100,000 per annum. No
other executive officers' compensation exceeded $100,000 during
the above fiscal years.
<TABLE>
<CAPTION>
Restricted
Name and Principal Stock Options All Other
Position Year Salary(1) Awards /SARS Compensation
<S> <C> <C> <C> <C> <C>
Stanley S. Tollman . . . 1999 $250,000 -- 250,000 (2) --
Chairman of the 1998 $250,000 -- 250,000 --
Board of Directors, 1997 $250,000 -- -- --
Chief Executive
Officer and President
Thomas W. Aro . . . . . 1999 $160,000 -- 205,000 --
Vice President and 1998 $160,000 -- 155,000 --
Secretary. . . . 1997 -- -- -- --
</TABLE>
<F1>
1 No portions of the cash salaries to which Stanley S. Tollman was
entitled during the periods indicated have been paid; the expense and liability
have been accrued without interest.
<F2>
2 Does not include any valuable for the right granted to Mr. Tollman to
convert up to $2,000,000 of deferred compensation into shares of Common Stock
at $2.00 per share.
Option/SAR Grants in Last Fiscal Year. During the last completed
fiscal year, the Company granted options to certain executive officers to
purchase up to an aggregate of 455,000 shares of the Company's Common
Stock including 250,000 shares to Stanley S. Tollman and 205,000 shares to
Thomas W. Aro (which includes 55,000 shares as compensation to Mr. Aro for
his services as a director).
The following table sets forth certain information regarding stock
options granted to the named executive officers during the fiscal year ended
December 31, 1999. No stock appreciation rights were granted to these
individuals during such year.
<TABLE>
<CAPTION>
Individual Grants
Potential
Realizable Value
At Assumed Annual
Rates
Number of Percent of Of Stock Price
Securities Total Options Exercise Appreciation For
Underlying Granted to or Base Option Term (1)
Options Employees in Price Expiration
Granted(#) Fiscal Year ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Stanley S.
Tollman . .250,000(2)(3) 18.0 $4.25 12/09 668,201 1,693,351
Thomas W.
Aro . . . . 75,000(2) 5.4 $2.00 5/09 94,334 239,061
130,000(2) 9.4 $4.25 12/09 347,464 880,543
<F1>
(1) Calculated by multiplying the exercise price by the annual
appreciation rate shown
(as prescribed by the SEC rules) and compounded for the term of the options,
subtracting the
exercise price per share and multiplying the gain per share by the number of
shares covered by
the options. These amounts are not intended to forecast possible future
appreciation, if any, of
the price of the Company's Common Stock. The actual value realized upon
exercise of the
options will depend on the fair market value of the Company's Common Stock
on the date of exercise.
<F2>
(2) The options are all exercisable in full commencing from the
date of grant.
<F3>
(3) Does not include the right granted to Mr. Tollman to convert
up to $2,000,000
of deferred compensation into shares of Common Stock at $2.00 per share.
</TABLE>
The following table sets forth certain information with respect to the
exercise of stock options during fiscal 1999 by the named executive officers
and the number and value of unexercised options held by each of those named
executive officers as of December 31, 1999:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal
Shares Year End (#) Fiscal Year End ($)(1)
Acquired Value
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Stanley
S.
Tollman . -- -- 500,000 -- $1,770,000(2) --
Thomas
W. Aro . -- -- 420,000 -- $1,694,000 --
<F1>
(1) Calculated by multiplying (a) the number of shares covered by the options
by (b) the
difference between the market price at December 31, 1999 of $6.25 and the
respective exercise price.
<F2>
(2) Does not include the right granted to Mr. Tollman to convert up to
$2,000,000 of deferred compensation into shares of Common Stock at
$2.00 per share.
</TABLE>
In December 1998, the Company determined that the purposes of the
Company's stock options plans were not being adequately achieved with
respect to those employees and consultants holding options that were
exercisable at prices above current market value and that it was in the best
interest of the Company and its shareholders that the Company retain and
motivate such employees and consultants. Therefore, in order to provide such
optionees the opportunity to exchange their above market value options for
options exercisable at the current market value, the Company cancelled the
outstanding 601,000 options under the 1998 and 1993 stock option plans at
that time and reissued the options at an exercise price of $1.063, the closing
NASDAQ bid price on December 12, 1998.
The following table sets forth certain information with respect to all
such cancellations and reissuances with respect to options held by any
executive officer from March 19, 1993 (date of inception) through December
31, 1999:
<TABLE>
<CAPTION>
Length of
Number of Market Original
Securities Price of Exercise Option Term
Underlying stock at Price at Remaining
Cancellation/ Options time of time of New at Date of
Reissuance Cancelled/ Cancelling/Cancelling/ Exercise Cancelling/
Date Reissued Reissuing Reissuing Price Reissuing
<S> <C> <C> <C> <C> <C> <C>
Thomas W.
Aro 12/12/98 60,000 $1.063 $3.25 $1.063 4.5 years
12/12/98 100,000 $1.063 $2.00 $1.063 9.5 years
Brett G.
Tollman 12/12/98 60,000 $1.063 $3.25 $1.063 4.5 years
12/12/98 100,000 $1.063 $2.00 $1.063 9.5 years
Craig
Kendziera 12/12/98 12,000 $1.063 $3.25 $1.063 4.5 years
12/12/98 8,000 $1.063 $2.00 $1.063 9.5 years
Robert
Steenhuisen 12/12/98 8,000 $1.063 $3.25 $1.063 4.5 years
12/12/98 12,000 $1.063 $2.00 $1.063 9.5 years
</TABLE>
PAGE>
Compensation of Directors. On May 12, 1998, with shareholder
approval granted in September 1999, the Board approved an annual
compensation arrangement whereby each of the three outside directors will
receive $6,000 per annum plus options to purchase up to 25,000 shares, and
an additional 15,000 shares for each committee served upon, of the Company's
Common Stock at an exercise price equal to the current market price at the
date the option was granted. Accordingly in 1999 and 1998, the Company
granted to its outside directors options to purchase an aggregate amount of up
to 150,000 and 285,000 shares, respectively, of its Common Stock at an
exercise price of $4.25 and $1.063, respectively, per share, which can be
exercised any time up to 2009 and 2008, respectively. The amount granted in
1999 is for services to be rendered in the year 2000. The amount granted in
1998 represents options to purchase aggregate amounts of up to 135,000 and
150,000 shares for the 1998 and 1999 years of service, respectively. As
compensation to its employee directors, in December 1999 and 1998, the
Company granted options to purchase an aggregate amount of up to 95,000
shares of its Common Stock for each of the 1999 and 1998 years.
Employment Agreements. The Company and Stanley S. Tollman
entered into an Employment Agreement dated June 1, 1993, whereby Mr.
Tollman agreed to serve as Chairman of the Board and Co-Chief Executive
Officer of the Company for a term of three (3) years from the date of that
Agreement. Thereafter, such Agreement is automatically renewable for
successive twelve (12) month periods unless either party advises the other on
at least ninety (90) days' written notice of his or its intention not to extend
the term of the employment. In the event of a termination of his employment,
under the terms of such Agreement Mr. Tollman is to be retained for two years
to provide consulting services for $175,000 per year. Such Agreement has
been renewed until June 1, 2000. Mr. Tollman's Employment Agreement
provides for a salary in the amount of $250,000 per year, none of which has
been paid under such Agreement since the date thereof. The unpaid salary
accumulates, and the Company does not pay any interest or other penalty
thereon. Such Agreement provides for Mr. Tollman to devote no less than 20%
of his business time to the affairs of the Company and its subsidiaries. Such
Agreement contains a non-disclosure provision pursuant to which Mr. Tollman
agrees not to use or disclose any information, knowledge or data relating to or
concerning the Company's operations, sales, business or affairs to any
individual or entity, other than the Company or its designees, except as
required in connection with the business and affairs of the Company. Prior to
the sale of Alpha Hotel to Bryanston, that Employment Agreement also
contained a limited non-competition clause pursuant to which Mr. Tollman
agreed not to own, manage, operate or otherwise be connected with any entity
or person (other than Bryanston) or Alpha Hotel (i) that renders management
services to hotels of the same kind, class and character as the hotels for which
Alpha Hotel provided management services or (ii) that owns, manages or
operates a gaming casino within a 100 mile radius of the Jubilation Casino.
As of December 31, 1999, accrued salary payable to Mr. Tollman amounted
to $1,529,167. On May 27, 1999, the Company, subject to approval by the
Company's shareholders (which approval was obtained in September 1999),
agreed to afford Mr. Tollman the right to convert up to $2,000,000 of deferred
compensation payable into up to 1,000,000 shares of the Company's common
stock at a stock price of $2.00 per share, the closing price on that day. Mr.
