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, 2001.
( ) 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.)
29-76 Northern Boulevard 2nd Floor Long Island City NY 11101
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (718) 685-3014
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
NASDAQ
Common Stock, $.01 par value per share Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of class)
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.
The issuer's revenues for the year ended December 31, 2001
were $3,115,000.
The aggregate market value on April 1, 2002 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
$14,500,000
As of April 1, 2002, 4,804,315 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 39.
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. ("AMI") 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, and in October 2000 was
merged into Alpha Florida Entertainment, L.L.C. ("Alpha Florida
LLC"), a limited liability company formed in Florida on October 19,
2000 ( Alpha Florida and Alpha Florida LLC, collectively, hereinafter
will be referred to as "Alpha Florida LLC"). Alpha Peach Tree
Corporation ("Alpha Peach Tree") was incorporated in Delaware on
March 16, 1999, Casino Ventures, L.L.C. ("Casino Ventures") was
formed as a limited liability company in Mississippi on June 6, 1999,
and Alpha Casino Management Inc. ("ACM") was incorporated in
Delaware on June 26, 2000. 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 29-76 Northern Boulevard, 2nd Floor, New York, New York
11101, and its telephone number is (718) 685-3014.
Historically, the Company has been engaged in the ownership
and operation of gaming facilities, the most recent of which was the
gaming day cruise vessel, the Ella Star Casino ("Ella Star"), which
was launched in November 2000. As a result of the severe negative
impact on the travel and hospitality industries throughout the country
from the September 11th terrorist attack, which was further
exacerbated by the crash of American Airlines flight 587 out of New
York's John F. Kennedy airport on November 12, 2001, passenger
levels on the Ella Star were dramatically reduced. After the
Company's review of the efforts required to restore the levels of
patronage required to operate the vessel profitably, it was determined
to be imprudent to continue operations, and therefore it was shut down
permanently in November 2001.
Although the Company will continue to pursue its remaining
development activities in gaming and related areas, the Company is
currently assessing its ability to acquire operating businesses or
interests in other areas. In particular, the Company is evaluating
businesses that have consistently produced reliable cash flow and that
can be acquired at reasonable multiples of cash flows in order to
permit the Company to utilize efficiently its substantial net operating
loss tax carry-forwards. No specific negotiations with regard to any
particular businesses have yet taken place. There can be no assurance
that the Company will identify, finance or conclude negotiations with
respect to any such acquisition.
Casino Operations and Gaming Activities
Development Activities
New York. Development of Native American Casinos in the
Northeast. In 1988, Congress passed the Indian Gaming Regulatory
Act ("IGRA"). Under specified conditions, IGRA permits casino
gambling on Native American land. Under IGRA, two immensely
successful Native American casinos opened in Connecticut in the
1990's. Foxwoods, operated by the Mashantucket Pequot Tribe, is
now the single most successful casino in the world, reportedly
generating in excess of $1 billion in annual gaming revenues. The
Mohegan Sun casino, reportedly operated by the Mohegan Tribe, is
located in the same general area as Foxwoods and generates in excess
of $800 million per year in revenues. Because of the unavailability of
similar facilities closer at hand, it is considered likely that a substantial
number of the customers at these casinos are from the New York
Metropolitan area.
IGRA permits a Native American tribe to petition the
Governor of its host state for a so-called "compact" permitting casino
gaming on such tribe's reservation and/or on lands to be acquired and
held in trust by the Unites States Government for the benefit of such
tribe. Approval of a land-to-trust application for off reservation
gaming purposes is extremely rare.
A compact is a necessary condition precedent to casino
development under IGRA, and Native American gaming is the only
casino gambling currently permitted in New York State. To date, only
two Native American Tribes have successfully petitioned the
Governor of New York for compacts. The Oneida Nation received its
compact in 1992, and the Mohawks received their compact in 1993.
The Oneidas opened a very successful casino in western New York
known as Turning Stone in Oneida County, near Syracuse, and the
Mohawks opened a small casino on their Akwesasne Reservation on
the Canadian border with New York, far distant from New York City.
Formation and Purpose of Catskill Development LLC
("CDL"). From the 1920's until sometime in the 1960's, the Catskill
mountain area of New York was a thriving summer resort community
located close to New York City. By the 1990's, as a consequence (at
least in part) of cheap transportation, other resort attractions and
gambling in Atlantic City and elsewhere, the Catskill resort area
became long on scenery, but short of jobs and economic development.
Sullivan County, however, had the Monticello Raceway (the
"Raceway"), one of the few harness racing facilities in New York, and
its citizens were accustomed to betting and gambling. Beginning in
early December of 1994, several Sullivan County businessmen, led by
Robert Berman, began exploring ideas to revitalize, bring jobs to and
economically rejuvenate the Catskill resort area. One idea explored
was casino gambling in light of the passage of IGRA and Foxwoods'
hugely successful opening. The group decided to proceed with the
casino gambling idea (the "Casino Project"), using the existing
harness racing facility as the cornerstone.
A real estate sales contract was executed in January 1995 to
purchase the Raceway and approximately 230 acres surrounding it
from an unrelated seller for purposes of acquiring land for ultimate
casino and related hotel, restaurant and hospitality development
purposes. Initial discussions were had with the Oneida Tribe.
However, discussions with the Oneida Tribe ended unsuccessfully in
mid-1995, due primarily to the unwillingness of the Oneida Tribe to
share the revenue of the proposed casino with the State. The
businessmen became aware that the Company had business relations
with the St. Regis Mohawk Tribe (the "Mohawk Tribe"). The
Company introduced the group to the Mohawk Tribe. The group was
expanded in 1995 to include the Company, Americas Tower Partners
and Monticello Realty, L.L.C. Discussions with the Mohawk Tribe
were initiated in October of 1995, and CDL was formed by the group
actively and diligently to pursue the development of the Casino Project
on the land then under contract. The group's business plan envisioned
three distinct lines of business with the members participating in those
lines somewhat in proportion to the expertise that each member
brought to the venture. The designated components of the anticipated
business of CDL were: a) casino activities; b) real estate related
activities; and c) the operation of the Raceway. CDL's plan was to
seek approval under federal statutes governing Native American
gaming for approval of an off-reservation casino to be located in
Sullivan County. This was a unique plan because the land involved
was not on a reservation itself, but off-reservation, far removed from
the Mohawk Tribe's existing reservation lands in upstate New York
and Canada.
On June 3, 1996, CDL acquired the Raceway for
$10,000,000. Of the real property purchased, 29.31 acres adjacent to
the Raceway were set aside for 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 Mohawk Tribe were
successful, and on July 31, 1996, the first of numerous contracts
between CDL (and its affiliates) and the Mohawk Tribe was entered
into.
Mohawk Management LLC ("MML") was created by CDL
to provide technical and financial expertise to assist the Mohawks in
obtaining financing and to manage, operate and maintain the proposed
casino. Monticello Raceway Development, LLC ("MRD") was
created by CDL to develop the casino property by providing technical
expertise for the planning, design, engineering, construction and
operational start-up of the proposed casino and the real property
surrounding the proposed casino site. MRD also contracted to assist
the Mohawks in obtaining a loan to finance constructing, equipping
and operating the casino. CDL, in conjunction with its affiliates,
assumed responsibility for,
and undertook, seeking and obtaining all local, state and federal
approvals required for construction and operation the Casino Project.
