U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2002
Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-12522
ALPHA HOSPITALITY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3714474
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
707 Skokie Boulevard Suite 600 Northbrook, IL 60062
(Address of principal executive offices)
(847) 418-3804
(Issuer's telephone number)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15 (d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: May 20, 2002
Common Stock, $0.01 par value: 4,829,503 shares
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001 1
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2002 and 2001 2
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2002 and 2001 3-4
Notes to Condensed Consolidated Financial Statements 5-18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19-22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
All items that are not applicable or to which the answer is negative
have been omitted from this report.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31, December 31,
2002 2001
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash . . $ 306 $ 20
Receivable from sale of investment
in Greenville Casino Partners 2,767 0
Other current assets . . . . . . . . . . 67 56
Total current assets. . . . . . . . . . 3,140 76
PROPERTY AND EQUIPMENT, net. . . . . . . . . 9 11
INVESTMENT AND ADVANCES IN CATSKILL
DEVELOPMENT, LLC . . . . . . . 9,881 2,947
ASSETS OF CASINO VENTURES, including
idle property and equipment of
$7,536 and $7,063. . . . . . . . 7,619 7,176
DEPOSITS AND OTHER ASSETS. . . . . . . . 170 178
$ 20,819 $ 10,388
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Related party debt. $ 2,740 $ 2,594
Accounts payable and accrued expenses . . . 2,118 1,770
Accrued payroll and related liabilities . . 290 229
Current liabilities of Casino Ventures. . . 1,781 1,453
Total current liabilities. . . . . . . . 6,929 6,046
LONG-TERM RELATED PARTY DEBT, including
accrued interest. 1,015 1,046
LONG-TERM RELATED LIABILITIES OF CASINO
VENTURES . . 1,683 1,480
OTHER LIABILITIES . . . . . . . . . . . . . . 0 267
RELATED PARTY LIABILITIES TO BE SETTLED WITH
COMMON STOCK . 1,832 3,683
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST. . 800 808
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.01 par value, 7,500 shares
authorized, 4,822 and 2,629 issued and
outstanding in 2002 and 2001, respectively . 48 26
Preferred stock, 5,000 shares authorized:
Series B, $.01 par value, 44 and 821
issued and outstanding
in 2002 and 2001, respectively . . . . . 0 8
Series C, $.01 par value, 135 issued and
outstanding in 2001 . 0 1
Series D, $.01 par value, 1 issued and
outstanding in both 2002 and 2001 0 0
Capital in excess of par value. . . . . . . 106,960 92,196
Accumulated deficit . . . . . . . . . . . . (98,448) (95,173)
Total stockholders' equity . . . . . . . 8,560 (2,942)
$ 20,819 $ 10,388
See accompanying notes to condensed consolidated financial statements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
Three Months Ended
March 31,
2002 2001
REVENUES:
Casino . . . $ 0 $ 851
Food and beverage, retail and other. . . . . 0 131
0 982
COSTS AND EXPENSES:
Casino . . . . . . . 0 534
Food and beverage, retail and other. . . . . . . 0 32
Selling, general and administrative . . 632 1,705
Interest . . . . . . . . . . 140 94
Depreciation and amortization. . . 9 191
Pre-opening and development costs. . . . . . 9 57
Total costs and expenses. . . . . . . . . 790 2,613
OTHER INCOME, gain on sale of investment and related
management contract. . . . . . 3,277 0
NET INCOME (LOSS) BEFORE MINORITY INTEREST . . . . . 2,487 (1,631)
MINORITY INTEREST. . . . . . . . 8 285
NET INCOME (LOSS). . . . . . . . 2,495 (1,346)
DIVIDENDS ON PREFERRED STOCK . . 390 0
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES. 2,105 (1,346)
WEIGHTED AVERAGE COMMON SHARES BASIC 3,883 2,075
WEIGHTED AVERAGE COMMON SHARES DILUTED . . . . . . 4,669 2,075
EARNINGS (LOSS) PER COMMON SHARE:
BASIC . . . $ .54 $ (.65)
DILUTED . . . $ .53 $ (.65)
See accompanying notes to condensed consolidated financial statements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . $ 2,495 $ (1,346)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Gain on sale of investment and
related management contract . . (3,277) 0
Minority interest. . . . . . . . . . (8) (285)
Depreciation and amortization. . . . . 9 191
Interest amortized on loan discount. . . 28 18
Changes in operating assets and liabilities:
Other current assets. 19 589
Accounts payable and accrued expenses
and other liabilities. . 505 (198)
Accrued payroll and related liabilities . 62 6
NET CASH USED IN OPERATING ACTIVITIES. . . . . . . (167) (1,025)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment and
related management contract . . . . . . . 510 0
Purchases for property and equipment . . . . (473) (224)
Increase in deposits and other assets. . . 0 (34)
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES. . 37 (258)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options. . . . . . 11 0
Proceeds from related party long-term debt . 405 726
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . 416 726
NET INCREASE (DECREASE) IN CASH. . . . . . . . 286 (557)
CASH, beginning of period. . . . . . . . . . . . . 20 1,263
CASH, end of period. . . . . . $ 306 $ 706
See accompanying notes to condensed consolidated financial statements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2002 2001
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest during the period $ 15 $
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Common stock issued in conversion of
long-term debt $ 158 $
Common stock issued in settlement of
preferred stock dividends $ 5,770 $
Common stock issued in settlement of
liabilities $ 1,904 $
Common stock issued for investment in
Catskill Development, LLC $ 6,934 $
Common stock issued in conversion of
preferred stock $ 9 $
See accompanying notes to condensed consolidated financial statements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
(in thousands)
NOTE 1. NATURE OF BUSINESS
Alpha Hospitality Corporation (the "Company") incorporated in
Delaware on March 19, 1993, is engaged in the development of
prospective gaming operations in New York. In November 2001, the
Company ceased operating its gaming day cruise vessel operating in
Florida. On March 15, 2002, the General Partner of Greenville Casino
Partners, L.P. successfully concluded the sale of its primary asset, a casino
located in Greenville, Mississippi, in which the Company held a limited
partnership interest. The Company's current major effort is investing in
the development and management of potential gaming operations in
Monticello, New York. The Company intends to consider the acquisition
of other operating businesses or other investments in fields other than the
gaming industry.
The Company is not currently actively involved in any business
activities. If the Company should continue to have no active business
activities and is deemed to be engaged solely in the business of investing
or trading in securities, the Company could be subject to regulation under
the Investment Company Act of 1940. In such event, the Company would
be required to register as an investment company and could be expected
to incur significant registration and compliance costs. Management has
obtained no formal determination from the Securities and Exchange
Commission as to the status of the Company under the Investment
Company Act of 1940, and consequently, any violation of such Act could
subject the Company to materially adverse consequences.
NOTE 2. GOING CONCERN
The Company currently has no operations and has a working capital
deficit of $3,789 at March 31, 2002. In addition, Casino Ventures, a
subsidiary of the Company, is in default of a mortgage on its gaming boat.
The Company's principal current investment is in the development of its
interest in proposed casino gaming activities in Monticello, New York,
which is discussed in Note 5.
Future liquidity could come from a debt or equity offering, future
acquisition of new business operations, future monitization of remaining
assets or certain tax attributes or resolution of the current litigation (see
Note 5). If the Company is unable to secure the required funding or
implement another liquidity generating transaction on a timely basis, it
could have a material adverse effect on the Company's ability to continue
as a going concern.
The Company's condensed consolidated financial statements have
been presented on the basis that the Company is a going concern.
Accordingly, the condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities or
any other adjustments that might result should the Company be unable to
continue as a going concern.
NOTE 3. BASIS OF PRESENTATION AND SUMMARY OF
SELECTED SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's December 31, 2001 annual
report to the shareholders. The results of operations for the period ended
March 31, 2002 are not necessarily indicative of the operating results for
the full year.
Investments. The Company's investment in Catskill
Development, LLC ("CDL") is limited to access to certain net earnings
and, if applicable, liquidation. Because it does not have significant
influence in operating CDL, the Company accounts for its investment in
CDL using the cost method. The Company increased it investment in
CDL by acquiring 47.5% of Watertone Holdings, L.P.'s ("Watertone")
economic interest in certain CDL business components (see Note 5).