Tollman's right to convert deferred compensation into 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, provided,
however, that if his employment by the Company is terminated prior to such
date on account of his death or other disability, he or his estate shall have
the right for the period of 90 days after such termination to exercise such
conversion right. During the year ended December 31, 1999, the Company has
recorded a noncash compensation charge of $3,251,000 reflecting an increase
in the market price of the Company's Common Stock since the date of the
agreement.
Consulting Agreement. The Company and Mr. Sanford Freedman, a
former director and officer of the Company, entered into a Consulting
Agreement dated March 1, 1997, whereby the former director agreed to render
consulting services to the Company with respect to development activities
relating to the Company's casino operations. Mr. Freedman's services as
Secretary and a Director of the Company do not relate to the Company's
development activities and are not compensated under the Consulting
Agreement. Mr. Freedman serves as an independent contractor at will pursuant
to the Consulting Agreement and will be compensated at the rate of $350 per
hour. The Consulting Agreement may be terminated at any time by either
party. The Company has agreed to indemnify Mr. Freedman against any
claims, losses, expenses or liabilities, including reasonable attorneys'
fees, that
Mr. Freedman may incur arising out of his performance of any services
pursuant to the Consulting Agreement. Mr. Freedman was paid an aggregate of
<PAGE>
$47,000, $102,117 and $195,000 of consulting fees during the years ended
December 31, 1999, 1998 and 1997, respectively.
BOARD COMPENSATION REPORT
Executive Compensation Policy
General. Decisions concerning executive officers' salaries for 1999
were made by the full Board of Directors. Decisions concerning the grant of
stock options to executive officers were made by the Stock Option Committee.
The Company otherwise has no formal compensation policies applicable to
executive officers. The Board of Directors' recommendations in each case
were based on the subjective evaluation of each officer's contribution to the
Company and the level of compensation necessary to adequately motivate and
reward the officer. The composition and amount of each item of executive
compensation for 1999 did not bear a specific relationship to any particular
measure of performance.
Cash Compensation. Certain of the Company's executive officers are
not compensated directly by the Company based upon the Compensation
Committee's determination that compensation is not prudent at this time given
the Company's financial position. When, and if, the Company's financial
position improves, the Compensation Committee would establish and review
the compensation of those executive officers not presently directly
compensated and the overall employee compensation plan. Bryanston has,
without seeking reimbursement therefor from the Company, provided salaries
and benefits to those of the Company's executive officers not presently
compensated directly by the Company.
Equity Compensation. The grant of stock options to executive officers
constitutes an important element of long term compensation for the executive
officers. The grant of stock options increases management's equity ownership
in the Company with the goal of ensuring that the interest of management
remains closely aligned with those of the Company's stockholders. The Board
of Directors believes that stock options in the Company provide a direct link
between executive compensation and stockholders' value. By attaching vesting
requirements, stock options also create an incentive for an executive officer to
remain with the Company for the long term.
Chief Executive Officer Compensation. The compensation of Stanley
S. Tollman, the Chief Executive Officer, is set forth in an Employment
Agreement between the Company and Mr. Tollman, which provides for a
salary in the amount of $250,000 per year, none of which has been paid under
such Agreement. The unpaid salary accumulates, and the Company does not
pay any interest or other penalty thereon. The terms of the Employment
Agreement were determined based upon Mr. Tollman's ability to establish and
retain a strong management team and to develop and implement the
Company's business plans. In setting compensation for Mr. Tollman, the
Company also considered its financial position and reviewed compensation
levels of chief executive officers at comparable companies within the
Company's industry. In both December 1999 and 1998, the Company granted
to Mr. Tollman options to purchase 250,000 shares of the Company's Common
Stock.
Stanley S. Tollman
Thomas W. Aro
James A. Cutler
Herbert F. Kozlov
Brett G. Tollman
Matthew B. Walker
Corporate Performance Graph. The following graph shows a
comparison of cumulative total stockholders' returns from December 31, 1993
through December 31, 1999 for the Company, the Russell 2000 Index
("Russell")
<PAGE>
and the Dow Jones Entertainment and Leisure -- Casino Index ("DJ
Casino").
The graph assumes the investment of $100 in shares of Common
Stock, securities represented by the Russell Index or DJ Casino Index on
December 31, 1993 and that all dividends were reinvested. No dividends have
been declared or paid on the Common Stock.
NASDAQ ceased listing the Company's warrants in December 1998,
since there ceased being at least two market makers for such securities. The
warrants continue to trade in the over-the-counter market in the "pink sheets".
Section 16(a) Reporting. Under the securities laws of the United
States, the Company's directors, its executive (and certain other) officers, and
any persons holding ten percent or more of the Common Stock must report on
their ownership of the Common Stock and any changes in that ownership to
the Securities and Exchange Commission and to the National Association of
Securities Dealers, Inc. Automated Quotation System. Specific due dates for
these reports have been established. Based upon the Company's review of
Forms 3, 4 and 5 and amendments thereto, if any, furnished to the Company
under Rule 16a-3(e) during and with respect to the Company's most recent
fiscal year and any written representations provided to the effect that no Form
5 is required, no person that, at any time during the Company's last fiscal
year, was an officer, director or beneficial owner of more the 10 percent of the
Company's Common Stock reported on any of the foregoing forms failed to
file, on a timely basis, any reports required by Section 16(a) of the Exchange
Act.
1998 and 1993 Stock Option Plan
The purpose of the Company's Stock Option Plans ("1998 Stock
Option Plan", "1993 Stock Option Plan" or "Stock Option Plans" as
applicable) are to provide additional incentive to the officers and employees
of the Company who are primarily responsible for the management and
growth of the Company. Each option granted pursuant to the Stock Option
Plans shall be designated at the time of grant as either an "incentive stock
option" or as a "non-qualified stock option". The following description of the
Stock Option Plans is qualified in its entirety by reference to the Stock Option
Plans.
Administration of the Plan
The Stock Option Plans are administered by a Stock Option
Committee (currently consisting of Messrs. S. Tollman, Cutler, Kozlov and
Walker), which determines whom among those eligible will be granted
options, the time or times at which options will be granted, the number of
shares to be subject to options, the durations of options, any
<PAGE>
conditions to the
exercise of options and the manner in and price at which options may be
exercised. The Stock Option Committee is authorized to amend, suspend or
terminate the Stock Option Plans, except that it cannot, without stockholder
approval (except with regard to adjustments resulting from changes in
capitalization): (i) increase the maximum number of shares that may be issued
pursuant to the exercise of options granted under the Stock Option Plans, (ii)
permit the grant of a stock option under the Stock Option Plans with an
exercise price less than 100% of the fair market value of the shares at the time
such option is granted, (iii) change the eligibility requirements for
participation
in the Stock Option Plans, (iv) extend the term of any option or the period
during which any option may be granted under the Stock Option Plans, or (v)
decrease an option exercise price (although an option may be canceled and
new option granted at a lower exercise price).
Shares Subject to the Plan
The 1998 Stock Option Plan and 1993 Stock Option Plan provide that
options may be granted with respect to a total of up to 4,000,000 and 900,000
shares of Common Stock, respectively, subject to adjustment upon certain
changes in capitalization without receipt of consideration by the Company. In
addition, if the Company is involved in a merger, consolidation, dissolution or
liquidation, the options granted under the Stock Option Plans will be adjusted
or, under certain conditions, will terminate, subject to the right of each
option
holder to exercise his/her options or comparable options substituted at the
discretion of the Company prior to such event. If any option expires or
terminates for any reason, without having been exercised in full, the
unpurchased shares subject to such option will be available again for the
purposes of the Stock Option Plans. All of the shares of Common Stock
underlying options that can be granted pursuant to the Stock Option Plans have
been registered.
Participation
Any employee is eligible to receive incentive stock options or non-
qualified stock options granted under the Stock Option Plans.
Option Price
The exercise price of each option will be determined by the Stock
Option Committee or the Board of Directors, but may not be less than 100%
of the fair market value of share of Common Stock on the date the option is
granted. If an incentive stock option is to be granted to an employee who
owns over 10% of the total combined voting power of all classes of the
Company's stock, then the exercise price may not be less than 110% of the fair
market value of a share of Common Stock on the date the option is granted.
Terms of Options
The Stock Option Committee shall, in its discretion, fix the term of
each options, provided that the maximum term of each option shall be ten
years. Incentive stock options granted to an employee who owns over 10% of
the total combined voting power of all classes of stock of the Company shall
expire not more than five years after the date of grant. The Stock Option Plans
provide for the earlier expiration of options of a participant in the event of
certain terminations of employment.
Restrictions on Grant and Exercise
An option may not be transferred other than by will or the laws of
descent and distribution and, during the lifetime of the option holder may be
exercised solely by him or her. The aggregate fair market value (determined
at the time the option is granted) of the shares as to which an employee may
first exercise incentive stock options in any one calendar year may not exceed
$100,000. The Stock Option Committee may impose other conditions to
exercise as it deems appropriate.