On April 22, 2000, CDL and the Company became aware of
a purported letter agreement between the Mohawk Tribe and Park
Place Entertainment ("PPE"), which agreement (with two irrelevant
exceptions) purportedly gave PPE the exclusive rights to develop and
manage any casino development the Mohawk Tribe may have in the
State of New York. The validity of such purported agreement was
not, and is not, clear. On November 13, 2000, MML and CDL
(collectively, the "Plaintiffs") joined in a suit (the "PPE Litigation")
filed in United States District Court, Southern District of New York
(the "Court") against PPE, alleging entitlement to substantial damages
as a consequence of, among other things, PPE's wrongful interference
with several agreements between CDL and the Mohawk Tribe
pertaining to the proposed Casino Project. The Plaintiffs alleged
tortuous interference with contract and prospective business
relationships, unfair competition and state anti-trust violations and
sought over $6 billion in damages. On May 11, 2001, the District
Court granted PPE's motion to dismiss three of the four claims made
by Plaintiffs. However, on May 30, 2001, the Plaintiffs moved for
reconsideration of that ruling, and, on reconsideration, the Court
reinstated one of the dismissed claims, with Plaintiffs' claims of
tortuous interference with contract and prospective business
relationship remaining after such decision. The case is now in the final
discovery phase, and at this point, a 2002 trial date is expected.
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, and AMI or ACM will be responsible for the day-to-day
operations of that casino. 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.
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. However, if such approvals
are obtained and the PPE Litigation and certain related litigations are
satisfactorily resolved, it is the Company's intention to proceed with
the development of the Casino Project
Mohawk's and CDL's Federal Application. On August 2,
1996, the Mohawks and CDL submitted an application to the United
States Department of the Interior, 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, as
provided under IGRA. For approval, the Secretary of the Interior of
the United States had to determine that the Casino Project was in the
best interest of the Mohawks and was not detrimental to the
surrounding community. Pursuant to IGRA, 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. As part of that approval process was
the complex and lengthy environmental analysis required under the
State of New York's environmental review act ("SEQRA"), which
analysis 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 CDL's application for the Mohawks 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 Mohawks 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 Mohawks 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
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
Mohawks 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 Casino
Project had been approved and specifically requested that the
Governor concur.
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 a proposed casino on land to be owned by the
Mohawk Tribe. 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 Mohawk Tribe for
the management of a casino to be built on the current site of the
Raceway in Monticello, New York (the "Monticello Casino"). Among
other things, the Management Contract provided MML with the
exclusive right to manage the Monticello Casino for seven (7) years
from its opening and to receive certain fees for the provision of
management and related services.
By its terms, the Memorandum between CDL and AMI
terminated on December 31, 1998, since all of the governmental
approvals necessary for the construction and operation of the
Monticello Casino were not obtained by MML. The Management
Contract between MML and the Mohawk Tribe contained no such
provision. Additionally, the Memorandum was silent as to the effect
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
derived from the underlying casino management and development
contracts. The original Management Contract contemplated an
arrangement specific to the Mohawk 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 Alpha, 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") 5 percentage
points of Bryanston's ownership interest in the real estate component
of CDL's business for $455,000 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 its 25% interest in the Raceway's
parimutuel operations of CDL to AMI. Under the previous agreement,
AMI did not participate in this source of revenue. $2,492,000 and
$2,047,000, respectively, of the Investments and Advances in CDL on
the Company's balance sheets at December 31, 2001 and 2000 are
comprised of payments towards the design, architecture and other
costs of the development plans for the proposed Monticello Casino.
In connection with the final settlement agreement, certain
CDL member (i.e., Americas tower Partners and Monticello Realty,
LLC) were granted the right to receive $5,000,000 as a "Senior
Obligation". Under the terms of the settlement agreement, no other
payments are permitted to be made to the members in CDL until the
Senior
Obligations (which, as of December 31, 2001, amounted to
approximately $6,000,000, inclusive of accrued interest) are paid in
full. Additionally, no income with respect to the interests in CDL is
to be distributed to members until certain "Priority Returns"
(consisting of the capital contributions made by the members, together
with interest thereon at 10% per annum, compounded annually) have
been paid. As of December 31, 2001, the aggregate amount needed
to satisfy the payment of Priority Returns was approximately
$34,200,000. In light of the foregoing, the Company is not expected
to receive any distributions from CDL until CDL has achieved net
revenues sufficient to discharge the Senior Obligations, nor does it
anticipate receiving any distributions of income with respect to its
interests in CDL (other than with respect to its capital contributions
and interest thereon) until CDL has achieved additional net revenues
sufficient also to discharge the payment of the Priority Returns.
In October 2001, the New York State Legislature passed a
bill that expanded the nature and scope of permitted 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
Alpha 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 an agent for the Lottery. Details of
how the VLTs will be operated and how revenues will be shared have
yet to be worked out with the Lottery. Alpha and its partner, CDL, are
aggressively exploring how this recently enacted VLT Legislation may
impact upon its future activities at the Raceway.
On February 12, 2002, the Company entered into an
agreement with Watertone Holdings, L.P. ("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 575,874 shares of its common stock for the benefit of
Watertone. 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 $500,000 (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 180,302 shares of the
Company's common stock (which number of shares will be subject to
increase to an aggregate of up to 591,378 upon shareholder approval).
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 will increase effectively from 25% to approximately 37%.
During 2001, 2000 and 1999, AMI incurred $470,000,
$962,000 and $209,000, respectively, of costs related to the proposed
development of the Casino Project, of which $445,000, $681,000, and
$0, respectively, has been capitalized, and the remaining $25,000,
$281,000 and $209,000, respectively, of which has been expensed are
substantially a corporate overhead allocation.
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. 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 (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. To fund such costs,
Casino Ventures was loaned
$876,000and $604,000 from Mr. Walker in 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. An additional $550,000 and $350,000,
respectively, was received by Casino Ventures in the years 2001 and
2002, as future equity investments contingent upon final approval of
the casino by the Mississippi Gaming Commission. During 2001,
2000 and 1999, the Company capitalized $691,000, $1,859,000 and
$364,000, respectively, of costs related to the relocation and
refurbishing of the vessel and improvements to its redeployment site
in Tunica. An additional $219,000, $268,000 and $100,00 of start-up
costs were incurred in 2001, 2000 and 1999, 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. The Company expects Casino Ventures to commence
operations in Tunica in late 2002.
Casino Ventures' interest expense for the years ended
December 31, 2001 and 2000, not eliminated in consolidation,
amounted to $184,000 and $78,000, respectively. This was
substantially attributable to interest on the $650,000 mortgage note
payable secured by the vessel, which is currently in default, and on
the loans from Mr. Walker.
Discontinued 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. 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 $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 any time 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.
On September 7, 2000, the Company 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 and December 2000, approximated
$36,000 per month.
In October 2000, Alpha Florida LLC merged into Alpha
Florida LLC. Also, in October 2000, the Company received $900,000
from an unrelated third party and an additional $71,000 of pre-opening
expenses paid directly by that third party, in exchange for a 25%
interest in Alpha Florida LLC, with the Company retaining the
remaining 75% interest. In 2001, Alpha Florida LLC received an
additional $250,000 from the same unrelated third party.
Following 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 possibly through the upcoming high
tourism season. On November 15, 2001, as a consequence of this
assessment, the Company decided to suspend operations at the Ella
Star and on December 19, 2001, Alpha Florida LLC terminated its
leases with Miami-Dade County and the boat and equipment lessors.