Earnings (Loss) Per Common Share. The Company complies
with Financial Accounting Standards Board ("FASB") Statement No. 128,
"Earnings Per Share", which requires dual presentation of basic and
diluted earnings per share. Basic earnings per share is computed by
dividing income available to common stockholders by the weighted-
average common shares outstanding for the period. 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. Outstanding options and warrants,
have been excluded from the Company's computation of loss per
common share for the quarter ended March 31, 2001 because they are
antidilutive.
Income Taxes. The Company applies the 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
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 3. BASIS OF PRESENTATION AND SUMMARY OF
SELECTED SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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 $173
for the three months ended March 31, 2001 provided gratuitously to
customers. The cost of these items of $145 for the three months ended
March 31, 2001 are included in casino expenses.
Use of Estimates. The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.
Certain estimates used by management are particularly
susceptible to significant changes, such as the recoverability of the idle
property and equipment of Casino Ventures and the investment and
advances in CDL. Management expects to recover the full amount of
both investments (see Note 5 and 6).
Impairment of Long-Lived Assets. Effective January 1, 2002, the
Company adopted FASB Statement no. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets". Pursuant to Statement
144, the Company is accounting for the assets owned by its Casino
Ventures, L.L.C. subsidiary in conformity with the prior pronouncements.
The adoption of Statement 144 did not materially affect the financial
statements as of and for the quarter ending March 31, 2002. In certain
circumstances, the Company 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 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.
Recent Accounting Pronouncements. On April 30,
2002, the FASB issued Statement 145 which, among other things, limits
the classification of gains and losses from extinguishment of debt as
extraordinary items. The Company does not expect provisions of this
statement to have a significant effect on the Company's financial position
or operating results.
Reclassifications. Certain prior year amounts have been
reclassified to conform to the 2002 presentation.
NOTE 4. INVESTMENT IN GREENVILLE CASINO PARTNERS
On March 2, 1998, the Company sold substantially all of the
assets of Alpha Gulf and Greenville Hotel, consisting of the Bayou
Caddy's Jubilee Casino, the Greenville Hotel and other related assets to
Greenville Casino Partners, L.P. ("GCP"). As part of that transaction, the
Company was granted a 25% interest (subsequently reduced to
approximately 19% for capital call adjustments) in GCP and entered into
a management contract with GCP. Subsequent to that sale, management
was advised that GCP had incurred significant operating losses resulting
in a substantial working capital deficiency and a partners' deficiency
through December 31, 1998. Accordingly, in accordance with its policy
on impairment of long-lived assets, the Company adjusted the carrying
value of it 19% limited partnership interest in GCP to zero in 1998. The
Company was not responsible for any of GCP's liabilities and,
accordingly, did not record its share of any of GCP's losses.
On March 15, 2002, the General Partner of GCP sold the Bayou
Caddy's Jubilee Casino to JMBS Casino LLC for $42,200. In April 2002,
after the repayment of liabilities, the General Partner distributed
approximately $14,000 to the Limited Partners, including the Company's
share of $2,767. An additional $1,000 is being held in escrow for 18
months pending any claims the purchaser may make against GCP. The
Company's share of such residuals is not recorded on the Company's
books since receipt is subject to any such claims and other contingencies.
In a separate transaction, the Company also sold its Hotel
Management Agreement for the Greenville Inn and Suites located
adjacent to Bayou Caddy's Jubilee Casino for $510, the proceeds of
which were received by the Company in March 2002.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except for per share data)
NOTE 5. INVESTMENT IN CATSKILL DEVELOPMENT, LLC
In October of 1995, Catskill Development, LLC ("CDL"), a New
York limited liability company in which the Company (through a wholly
owned subsidiary) is a member, was formed to pursue the development
of a proposed Native American casino in Monticello, New York (the
"Casino Project"). CDL's business plan envisioned three distinct lines of
business: a) casino activities; b) real estate related activities; and c) the
gaming operations related to Monticello Raceway (the "Raceway")
including parimutuel and any potential future VLT operations. CDL's
plan was to contract with a Native American Tribe for the development
and management of a casino to be located in Monticello, New York, and
to assist the a Native American tribe in seeking the approvals necessary
for such a venture under federal, state and local statutes, ordinances and
regulations. This was an ambitious plan because the land involved was
not currently a part of the reservation and thus would require unusual
approvals that were typically required for the development of Native
American casinos.
On June 3, 1996, CDL acquired the Raceway property for
$10,000. Of the real property purchased, 29.31 acres adjacent to the
Raceway were set aside for proposed casino purposes to be deeded in trust
to the United States Government for the use and benefit of a Native
American tribe. CDL's negotiations with the St. Regis Mohawk Tribe
(the "Tribe") were successful, and in July, CDL, and various related
entities set up by its members entered into a series of agreements with the
Mohawk Tribe, as more fully described below, relating to the
development and management of a proposed casino on the land.
Tribe's and CDL's Federal Application. On August 2, 1996, the
Tribe submitted an application to the United States Department of the
Interior (the "Department"), Bureau of Indian Affairs ("BIA"), to place
the 29.31-acre tract of land for the proposed casino in trust status, to be
held by the United States Government as trustee. For approval, the
Secretary of the Interior of the United States had to determine that the
proposed Casino Project was in the best interest of the Tribe and was not
detrimental to the surrounding community. In addition, the Governor of
New York had to concur with these determinations in order for the land
to be taken into trust by the United States Government. While the
application to the Department of Interior took approximately one year to
prepare, its review and processing required an additional three and one-
half years. As part of the process and subsequent to the initial filing many
of the agreements were amended, restated and/or reaffirmed on several
occasions. Part of that approval process required the complex and lengthy
environmental analysis required under the State of New York's
environmental review act ("SEQRA"), which was successfully completed
in March of 1998. The SEQRA finding became an integral component of
the Federal application.
On December 9, 1998, the Acting Area Director of the Eastern
Area Office of the BIA (the "EAO") transmitted findings and conclusions
with respect to the land to trust application for the Tribe to the Indian
Gaming Management Staff (the "IGMS"), a department of the BIA. The
memorandum concluded that the proposed Casino Project was in the best
interest of the Tribe and was not detrimental to the surrounding
community and that the application satisfied all statutory requirements.
By memorandum dated February 10, 1999, the Deputy Commissioner of
Indian Affairs advised the EAO that she did not concur in the Director's
recommendation. The application and supporting documentation were
returned to the EAO to address issues enumerated by the Deputy
Commissioner. In February 1999, officials of the EAO, the IGMS and the
National Indian Gaming Commission ("NIGC") made a site visit to
Monticello to meet with representatives of the State of New York, the
Tribe and CDL to discuss specific concerns addressed in the Deputy
Commissioner's memorandum. On August 31, 1999, the NIGC
completed its preliminary review of the revised business plan for the
proposed Casino Project.
On October 29, 1999, the Director of the EAO again
transmitted the application back to the IGMS with findings of fact and a
renewed recommendation that the Secretary of the Interior find that the
proposed Casino Project was in the best interest of the Tribe and not
detrimental to the surrounding community. By letter dated April 6, 2000,
addressed to Governor George Pataki, Kevin Gover, Assistant Secretary
of the Department of the Interior, advised and notified the Governor of
New York that the proposed Casino Project had been approved and
specifically requested that the Governor concur. The ability of CDL to
proceed wth the proposed Casino Project has been affected by the
circumstances of a letter agreement and related activity by Park Place
Entertainment ("PPE") and are the subject of litigation (the "PPE
Litigation") as described in the Company's annual report on Form 10-K/A
for the fiscal year ended December 31, 2001, filed with the Securities and
Exchange Commission on or about May 21, 2002
Tribal Leadership Dispute. A dispute arose in the summer of
1996, when certain individuals who identified themselves with the prior
form of government (known as the "Three Chiefs") challenged the result
of a 1995 constitutional referendum establishing a tri-partite form of
government (the "Constitutional Government"). Following that
referendum in 1995, the Constitutional Government began operations and
it held an election for tribal officials on June 1, 1996. In a June 7, 1996
order, the Tribal Court of the Tribe held that a separate referendum, also
held on June 1, 1996, did not have the effect of amending or repealing the
1995 Constitution. On June 10, 1996, the Three Chiefs took an action to
rescind the certification of the 1995 Constitution. The Three Chiefs then
held their own election on June 29, 1996, and sought recognition status
from the BIA. In a July 12, 1996 order, the Tribal Court held that the
action to rescind the certification of the 1995 Constitution was illegal; that
the 1995 Constitution was the law of the territory until amended or
repealed; and that the tribal officials elected at the June 1, 1996 election
held by the Constitutional Government were lawfully elected.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 5. INVESTMENT IN CATSKILL DEVELOPMENT, LLC
(CONTINUED)
The Constitutional Government was recognized by the BIA of
the Department on July 26, 1996, by a decision of the Acting Eastern
Area Director, which recognized and accepted the two orders issued by
the Tribal Court concerning the status of the tribal constitution and the
identity of the tribal leaders.