<PAGE>
Option Grants
Under the Stock Option Plans, net of certain simultaneous
cancellations to existing employees, there were 1,389,000 and 1,065,000 total
options granted, including 775,000 and 565,000 to executive officers, during
the fiscal years ended December 31, 1999 and 1998. As of December 31,
1999, 1,996,000 and 667,000 options to purchase shares of Common Stock
granted under the 1998 Stock Option Plan and 1993 Stock Option Plan,
respectively, were outstanding, which amounts reflect the cancellation of
certain options following the termination of employment of the holders
thereof.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
OWNERSHIP OF SECURITIES
As of March 20, 2000, there were issued and outstanding 17,033,399
shares of Common Stock, 821,496 shares of Series B Preferred Stock, 135,162
shares of Series C Preferred Stock and 4,000 shares of Series D Preferred
Stock.
Each share of Common Stock, Series B Preferred Stock and Series C
Preferred Stock entitles the holder thereof to, respectively, one, eight and
twenty-four votes. The Series D Preferred Stock contains no voting rights
prior to its conversion to Common Stock.
The following table sets forth certain information as of March 20,
2000, with respect to each beneficial owner of five (5%) percent or more of
the outstanding shares of Common Stock or of any series or class of Preferred
Stock, each officer and director of the Company and all officers and directors
as a group. Unless otherwise indicated, the address of each such person or
entity is c/o Alpha Hospitality Corporation, 12 East 49th Street, New York,
New York 10017.
<TABLE>
<CAPTION>
Title of Class Name and Address No. of Percent
Shares(1) of Class(2)
<S> <C> <C> <C>
Common Stock Stanley Tollman (3) (4) 500,000 2.85
$.01 par value Beatrice Tollman(4)(9) 1,815,890 10.66
Thomas W. Aro(6) 442,000 2.53
Brett G. Tollman(7) 1,949,875 5.45
James A. Cutler(8) 257,320 1.52
Matthew B. Walker(5) 477,105 2.79
Herbert F. Kozlov(11) 200,000 1.16
Craig Kendziera(12) 85,300 0.50
Robert Steenhuisen(13) 85,000 0.50
Bryanston Group,
Inc. (9) 11,959,676 44.55
1886 Route 52
Hopewell Junction, N.Y.
All Officers and Directors
as a group (8 persons)
(3, 5-8, 11-13) 3,996,600 20.97
Preferred Stock,
Series B Bryanston Group, Inc. 777,238 94.60
$29.00
liquidation BP Group, Ltd.(10) 44,258 5.4
value 5111 Islesworth Country
Club Dr.
Windemere, Fl 34786
Preferred Stock,
Series C Bryanston Group, Inc. 135,162 100.0
$72.00
liquidation
value
<PAGE>
<F1>
(1) Each person exercises sole voting and dispositive power with
respect to the shares reflected in the table, except for those shares of
Common Stock that are issuable upon the exercise of options or the
conversion of Series D Preferred Stock, which shares cannot be voted
until the options are exercised or such Series D Preferred Stock is
converted by the holder thereof. Includes shares of Common Stock
that may be acquired upon exercise of options or conversion of
convertible securities that are presently exercisable or convertible or
become exercisable or convertible within 60 days.
<F2>
(2) Each beneficial owner's percentage ownership is determine by
assuming that options, warrants and convertible securities that are
held by such owner (but not those held by any other owner) and that
are exercisable or convertible within 60 days from the date hereof
have been exercised or converted.
<F3>
(3) Includes 500,000 shares of common stock issuable upon the
exercise of options granted to Stanley S. Tollman, the Chairman of
the Board, Chief Executive Officer and President of the Company.
Does not include any shares of Common Stock issuable the exercise
of the right granted to Mr. Tollman to convert up to $2,000,000 of
deferred compensation into shares of Common Stock at $2.00 per
share since he is not currently entitled to exercise such right. Each of
Brett G. Tollman, Stanley S. Tollman and Beatrice Tollman disclaims
beneficial ownership of the shares beneficially owned by any of the
other of them.
<F4>
(4) Stanley S. Tollman is the spouse of Beatrice Tollman. Stanley S.
Tollman disclaims beneficial ownership of the shares beneficially
owned by Beatrice Tollman. Each of Brett G. Tollman, Stanley S.
Tollman and Beatrice Tollman disclaims beneficial ownership of the
shares beneficially owned by any of the other of them.
<F5>
(5) Includes 90,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Walker, all of which options are
currently exercisable.
<F6>
(6) Includes 420,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Aro, all of which options are
currently exercisable.
<F7>
(7) Includes 390,000 shares of Common Stock issuable upon the
exercise of options granted to Brett G. Tollman, all of which options
are currently exercisable, and 1,000,000 shares held in the Tollman
Family Trust of which Brett G. Tollman is the sole Trustee. Brett G.
Tollman is the son of Stanley S. Tollman and Beatrice Tollman.
Each of Brett G. Tollman, Stanley S. Tollman and Beatrice Tollman
disclaims beneficial ownership of the shares beneficially owned by
any of the other of them.
<F8>
(8) Includes 255,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Cutler, all of which options are
currently exercisable. Does not include 4,000 shares owned by Mr.
Cutler's children, of which shares he disclaims beneficial ownership.
<F9>
(9) Includes (i) 6,217,904 shares of Common Stock issuable upon
conversion of 777,238 shares of Series B Preferred Stock owned by
Bryanston; (ii) 3,243,888 shares of Common Stock issuable upon
conversion of 135,162 shares of Series C Preferred Stock owned by
Bryanston; and (iii) 347,826 shares of Common Stock issuable upon
the exercise of options granted to Bryanston. All of such options are
currently exercisable for, and all of such shares of Preferred Stock are
currently convertible into, shares of Common Stock. On May 17,
1998, the Company declared a dividend of approximately 1,519,000
shares of Common Stock to Bryanston with respect to, and in lieu of
the cash dividend accrued on, the outstanding shares of Preferred
Stock held by Bryanston in 1997. Such shares of Common Stock
were issued on January 5, 1999. In addition, as of January 30, 2000,
the Company became obligated to issue to Bryanston approximately
426,000 and 111,000 additional shares of commons stock in lieu of
the cash dividend payable with respect to Bryanston's shares of
Preferred Stock, Series B and C, respectively, for the 1999 calendar
year. As of January 30, 1999, the Company became obligated to
issue to Bryanston approximately 1,830,000 and 255,000 additional
shares of Common Stock in lieu of the cash dividend payable with
respect to Bryanston's shares of Preferred Stock Series B and C,
respectively, for the 1998 calendar year. None of such shares of
Common Stock is included in the table above as they have not yet
been issued. Bryanston has agreed to defer, until April 30, 2000, the
issuance of the shares of Commons Stock issuable in lieu of cash
dividends on the Preferred Stock, Series B and Series C, with
<PAGE>
respect to 1998 and 1999. Bryanston is an affiliate of the Company, and
Beatrice Tollman, Stanley S. Tollman's spouse, is a 50% stockholder
of Bryanston. Each of Bryanston and Beatrice Tollman disclaims
beneficial ownership of the shares beneficially owned by the other of
them.
<F10>
(10) On May 17, 1998, the Company declared a dividend of
approximately 86,000 shares of Common Stock to BP Group, Ltd
("BP") with respect to, and in lieu of the cash dividend accrued on,
the outstanding shares of Series B Preferred Stock held by BP in
1997. Such shares of Commons Stock were issued on January 5,
1999. As of January 30, 2000 and 1999, the Company became
obligated to issue to BP approximately 24,000 and 111,000
additional shares of Common Stock in lieu of the cash dividend
payable with respect to BP's shares of Series B Preferred Stock for
the 1999 and 1998 calendar years, respectively. None of such shares
of Common Stock is included in the table above as they have not yet
been issued. BP has agreed to defer, until April 30, 2000, the
issuance of the shares of Common Stock issuable in lieu of cash
dividends on the Series B Preferred Stock with respect to 1998 and
1999. Patricia Cohen is the sole stockholder of BP. This table does
not include 100,352 shares of Common Stock owned by Patricia
Cohen, who was a Director of the Company during the period
February 1, 1994 to December 12, 1997, and 354,064 shares of
Common Stock issuable upon conversion of 44,258 shares of Series
B Preferred Stock owned by BP. All of such shares of Preferred
Stock are currently convertible into shares of Common Stock.
<F11>
(11) Includes 200,000 shares of Common Shares issuable upon the
exercise of options granted to Mr. Kozlov, all of which options are
currently exercisable.
<F12>
(12) Includes 85,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Kendziera, 52,500 of which
options are currently exercisable.