The Bayou Caddy's Jubilee Casino. On March 2, 1998,
Company sold, through Alpha Gulf and Greenville Hotel, the Jubilee
Casino, the Greenville Hotel and other related assets to Greenville
Casino Partners, L.P. ("GCP") and retained a 25% (subsequently
reduced to approximately 19% for capital call adjustments) interest in
GCP and entered into a hotel management contract with GCP. In
March 2002, the Company sold its 19% interest in GCP to JMBS
Casino LLC for approximately $2,500,000. In addition, in March
2002, the Company sold its management contract with GCP to
Greenville C.P., Inc. for approximately $500,000.
The Jubilation Casino. 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").
Seasonal Fluctuations
Florida. It was expected that the Ella Star's results would
reflect seasonal fluctuations. More particularly, the results of the Ella
Star were anticipated to be impacted by weather in its primary feeder
market, as well as in it operating venue. The winter weather that the
Ella Star experienced in South Florida during 2000 and 2001 was the
worst for the region in approximately 25 years. The extraordinary
weather conditions had a materially adverse effect on the Company's
financial condition and results of operations.
Government Regulation
The Company's ownership and operation of its gaming
properties are and have been subject to regulation by federal, state and
local governmental and regulatory authorities, including regulations
relating to environmental protection.
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 beneficial owner of a
substantial interest (usually 5% or more) in the operation, members of
the board of directors, each officer and all key personnel be found
suitable, and be approved, by the applicable regulatory governing
body. The failure of any person required to be approved to be, and
remain, qualified to hold a license could result in the loss of the
license. In such instances, it is the common industry practice that any
such individual would recuse and remove himself from such license
entity.
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
included the regulation of the Company in regard to its investment in
GCP.
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 September 2001 for
a three-year period. No person may receive any percentage of profits
from a gaming subsidiary of a holding company without first
obtaining a finding 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.
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 were to be unable to continue
to satisfy the registration requirements of Mississippi law, the
Company and its Mississippi Gaming Subsidiaries would not be
permitted to 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
Certain officers, directors and key employees of the
Company and Alpha Gulf (as the owner of the interest in GCP) and
Casino Ventures (in connection with its proposed operation of the
Jubilation) 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 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 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 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. Foreign gaming
approval was received by the Company for the Ella Star operation.
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 partnership interest in GCP,
the Company retained its finding of suitability, which was renewed in
October 2001 for a three-year period.
Fees and Taxes
License fees and taxes, computed in various ways depending
on the type of gaming involved, are payable 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 the Company's potential operations
in New York State, required documentation has been filed with the
National Indian Gaming Commission.
Employees
As of December 31, 2001, the Company employed 7 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 29-76 Northern Boulevard, 2nd Floor, Long Island City, New York
11101.
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
ITEM 3. LEGAL PROCEEDINGS
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.
In July 1996, CDL and various affiliates set up by CDL
and its members entered into a series of agreements with the
Mohawk Tribe relating to the development of a casino on land
adjacent to the Raceway (which is owned by CDL) in Monticello,
New York. Pursuant to such agreements, the Mohawk Tribe was to
purchase certain land from CDL and various affiliates of Catskill
were to help with the development of a casino on the land and
manage any resulting casino. More particularly, the Tribe entered
into a Gaming Facility Management Agreement with MML.
Pursuant to such Agreement, MML was to be provided 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.
Completion of the project contemplated by the agreements
with the Mohawk Tribe was subject to certain conditions, including
the obtaining of relevant federal and State governmental approvals.
CDL, in conjunction with its affiliates, assumed responsibility for
and undertook, seeking and obtaining all local, state and federal
approvals required or necessary to construct and operate the 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 Mohawk Tribe had been
approved and specifically requested that the Governor concur.
However, on April 22, 2000, the Company became aware of a
purported letter agreement between the Mohawk Tribe and PPE,
which agreement (with two irrelevant exceptions) purportedly gave
PPE the exclusive rights to develop and manage any casino
development the Mohawk Tribe may have in the State of New York.
The validity of such purported agreement was not, and is not, clear.
On November 13, 2000, the Plaintiffs joined in a suit filed
in United States District Court, Southern District of New York
against PPE, alleging entitlement to substantial damages as a
consequence of, among other things, PPE's wrongful interference
with several agreements between Catskill and the Tribe pertaining
to the proposed Casino Project. The Plaintiffs alleged tortuous
interference with contract and prospective business relationships,
unfair competition and state anti-trust violations and sought over $6
billion in damages. On May 11, 2001, the District Court granted
PPE's motion to dismiss three of the four claims made by Plaintiffs.
However, on May 30, 2001, the Plaintiffs moved for reconsideration
of that ruling, and, on reconsideration, the Court reinstated one of
the dismissed claims, with Plaintiffs' claims of tortuous interference
with contract and prospective business relationship remaining after
such decision. The
case is now in the final discovery phase, and at this point, a 2002
trial date is expected.
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, and
AMI or ACM will be responsible for the day-to-day operations of
that casino. It is intended that that casino will be owned by the a
Native American Nation and will be located on land to be placed in
trust for the benefit of such Native American Nation.
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. However, if such approvals are
obtained and the PPE Litigation and certain related litigations are
satisfactorily resolved, it is the Company's intention to proceed with
the development of the Casino Project.
On February 20, 2001, the Company was named as a defendant in
an action brought in the U.S. District Court, Northern District of
Mississippi, Greenville, Mississippi (Global Trading Group, Inc. vs.
Alpha Hospitality Corporation). The suit alleges that the Company
failed to compensate the Plaintiff for alleged services rendered
regarding the sale of Bayou Caddy's Jubilee Casino to GCP. The
case has not been settled nor can there be any assurance that
settlement can be reached. The case is expected to go to trial on
April 2, 2002. The Company feels the claim is without merit.
Accordingly, no provision for liability by the Company has been
made in the accompanying consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
a) On June 13, 2001, the Company had its annual meeting;
b) The following Directors were elected based upon the
following tabulations of votes:
For Against Withheld
Stanley S. Tollman 3,059,526 1,289
Thomas W. Aro 3,059,526 1,289
Brett G. Tollman 3,059,526 1,289
Herbert F. Kozlov 3,059,806 1,009
James A. Cutler 3,059,526 1,289
Matthew B. Walker 3,059,274 1,541
c) The second order of business was to consider and vote upon a
proposal to amend the Certificate of Designations for the Company's
Series B and Series C Preferred Stock to permit the Company to
make payment of dividends accrued on the Company's Series C
Preferred Stock in shares of the Company's Common Stock at the
discretion of the Company's Board of Directors, this proposal was
approved based upon the following tabulations of votes:
For Against Withheld
2,288,791 3,312 768,713
d) The third order of business was to consider and vote upon a
proposal to approve the issuance of shares of Common stock in
payment of dividends accrued on the Company's Series C Preferred
Stock for the years 1998, 1999 and 2000,this proposal was approved
based upon the following tabulations of votes:
For Against Withheld
2,288,270 4,033 768,513
e) The fourth order of business was to consider and vote upon a
proposal to amend the Company's Certificate of Incorporation to
provide for a reverse 1-for-10 stock split of outstanding Common
Stock, par value $.01 per share, this proposal was approved based
upon the following tabulations of votes:
For Against Withheld
3,042,441 3,209 15,165
f) The final order of business was to ratify the appointment of
Rothstein, Kass & Company, P.C. as the Company's independent
certified public accountants, this proposal was approved based
upon the following tabulations of votes:
For Against Withheld
3,059,478 1,078 260
ITEM 5. MARKET INFORMATION
Market Prices
The Company's Common Stock is traded on the
Automated Quotation System of the National Association of
Securities Dealers, Inc. ("NASDAQ") and the Boston Stock
Exchange under the symbol "ALHY". The Company's
Redeemable Common Stock Purchase Warrants (the "Warrants")
which were traded on the Boston stock Exchange under the symbol
"ALHW" and on the OTC BB under the symbol "ALHYW"
expired on December 31, 2001.