The Three Chiefs appealed the recognition of the Constitutional
Government to the Interior Board of Indian Appeals. In their appeal,
representatives of the Three Chiefs asserted that the tribal members had
never adopted the 1995 Constitution, that they, rather than the individuals
identified in the Area Director's decision, were the rightful leaders of the
Tribe and that the Tribal Court decisions relied upon by the Area Director
were not valid judicial decisions. After the Board of Indian Appeals
affirmed the recognition decision of the Area Director, the Three Chiefs
challenged the recognition decision in the D.C. District Court.
On September 30, 1999, the D. C. District Court found the BIA's
recognition of the Constitutional Government to have been arbitrary and
capricious. Following this decision, in a letter dated February 14, 2000,
a BIA field representative indicated to tribal representatives that "subject
to the resolution of any appellate proceeding" as to the D.C. District Court
decision, "the BIA presently recognizes those individuals elected to the
Tribe's three chief system of government on June 29, 1996". The BIA
has subsequently recognized the Three Chiefs as representatives of the
Tribe.
After the D.C. Court issued its September 30, 1999 decision,
individuals associated with the Constitutional Government made a motion
in that court to intervene in the case, in order to participate in an appeal.
The motion to intervene was initially denied on the grounds that it was
untimely. However, the petitioners appealed that ruling and the United
States Court of Appeals reversed the denial of their motion to intervene
and remanded the case to the D.C. District Court for consideration of the
appropriateness of the motion to intervene on other grounds. While the
intervention appeal was pending, the BIA's own Notice of Appeal from
the September 30, 1999 decision was withdrawn.
Upon reconsideration, the D.C. District Court, in a memorandum
decision filed March 18, 2002, indicated that its previous order was not
a "final order" because it had remanded the matter to the BIA for
substantial further proceedings. In particular that Court stated that "the
Court did not expressly order the BIA to recognize the Three Chief
system of government nor did the court identify, in the event of such
recognition, which three chiefs should be recognized". The Company has
been advised that the Constitutional Government continues to pursue
recognition by the BIA on the ground that the substantial further
proceedings referred to in the decision of the D.C. District Court have not
yet been completed and that no final decision on the merits with regard to
recognition of a government for the St. Regis Mohawks has been made
since the original order of the D.C. District Court.
In the same decision, that Court again found that the interveners
had no standing to appeal and denied the motion to intervene. That Court
indicated that the reason for the denial was that it did not believe that the
interveners had adequately established a "cognizable" legal interest in the
case because they had brought the action as individuals and not as the
Constitutional Government and because, had the interveners been parties
to the case, they would not have had a right to appeal the decision in the
case since the decision was not a "final order" for the reasons described
above.
Status of Agreements with the Tribe. The Company is affected,
as a member of CDL or related entities, by the various arrangements and
agreements with the Tribe relating to the development and management
of the proposed casino. Pursuant to such agreements, that tribe was to
purchase a parcel of land at the Raceway site from CDL, as described
above, and various related entities were to assist with the development
and management of a casino to be built on the land.
A Development and Construction Agreement was entered into
among the Tribe, the St. Regis Mohawk Gaming Authority and
Monticello Raceway Development, LLC ("MRD"), a New York limited
liability company. MRD is owned 75% by Americas Tower Partners and
25% by BKB, LLC (owned by two officers of the Company, Robert
Berman and Scott Kaniewski, and Philip Berman, Robert Berman's
brother). That Agreement, as amended and restated, called for the St.
Regis Gaming Authority to retain and engage MRD as its exclusive agent
and grants it the exclusive right to design, engineer, develop, construct
and furnish the proposed casino, subject to certain supervision by the
Development Business Board ("Development Board"). The Development
Board consists of four representatives, two appointed by the St. Regis
Mohawk Gaming Authority and two appointed by MRD. Any action of
the Development Board must be a result of agreement by at least three
members with certain actions requiring a unanimous consent.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 5. INVESTMENT IN CATSKILL DEVELOPMENT, LLC
(CONTINUED)
The Tribe also entered into a Gaming Facility Management
Agreement with Mohawk Management LLC ("MML"), a New York
limited liability company. MML is owned 60% by CDL, in which the
Company has a membership interest, and 40% by Alpha Monticello, Inc.
("AMI"), a wholly owned subsidiary of the Company. Pursuant to such
Agreement, MML was provided the exclusive right to manage the
proposed casino for seven (7) years from its opening and to receive
certain fees for the provision of management and related services. Under
that Agreement, MML was to be the exclusive agent for the purpose of
managing the proposed gaming enterprise, subject to certain supervision
by the Management Business Board. MML's representation on the
Management Board is controlled by MRD. As a result, the Company
does not control the operations of these entities or the development,
construction or operations of the proposed casino.
As amended and restated, the Gaming Facility Management
Agreement calls for the St. Regis Mohawk Gaming Authority to pay
MML a fee equal to 35% of Net Revenues which is defined as gross
revenues, less all Operating Expenses. Operating Expenses include (i) all
accrued expenses, (ii) depreciation and amortization expenses; (iii) any
interest expense related to the development of the proposed casino; and
(iv) any payments pursuant to any agreement with New York State.
Initially, representatives of the Constitutional Government
executed all such agreements. After the dispute with regard to tribal
government arose in 1996, the Three Chiefs entered into a Memorandum
of Understanding with the Constitutional Government under which both
factions agreed to support the casino project and representatives of the
Three Chiefs also executed all the relevant agreements.
Completion of the project contemplated by the agreements was
subject to certain conditions, including the obtaining of relevant federal
and state governmental approvals. CDL, in conjunction with its related
entities, assumed responsibility for and undertook, seeking and obtaining
all local, state and federal approvals required or necessary to construct and
operate the proposed casino project. By letter dated April 6, 2000,
addressed to Governor George Pataki, Kevin Gover, Assistant Secretary
of the Department of the Interior, advised and notified the Governor of
New York that CDL's proposed casino project with the Tribe had been
approved and specifically requested that the Governor concur. However,
on April 22, 2000, the Company became aware of a letter agreement
between the Three Chiefs and which agreement provided for PPE to have
the exclusive rights to develop and manage any casino development the
Tribe might have in the State of New York. The circumstances of this
letter agreement and related activity by PPE are the subject of litigation
as described in the Company's annual report on Form 10-K/A for the
fiscal year ended December 31, 2001, filed with the Securities and
Exchange Commission on or about May 21, 2002.
In November 2001, CDL, MML and MRD entered into a
renewal agreement with representatives of the Constitutional Government.
This agreement renews until December 31, 2002 the Amended and
Restated Land Purchase Agreement, the Amended and Restated
Development and Construction Agreement, and the Amended and the
Restated Facility Management Agreement. The renewal agreement
contains various conditions that must be satisfied prior to expiration of
such renewal agreement on December 31, 2002. There can be no
assurance that all such conditions can be satisfied by that date. No similar
agreement has been entered into with the representatives of the Three
Chiefs.