<F13>
(13) Includes 85,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Steenhuisen, 52,500 of which
options are currently exercisable.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Bryanston
Bryanston is an affiliate of the Company and Beatrice Tollman, Mr.
Stanley S. Tollman's spouse, is a 50% stockholder of Bryanston. On June 26,
1996, Bryanston converted the amount due on a Working Capital Loan
(approximately $19,165,000) into shares of Series B Preferred Stock. The
Company was charged a 5% transaction fee (approximately $958,000), which
was also converted into shares of Series B Preferred Stock. The conversion
was effective June 26, 1996, and the total of approximately $20,123,000 was
converted into 693,905 shares of Preferred Stock based on the fair market
value of a share of Common Stock on the date of conversion ($3.625).
On September 30, 1997, the Company issued 83,333 shares of Series
B Preferred Stock, in settlement of $2,000,000 due to Bryanston. Each share
of outstanding Series B Preferred Stock: (i) entitles the holder to eight votes,
(ii) has a liquidation value of $29.00 per share, (iii) has a cash dividend rate
of 10% of liquidation value, which rate increases to 13% of liquidation value
if the cash dividend is not paid within 30 days of the end of each fiscal year
and in such event is payable in shares of Common Stock, and (iv) is
convertible into eight shares of Common Stock. On December 17, 1997, the
Company declared a 1996 dividend payable to Bryanston in approximately
730,000 shares of the Company's Common Stock, which were issued in April
1998. On May 12, 1998, the Company declared a 1997 dividend payable to
Bryanston in approximately 1,519,000 shares of Common Stock, which were
issued on January 5, 1999.
On June 30, 1998, the Company restructured its existing obligations
to Bryanston by extinguishing its notes payable of $7,800,000, $1,399,000 and
$432,000 plus accrued interest on the notes aggregating $3,098,000, in
exchange for the issuance of Series C Preferred Stock, and a $3,000,000
mortgage note on the Company's idle gaming vessel located in Mobile,
Alabama. The Series C Preferred Stock, has voting rights of twenty-four votes
per preferred share,
<PAGE>
is convertible to twenty-four shares of Common Stock and
carries an annual 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
which realize a profit in excess of $5,000,000.
Upon contribution of the idle gaming vessel in July 1999 to Casino
Ventures (see "Certain Relationships and Related Transactions - Casino
Ventures"), the $3,000,000 mortgage note was converted to a promissory note.
Bryanston has agreed to defer, until April 30, 2000, the issuance of
the shares of Common Stock issuable in lieu of cash dividends on the Series
B and Series C Preferred Stock with respect to 1998 and 1999.
Casino Ventures
On July 8, 1999, the Company contributed its inactive vessel, the
Jubilation Casino, to Casino Ventures. Matthew Walker, a director of the
Company, is a partner in Casino Ventures and serves as its General Manager.
At the time of the contribution, the vessel (including its gaming equipment,
furniture and other items) had a net book value of approximately $4,149,000.
In exchange, the Company received $150,000 in cash, a promissory note in the
principal amount of $1,350,000 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 will decrease from its current percentage of 93% to 15%. The
consolidated financial statements of the Company will include the accounts of
Casino Ventures until such time as the Company's membership interest
decreases to less that 50%. During the year ended December 31, 1999, the
Company capitalized $364,000 of costs related to the relocation and
refurbishing of the vessel and improvements to its anticipated site in Tunica,
Mississippi. An additional $100,000 of start-up costs were incurred during
1999. During the year, the vessel was used as collateral to obtain funding of
$650,000 towards the aforementioned costs of Casino Ventures .
BP Group
Ms. Patricia Cohen, a director of the Company from February 1, 1994
to December 12, 1997, is the sole shareholder of BP. On June 26, 1996, BP
converted the amount due on a BP Loan (approximately $1,222,000) into
shares of Series B Preferred Stock. The Company was charged a 5%
transaction fee (approximately $61,000), which was also converted into shares
of Series B Preferred Stock. The conversion was effective June 26, 1996, and
the total of approximately $1,283,000 was converted into 44,258 shares of
Series B Preferred Stock, based on the fair market value of a share of Common
Stock on the date of conversion ($3.625). The terms of the shares of Series B
Preferred Stock, issued to BP are identical to those of the shares of Series B
Preferred Stock, issued to Bryanston in June 1996 and September 1997.
On December 17, 1997, the Company declared a 1996 dividend
payable to BP in approximately 47,000 shares of Common Stock, which were
issued in April 1998. On May 12, 1998, the Company declared a 1997
dividend payable to BP in approximately 86,000 shares of the Common Stock,
which were issued on January 5, 1999.
All current transactions between the Company and its officers,
directors and principal stockholders or any affiliates thereof are, and in the
future such transactions will be, on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
BP has agreed to defer, until April 30, 2000, the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Series B
Preferred Stock with respect to 1998 and 1999.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K FINANCIAL STATEMENTS
The following documents are filed or part of this report:
1. FINANCIAL REPORTS
ALPHA HOSPITALITY CORPORATION
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
2. FINANCIAL STATEMENT SCHEDULE
Schedule II Valuation and Qualifying Accounts
for the Years Ended December 31, 1999, 1998 and 1997 S-1
3. EXHIBITS
*2 Deleted
*3(a) Certificate of Incorporation
*3(b) Form of Certificate of Amendment to Certificate of
Incorporation
*3(c) By-Laws, as amended
*4(a) Form of Common Stock Certificate
*4(b) Form of Warrant Certificate
4(c) Certificate of Designation
4(d) Omitted
4(e) Certification of Designation - Series D Preferred Stock
4(f) Registration Rights Agreement
5 Opinion of Parker Duryee Rosoff & Haft, P.C.
*10(a) Form of Employment Agreement between the Company
and Stanley S. Tollman
10(b) Deleted
*10(c) Form of Indemnification Agreement between the
Company and directors and executive officers of the
Company
*10(d) 1993 Stock Option Plan
*10(e) Form of Service Agreement between the Company and
Bryanston
*10(f) Deleted
*10(g) Deleted
*10(h) Deleted
*10(i) Deleted
*10(j) Form of Warrant Agreement among the Company, the
Transfer Agent and the Underwriters
*10(k) Deleted
*10(l) Deleted
*10(m) Deleted
*10(n) Deleted
*10(p) Deleted
*10(q) Deleted
<PAGE>
*10(r) Deleted
*10(s) Deleted
*10(t) Deleted
*10(u) Form of Limited Standstill Agreement of the Existing
Stockholders f/b/o the Underwriters
*10(v) Deleted
*10(w) Deleted
*10(x) Deleted
*10(y) Deleted
*10(z) Deleted
*10(aa) Deleted
*10(ab) Deleted
*10(ac) Deleted
*10(ad) Deleted
*10(ae) Deleted
*10(af) Form of Underwriters' Warrant
***10(ag) Deleted
***10(ah) Deleted
***10(ai) Non-Revolving Promissory Note with
Bryanston Group, Inc.
***10(aj) $20,000,000 Non-Revolving Promissory
Note dated January 5, 1996
***10(ak) Stock Purchase Agreement dated October
20, 1996
***10(al) Stock Acquisition Agreement dated January
25, 1996
***10(am) Form 8-K dated October 31, 1996
***10(an) Deleted
****10(ao) Asset Purchase Agreement between Alpha
Gulf Coast, Inc. and Alpha Greenville Hotel,
Inc. and Greenville Casino Partners, L.P.
10(ap) Deleted
10(aq) Deleted
10(ar) Securities Purchase Agreement dated February 8, 2000
*****10(as) 1998 Stock Option Plan
23(a) Consent of Rothstein Kass & Co.
23(b) Consent of Parker Duryee Rosoff & Haft, P.C. (Included
in Exhibit 5)
*11 Statement Re: Computation of Per Share Earnings
21 List of Subsidiaries
(b) Reports on Form 8-K
There were no 8-Ks filed by the Company during the last quarter of the
period covered by this report. However, the Company filed an 8-K on
February 15, 2000, subsequent to the period covered by this Form 10-K.
* Incorporated by reference, filed with Company's Registration Statement
filed on Form SB-2 (File No. 33-64236) filed with the Commission on June
10, 1993 and as amended on September 30, 1993, October 25, 1993,
November 2, 1993 and November 4, 1993, which Registration Statement
became effective November 5, 1993. Such Registration Statement was further
amended by Post Effective Amendment filed on August 20, 1999.
** See Consolidated Financial Statements
*** Incorporated by reference, filed with Company's Form 10-KSB for the
year ended December 31, 1994 or filed with Company's Form 10-K for the
year ended December 31, 1995.
**** Incorporated by reference, filed with the Company's Proxy Statement
on Schedule 14A sent to stockholders of the Company on or about February
12, 1998.