In June 2001, shareholder approval was received to
amend the Company's Certificate of Incorporation to provide for
a 1-for-10 reverse split of the Company's common stock.
Accordingly, common stock and per share data in this Form 10-K
have been retroactively restated to give effect of the reverse split,
except where noted.
The following table sets forth the high and low sale prices
for a share of Common Stock and for the Warrants as reported by
NASDAQ.
Common Stock Warrants
High Low High Low
2001 Quarters:
Fourth . . . . $ 21.00 $ 6.11 $ .05 $ .01
Third. . . . . . 11.39 4.31 .05 .03
Second . . . . . 10.40 6.20 .05 .05
First. . . . . . 12.18 6.87 .25 .125
2000 Quarters:
Fourth . . . . $ 3.125 $ .875 $ .75 $ .13
Third. . . . . . 3.50 1.00 .6875 .30
Second . . . . . 7.50 1.375 4.9375 .50
First. . . . . . 9.75 3.375 5.4375 1.00
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
As of April 1, 2002, 4,804,315 shares of Common Stock
and 45,338 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 were
otherwise 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, nor can there be any assurance
that, even if the Company were to have such a surplus or achieve net
profits, the Company would 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.
The Company's Series B Preferred Stock has voting rights
of .8 votes per preferred share, is convertible into .8 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 77,700 shares of the Company's common
stock in April 1998. 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 160,500 shares of Common stock in January 1999. On
May 12, 2000, the Company declared dividends on the Series B
Preferred Stock for the 1999 and 1998 fiscal years amounting to
45,048 and 194,260, respectively, shares of the Company's common
stock. These shares were issued in July 2000. In April 2001, the
Company declared and issued dividends for the year 2000 amounting
to 316,671 shares of the Company's common stock. In January 2002,
the Company declared and issued dividends for the year 2001
amounting to 241,202 shares of the Company's common stock.
Additionally, in January 2002, Bryanston, an affiliate, converted its
777,238 shares of the Company's B Preferred Stock into 621,790
shares of the Company's common stock.
On June 30, 1998, the Company issued 135,162 shares of
Series C Preferred Stock in settlement of $9,729,000 of net
obligations. The Series C Preferred Stock had voting rights of 2.4
votes per preferred share, was convertible into 2.4 shares of common
stock for each share of preferred stock and carried 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 January 2002, the Company
declared and issued dividends for the 1998, 1999, 2000 and 2001
years amounting to a total of 161,128 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 324,389 shares of the Company's common
stock.
On February 8, 2000, the Company issued 4,000 shares of its
7% Series D Convertible 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 $60 per share or
a price based upon the prevailing market price of the Company's
common stock at the time of conversion, 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 330,000 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 into common stock. During 2001 and 2000, 1,020 and
1,900 shares, respectively, of the Series D Preferred Stock were
converted into approximately 191,283 and 138,717 shares,
respectively, of the Company's 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.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
Years ended December 31, 2001, 2000, 1999, 1998 and 1997
2001 2000 1999 1998 1997
Revenues $ 3,115 $ 872 $ 185 $ 5,424 $ 31,633
Loss from
continuing
operations $ (9,477) $ (647) $ (5,763) $(13,399) $ (1,774)
Loss per common
share from
continuing
operations,
basic and
diluted $ (4.02) $ (.04) $ (.34) $ (1.09) $ (.23)
December 31,
2001 2000 1999 1998 1997
Total assets $ 10,388 $13,533 $ 8,128 $ 10,196 $ 29,993
Long-term debt $ 9,070 $ 5,767 $ 1,407 $ 2,108 $ 8,088
Stockholders'
equity
(deficit) $ (2,942) $ 3,576 $ 2,761 $ 5,163 $ 8,833
See Management's Discussion and Analysis of Financial Condition and
Results of Operations and Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE COMPANY
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 $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. The loss incurred for the year ended
December 31, 2001 including losses associated with the
abandonment of the Company's assets related to the Ella Star
amounted to approximately $1,800,000. No provision has been made
for any future payments on any contractual obligations entered into
by Alpha Florida.
Results of Operations:
The following table sets forth the statements of operations
for Alpha Florida LLC's Ella Star before intercompany charges,
minority interest and pre-opening expenses for the years ended
December 31, 2001 and 2000 (dollar amounts in the table below are
in thousands):
2001 2000
Revenues:
Casino . . . . . . . . . . . . . . .$ 2,898 $ 324
Food and beverage, retail and other. . 73 25
Other . . . . 58
Total revenues . . . . . . . . . . . 3,029 349
Operating expenses:
Casino . . . . . . . . . . . . . . . . 1,737 215
Food and beverage, retail and other. . 70 26
Selling, general and administrative. 4,259 796
Interest. . . 40
Total operating expenses . . . . . . 6,106 1,037
Other expenses:
Depreciation and amortization . . . . . 720 70
Total other expenses . . . .. . . . . 720 70
Loss before intercompany charges, minority
interest, loss on abandonment of asset
and pre-opening expenses $(3,797) $ (758)
The Ella Star, from its opening on
November 26, 2000 through its Closing on November 14, 2001, had
its revenues negatively impacted by a series of unexpected events, the
most dramatic being the September 11, 2001 terrorist attack and the
crash of American Airlines flight 587 out of New York's John F.
Kennedy airport, a prime feeder market. Weather problems began
with wind weather conditions dramatically above the norm for South
Florida. Because of the severe weather, the Ella Star was forced to
cancel several cruises, and the attendance on those cruises that did
sail in the face of poor weather or predictions of poor weather were
negatively impacted. To partially ameliorate the negative impact of
these conditions, the Company pulled the vessel out of the water for
several days in January 2001 and installed bilge keel stabilizers at a
cost to the operation in excess of $100,000 and then restarted its
sailing schedule. The extraordinary wind patterns continued on into
the fall, with a late season hurricane just missing the Miami area.
Compounding the difficult weather conditions, bridge construction
throughout the summer on the Haulover Bridge created severe delays
on traffic attempting to access the Marina, the main artery to the
casino's site.
During 2001, casino expenses, representing
60% of casino revenues, included $916,000 of payroll and related
expenses, $358,000 of expenses related to food and beverage
provided gratuitously to customers and other expenses of $463,000.
In 2000, casino expenses, representing 66% of casino revenues,
included $96,000 of payroll and related expenses, $78,000 of
expenses related to food and beverage provided gratuitously to
customers and other expenses of $41,000.
Selling, general and administrative expenses
in 2001 and 2000 were comprised of $1,433,000 and $219,000,
respectively, for payroll and related expenses, $804,000 and
$176,000, respectively, for advertising and marketing expenses,
$1,125,000 and $175,000, respectively, for dock, vessel and office
rental expenses, $384,000 and $98,000,
respectively, for insurance, utilities, fuel and other maintenance costs
and the remaining $513,000 and $128,000, respectively, for
professional fees, office expenses and other miscellaneous general
and administrative expenses.
Mississippi:
On March 2, 1998, the Company sold,
through Alpha Gulf and Greenville Hotel, the Jubilee Casino, the
Greenville Hotel and other related assets to Greenville Casino
Partners, L.P. ("GCP") and retained a 25% interest in GCP
(subsequently reduced to approximately 19% for capital call
adjustments) and entered into a hotel management contract with
GCP. In March 2002, the Company sold its 19% interest in GCP to
JMBS Casino LLC for approximately $2,500,000. In addition, in
March 2002, the Company sold its management contract with GCP
to Greenville Casino Partners, Inc. for approximately $500,000.