The Company's History Within CDL. The Company, through its
wholly-owned subsidiary, AMI, was party to a General Memorandum of
Understanding (the "Memorandum") with CDL (and, collectively with
AMI, the "Parties") dated December 1, 1995, which among other things,
provided for the establishment of MML, a New York limited liability
company, for the purpose of entering into an agreement to manage the
proposed casino. The Memorandum also set forth the general terms for
the funding and management obligations of CDL and AMI with regard
to MML. In January 1996, MML was formed with each of CDL and AMI
owning a 50% membership interest in MML. On July 31, 1996, MML
entered into a Gaming Facility Management Agreement (the
"Management Contract") with the Tribe for the management of the
proposed casino. Among other things, the Management Contract
provided MML with the exclusive right to manage the proposed casino
for seven years from its opening and to receive certain fees to provide
management and related services.
By its terms, the Memorandum between CDL and AMI
terminated on December 31, 1998, since all of the governmental
approvals necessary for the construction and operation of the proposed
casino were not obtained by MML. The Management Contract between
MML and the Tribe contained no such provision. Additionally, the
Memorandum was 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,
AMI filed for arbitration, as prescribed by the Memorandum, to resolve
certain disputes between the Parties.
In July 2000, the Parties completed a final settlement agreement
pursuant to which AMI (or another affiliate) became entitled to receive
40% of any basic management fee income and 75% of any service fee
income (which is limited to 10% of casino revenues) (the "ASR fee"),
accruing from the operation of any Native American casino facility
development at the Raceway. The net result of such settlement entitled
the Company (through its affiliates) to receive approximately 47% of all
casino management fee and service income
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 5. INVESTMENT IN CATSKILL DEVELOPMENT, LLC
(CONTINUED)
derived from the underlying casino management and development
contracts. The original Management Contract contemplated an
arrangement specific to the Tribe, while the settlement agreement covers
all prospective federally recognized Native American Nations.
Accordingly, as part of the settlement, Alpha Casino Management, Inc.
("ACM"), a subsidiary of the Company, and Monticello Casino
Management, L.L.C. ("MCM") were formed to facilitate such potential
non-Mohawk Tribe arrangements.
As part of and in conjunction with such settlement, AMI
acquired from Bryanston Group, Inc. ("Bryanston"), a shareholder of the
Company, 5 percentage points of Bryanston's ownership interest in the
real estate component of CDL's business for $455 plus additional
consideration if the asset is liquidated. In June 2001, the Company
agreed to satisfy this obligation through the issuance of shares of its
common stock, valued at $8.00 per share (the then current market price.)
Additionally, Bryanston agreed to transfer to AMI Bryanston's 25%
interest in the raceway component of CDL's business. Under the previous
agreement, AMI did not participate in this source of revenue. As of
March 31, 2002 and December 31, 2001, excluding $6,934 recorded in
February 2002 in connection with the acquisition of 47.5% of Watertone's
economic interest in the casino and racetrack business components of the
businesses of CDL, the Company capitalized $2,492 towards the design,
architecture and other costs of the development plans for the proposed
casino.
The Company and certain members of CDL have contributed
considerable amounts of money to CDL to fund the purchasing of the
Raceway and pursuing the approval and development of a Native
American casino on a portion of the Raceway property. These
contributions (together with interest thereon compounded at 10% per
annum) must be repaid before any net earnings from CDL's operations
would be available for distribution to the Company. As of April 15, 2002,
the aggregate amount needed to satisfy the payment of said contributions
(with interest) and certain other senior obligations payable to certain
members of CDL was approximately $42,000. As of April 15, 2002, the
Company's preferred capital balance was approximately $4,067 out of a
total preferred capital balance for all the members of approximately
$35,600. Currently the Company has capitalized approximately $2,492 of
these capital contributions on its balance sheet (on a cost basis). These
preferred capital balances are subordinate to a mortgage which, at April
15, 2002, was approximately $6,400. Currently, any cash flow from the
operations of the Raceway are being retained by CDL for working capital
purposes and to fund litigation and development expenses in conjunction
with other potential gaming operations at the track.. As a result, the
Company is not expected to receive any distributions from CDL with
respect to its interests in CDL (other than with respect to its preferred
capital contributions and interest thereon), until CDL has achieved
additional net revenues sufficient to discharge the payment of all of these
priority returns.
Subject to the obtaining of requisite approvals and satisfactory
resolution of the PPE litigation and certain related litigation, it is
anticipated that MML or MCM will undertake the development and
management of the proposed casino in Monticello, New York. It is
intended that that casino will be owned by a Native American Nation and
will be located on land to be placed in trust for the benefit of such Native
American Nation. However, there can be no assurance that the project
will receive all requisite approvals or that the PPE Litigation and certain
related litigation will be satisfactorily resolved.
In October 2001, the New York State Legislature passed a bill
that expanded the nature and scope of gaming in the state ("VLT
Legislation"). That bill was signed by the Governor on October 31, 2001.
The provision of the VLT Legislation relevant to the Company and its
development partner, CDL, include: a) authority given to the Governor to
negotiate casino licenses for up to three Native American casinos in the
Catskills; and b) the authority for several of New York's racetracks,
including the Raceway, to operate video lottery terminal ("VLTs") in their
facilities. The VLT operation will be conducted by the New York State
Lottery (the "Lottery") with the racetracks functioning largely as agents
for the Lottery.
CDL, in which the Company has a significant interest, is
currently working with the New York State Lottery to explore the
feasibility of installing VLTs at the Raceway. CDL provides its members
with interests in various business units. The Company has a 37% interest
in one of these business units, which is responsible for racing and gaming
activities at the Raceway. CDL has advised the Company that it has
received a letter from the Lottery, dated March 21, 2002, advising the
Raceway that the Lottery has completed its initial review of the
Raceway's business plan for the operation of VLTs at the Raceway during
the initial three-year trial period approved by the State Legislature. Based
on such review, the Lottery has made an initial allocation of 1,800 VLTs
to the Raceway and has approved the maximum permitted rate for
compensation of 25% of revenues generated after payout of prizes for the
Raceway. The law currently provides that the Raceway must apply 35%
in the first year, escalating to 45% in years two and three, of its
compensation to enhance purses at the Raceway and each year must
dedicate 5% of its compensation to a State Breeding Development Fund.
The business plan was submitted at the request of the Lottery,
and in accordance with Lottery procedures, and does not represent a final
decision with respect to the implementation of VLTs by CDL. The
business plan includes certain assumptions recommended by the Lottery
and other estimates considered preliminary by CDL and the Company.
Using these estimates and assumptions, the plan does not show levels of
operating income currently considered adequate by CDL to go forward
with the project. CDL continue to evaluate the appropriateness of making
the required capital expenditures necessary for VLT operations relative
to the length of the test period, the
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except for per share data)
NOTE 5. INVESTMENT IN CATSKILL DEVELOPMENT, LLC
(CONTINUED)
ultimate level of return on investment, and the implementation date for the
program. The Lottery has not yet established a firm start date or adopted
regulations with regard to the program. In addition, CDL's ability to
proceed with the VLT program may be impacted by its plans with respect
to casino development at the site. Accordingly, no assurance can be given
that CDL will decide to proceed with the operation of VLTs at the
Raceway.
As part of its budget for Fiscal Year 2003, the New York State
Assembly has adopted Bill 9762-13, which contains certain provisions
that affect the conditions under which the New York State lottery would
implement the installation of video lottery terminals at New York
racetracks, potentially including the Raceway. These provisions extend
the term of the VLT program from three to five years and authorizes each
track to enter into negotiations with an organization representing its
horsemen to reduce the percentage of the vendor fee dedicated to
enhancing purses during the first three years of the program to an amount
not less that 25%. The legislation would also provide inducements and
financial assistance to NYRA, a non-profit raceway operator, to
encourage it to implement the program at Aqueduct Raceway.
CDL is continuing to evaluate the feasibility of this program at
the Raceway, but has not determined that the program will provide a level of
profitability sufficient to justify the levels of capital investment
necessary to implement the program and undertake a new business initiative.
There can be no assurance that these provisions will become part of the final
budget as signed by the Governor, that an agreement with the horsemen
at the Raceway can be obtained or that CDL will find that the incremental
revenues and amortization period ultimately available will be sufficient
to justify the implementation of the program in the current market
environment.
On February 12, 2002, the Company entered into an agreement
with Watertone providing for the acquisition of 47.5% of Watertone's
economic interests in the casino and racetrack business components of the
business of CDL. This agreement replaced and superseded an agreement
previously entered into with Watertone in August 2001 pursuant to which
the Company had agreed to acquire all of Watertone's economic interest
in the casino and racetrack business components of CDL's business. The
transaction contemplated by this agreement closed on March 12, 2002.