***** Incorporated by reference, filed with Proxy Statement pursuant to
Section 14(a) of the Securities Exchange Act of 1934, as amended, filed with
the Commission on August 25, 1999.
<PAGE>
Schedule 21.
List of Subsidiaries:
Name State of
Incorporation/Formation
Alpha Gulf Coast, Inc. Delaware
Alpha St. Regis, Inc. Delaware
Alpha Missouri, Inc. Delaware
Alpha Monticello, Inc. Delaware
Alpha Rising Sun, Inc. Delaware
Jubilation Lakeshore, Inc. Mississippi
(including its 93% owned
subsidiary)
Casino Ventures, L.L.C. Mississippi
Alpha Greenville Hotel, Inc. Delaware
Alpha Entertainment, Inc. Delaware
Alpha Florida Entertainment, Inc. Florida
Alpha Peach Tree Corporation Delaware
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ALPHA HOSPITALITY CORPORATION
By: /s/ Stanley S. Tollman
Stanley S. Tollman
Title: Chairman of the Board
and Chief Executive Officer
Date: March 20, 2000
By: /s/ Robert Steenhuisen
Robert Steenhuisen
Title: Chief Accounting Officer
Date: March 20, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Stanley S. Tollman Chairman of the Board and March 20, 2000
Stanley S. Tollman Chief Executive Officer
/s/ Thomas W. Aro Vice President, Secretary March 20, 2000
Thomas W. Aro and Director
/s/ Brett G. Tollman Vice President and Director March 20, 2000
Brett G. Tollman
/s/ James A. Cutler Director March 20, 2000
James A. Cutler
/s/ Matthew B. Walker Director March 20, 2000
Matthew B. Walker
/s/ Herbert F. Kozlov Director March 20, 2000
Herbert F. Kozlov
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
ALPHA HOSPITALITY CORPORATION
New York, New York
We have audited the accompanying consolidated balance sheets of Alpha
Hospitality Corporation and Subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alpha
Hospitality Corporation and Subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedule listed on Page S-1 is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, is fairly stated, in all material respects, in
relation to the basic consolidated financial statements taken as a whole.
/S/ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
February 10, 2000
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In thousands, except for per share data)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of
$373 and $1,619 in 1999 and 1998,
respectively $ 1,464 $ 3,837
Other current assets 98 179
Total current assets 1,562 4,016
PROPERTY AND EQUIPMENT, net 4,977 4,630
DEPOSITS AND OTHER ASSETS 1,589 1,550
$ 8,128 $ 10,196
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Long-term debt, current maturity $ $ 1,000
Accounts payable and accrued expenses 1,181 871
Accrued payroll and related liabilities 53 1,774
Total current liabilities 1,234 3,645
LONG-TERM DEBT, less current maturity 2,057 1,108
OTHER LIABILITIES 2,076 280
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
75,000 and 25,000
shares authorized, 16,803
and 15,183 issued and
outstanding in 1999 and 1998,
respectively 168 152
Preferred stock, 5,000
and 1,000 shares authorized
in 1999 and 1998, respectively:
Series B, $.01 par value,
821 issued and outstanding 8 8
Series C, $.01 par value,
135 issued and outstanding 1 1
Common stock payable 50 2,861
Capital in excess of par value 78,527 72,371
Accumulated deficit (75,993) (70,230)
Total stockholders' equity 2,761 5,163
$ 8,128 $ 10,196
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except for per share data)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES:
Casino $ $ 4,923 $ 31,048
Food and beverage,
retail and other 185 501 585
Total revenues. 185 5,424 31,633
COSTS AND EXPENSES:
Casino 1,901 12,029
Food and beverage, retail
and other 91 569
Noncash compensation 3,251
Selling, general and
administrative 1,649 5,097 18,398
Interest 168 1,062 3,138
Depreciation and
amortization 38 909 5,094
Pre-opening and
development costs 842 359 554
Provision for loss on
note receivable 250
Write-down of
property and equipment 327
Total costs and expenses 5,948 9,996 39,782
OTHER INCOME (LOSS):
Loss from equity investee (8,500)
Gain on sale of assets 6,048
Total other loss, net (2,452)
LOSS FROM OPERATIONS
BEFORE DEFERRED
INCOME (TAX) BENEFIT (5,763) (7,024) (8,149)
DEFERRED INCOME (TAX)
BENEFIT (6,375) 6,375
LOSS BEFORE
EXTRAORDINARY ITEM (5,763) (13,399) (1,774)
EXTRAORDINARY ITEM,
gain on extinguishment
of debt 4,609
NET INCOME (LOSS) (5,763) (13,399) 2,835
DIVIDENDS ON
PREFERRED STOCK 2,861 1,391
NET INCOME (LOSS)
APPLICABLE TO COMMON
SHARES $(5,763) $(16,260) $ 1,444
EARNINGS (LOSS) PER
COMMON SHARE:
Basic:
Before extraordinary item $ (.34) $ (1.09) $ (.23)
From extraordinary item .33
Net income (loss) $ (.34) $ (1.09) $ .10
Diluted:
Before extraordinary item $ (.34) $ (1.09) $ (.23)
From extraordinary item .22
Net loss $ (.34) $ (1.09) $ (.01)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Common
Preferred Stock Preferred Stock Capital in Stock
Series B Series Common Stock Excess of Subscribed/ Accumulated
Shares Amount Shares Amount Shares Amount Par Value Payable Deficit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 738 $ 7 $ -- 13,478 $ 135 $56,778 $ -- $(55,414)
Sale of common stock 571 6 994
Common stock issued
in settlement of
notes payable
and accrued
interest 200 2 504
Common stock
issued in settlement
of certain
accounts payable
and accrued expenses 157 2 509
Stock sold under
redemption agreement 324
Adjustment of amount
due under
redemption agreement 151
Preferred stock
issued in
settlement of
due to affiliate 83 1 1,999
Preferred stock
dividend payable
in common stock 1,391 (1,391)
Net income 2,835
Balances, December 31, 1997 821 8 14,406 145 61,259 1,391 (53,970)
Preferred stock
issued in
settlement of
due to affiliate 135 1 9,728
Common stock issued in
settlement of preferred
stock dividend payable 777 7 1,384 (1,391)
Preferred stock dividend
payable in common stock 2,861 (2,861)
Net loss (13,399)
Balances, December 31, 1998 821 8 135 1 15,183 152 72,371 2,861 (70,230)
Common stock issued in
settlement
of preferred stock
dividend payable 1,605 16 2,845 (2,861)
Common stock issued from exercise
of warrants 15 60
Common stock to be issued in
settlement
of certain liabilities 50
Noncash compensation 3,251
Net Loss (5,763)
Balances, December 31, 1999 821 $ 8 135 $ 1 16,803 $ 168 $78,527 $ 50 $(75,993)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except for per share data)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,763) $ (13,399) $ 2,835
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 38 909 5,094
Noncash compensation 3,251
Provision for losses on accounts
and note receivable 250 108
Deferred tax (benefit) 6,375 (6,375)
Loss from equity investee 8,500
Gain on sale of assets (6,048)
Gain on extinguishment of debt (4,609)
Write-off of property and equipment 327
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 15 (50)
Decrease in inventories 12 41
Decrease in prepaid insurance 276 339
(Increase) decrease in other
current assets 81 85 (69)
Increase (decrease) in accounts
payable and accrued expenses 360 (2,824) 561
Increase (decrease) in accrued
payroll and related liabilities 75 (398) (1,144)
NET CASH USED IN OPERATING
ACTIVITIES (1,958) (5,920) (3,269)
CASH FLOWS FROM INVESTING ACTIVITIES:
Hotel construction costs (1,086) (2,966)
Purchases of property and equipment (385) (107)
Payment on note receivable (250) (1,700)
Proceeds from hotel construction escrow 1,700
Proceeds from sale of assets,
net of related costs 11,388
Proceeds from (payments for) deposits
and other assets (39) 13 (371)
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (424) 11,765 (5,144)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate 5,970
Payments to affiliate (3,294) (1,986)
Proceeds from sale of common stock 1,000
Proceeds from exercised warrants 60
Payments on notes payable (507)
Proceeds from long-term debt,
net of loan costs 650 17,900
Payments on long-term debt (701) (925) (13,103)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 9 (4,219) 9,274
NET INCREASE (DECREASE) IN CASH (2,373) 1,626 861
CASH, beginning of year 3,837 2,211 1,350
CASH, end of year $ 1,464 $ 3,837 $ 2,211
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except for per share data)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION,
cash paid for interest
during the year $ 158 $ 425 $ 3,186
SUPPLEMENTAL SCHEDULES OF
NONCASH INVESTING
AND FINANCING ACTIVITIES:
Common stock to be issued in
settlement of certain
liabilities $ 50
Restructuring and
conversion of
Bryanston obligations:
issuance of preferred stock $ 9,729
Mortgage on Jubilation
gaming vessel $ 3,000
Extinguishment of debt including
accrued interest of $3,098 $ 12,729
Non-cash consideration received in
exchange for sale of assets:
Investment in Buyer $ 8,500
Assumption by Buyer of net
proceeds of pre-financing $ 17,900
Assumption by Buyer of certain
accounts payable, accrued
expenses, payroll liabilities
and capital lease obligation $ 2,000
Common stock issued in settlement
of preferred stock dividends $ 2,861 $ 1,391
Preferred stock issued in
settlement of obligations $ 2,000
Net increase in capital in
excess of par value related to amount
due under redemption agreement $ 475
Common stock issued in settlement of
notes payable and accrued interest $ 506
Common stock issued in settlement of
certain accounts payable and
accrued expenses $ 511
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
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 in Greenville, Mississippi, which was operated by the
Company's wholly-owned subsidiary, Alpha Gulf Coast, Inc. ("Alpha Gulf"),
and the construction of an adjacent hotel which was handled through the
Company's wholly-owned subsidiary, Alpha Greenville Hotel, Inc.