Results of Operations -- Alpha Gulf:
The continuing general and administrative
costs for the years ended December 13, 2001, 2001 and 1999
consisted of payroll and related expenses of approximately $5,000,
$48,000 and $100,000, respectively, occupancy costs of $13,000,
$35,000 and $34,000, respectively, and other expenses of $4,000,
$6,000 and $103,000, respectively.
Certain old trade payables of Alpha Gulf
were settled in 2001 resulting in a reduction of selling, general and
administrative expenses of approximately $88,000. In addition,
Alpha Gulf disposed of worthless equipment in 2001 resulting in an
expense of $32,000.
Included in other revenue in 2000 was
$136,000 awarded the Company in satisfaction of all claims and
counterclaims related to a dispute with GCP.
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 plus 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 years ended December 31, 2001 and 2000 amounted to
$33,000 of warehousing costs. Continuing costs incurred during the
years ended December 31, 1999 for administration, insurance,
compensation, dispute settlements and vessel mooring and relocation
were $185,000. Interest expense of $23,000, $113,000 and $146,000
for the years ended December 31, 2001, 2000 and 1999, respectively,
primarily related to debt owed to Bryanston. Such debt was
originally related to the idle gaming vessel and equipment until its
contribution to Casino Ventures in July 1999. In June 2001,
Bryanston agreed to settle the debt through the issuance by the
Company of shares of its common stock, which occurred in January
2002. Certain old trade payables were settled in 2001, resulting in a
reduction of selling, general and administrative expenses of
approximately $247,000.
Future Operations
General:
Proposals or prospects for acquisition
opportunities may be presented to the Company, or the Company
may otherwise become aware of such opportunities (any such new
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.
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 "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 or other operations, the
business objective of the Company will be to effect a Business
Combination with an Acquired 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 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:
Development of Native American Casinos in
the Northeast. In 1988, Congress passed the IGRA. Under specified
conditions, IGRA permits casino gambling on Native American land.
Under IGRA, two immensely successful Native American casinos
opened in Connecticut in the 1990's. Foxwoods, operated by the
Mashantucket Pequot Tribe, is now reportedly the single most
successful casino in the world, reportedly generating in excess of $1
billion in annual gaming revenues. The Mohegan Sun casino,
operated by the Mohegan Tribe, is located in the same general area
as Foxwoods and reportedly generates in excess of $800 million per
year in revenues. IGRA permits a Native American tribe to petition
the Governor of its host state for a so-called "compact" permitting
casino gaming on a reservation and/or on lands to be acquired and
held in trust by the Unites States Government for the benefit of the
tribe. Approval of a land-to-trust application for off reservation
gaming purposes is extremely rare.
A compact is a necessary condition precedent to casino
development under IGRA, and Native American gaming is the only
casino gambling currently permitted in New York State. To date,
only two Native American Tribes have successfully petitioned the
Governor of New York for compacts. The Oneida Nation in 1992
and the Mohawks received their compact in 1993. The Oneidas
opened a very successful casino in western New York known as
Turning Stone in Oneida County, near Syracuse, and the Mohawks
opened a small casino on their Akwesasne Reservation on the
Canadian border with New York, far distant from New York City.
Formation and Purpose of Catskill Development LLC
("CDL"). From the 1920's until sometime in the 1960's, the Catskill
mountain area of New York was a thriving summer resort community
located close to New York City. By the 1990's, as a consequence (at
least in part) of cheap transportation, other resort attractions and
gambling in Atlantic City and elsewhere, the Catskill resort area
became long on scenery, but short of jobs and economic
development. Sullivan County, however, had the Monticello
Raceway (the "Raceway"), one of the few harness racing facilities in
New York, and its citizens were accustomed to betting and gambling.
Beginning in early December of 1994, several Sullivan County
businessmen, led by Robert Berman, began exploring ideas to
revitalize, bring jobs to and economically rejuvenate the Catskill
resort area. One idea explored was casino gambling in light of the
passage of IGRA and
Foxwoods' hugely successful opening. The group decided to
proceed with the casino gambling idea (the "Casino Project"), using
the existing harness racing facility as the cornerstone.
A real estate sales contract was executed in January 1995 to
purchase the Raceway and approximately 230 acres surrounding it
from an unrelated seller for purposes of acquiring land for ultimate
casino and related hotel, restaurant and hospitality development
purposes. Initial discussions were had with the Oneida Tribe.
However, discussions with the Oneida Tribe ended unsuccessfully in
mid-1995, due primarily to the unwillingness of the Oneida Tribe to
share the revenue of the proposed casino with the State. The
businessmen became aware that the Company had business relations
with the St. Regis Mohawk Tribe (the "Mohawk Tribe"). The
Company introduced the group to the Mohawk Tribe. The group was
expanded in 1995 to include the Company, Americas Tower Partners
and Monticello Realty, L.L.C. Discussions with the Mohawk Tribe
were initiated in October of 1995 and CDL was formed by the group
actively and diligently to pursue the development of the Casino
Project on the land then under contract. The group's business plan
envisioned three distinct lines of business with the members
participating in those lines somewhat in proportion to the expertise
that each member brought to the venture. The designated
components of the anticipated business of CDL were: a) casino
activities; b) real estate related activities; and c) the operation of the
Raceway. CDL's plan was to seek approval under federal statutes
governing Native American gaming for approval of an off-
reservation casino to be located in Sullivan County. This was a
unique plan because the land involved was not on a reservation itself,
but off-reservation, far removed from the Mohawk Tribe's existing
reservation lands in upstate New York and Canada.
On June 3, 1996, CDL acquired the Raceway for
$10,000,000. Of the real property purchased, 29.31 acres adjacent to
the Raceway were set aside for 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 Mohawk Tribe were
successful, and on July 31, 1996, the first of numerous contracts
between CDL (and its affiliates) and the Mohawk Tribe was entered
into.
Mohawk Management LLC ("MML") was created by CDL
to provide technical and financial expertise to assist the Mohawks in
obtaining financing and to manage, operate and maintain the
proposed casino. Monticello Raceway Development, LLC ("MRD")
was created by CDL to develop the casino property by providing
technical expertise for the planning, design, engineering, construction
and operational start-up of the proposed casino and the real property
surrounding the proposed casino site. MRD also contracted to assist
the Mohawks in obtaining a loan to finance constructing, equipping
and operating the casino. CDL, in conjunction with its affiliates,
assumed responsibility for, and undertook, seeking and obtaining all
local, state and federal approvals required for construction and
operation the Casino Project.
On April 22, 2000, CDL and the Company became aware
of a purported letter agreement between the Mohawk Tribe and Park
Place Entertainment ("PPE"), which agreement (with two irrelevant
exceptions) purportedly gave PPE the exclusive rights to develop and
manage any casino development the Mohawk Tribe may have in the
State of New York. The validity of such purported agreement was
not, and is not, clear. On November 13, 2000, MML and CDL
(collectively, the "Plaintiffs") joined in a suit (the "PPE Litigation")
filed in United States District Court, Southern District of New York
(the "Court") against PPE, alleging entitlement to substantial
damages as a consequence of, among other things, PPE's wrongful
interference with several agreements between CDL and the Mohawk
Tribe pertaining to the proposed Casino Project. The Plaintiffs
alleged tortuous interference with contract and prospective business
relationships, unfair competition and state anti-trust violations and
sought over $6 billion in damages. On May 11, 2001, the District
Court granted PPE's motion to dismiss three of the four claims made
by Plaintiffs. However, on May 30, 2001, the Plaintiffs moved for
reconsideration of that ruling, and, on reconsideration, the Court
reinstated one of the dismissed claims, with Plaintiffs' claims of
tortuous interference with contract and prospective business
relationship remaining after such decision. The case is now in the
final discovery phase, and at this point, a 2002 trial date is expected.