In consideration for such economic interests, the Company issued 576
shares of its common stock for the benefit of Watertone. In accordance
with FASB Statement 123, "Accounting for Stock-Based Compensation",
the valuation of the economic interest in CDL transferred by Watertone
and held for the benefit of the Company has been reported at an amount
of $6,934, which is equal to the market value of the shares of common
stock of the Company (determined as of the close of business on the date
of issuance) issued in consideration for such economic interests.
However, the Company's ability to realize that amount (or any other
amount) with respect to its investment in such economic interests will be
dependent upon a variety of matters that are outside of the Company's
control. Generally, the Company would not be expected to realize any
amount with respect to such investment unless CDL generates net
revenues or other net proceeds that exceed the aggregate amount of the
senior obligations (which, as of March 31, 2002, amounted to
approximately $6,400) and other priority returns (which, as of March 31,
2002 amounted to approximately $35,600) payable by CDL. CDL's
ability to generate any such net revenues or other net proceeds will in turn
depend upon a variety of factors, which may include, among others: (a)
a successful resolution (by judgement, settlement or otherwise) of the
currently pending PPE Litigation; (b) successful development of a casino
at the Raceway (whether owned by the St. Regis Mohawk or another
Native American tribe); (c) the development or financing of real estate
owned by CDL; and/or (d) profitable operation or financing of the
Raceway. Further, in the event CDL is successful in generating any such
net revenues or other net proceeds, the Company's entitlement to receive
a portion thereof on account of such economic interests will depend upon
the amount of such excess net revenues or other net proceeds that is
allocable to the casino and raceway components of CDL's business. In
light of the foregoing, no assurance can be given as to whether CDL will
generate any such net revenues or other net proceeds or whether the
Company will ever realize any return on its investment in the economic
interests acquired from Watertone. The $6,934 is included in investment
and advances in CDL on the March 31, 2002 balance sheet. Additionally,
as part of the proposed transactions, the Company entered into
employment agreements with two principals of Watertone, Messrs. Robert
Berman and Scott Kaniewski, providing for annual aggregate salaries of
$500 (which is subject to deferral under certain circumstances) and
options to purchase, at an exercise price of $17.49 per share, up to an
aggregate of 180 shares of the Company's common stock (which number
of shares will be subject to increase to an aggregate of up to 591 upon
shareholder approval).
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except for per share data)
NOTE 5. INVESTMENT IN CATSKILL DEVELOPMENT, LLC
(CONTINUED)
As a consequence of the issuance of shares and the granting of
options as part of the transaction with Watertone and the issuance of
shares in connection with conversion of the Series B and C Preferred
Stock and of certain indebtedness owed to Bryanston, the Company's
flexibility to issue additional equity (for financing purposes, in
conjunction with an acquisition or otherwise) without negatively
impacting the Company's ability to achieve the maximum benefits
associated with the Company's tax loss carryforward may be limited.
Additionally, as a consequence of such transactions and related
transactions, the Company may be obligated to issue additional shares of
common stock, which could result in dilution to current shareholders as
well as further limit the Company's flexibility in issuing additional equity
(for financing purposes, in conjunction with an acquisition or otherwise)
may be limited without negatively impacting the Company's ability to
achieve the maximum benefits associated with the Company's tax loss
carryforward.
Upon closing those transactions, before consideration of the ASR
fee, the Company's interest in any net revenues derived from CDL's
business component related to the casino and wagering operations
increased effectively from 40% to approximately 49% and its interest in
net revenues derived from the Raceway's parimutuel operation increased
effectively from 25% to approximately 37%.
In April 2002, five (5) former officers or directors of the
Company were charged in an indictment with certain allegedly criminal
activities. These included: Monty Hundley, who resigned from the
Company in March 1995; Howard Zukerman who resigned in April 1997;
Sanford Freedman who resigned in March 1998; Stanley Tollman (father
of Brett Tollman) who resigned as Chairman, President and Chief
Executive Officer in February 2002 and James Cutler who resigned in
February 2002. None of the acts they are charged with relate to their roles
or activities with the Company, and the Company is not charged with any
wrongdoing. However, ownership of Bryanston Group, the Company's
principal shareholder and a creditor of the Company, can be associated
with Monty Hundley and/or Stanley Tollman through their relationships
with its beneficial owners.
The Company and certain of its affiliates are subject to
regulation by various governmental agencies that regulate and license
gaming activities. As part of such regulation, the company and its
affiliates are generally required to be licensed or otherwise approved in
each such jurisdiction, which is in turn generally subject to a
determination of suitability with respect to the Company and it affiliates,
and their officers, directors and significant investors. For example, the
New York Racing Board upon a determination that it is inconsistent with
the public interest, convenience or necessity or with the best interests of
racing generally that any person continue to be a shareholder (of record
or beneficially) in any entity that is licensed to engage in racing activities
ro that owns 25% or more of such licensed entity, may direct such
shareholder to dispose of its interest in such entity. The Company's
Annual report on Form 10-K for the year ended December 31, 2002, on
file with the Securities and Exchange Commission contains additional
information concerning state and federal regulation of gaming activities
that may affect the Company's gaming related activities in Mississippi or
New York. In the event that an officer, director, investor or creditor of a
regulated entity or an affiliated entity were not found to be suitable, the
license or other approval to conduct gaming activities could be revoked
or conditioned upon such officer or director resigning; and in the event
any such investor or creditor were not found to be suitable, the license or
other approval could be revoked or conditioned upon the divestiture or
termination of such investor's or creditor's interests.
In light of the fact that none of the individual's referred to above
who have been charged are currently serving as an officer or director of
the Company (or any of its subsidiaries) and the fact that none of the
activities they are charged with relate to any action they took as officers
or directors of the Company (or any of its subsidiaries) and in view of the
ability of the applicable regulatory authorities to require divestiture of
interest in licensed gaming entities, management does not believe that
such indictments should adversely affect any finding of suitability that has
previously been made with respect to the Company or any of its affiliates
or that may be required in order for the Company or any of its affiliates
to engage in gaming activities in the future.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except for per share data)
NOTE 6. INVESTMENT IN CASINO VENTURES, L.L.C.
On July 8, 1999, the Company contributed its inactive vessel,
Jubilation, to Casino Ventures. 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 prime plus one percent with a
minimum rate of 8.75%, payable quarterly, with the principal balance due
July 8, 2002. Under certain circumstances, the Company's current 93%
membership interest in Casino Ventures may be subject to reduction and
dilution. 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%. A former director of the
Company is a member in Casino Ventures and serves as its General
Manager. That former director advanced funds to Casino Ventures in
2000, 2001 and 2002 that were used for site and vessel improvements. As
of March 31, 2002, the loan payable to the former director amounted to
$1,683. The loan accrues interest at 8% and matures April 2003. During
the three months ended March 31, 2002 and 2001, the Company
capitalized $473 and $78 of costs, respectively, related to the
refurbishment of the vessel and improvement to its site in Tunica,
Mississippi and incurred $9 and $57 of start-up costs, respectively.
The vessel was used as collateral to obtain funding of $650
towards the aforementioned costs of Casino Ventures (see Note 8) in
1999. The $650 mortgage is currently in default. Total interest expense
on Casino Venture debt for the three months ended March 31, 2002 and
2001 amounted to $45 and $35, respectively. Pursuant to an amendment
agreement effective April 18, 2001, the total maximum borrowings
allowed to be collateralized by the vessel is $1,000.