("Greenville Hotel"). On March 2, 1998, the Company sold substantially all
of these assets to Greenville Casino Partners, L.P. ("Buyer") (see Note 3).
Included in the consideration, the Company received a 25% limited
partnership interest in the Buyer, whose assets include an additional casino and
hotel located in Greenville, Mississippi.
Currently, the Company is pursuing additional gaming-related and
other opportunities through its other wholly-owned subsidiaries: Alpha St.
Regis, Inc.("Alpha St. Regis"), Alpha Missouri, Inc. ("Alpha Missouri"),
Alpha Monticello, Inc. ("Alpha Monticello"), Alpha Rising Sun, Inc.("Alpha
Rising Sun"), Jubilation Lakeshore, Inc. ("Jubilation Lakeshore") (including
Jubilation Lakeshore's 93% owned subsidiary Casino Ventures, L.L.C. (see
Note 7)), Alpha Entertainment, Inc.("Alpha Entertainment"), Alpha Florida
Entertainment, Inc. ("Alpha Florida") and Alpha Peach Tree Corporation
("Alpha Peach Tree").
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
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.
Property and Equipment. Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provides for
depreciation and amortization using the straight-line method over the
following estimated useful lives:
Estimated
Useful
Assets Lives
Boat, barge and improvements 20 years
Leasehold and improvements 10-20 years
Gaming equipment 5-7 years
Furniture, fixtures and equipment 5-7 years
Investment. The Company's 25% limited partnership interest in
Buyer is being accounted for under the equity method of accounting.
Accordingly, the investment is recorded at cost and adjusted by the Company's
proportionate share of the Buyer's undistributed earnings or losses (see Note
3).
Pre-opening and Development Costs. The Company incurs costs in
connection with start-up casino operations
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(In thousands, except for per share data)
Note 2. Summary of Significant Accounting Policies (CONTINUED)
and joint ventures. The Company's policy is to expense pre-opening and
development costs as incurred.
Earnings (Loss) Per Common Share. Earnings (loss) per common
share is based on the weighted average number of common shares outstanding.
The Company complies with Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", which requires dual
presentation of basic and diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average common shares outstanding for the year.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
Income Taxes. The Company complies with SFAS No. 109,
"Accounting for Income Taxes", which requires an asset and liability approach
to financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in future
taxable
or deductible amounts, based on enacted tax laws and rates to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
The Company does not provide for deferred taxes on the unremitted
earnings of its wholly-owned subsidiaries since, under existing tax laws, its
investment could be liquidated tax-free. As a result, any excess outside
financial basis over tax basis is not expected to result in taxable income upon
reversal and thus is not a temporary difference.
Casino Revenue. Casino revenue was the net win from gaming
activities, which was the difference between gaming wagers less the amount
paid out to patrons.
Promotional Allowances. Promotional allowances primarily consisted
of food and beverage furnished gratuitously to customers. Revenues did not
include the retail amount of food and beverage of $496 and $3,547 for the
years ended December 31, 1998 and 1997, respectively, provided gratuitously
to customers. The cost of these items of $418 and $2,990 for the years ended
December 31, 1998 and 1997, respectively, were included in casino expenses.
Fair Value of Financial Instruments. The fair values of the
Company's assets and liabilities which qualify as financial instruments under
SFAS No. 107 approximate their carrying amounts presented in the
consolidated balance sheets at December 31, 1999 and 1998.
Use 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 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
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(In thousands, except for per share data)
Note 2. Summary of Significant Accounting Policies (CONTINUED)
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 prior year amounts have been reclassified
to conform to the 1999 presentation.
Note 3. Sale of Assets
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 the Buyer for
approximately $40,200. Specifically, the Company received cash of $11,800
and a 25% limited partnership interest in the Buyer. Additionally, the Buyer
assumed approximately $2,000 of certain accounts payable, accrued expenses,
payroll liabilities and a capital lease obligation and the Company's obligations
to repay the net proceeds from certain financing of $17,900. The Company
recognized a gain on the sale of $6,048.
Since the acquisition of substantially all of the assets of Alpha Gulf
and Greenville Hotel, Management has been advised that the Buyer has
incurred significant operating losses resulting in a substantial working capital
deficiency and a partners' deficiency through December 31, 1998. 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%
limited partnership interest in the Buyer to zero in 1998.
Note 4. Property and Equipment
At December 31, 1999 and 1998, property and equipment is
comprised of the following (see Note 7):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Boat, barge and improvements $ 5,322 $ 4,940
Leasehold and improvements 82 82
Gaming equipment 3,023 3,023
Furniture, fixtures and equipment 1,837 1,834
10,264 9,879
Less accumulated depreciation
and amortization 5,287 5,249
$ 4,977 $ 4,630
</TABLE>
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 5. Long-Term Debt
At December 31, 1999 and 1998, long-term debt is comprised of
the following:
<TABLE>
<CAPTION>
Interest
Rate 1999 1998
<S> <C> <C> <C>
Note payable to Bryanston
Group, Inc. ("Bryanston"),
an affiliate, (see Note 7),
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 8% $ 1,407 $ 2,108
Mortgage note collateralized by
the Company's inactive
gaming vessel (see Note 7)
with interest payable
monthly and principal due
January 10, 2001 8% 650
2,057 2,108
Current portion 1,000
$ 2,057 $ 1,108
</TABLE>
On September 30, 1999, Bryanston agreed to waive its right to
demand repayment of principal until January 1, 2001, with regard to its note
with the Company .
Aggregate future required principal payments of long-term debt are
as follows:
Years Ending December 31:
2000. . . $ --
2001. . . 650
2002. . .
2003. . .
2004. . .
Thereafter 1,407
$ 2,057
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 6. Accounts Payable and Accrued Expenses
At December 31, 1999 and 1998, accounts payable and accrued expenses
are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Due to Buyer $ 462 $
Insurance 202 227
Accrued professional fees 221 250
Accrued interest 13 4
Other 283 390
$ 1,181 $ 871
</TABLE>
During the year ended December 31, 1998, accounts payable of $280 was
reclassified to other long-term liabilities, as they were not paid during the
year ended December 31, 1999 nor are they expected to be paid during the year
ended December 31, 2000.
Note 7. Commitments, Contingencies and Related Party Transactions
On July 8, 1999, the Company contributed its inactive vessel,
Jubilation to Casino Ventures, L.L.C. ("Casino Ventures") (see Notes 1,4 and
5). At the time of the contribution, the vessel (including 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 year
ended December 31, 1999, the Company capitalized $364 of costs related to
the refurbishment of the vessel and improvement to its anticipated site in
Tunica, Mississippi and incurred $100 of start-up costs. Additionally, during
the year ended December 31, 1999, the vessel was used as collateral to obtain
funding of $650 towards the aforementioned costs of Casino Ventures (see
Note 5).
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 funding and management obligations of
CDL (25% owned by Bryanston) and Alpha Monticello, respectively, 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 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.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 7. Commitments, Contingencies and Related Party Transactions
(CONTINUED)
This agreement is subject to final approval by the U.S. Department
of the Interior and the National Indian Gaming Commission. Additionally the
land on which the casino is to be sited requires the approval of the U.S.
Department of the Interior's Bureau of Indian Affairs and the concurrence of
the Governor of the State of New York.
By its terms, the Memorandum between CDL and Alpha Monticello
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 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, Alpha Monticello filed for arbitration, as prescribed by
the Memorandum, to resolve certain disputes by the Parties. As of September
15, 1999, Alpha Monticello and CDL reached a tentative settlement and the
original memorandum of understanding is in the process of being revised. At
the request of all Parties the American Arbitration Association agreed to stay
further proceedings in the arbitration until April 3, 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, subject to the receipt of all
necessary governmental approvals by Alpha Monticello, has agreed to transfer
to Alpha Monticello 5 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.