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, and AMI will be responsible for the
day-to-day operations of that casino. 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.
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. However, if such approvals
are obtained and the PPE Litigation and certain related litigations are
satisfactorily resolved, it is the Company's intention to proceed with
the development of the Casino Project
Mohawk's and CDL's Federal Application. On August 2,
1996, the Mohawks and CDL submitted an application to the United
States Department of the Interior, 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, as
provided under IGRA. For approval, the Secretary of the Interior of
the United States had to determine that the Casino Project was in the
best interest of the Mohawks and was not detrimental to the
surrounding community. Pursuant to IGRA, 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. As part of that approval process
was the complex and lengthy environmental analysis required under
the State of New York's environmental review act ("SEQRA"),
which analysis 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 CDL's application for the Mohawks 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 Mohawks 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 Mohawks
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
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
Mohawks 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 Casino
Project had been approved and specifically requested that the
Governor concur.
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 a proposed casino on land to be owned
by the Mohawk Tribe. 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 Mohawk Tribe
for the management of a casino to be built on the current site of the
Raceway in Monticello, New York (the "Monticello Casino").
Among other things, the Management Contract provided MML with
the exclusive right to manage the Monticello Casino for seven (7)
years from its opening and to receive
certain fees for the provision of management and related services.
By its terms, the Memorandum between CDL and AMI
terminated on December 31, 1998, since all of the governmental
approvals necessary for the construction and operation of the
Monticello Casino were not obtained by MML. The Management
Contract between MML and the Mohawk Tribe contained no such
provision. Additionally, the Memorandum was silent as to the effect
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 derived from the underlying casino management and
development contracts. The original Management Contract
contemplated an arrangement specific to the Mohawk 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 Alpha,
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") 5 percentage
points of Bryanston's ownership interest in the real estate component
of CDL's business for $455,000 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 its 25% interest in the Raceway's
parimutuel operations of CDL to AMI. Under the previous
agreement, AMI did not participate in this source of revenue.
$2,492,000 and $2,047,000, respectively, of the Investments and
Advances in CDL on the Company's balance sheets at December 31,
2001 and 2000 are comprised of payments towards the design,
architecture and other costs of the development plans for the
proposed Monticello Casino.
In connection with the final settlement agreement, certain
CDL member (i.e., Americas tower Partners and Monticello Realty,
LLC) were granted the right to receive $5,000,000 as a "Senior
Obligation". Under the terms of the settlement agreement, no other
payments are permitted to be made to the members in CDL until the
Senior Obligations (which, as of December 31, 2001, amounted to
approximately $6,000,000, inclusive of accrued interest) are paid in
full. Additionally, no income with respect to the interests in CDL is
to be distributed to members until certain "Priority Returns"
(consisting of the capital contributions made by the members,
together with interest thereon at 10% per annum, compounded
annually) have been paid. As of December 31, 2001, the aggregate
amount needed to satisfy the payment of Priority Returns was
approximately $34,200,000. In light of the foregoing, the Company
is not expected to receive any distributions from CDL until CDL has
achieved net revenues sufficient to discharge the Senior Obligations,
nor does it anticipate receiving any distributions of income with
respect to its interests in CDL (other than with respect to its capital
contributions and interest thereon) until CDL has achieved additional
net revenues sufficient also to discharge the payment of the Priority
Returns.
In October 2001, the New York State Legislature passed a
bill that gexpanded the nature and scope of permitted 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
Alpha 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 an agent for the Lottery. Details of
how the VLTs will be operated and how revenues will be shared have
yet to be worked out with the Lottery. Alpha and its partner, CDL,
are aggressively exploring how this recently enacted VLT Legislation
may impact upon its future activities at the Raceway.
On February 12, 2002, the Company entered into an
agreement with Watertone Holdings, L.P. ("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 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 575,874 shares of its common stock for the benefit of
Watertone. 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 $500,000 (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 180,302
shares of the Company's common stock (which number of shares
will be subject to increase to an aggregate of up to 591,378 upon
shareholder approval).
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 , will increase effectively from 25% to approximately 37%.
During 2001, 2000 and 1999, AMI incurred $470,000,
$962,000 and $209,000, respectively, of costs related to the proposed
development of the Casino Project, of which $445,000, $681,000,
and $0, respectively, has been capitalized, and the remaining
$25,000, $281,000 and $209,000, respectively, of which has been
expensed are substantially as a corporate overhead allocation.
Casino Ventures:
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. 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 (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. To fund such costs,
Casino Ventures was loaned $876,000 and $604,000 from Mr.
Walker in 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. An additional
$550,000 and $350,000, respectively, was received by Casino
Ventures in the years 2001 and 2002, respectively, as future equity
investments contingent upon final approval of the casino by the
Mississippi Gaming Commission. During 2001, 2000 and 1999, the
Company capitalized $691,000, $1,859,000 and $364,000,
respectively, of costs related to the relocation and refurbishing of the
vessel and improvements to its redeployment site in Tunica. An
additional $219,000, $268,000 and $100,000 of start-up costs were
incurred in 2001, 2000 and 1999, 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. The Company expects
Casino Ventures to commence operations in Tunica in late 2002.
Casino Ventures' interest expense for the years ended
December 31, 2001 and 2000, not eliminated in consolidation,
amounted to $184,000 and $78,000, 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 year ended December 31, 2001, the Company had
net cash used in operating activities of $3,952,000. The uses were the
result of a net loss of $9,477,000 includes depreciation and
amortization of $759,000, noncash compensation of $2,594,000,
minority interest of $1,077,000, interest amortized on loan discount
$81,000, other compensation adjustment of $250,000, loss on
abandonment of assets of $1,846,000 and a net decrease in working
capital of $1,079,000. The decrease in working capital consisted
primarily of a net decrease in other current assets of $597,000, a
decrease in other liabilities of $238,000, an increase in accounts
payable and other accrued expenses of $663,000 and an increase in
payroll and related liabilities of $50,000.
Cash used in investing activities of $1,300,000 consisted of
$879,000 of payments for property and equipment, $444,000 of
investments and advances in CDL and a $23,000 increase in deposits
and other assets.
Cash provided by financing activities of $4,009,000 was
substantially attributable to $800,000 of capital contributed by
holders of minority interests and $3,195,000 of proceeds from related
party long-term debt.
The Company has incurred an accumulated deficit and
current net losses of approximately $95,173,000 and $9,477,000,
respectively, used approximately $3,950,000 in operations during
2001 and has a working capital deficit (excluding a payable to Casino
Ventures, which is not expected to be paid by the Company during
the next twelve months) of approximately $1,920,000 at December
31, 2001. In March 2002, the Company sold its investment in GCP,
along with its related supervisory management contract, for an
aggregate amount of approximately $3,000,000. The Company also
anticipates the receipt of funds in 2002 relative to the complete or
partial liquidation in its interest in Casino Ventures. In addition, the
Company continues to consider issuing equity securities to meet
working capital requirements and to acquire businesses that will
enhance the Company's operations and take advantage of its net
operating loss carry-forwards.
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.