At March 31, 2002 and December 31, 2001, assets and liabilities
of Casino Ventures consisted of the following:
2002 2001
Assets:
Property and equipment, net $ 7,536 $ 7,063
Deposits 54 54
Other 29 59
7,619 7,176
Current liabilities:
Long-term liability,
current maturities 683 683
Accounts payable and accrued
expenses 1,098 770
1,781 1,453
Long-term liabilities,
Long-term debt $ 1,683 $ 1,480
NOTE 7. PROPERTY AND EQUIPMENT
At March 31, 2002 and December 31, 2001, property and equipment
in use is comprised of the following:
2002 2001
Furniture, fixtures and equipment $ 159 $ 159
Less accumulated depreciation
and amortization 150 148
$ 9 $ 11
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 7. PROPERTY AND EQUIPMENT (CONTINUED)
On July 8, 1999, the Company contributed idle equipment to Casino
Ventures (see Note 6). These assets are being held for disposal and are not
being depreciated. At March 31, 2002 and December 31, 2001, property
and equipment held for disposal is as follows:
2002 2001
Boat and improvements $ 8,345 $ 7,872
Gaming equipment 1,944 1,944
Furniture, fixtures and equipment 1,471 1,471
11,760 11,287
Less accumulated depreciation
and amortization (4,224) (4,224)
$ 7,536 $ 7,063
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited) (in thousands)
NOTE 8. LONG-TERM DEBT AND OTHER NON-CURRENT LIABILITIES
Long-term debt at December 31, 2002 and 2001 was comprised of the following:
Interest
Rate 2002 2001
Related Party Debt
Loan payable (a). . . . . . . . 4% $ 924 $ 1,046
Loan payable to a former
director of the Company,
due in April 2003 . . . . . . . . 8% 1,683 1,480
Note payable to Bryanston Group,
Inc. ("Bryanston"),a major
stockholder, 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 (b). . . . . 8% 0 1,407
Loan payable to Bryanston,
due on demand,
including accrued interest
of $110 and $75 as of
March 31, 2002 and December 31,
2001. $1,250 of such amount was
paid off in April 2002. . . . . . 8% 2,740 2,594
Loan payable to the Company's
Chairman, due on demand,
including accrued interest,
which was paid in full in April
2002 . . . . . . . . 8% 91 0
Accrued compensation (c). . . . 1,529 1,529
Other payables and accrued expenses 303 747
Total related party debt. . . . . . . 7,270 8,803
Mortgage note collateralized by the
Company's inactive vessel (see
Note 6) with interest payable
monthly and principal due in
January 2001. . . . 8% 650 650
Promissory note payable, due
on demand. . . . . . . 6% 33 33
7,953 9,486
Less amounts included in:
Liabilities of Casino Ventures
(see Note 6) . . 2,366 2,163
Liabilities to be settled with
common stock . . 1,779 3,683
Related party current portion. 2,740 2,594
$ 2,847 $ 4,729
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 8. LONG-TERM DEBT AND OTHER NON-CURRENT
LIABILITIES (CONTINUED)
(a) On July 31, 2000, the Company received a $1,250 loan from
the holder of the Company's preferred stock, Series D (see Note 11).
Simultaneously with the closing of that loan, the lender also received 12.5
warrants exercisable at a price of $24.00 per share, which expire in July
2003. The loan accrues interest at a rate of 4% per annum, and Bryanston
has agreed, subject to certain terms and conditions, to subordinate its
entitlement to receive cash dividends in lieu of payment on the preferred
stock, Series B and C, owned by it and on the Company indebtedness
owed to it to the prior payment of such loan, as well as payments due with
respect to the preferred stock, Series D.
Relative to the $1,250 principal amount of the loan and warrants
issued, the Company has allocated approximately $213 as the estimated
value of the warrants issued with the loan. This amount is being
amortized as additional interest expense and an increase to notes payable
over the life of the loan using the effective interest method until such loan
is repaid or the warrants are converted into common stock. In the three
months ended March 31, 2002, $150 of the principal amount was
converted into 15 shares of the Company's common stock. At March
31, 2002, approximately $137 has been amortized and the remaining
balance of approximately $76 at March 31, 2002 is reflected as a
reduction of the loan payable.
(b) Bryanston agreed, subject to certain terms and conditions, to
subordinate its rights to repayment of principal and to payment of cash
dividends to the prior payment of amounts due to the holders of the
preferred stock, Series D.
(c) The Company was obligated under an employment contract
with Stanley S. Tollman, its former Chairman and Chief Executive
Officer ("CEO"). Under this agreement the Company accrued deferred
compensation of $250 per year. The CEO agreed to waive his rights to
receive the $250 salary for the 2001 and 2000 years. As of March 31,
2002 and December 31, 2001, the CEO was owed $1,529 of deferred
compensation. Further on September 30, 2001, the CEO agreed to be
paid only in common stock and rescind any previous conversion
agreements.
Aggregate future required principal payments , exclusive of debt
discounts and liabilities to be settled with common stock, of long-term
debt are as follows:
Years Ending March 31:
2002. . . . . . . . $ 3,514
2003 . . . . . . . 2,683
$ 6,197
Interest expense on related party debt totaled $95 and $59 for the
three months ended March 31, 2002 and 2001, respectively.
The Company has classified $1,832 and $3,683, respectively, as
of March 31, 2002 and December 31, 2001 of long-term debt and other
liabilities as noncurrent because the creditors have agreed to accept shares
of common stock in settlement of the following debt and liabilities:
2002 2001
Note to Bryanston $ 0 $ 1,407
Accrued compensation 1,529 1,529
Other payables and accrued expenses 303 747
$ 1,832 $ 3,683
In January 2002, the Company issued 238 shares of common stock to
settle the note to Bryanston and other liabilities totaling $1,904.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 9. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
Lease and Other Commitments. The Company is obligated under
operating leases relative to real property and equipment expiring through
2003. Future aggregate minimum annual rental payments under all of these
leases are as follows:
Years Ending March 31:
2003. . . . . . . . . . . $ 342
2004 . . . 3
$ 345
In December 2001, the Company vacated its office space
in New York City. The lease does not expire until 2004. Management is
actively seeking a subleasee to offset future rental expense. A liability of
$342 is included in accounts payable and accrued expenses as of March
31, 2002 and December 31, 2001, which reflects a provision recorded in
2001 for contingent future rentals on this vacated lease. The Company
currently rents office space in Long Island City, New York, on a month-
to-month basis. Rent expense, including reimbursement for utilities for
the three months ended March 31, 2002, amounted to $2.
On December 19, 2001, the Company's subsidiary, Alpha
Florida Entertainment, Inc., terminated its lease with Miami-Dade
County, in connection with its Ella Star Casino. No provision has been
recorded for any future amounts related to any contractual agreements
entered into by Alpha Florida Entertainment, L.L.C. ("Alpha Florida
LLC") or Alpha Florida Entertainment, Inc., its predecessor.
On February 12, 2002, the Company's Board of Directors
(the "Board") accepted the resignations of Stanley S. Tollman and one of
its other directors. Robert A. Berman was appointed by the Board to fill
the vacancy left by Mr. Tollman's retirement and Scott Kaniewski was
appointed by the Board to fill the other Board vacancy. The Company
entered into employment agreements with Mr. Berman and Mr.
Kaniewski providing for annual salaries of $300 and $200, respectively,
payment of which is subject to deferral under certain circumstances.
Additionally, each of Mr. Berman and Mr. Kaniewski was granted options
to purchase, at an exercise price of $17.49 per share, up to 95 shares of
the Company's common stock, which number of shares is subject to be
increased to 296 shares for each of Mr. Berman and Mr. Kaniewski, upon
shareholder approval.
To comply with State requirements regarding the
Company's 19% 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 October 2001 for a three year period.
Litigation. In January 1996, the Company was named as a
defendant in an action based on the theory of "liquor liability" for the
service of alcohol to a customer. This case was settled in 2002 with funds
substantially provided by the Company's insurance carrier.
The Company was named as a defendant in an action
brought by Global Trading Group, Inc. in the U. S. District Court for the
Northern District of Mississippi. The plaintiff alleged entitlement to a
finder's fee arising out of the sale of the Jubilee Casino and sought
contractual and compensatory damages of $1,563, punitive damages of
$10,000 and costs, attorneys' fees and interest. In March 2002, the
Company reached, and recorded on its books, a settlement on this case for
approximately $118, of which $53 is to be settled through the issuance
of 5 shares of common stock.
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 condensed consolidated
financial position, results of operations or cash flows of the Company.