Alpha Monticello will 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 Alpha
Monticello. Under the previous arrangement described above, Alpha
Monticello did not have any ownership stake in either of these assets nor
participate in the previously discussed development fee arrangement. Included
in deposits and other assets as of December 31, 1999 and 1998, the Company
capitalized $1,366 towards the design, architecture and other costs of the
development plans for the proposed Monticello Casino.
The Company is obligated under operating leases relative to real
property and equipment expiring through 2004. Future aggregate minimum
annual rental payments under all of these leases are as follows:
Years Ending December 31:
2000 . . . . . . $ 348
2001 . . . . . . 362
2002 . . . . . . 375
2003 . . . . . . 353
2004 . . . . . . 257
$1,695
Rent expense under these operating and terminated leases amounted
to $375, $501 and $930 for the years ended December 31, 1999, 1998 and
1997, respectively.
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
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 7. Commitments, Contingencies and Related Party Transactions
(CONTINUED)
written notice of his or its intention not to extend the term of the employment.
In the event of termination of employment, the CEO will be retained to
provide consulting services for two years at $175 per annum. As of
December 31, 1999, deferred compensation payable to the Chairman and CEO
is approximately $1,530. 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. In addition, these
conversion rights shall not be exercisable before January 14, 2001. During the
year ended December 31, 1999, the Company has recorded a noncash
compensation charge of $3,251 reflecting the increase in the market price of
the Company's common stock since the date of the agreement.
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 $1,530 payable as of December 31,
1999, 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 Company also has agreed to defer
all cash payments against a $266 liability owing pursuant to his previous
employment contract with the Company until January 1, 2001. Accordingly,
other liabilities, on the Company's consolidated balance sheet as of December
31, 1999, includes $1,796 of deferred compensation payable.
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 was renewed in November 1999 for a
two year period.
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 December 31, 1999. 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 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 --
(Continued)
(in thousands, except for per share data)
Note 7. Commitments, Contingencies and Related Party Transactions
(CONTINUED)
The Company is involved in a dispute with Buyer regarding an
agreement dated December 17, 1997 pursuant to which the Company sold
substantially all of the assets of Alpha Gulf and Greenville Hotel to Buyer.
The Company claims Buyer is liable for certain liabilities and certain accounts
payable. 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 the Buyer's claims. An arbitration hearing was held in
March 1999, at which time each side presented its final arguments. The
arbitrator expects to render a decision in late March or early April 2000. The
Company and its counsel believe that, based on information presently
available, 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. 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 (see Note 1) for a term of ten years,
pursuant to which the Company is entitled to receive $100 per annum for
management services, payable monthly. Supervisory management fees earned
for the year ended December 31, 1999 and 1998, amounted to $100 and $83,
respectively.
In May 1998, the Company's Board of Directors adopted the 1998
Stock Option Plan ("1998 Plan") (see Note 9) providing for incentive stock
options ("ISO") and non-qualified stock options ("NQSO"). The 1998 Plan
was approved by the stockholders of the Company in September 1999. The
Company has reserved 4,000 shares of common stock for the plan. The
exercise price of an ISO or NQSO will not be less than 100% of the fair
market value of the Company's common stock at the date of the grant.
In May 1998 for 1998 and in December 1998 for 1999, as approved
by the Company's shareholders in September 1999, the Company granted
annual compensation to each of its three (3) outside directors of $6 per annum
plus, pursuant to the 1998 Plan, the option to purchase 25 shares, along with
15 shares for each committee served upon, of the Company's common stock
at the current market price on the date the option was granted. Compensation
expense to the three outside directors for both of the years ended December
31, 1999 and 1998, amounted to $18. In both December 1999 and 1998,
pursuant to the 1998 Plan as approved by the Company's shareholders in
September 1999, the Company granted to each of its two (2) employee
directors, excluding the Chairman, the option to purchase 25 shares, along
with 15 shares for each committee served upon, of the Company's common
stock. Additionally, in both December 1999 and 1998, pursuant to the 1998
Plan as approved by the Company's shareholders in September 1999, the
Company granted to the Company's Chairman options to purchase 250 shares
of the Company's common stock. All of the options to purchase the
Company's common stock under the 1998 Plan, which were granted in 1998
to its outside and employee directors, excluding the Chairman, are exercisable
at a price per share equal to the closing NASDAQ bid prices on the dates of
the grants in December 1999 and 1998 of $4.25 and $1.063, respectively. The
exercise price for the 250 options granted in 1999 and 1998 to the Chairman
to purchase the Company's common stock are exercisable at prices per share
of $4.25 and $1.13, respectively, which is equal to 100% and 110%,
respectively, of the closing NASDAQ bid prices on the dates of the grants in
December 1999 and 1998 (see Note 9).
On September 15, 1998, $250 was advanced to Southern Classic, Inc.
("Southern") pursuant to a 9 1/4% promissory note maturing January 30, 1999.
Southern defaulted on its payment in January 1999 and filed for bankruptcy
in February 1999. Accordingly, a $250 reserve has been recorded as of
December 31, 1998. A member of the Board of Directors of the Company
formerly served as Southern's Chief Financial Officer.
A director of the Company is a partner in a law firm which provides legal
services to the Company. Fees to such
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 7. Commitments, Contingencies and Related Party Transactions
(CONTINUED)
firm in the years ended December 31, 1999 and 1998, has been recorded at
approximately $204 and $200, respectively, related to general corporate
matters.
Note 8. Stockholders' Equity
In September 1997, the Company issued 83 shares of its Series B
Preferred Stock, in settlement of $2,000 of unsecured debt with Bryanston.
In March 1997, the Company sold 571 shares of its common stock for
$1,000.
In April 1997, the Company issued 200 shares of its common stock
for $506 in settlement of a note payable and related accrued interest.
Additionally, during 1997, the Company issued 157 shares of its common
stock for $511 in settlement of certain accounts payable and accrued expenses.
The Company's cumulative Series B Preferred Stock, has voting rights of
eight votes per preferred share, is convertible to eight shares of common stock
for each share of preferred stock and carries a dividend of $2.90 per share,
payable quarterly, which increases to $3.77 per share if the cash dividend is
not paid within 30 days of the end of each quarter. In the event the dividend
is not paid at the end of the Company's fiscal year (December 31), the
dividend will be payable in common stock. On December 17, 1997, the
Company declared a 1996 dividend of $1,391, payable in 777 shares of the
Company's common stock, which were issued in April 1998. On May 12,
1998, the Company declared a 1997 dividend of $2,861, payable in
approximately 1,605 shares of common stock, which were issued in January
1999. As of December 31, 1999, dividends in arrears on the cumulative Series
B Preferred Stock, amounted to approximately 2,394 shares.
On June 30, 1998, the Company issued 135 shares of cumulative
Series C Preferred Stock, in settlement of certain obligations to Bryanston.
The Series C Preferred Stock, has voting rights of twenty-four votes per
preferred share, is convertible into twenty-four shares of common 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 which
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 common
stock. As of December 31, 1999, dividends in arrears on the cumulative Series
C Preferred Stock, amounted to approximately 366 shares.
Note 9. Stock Options and Warrants
1998 and 1993 Stock Option Plans
In May 1998 and June 1993, the Company's Board of Directors
adopted the 1998 (see Note 7) and 1993 Stock Option Plans providing for
incentive stock options and non-qualified stock options. The Company has
reserved 4,000 and 900 shares of common stock for issuance upon the
exercise of options to be granted under the 1998 and 1993 Plans, respectively.
The exercise price of an ISO or NQSO will not be less than 100% of the fair
market value of the Company's common stock at the date of the grant. The
maximum term of each option granted under the Plan is ten years, however,
options granted to an employee owning greater than 10% of the Company's
common stock will have a maximum term of five years.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 9. Stock Options and Warrants (CONTINUED)
In December 1998, the Company determined that the purposes of the
Plan were not being adequately achieved with respect to those employees and
consultants holding options that were exercisable at prices above current
market value and that it was in the best interests of the Company and its
shareholders that the Company retain and motivate such employees and
consultants. Therefore, in order to provide such optionees the opportunity to
exchange their above market value options for options exercisable at the
current market value, the Company cancelled the 601 outstanding options
under the 1998 and 1993 stock option plans at that time and reissued the
options at an exercise price of $1.063, the closing NASDAQ bid price on
December 12, 1998.