In July 2001, the Financial Accounting Standards Board
("FASB") issued SFAS No. 141 "Business Combinations" and SFAS
No. 142 "Goodwill and Other Intangible Assets". SFAS 141 requires
business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting, and broadens the
criteria for recording intangible assets separate from goodwill.
Recorded goodwill will be evaluated against the new criteria and may
result in certain amounts initially recorded as goodwill being
separately identified and recognized apart from goodwill. SFAS No.
142 requires the use of a non-amortization approach to account for
purchased goodwill and certain intangibles. Under such approach,
goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written
down and charged to operations only in periods in which the
recorded value of goodwill and intangibles exceeds it fair value. The
statements are fully effective January 1, 2002. The provisions of the
statements are not expected to have a significant effect on the
Company's financial position or operating results.
The FASB also recently issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", that is
applicable to financial statements issued for fiscal years beginning
after December 15, 2001. The FASB's new rules on asset
impairment supersede SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", and portions of Accounting Principles Board Opinion
30, "Reporting the Results of Operations". This statement provides
a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify
an asset as held-for-sale. Classification as held-for-sale is an
important distinction since such assets are not depreciated and are
stated at the lower of fair value or carrying amount. This statement
also requires expected future operating losses from discontinued
operations to be
displayed in the period(s) in which the losses are incurred, rather than
as of the measurement date as presently required. The Company has
not yet determined the effect of this statement on its financial
position or operating results.
ITEM 8. FINANCIAL STATEMENTS
See Index to Financial Statements attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective February 12, 2002, Alpha Hospitality
Corporation ("Registrant"), acting on the direction of its Board of
Directors, approved the dismissal of Rothstein, Kass & Company,
P.C. as the Company's independent accountants. The report of
Rothstein, Kass & Company, P.C. on the Registrant's consolidated
financial statements for the year ended December 31, 2000 did not
contain an adverse opinion or disclaimer of opinion nor was it
qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with the audit of the Registrant's
consolidated financial statements for the year ended December 31,
2000, and through February 12, 2002, there were no disagreements
with Rothstein, Kass & Company, P.C. nor reportable events on any
matter of accounting principles or practices, financial statements
disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Rothstein, Kass & Company, P.C.,
would have caused Rothstein, Kass & Company, P.C. to make
reference to the matter in their report on the consolidated financial
statement. Furthermore, there were no reportable events. Rothstein,
Kass & Company, P.C. has furnished the Registrant with a letter
addressed to the Securities and Exchange Commission indicating
Rothstein, Kass & Company, P.C.'s agreement with the above
statements.
Effective on February 12, 2002, Registrant retained the
accounting firm of Friedman Alpren & Green LLP to serve as its
independent accountants to review or audit its financial statements
beginning with the year ended December 31, 2001. Prior to its
engagement as Registrant's independent auditors, Friedman Alpren
& Green LLP had not been consulted by Registrant either with
respect to the application of accounting principles to a specific
transaction or the type of audit opinion that might be rendered on
Registrant's consolidated financial statements or on any other matter
that was the subject of any prior disagreement between Registrant
and Registrant's previous certifying accountants.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE ACT
On February 12, 2002, the Company's Board of Directors
(the "Board") accepted the resignations of Stanley S. Tollman and
James A. Cutler. 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 Mr. Cutler's position
as a member of the Board, and Mr. Kozlov was appointed as an
interim Director of the Audit Committee. The Company
subsequently entered into employment agreements with Mr. Berman
and Mr. Kaniewski providing for annual salaries of $300,000 and
$200,000, respectively, payment of which is subject to deferral under
certain circumstances. Additionally, each of Mr. Berman and Mr.
Kaniewski was granted options to purchase up to 95,016 shares of the
Company's common stock, which number of shares are subject to be
increased to 295,689 shares upon shareholder approval. In March
2002, Matthew B. Walker resigned his position on the Board and
Paul de Bary was appointed to fill the vacancy created by Mr.
Walker's resignation. Also, at the same time William W. Hopson
was appointed to the Board to fill a vacancy created by an increase
in the size of the Board.
The table below sets forth certain information with respect to the
directors and executive officers of the Company.
Name Age Position with the Company
Robert A. Berman 41 Chairman of the Board, Chief
Executive Officer and President
Thomas W. Aro 59 Vice President,
Secretary and Director
Scott Kaniewski 37 Executive Vice President of Development
and Finance and Director
Brett G. Tollman 40 Vice President and Director
Craig Kendziera 47 Treasurer
Robert Steenhuisen 44 Chief Accountant and Assistant Secretary
Herbert F. Kozlov 49 Director
Paul de Bary 55 Director
William W. Hopson 58 Director
Robert Berman has been a private investor
for the past fifteen years. As Managing Director of Watermark
Investments Limited, he oversaw a number of private partnerships
invested in real estate, technology and basic industries. He is a
former Vice Chairman and Director of Executone Information
Systems, a telecommunications company. He previously served as
Chairman of the Board and Chief Executive Officer of Hospitality
Worldwide Services, Inc., a hotel services company.
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 had previously
served as Executive Vice President of the Tollman-Hundley Hotel
Group from 1982 until 1993 and served as Executive Vice President
of Bryanston from 1989 through March 1996.
Scott Kaniewski is a former director of
Watermark Investments limited. He served as a Director of
Hospitality Worldwide Services, Inc. and President of its real estate
advisory group. He also has held several positions with VMS Realty
Partners, a real estate investment and development company,
including Vice President of Hotel Investments. Mr. Kaniewski
received his BS from Indiana University and is a certified public
accountant.
Brett G. Tollman served as a Vice
President of the Company from its formation and was elected to the
Board on February 1, 1994. He served as Executive Vice President
of the Tollman-Hundley Hotel Group from 1984 to June 1996, at
which time he was appointed 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 former 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 has
served as the Corporate Controller of the Tollman-Hundley Hotel
Group since June 1992 and as a Director, Vice President, Treasurer
and Corporate Controller of Bryanston since March 6, 1998.
Robert Steenhuisen has served as Chief
Accountant of the Company since 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.
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 Reed Smith LLP (formerly Parker, Duryee Rosoff
& Haft P.C.), where he has been a partner since 1989. Reed Smith
provides legal services to the Company and receives fees for such
services from the Company.
Paul de Bary serves as the Managing
Director for Marquette de Bary Co., Inc. Mr. de Bary also serves as
a financial advisor for state agencies, public and private corporations
and non-profits. Prior to assuming his current position, Mr. de Bary
served as Managing Director in the Public Finance Department of
Prudential Securities form 1994 to 1997. He was a partner in the law
firm of Hawkins, Delafield & Wood in New York from 1975 to
1994. Mr. de Bary received an AB in 1968, and MBA and JD in
1971 from Columbia University. He is a member of the American
Bar Association, the New York State Bar Association, the
Association of the Bar of the City of New York and the National
Association of Bond Lawyers. He currently serves as a member oft
he Board of Directors of the Society of Columbia Graduates and is a
member of the Alumni Representative Committee of Columbia
College.
William W. Hopson is a partner in the law
firm of Stites & Harbison in Atlanta, Georgia. From 1991 to1999,
Mr. Hopson was a partner with the firm of Stephens, Humphries &
White, LLP. He served as President and Chairman of the Board of
Pace Construction from 1987 to 1991, was the Executive Vice
President of the The Beck Company from 1984 to 1986, Executive
Vice President Development and Construction with W.B. Johnson
Properties (Ritz-Carlton) from 1981to 1984 and Executive Vice
President/Eastern Division Manager for Henry C. Beck Company
from 1968 to 1981. Mr. Hopson received his BBC in 1967 from
Auburn University and his JD in 1991 from Georgia State University.