Other Transactions. 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 per annum plus, pursuant to the 1998 Stock Option Plan),
options to purchase up to 2.5 shares, and an additional 1.5 shares for each
committee served upon, of the Company's Common Stock at an exercise
price equal to the current market price on the date the option was granted.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At March 31, 2002 and December 31, 2001, accounts payable and
accrued expenses are comprised of the following:
2002 2001
Property and equipment $ 832 $ 557
Lease (see Note 9 Lease Commitment) 342 342
Advertising 143 143
Insurance 216 216
Accrued professional fees 576 546
Accrued interest 349 293
Other 758 443
Less amounts included in liabilities of
Casino Ventures (see Note 6) (1,098) (770)
$ 2,118 $ 1,770
NOTE 11. STOCKHOLDERS' EQUITY
Activity
On June 13, 2001, the Company authorized the settlement
of liabilities to Bryanston aggregating $1,904 by agreeing to issue
approximately 238 shares of its common stock at a price of $8 per share,
which was the closing market price on that date. Such shares were issued
in January 2002.
In March 2002, $158 of debt and accrued interest was
converted into 15 shares of the Company's common stock.
In March 2002, 2.5 shares of the Company's common stock
was issued upon the exercise of options.
In February 2002, the Board of Directors authorized the
issuance of 415 shares of common stock in payment of dividends due to
holders of preferred stock. The holders of Series B Preferred Stock
received 241 common shares and the holders of the Series C Preferred
Stock received 174 common shares.
In February 2002, the Company issued 576 shares of
common stock for the benefit of Watertone, and Watertone assigned to the
benefit of the Company 47.5% of its economic interest in the casino and
horse racing components of the business of CDL (see Note 5).
In January 2002, the Company issued 622 and 324 shares,
respectively, of common stock upon conversion of 777 shares of Series
B Preferred Stock and all of the Series C Preferred Stock.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except for per share data)
NOTE 11. STOCKHOLDERS' EQUITY (CONTINUED)
Descriptions of Preferred Stock and Dividends
The Company's Series B Preferred Stock has voting rights
of .8 votes per preferred share, is convertible to .8 shares of common
stock for each share of preferred stock and carries a liquidation value of
$29 per share, a cumulative 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 by January 30 next following the year for which such dividend
has accrued, the dividend will be payable in common stock. In January
2002, the Company declared and issued dividends on the Series B
Preferred Stock for the 2001 year amounting to 241 shares of the
Company's common stock. After the January 2002 common stock
issuance, there were no dividends in arrears. Additionally, in January
2002, Bryanston, a major shareholder, converted its 777 shares of the
Company's Series B Preferred Stock into 622 shares of the Company's
common stock. As of March 31, 2002, dividends in arrears on the
remaining 44 shares of the Series B Preferred Stock amounted to
approximately $286.
The Series C Preferred Stock had voting rights of 2.4 votes
per preferred share, was convertible into 2.4 shares of common stock and
carried a cumulative dividend of $5.65 per share. In January 2002, the
Company declared and issued dividends for the 1998, 1999, 2000 and
2001 years amounting to a total of 174 shares of the Company's common
stock. Additionally, in January 2002, Bryanston, the sole holder of the
Company's Series C Preferred Stock, converted its Series C Preferred
Stock into 324 shares of the Company's common stock. As of March 31,
2002, dividends in arrears on the Series C Preferred Stock amounted to
approximately $63.
The Series D Preferred Stock is convertible into shares of
the Company's common stock at a conversion price of the lesser of $60
per share or a price based upon the prevailing market price of the
Company's common stock, and accrues dividends at a rate of 7% per
annum. In the event the preferred stock is not converted into shares of the
Company's stock by February 8, 2005, there will be a mandatory
redemption at that time, payable in shares of the Company's common
stock at the same aforementioned conversion price. The dividends are
payable in arrears on the earlier of the date of conversion of a share of
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 number of
shares of the Company's common stock issuable relative to the
conversions and payments of dividends is 3,300 shares, which was
attained in November 2001. Accordingly, the dividend rate increased to
15% per annum to be payable in cash in arrears, semi-annually on June
30 and December 31. As of March 31, 2002, the dividends in arrears on
the Series D Preferred Stock amounted to approximately $59, of which
$41 relates to the three months ended March 31, 2002. The Series D
Preferred Stock has no voting rights prior to its conversion into common
stock.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the historical condensed consolidated
financial condition and results of the operations of the Company should
be read in conjunction with the Condensed Consolidated Financial
Statements and the Notes to such consolidated financial statements
included elsewhere in this Form 10-QSB. This Form 10-QSB contains
forward-looking statements, which involves risks and uncertainties
primarily relative to the speculative nature of the Company's proposed
casino development projects and the potential future acquisitions of new
business operations, including those that have not yet been identified.
The Company's actual results may differ significantly from the results
discussed in these forward-looking statements.
Casino Operations And Gaming Activities
Ella Star:
On May 7, 1999, Alpha Florida LLC 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 was for five years. The County could renew this exclusive
agreement for two periods of five years each. For this exclusivity, Alpha
Florida LLC 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 commenced on November 26, 2000, the date of
the vessel's inaugural cruise.
On June 15, 2000, Alpha Florida LLC entered into a Charter
Agreement that required that $1,250,000, including the application of a
previously issued $400,000 promissory note, be paid towards the
completion of construction of the vessel and monthly payments over a
three-year period commencing upon completion. The monthly payments
were to be $41,000 during the first year and $46,667 during years two and
three, with an additional surcharge for each month of the three-year
period amounting to one dollar per each passenger during each previous
month. At all times during the three-year period, Alpha Florida LLC had
the option to purchase the vessel at a cost of $4,500,000, towards which
all previous construction payments would be applied. In November 2000,
the interior design and construction was completed on the vessel, the Ella
Star Casino ("Ella Star"), with the inaugural cruise taking place on
November 26, 2000.
On September 7, 2000, Alpha Florida LLC entered into a three-year
agreement for the rental of certain furniture and equipment to be used in
the gaming day cruise vessel. Rental payments, which commenced in
November 2000, approximated $36,000 per month.
Following the dramatic impact of the September 11th terrorist attack,
the passenger levels on the Ella Star fell dramatically from those enjoyed
immediately prior to the September 11th attack. It was the opinion of the
Company that this condition, further exacerbated by the crash of
American Airlines flight 587 out of New York's John F. Kennedy airport,
would extend into and possible through the upcoming high tourism
season. On November 15, 2001, as a consequence of this assessment,
Alpha Florida LLC decided to suspend operations at the Ella Star and on
December 19, 2001, the Company terminated its leases with Miami-Dade
County and the boat and equipment lessors. No provision has been made
for any future payments on any contractual obligations entered into by
Alpha Florida.
Results of Operations:
The following table sets forth the statements of operations for Alpha
Florida LLC's Ella Star before intercompany charges and minority interest
for the three months ended March 31, 2002 and 2001 (dollar amounts in
the table below are in thousands):
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
2002 2001
Revenues: (In thousands)
Casino . . . . . . . . . . . . . . $ 0 $ 851
Food and beverage, retail
and other . . . . . 0 37
Total revenues . . . . . . 0 349
Operating expenses:
Casino . . . . . . . . . . . . . . 0 534
Food and beverage, retail
and other . . . . . 0 32
Selling, general and administrative . 37 1,198
Total operating expenses . . . 37 1,764
Other expenses:
Depreciation and amortization . . . 0 180
Total other expenses . . . . 0 180
Loss before intercompany charges and
minority interest. . . . . . $ (37) $(1,056)
For the three months ended March 31, 2001, the Ella Star had
its revenues negatively impacted by the unusually poor winter weather
conditions in South Florida. Because of the severe weather, the Ella Star
was forced to cancel several cruises and the attendance on the cruises that
did sail were negatively impacted because of inclement conditions. To
ameliorate the negative impact of poor weather in the future, the
Company pulled the vessel out of the water for several days in January
2001 and installed bilge keel stabilizers at a cost of $81,000. The
retrofitting of the stabilizers improved the comfort of the passengers
during rough weather. Casino expenses, representing 63% of casino
revenues, included $258,000 of payroll and related expenses, $145,000
of expenses related to food and beverage provided gratuitously to
customers and other expenses of $131,000.
The continuing general and administrative expenses for the
three months ended March 31, 2002 of $37,000 is substantially comprised
of payroll and related expenses incurred in terminating operations.