The following table summarizes common stock option activity,
excluding the simultaneous cancellations and reissuances on December 12,
1998, as noted above:
<TABLE>
<CAPTION>
Weighted
Average
Range of Exercise
Number of Exercise Price Per
Shares Price Share
<S> <C> <C> <C>
Options outstanding at
December 31, 1997 409 $1.063-2.00 $1.14
Granted 1,065 1.063-1.17 1.088
Cancelled (200) 1.063-2.00 1.063
Options outstanding at
December 31, 1998 1,274 $1.063-1.17 $1.097
Granted 1,389 $2.00-4.25 3.17
Options outstanding at
December 31, 1999 2,663 $1.063-4.25 $2.17
</TABLE>
The following table summarizes information regarding stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted
Number Average Average Number Weighted
Range of Outstanding Remaining Exercise Exercisable Average
Exercise at Contractual Price Per at Exercise
Prices Dec 1, 1999 Life in Years Share Dec 31, 1999 Price
<S> <C> <C> <C> <C> <C>
$1.063 1,006 7.68 $1.063 1,006 $1.063
1.117 250 8.9 1.117 250 1.117
2.000 687 9.5 2.000 502 2.000
4.25 720 9.9 4.25 682 4.25
</TABLE>
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 9. Stock Options and Warrants (CONTINUED)
Other Stock Options
The Company granted to Bryanston an option to purchase 348 shares
of the Company's common stock at an exercise price per share equal to the
closing NASDAQ bid price as of December 4, 1995 ($5.375 per share). The
option expires on December 4, 2000. As of December 31, 1999, the option
was not exercised.
During the years ended December 31, 1999 and 1998, options to
purchase 50 and 600 shares, respectively, of the Company's common stock at
exercise prices of $5.00 and $14.00, respectively, expired.
Warrants
In conjunction with its November 1993 initial public offering, the
Company issued 863 redeemable common stock purchase warrants at $.10 per
warrant. Each warrant entitled the holder to purchase one share of common
stock at the exercise price of $12.00, commencing in November 1993 until
November 1998. In September 1998, the expiration date was extended to
December 31, 2001 and the exercise price was amended to $4.00 through
December 31, 2000 and to $6.00 through December 31, 2001. During the year
ended December 31, 1999, 15 warrants were exercised. As of December 31,
1999, 848 warrants were outstanding.
Pro forma Information
The Company complies with the disclosure-only provisions of SFAS
123, "Accounting for Stock-Based Compensation". Accordingly, no
compensation cost has been recognized for the Company's Plans. Had
compensation cost for the Company's Plans been determined based on the fair
value at the grant date of awards in the years ended December 31, 1999, 1998
and 1997 consistent with the provisions of SFAS 123, the Company's net loss
and net loss per common share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net loss, as reported $ (5,763) $ (16,260) $ (3,165)
Net loss, pro forma. (9,918) (17,473) (3,490)
Loss per common share,
basic,
as reported (.34) (1.09) (.23)
Loss per common share,
basic,
pro forma (.59) (1.17) (.25)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expensed on future years. Net
loss, as reported, has been adjusted to reflect the deduction of dividends on
preferred stock to arrive at loss from continuing operations applicable to
common shares. Diluted earnings per share amounts are not presented because
they are anti-dilutive.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions: volatility was calculated at 114% for 1999 and 100% for
1998 and 1997; risk-free interest rate of five percent for 1999 and 1998, and
six percent for 1997; no dividend yield and option life of ten years.
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 10. Income Taxes
The Company and all of its subsidiaries file a consolidated federal
income tax return. At December 31, 1999 and 1998, the Company's deferred
income tax asset is comprised of the tax benefit (cost) associated with the
following items based on the statutory tax rates currently in effect:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net operating loss
carryforwards . . . . $ 19,310 $ 18,386
Differences between
financial and tax
bases of assets and
liabilities . . . 7,756 7,686
Other . 385 396
Deferred income tax asset,
gross . . . . 27,451 26,468
Valuation allowance (27,451) (26,468)
Deferred income tax asset, net $ -- $ --
</TABLE>
During 1998, upon termination of its obligation under a lease in
Lakeshore, Mississippi, the Company exercised a tax write-off of leasehold
and improvements, written-off for book purposes in 1996. The tax write-off
from operations and 1998 losses exceeded the tax gain generated by the sale
of assets. Consequently, the Company did not utilize any of its net operating
loss carryforwards during 1998. These events skewed deferred (taxes) benefit
in relationship to loss before deferred (taxes) benefit in the years ended
December 31, 1998.
As of December 31, 1999, the Company has available for federal
income tax purposes, a net operating loss carryforward of approximately
$48,274 expiring in the years 2008 through 2019.
Note 11. Earnings (Loss) Per Common Share
At December 31, 1999, 1998 and 1997, weighted average common
shares outstanding applicable to diluted earnings per share is computed as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Weighted average common shares
outstanding, basic 16,770 14,966 14,124
Shares applicable to convertible
preferred stock 6,568
16,770 14,966 20,692
</TABLE>
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --
(Continued)
(in thousands, except for per share data)
Note 11. Earnings (Loss) Per Common Share (C0NTINUED)
Unexercised stock options and warrants to purchase 3,859 and 2,575
shares of the Company's common stock as of December 31, 1999 and 1998,
respectively and Series B Preferred Stock and C, convertible into 9,808 shares
of the Company's common stock, as of December 31, 1999 and 1998, were not
included in the computations of diluted earnings (loss) per common share
because they are anti-dilutive.
Unexercised stock options and warrants to purchase 2,270 shares of
the Company's common stock, as of December 31, 1997, were not included in
the computations of diluted earnings (loss) per common share because the
exercise prices were greater than the average market prices of the Company's
common stock during 1997.
Note 12. Subsequent Event
On February 8, 2000, the Company privately sold 4 shares of its 7%
convertible series D preferred stock for an aggregate price of $3,900, net of
closing costs of $100. 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 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 following summarized unaudited pro forma condensed
consolidated balance sheet assumes the sale had occurred on December 31,
1999:
<TABLE>
<CAPTION>
Pro forma
Historical Adjustment Pro forma
<S> <C> <C> <C>
Cash $ 1,464 $ 3,900 $ 5,364
Other current assets 98 98
Total current assets $ 1,562 3,900 5,462
Property and Equipment, net 4,977 4,977
Deposits and other assets 1,589 1,589
$ 8,128 $ 3,900 $ 12,028
Accounts payable and
accrued expenses $ 1,181 1,181
Accrued payroll and
related liabilities 53 53
Total current liabilities 1,234 1,234
Long-term debt 2,057 2,057
Other liabilities 2,076 2,076
Stockholders equity 2,761 3,900 6,661
$ 8,128 $ 3,900 $ 12,028
</TABLE>
The unaudited pro forma results are not necessarily indicative of
what would have occurred had the sale occurred on December 31, 1999.
<PAGE>
SCHEDULE II
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Year Expenses Accounts Deductions of Year
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Allowance for doubtful
accounts $ 527 108 -- -- 635
Year Ended December 31, 1998:
Allowance for doubtful
accounts $ 635 -- -- -- 635
Year Ended December 31, 1999:
Allowance for doubtful
accounts $ 635 -- -- -- 635
Year Ended December 31, 1998:
Allowance for doubtful note $ 250 -- -- 250
Year Ended December 31, 1999:
Allowance for doubtful note $ 250 -- -- -- 250
</TABLE>
<PAGE>
Exhibit 23(a)
Rothstein, Kass & Company, P.C.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statement of
Alpha Hospitality Corporation on Forms S-3(File Nos. 333-39887 and 333-43861),
S-8(File Nos. 333-37293 and 333-90611), and Post Effective Amendment on Form S3
to the Registration Statement on Form SB-2(File No. 33-64236) of our report
dated February 10, 2000, on our audits of the consolidated financial statements
and financial statement schedule of Alpha Hospitality Corporation as of December
31, 1999 and 1998, and for the years ended December 31, 1999, 1998 and 1997,
which report is included in this Annual Report on Form 10-K.
/s/Rothstein, Kass & Company, P.C.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Alpha Hospitality Corporation Form 10K for the year ended December 31, 1999.
</LEGEND>
<CIK> 0000906780
<NAME> 10K99
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,464
<SECURITIES> 0
<RECEIVABLES> 885
<ALLOWANCES> 885
<INVENTORY> 0
<CURRENT-ASSETS> 1,562
<PP&E> 10,264
<DEPRECIATION> 5,287
<TOTAL-ASSETS> 8,128
<CURRENT-LIABILITIES> 1,234
<BONDS> 2,057
0
9
<COMMON> 168
<OTHER-SE> 2,584
<TOTAL-LIABILITY-AND-EQUITY> 8,128
<SALES> 0
<TOTAL-REVENUES> 185
<CGS> 0
<TOTAL-COSTS> 4,900
<OTHER-EXPENSES> 880<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> (5,763)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,763)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,763)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Amount includes Depreciation and Amortization of $38 and development
costs of $842.
</FN>
</TABLE>