Selling, general and administrative expenses for the three months ended
March 31, 2001, included $342,000 of payroll and related expenses,
$299,000 of advertising and marketing expenses, $388,000 of dock,
vessel, equipment and office rental expenses, $150,000 of insurance,
utilities, fuel and maintenance costs and the remaining $19,000 for
professional fees, office expenses and other miscellaneous general and
administrative expenses.
Mississippi:
On March 2, 1998, the Company sold substantially all of the
assets of Alpha Gulf and Greenville Hotel, the Bayou Caddy's Jubilee
Casino, the Greenville Hotel and other related assets to Greenville Casino
Partners, L.P. ("GCP") and retained a 25% interest (subsequently reduced
to approximately 19% for capital call adjustments) and entered into a
management contract with GCP. Subsequent to the sale, management
was advised that GCP incurred significant operating losses resulting in a
substantial working capital deficiency and a partners' deficiency through
December 31, 1998. Accordingly, pursuant to its policy on impairment
of long-lived assets, the Company adjusted the carrying value of it 19%
limited partnership interest in GCP to zero in 1998. The Company was
not responsible for any of GCP's liabilities and, accordingly, did not
record its share of any of GCP's losses.
On March 15, 2002, the General Partner of GCP successfully
sold the Bayou Caddy's Jubilee Casino to JMBS Casino LLC for
$42,200,000. In April 2002, after the repayment of liabilities, the General
Partner distributed approximately $14,000,000 to the Limited Partners,
including the Company's share of $2,767,000. An additional $1,000,000
is being held in escrow for 18 months pending any claims the purchaser
may make against GCP. The Company's share of such residuals is not
recorded on the Company's books since receipt is subject to any such
claims and other contingencies.
In a separate transaction, the Company also sold it's Hotel
Management Agreement for the Greenville Inn and Suites located
adjacent to Bayou Caddy's Jubilee Casino, for $510,000, the proceeds of
which were received by the Company in March 2002.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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, but closed in
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 and a
membership interest in Casino Ventures. Under certain circumstances,
the Company's current 93% membership interest in Casino Ventures may
be subject to reduction and dilution. 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.
The continuing costs incurred during each of the three months
ended March 31, 2002 and 2001 amounted to $8,000 of warehousing
costs.
Future Operations
General:
The Company currently serves 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 "Business"). The
business objective of the Company will be to effect a Business
Combination with an Business that the Company believes has steady
profitability 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
Business, in all likelihood, until other financing provides additional funds,
or its development stage projects progress, 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 Ventures:
As discussed above, the Company, through its subsidiary,
Jubilation Lakeshore, contributed its inactive gaming vessel, Bayou
Caddy's Jubilation Casino ("Jubilation") to Casino Ventures in exchange
for various consideration. Under certain circumstances, the Company's
current 93% interest in Casino Ventures may be subject to dilution or
other reduction. Matthew Walker ("Mr. Walker"), a former director of
the Company, is a member in Casino Ventures and serves as its General
Manager.
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. To fund such costs, Casino
Ventures was loaned $202,000, $876,000 and $605,000 from Mr. Walker
in 2002, 2001 and 2000, respectively, $172,000 from the Company in
2000 and $29,000 and $4,000 in 2001 and 2000, respectively, from the
holder of a $650,000 mortgage on the vessel. The $650,000 mortgage is
currently in default. An additional $550,000 and $350,000, respectively,
was received by Casino Ventures in the years 2001 and 2000,
respectively, as future equity investments. During the three months ended
March 31, 2002 and 2001, the Company capitalized $473,000 and
$78,000, respectively, of costs related to the relocation and refurbishing
of the vessel and improvements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Casino Ventures (Continued):
to its redeployment site in Tunica. An additional $9,000 and $57,000 of
start-up costs were incurred for the three months ended March 31, 2002
and 2001, respectively. The Company is not required to make any further
capital contributions to Casino Ventures.
On January 18, 2001, Casino Ventures received site approval
for the casino in Mhoon Landing from the Mississippi Gaming
Commission. If the project is completed as approved, the casino will be
supported by enhanced existing land-based infrastructure, including
restaurant and lodging facilities, as well as the requisite back of house
service areas.
Casino Ventures' interest expense for the three months ended
March 31, 2002 and 2001, not eliminated in consolidation, amounted to
$45,000 and $35,000, respectively . This was substantially attributable to
interest on $650,000 mortgage note payable secured by the vessel and
on the loans from Mr. Walker.
Liquidity and Capital Resources
For the three months ended March 31, 2002, the Company had
net cash used in operating activities of $167,000. The net cash used was
the result of a net income of $2,495,000 adjusted for the gain on the sale
of investment and related contract of $3,277,000, depreciation and
amortization of $9,000, minority interest of $8,000, interest amortized on
loan discount $28,000 and a net decrease in working capital of $586,000.
The decrease in working capital consisted primarily of a net decrease in
other current assets of $19,000, an increase in accounts payable and other
accrued expenses and other current liabilities of $505,000 and an increase
in payroll and related liabilities of $62,000.
Cash provided by investing activities of $37,000 consisted of
$510,000 of proceeds from the sale of investments and related
management contract and $473,000 of payments for property and
equipment.
Cash provided by financing activities of $416,000 was
attributable to $405,000 of proceeds from related party long-term debt
and $11,000 from the exercise of stock options.
The Company has a working capital deficit of $3,789,000 at March
31, 2002. In addition, Casino Ventures, a subsidiary of the Company, is
in default of a mortgage on its gaming boat.
The Company currently has no operations. Future liquidity
could come from a debt or equity offering, future acquisition of new
business operations, future monitzation of remaining assets or certain tax
attributes or resolution of the current litigation (see Note 5 to the financial
statements).
If the Company is unable to secure the required funding or other
liquidity generating transaction on a timely basis, it could have a material
adverse effect on the Company's ability to continue as a going concern.
The Company condensed consolidated financial statements have
been presented on the basis that the Company is a going concern.
Accordingly, the consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities or any other
adjustments that might result should the Company be unable to continue
as a going concern.
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.
On April 30, 2002, the Financial Accounting Standards Board
issued Statement 145 which, among other things, limits the classification
of gains and losses from extinguishment of debt. The Company does not
expect provisions of this statement to have a significant effect on the
Company's financial position or operating results.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K/A
for the year ended December 31, 2001 filed on or about May 21, 2002
with the Securities and Exchange Commission and Forms 8-K filed on
April 18, 2002 and May 1, 2002, pertaining to litigation regarding
Mohawk Tribal Government, Mohawk Tribal leadership dispute and
status of agreements with the Mohawk Tribe.
In January 1996, the Company was named as a defendant in an action
based on the theory of "liquor liability" for the service of alcohol to a
customer. The case was settled in 2002 with funds substantially provided
by the Company's insurance carrier.
The Company was named as a defendant in an action brought by
Global Trading Group, Inc. in the U. S. District Court for the Northern
District of Mississippi. The plaintiff alleged entitlement to a finder's fee
arising out of the sale of the Jubilee Casino and sought contractual and
compensatory damages of $1,563, punitive damages of $10,000 and costs,
attorneys' fees and interest. In March 2002, the Company reached a
settlement on this case for approximately $118.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None
b) Reports on Form 8-K
1. February 12, 2002, reporting a change in Alpha's certifying accountants
2. February 26, 2002, reporting an agreement between Alpha and
Watertone Holding, LP pursuant to which Alpha acquired a
portion of Watertone's economic interests in the casino and
racetrack business components of the proposed casino project at
the Monticello Raceway.
3. April 18, 2002, reporting the sale of casino interests in
Greenville, Mississippi; developments regarding the New York
State video lottery program; status of litigation regarding
Mohawk tribal government; and proceedings involving former
directors and officers.
4. May 1, 2002, reporting the execution of an irrevocable proxy
and voting agreement between Alpha's Chairman and Chief
Executive Officer, Robert A. Berman, and Bryanston Group,
Inc.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 20, 2002 /s/ ROBERT A. BERMAN
Robert A. Berman
Chairman and Chief Executive Officer
Dated: May 20, 2002 /s/ ROBERT STEENHUISEN
Robert Steenhuisen
Chief Accounting Officer