He is a member of the Associated General Contractors, American Bar
Association, Associated Builders and Contractors, Georgia Bar
Association and the American Trial Lawyers.
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, subject to the terms of any
applicable employment agreements. Directors are reimbursed for
expenses incurred in connection with the performance of their duties.
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, 2001,
2000 and 1999, 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.
Restricted
Name and Principal Stock Options All Other
Position Year Salary(1) Awards /SARS Compensation
Stanley S. Tollman 2001 $250,000 -- -- --
Chairman of the 2000 $250,000 -- 25,000 --
Board of Directors, 1999 $250,000 -- 25,000 --
Chief Executive
Officer and
President
Thomas W. Aro . . .2001 $215,000 -- 4,000 --
Vice President and 2000 $206,500 -- 20,500 --
Secretary 1999 $160,000 -- 15,500 --
1 No portions of the cash salaries to which
Stanley S. Tollman was entitled during the periods indicated have been paid;
rather, the expense and liability have been accrued without interest. Mr.
Tollman has agreed to waive his right to receive any salary for the year 2001
and 2000.
Option/SAR Grants in Last Fiscal Year.
None
The following table sets forth certain
information with respect to the exercise of stock options during
fiscal 2001 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, 2001:
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at Fiscal Year End Fiscal Year End (1)
Acquired Value
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Stanley S.
Tollman . . -- -- 50,000 -- $455,000 0
Thomas W.
Aro . . . . -- -- 46,000 -- $418,600 0
In June 2001, November 2000 and
December 1998, the Company determined that the purposes of the
Company's stock option 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 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 in 2001, 2000 and 1998, respectively, the
Company cancelled all options that were outstanding under the 1998
and 1993 stock option plans at that time and reissued the options at
an exercise price equal to the closing NASDAQ bid prices on the
respective dates in July 2001, November 2000 and December 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, 2001:
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
Stanley S.
Tollman 6/13/01 250,000 $4.40 $11.70 $4.40 7.5 years
6/13/01 250,000 $4.40 $13.75 $4.40 8.5 years
Thomas W.
Aro 12/12/98 60,000(1) $1.063(1) $ 3.25(1) $1.063(1) 4.5 years
12/12/98 100,000(1) $1.063(1) $ 2.00(1) $1.063(1) 9.5 years
10/12/00 75,000(1) $1.375(1) $ 2.00(1) $1.375(1) 7.5 years
10/12/00 130,000(1) $1.375(1) $ 4.25(1) $1.375(1) 9.0 years
6/13/01 6,000 $4.40 $10.63 $4.40 2.0 years
6/13/01 10,000 $4.40 $10.63 $4.40 7.0 years
6/13/01 7,500 $4.40 $13.75 $4.40 7.0 years
6/13/01 13,000 $4.40 $13.75 $4.40 8.5 years
6/13/01 5,500 $4.40 $13.75 $4.40 7.5 years
Brett G.
Tollman 12/12/98 60,000(1) $1.063(1) $ 3.25(1) $1.063(1) 4.5 years
12/12/98 100,000(1) $1.063(1) $ 2.00(1) $1.063(1) 9.5 years
10/12/00 75,000(1) $1.375(1) $ 2.00(1) $1.375(1) 7.5 years
10/12/00 115,000(1) $1.375(1) $ 4.25(1) $1.375(1) 9.0 years
6/13/01 6,000 $4.40 $10.63 $4.40 2.0 years
6/13/01 10,000 $4.40 $10.63 $4.40 7.0 years
6/13/01 7,500 $4.40 $13.75 $4.40 7.0 years
6/13/01 11,500 $4.40 $13.75 $4.40 8.5 years
6/13/01 4,000 $4.40 $13.75 $4.40 7.5 years
Craig
Kendziera 12/12/98 12,000(1) $1.063(1) $ 3.25(1) $1.063(1) 4.5 years
12/12/98 8,000(1) $1.063(1) $ 2.00(1) $1.063(1) 9.5 years
10/12/00 50,000(1) $1.375(1) $ 2.00(1) $1.375(1) 7.5 years
10/12/00 15,000(1) $1.375(1) $ 4.25(1) $1.375(1) 9.0 years
6/13/01 1,200 $4.40 $10.63 $4.40 2.0 years
6/13/01 800 $4.40 $10.63 $4.40 7.0 years
6/13/01 5,000 $4.40 $13.75 $4.40 7.0 years
6/13/01 1,500 $4.40 $13.75 $4.40 8.5 years
Robert
Steenhuisen12/12/98 8,000(1) $1.063(1) $ 3.25(1) $1.063(1) 4.5 years
12/12/98 12,000(1) $1.063(1) $ 2.00(1) $1.063(1) 9.5 years
10/12/00 50,000(1) $1.375(1) $ 2.00(1) $1.375(1) 7.5 years
10/12/00 15,000(1) $1.375(1) $ 4.25(1) $1.375(1) 9.0 years
6/13/01 800 $4.40 $10.63 $4.40 2.0 years
6/13/01 1,200 $4.40 $10.63 $4.40 7.0 years
6/13/01 5,000 $4.40 $13.75 $4.40 7.0 years
6/13/01 1,500 $4.40 $13.75 $4.40 8.5 years
(1) Represents amounts and prices prior to 1-for-10 reverse split in
June 2001.
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 be entitled to receive $6,000 per
annum plus options to purchase up to 2,500 shares, and an additional
1,500 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 is granted. In 2001, the Company granted to its
outside directors options to purchase an aggregate amount of up to
16,500 shares of its common stock for the year 2001 at an exercise
price of $4.40 per share, which options can be exercised at any time
up to 2011. Similarly, in 1999 and 1998, the Company granted to its
outside directors options to purchase an aggregate amount of up to
15,000 and 28,500 shares, respectively, of its common stock at an
exercise price of $42.50 and $10.63, respectively, per share, which
can be exercised any time up to 2009 and 2008, respectively. The
amount granted in 1999 was for services to be rendered in the year
2000. The amount granted in 1998 consisted of options to purchase
aggregate amounts of up to 13,500 and 15,000 shares for the 1998
and 1999 years of service, respectively. As compensation to its
employee directors, the Company granted options to purchase an
aggregate amount of up to 8,000 shares for the year 2001 at an
exercise price of $4.40 per share and 9,500 shares for each of the
years 2000 and 1999 at exercise prices of $42.50 and $10.63,
respectively, per share.
mployment Agreements. The Company
entered into employment agreements with Mr. Berman and Mr.
Kaniewski providing for annual salaries of $300,000 and $200,000,
respectively, payment of which is subject to deferral under certain
circumstances. Additionally, each of Mr. Berman and Mr. Kaniewski
was granted options to purchase up to 95,016 shares of the
Company's common stock at an exercise price of $17.49 per share,
which number of shares is subject to be increased to 295,689 upon
shareholder approval.
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 was
automatically renewable for successive twelve (12) month periods
unless either party advised the other on at least ninety (90) days'
written notice of his or its intention not to extend the term of the
employment. Mr. Tollman's Employment Agreement provided for a
salary in the amount of $250,000 per year, none of which was paid
under such Agreement since the date thereof. The unpaid salary
accumulated, and the Company did not pay any interest or other
penalty thereon. Such Agreement provided for Mr. Tollman to devote
no less than 20% of his business time to the affairs of the Company
and its subsidiaries. Such Agreement contained a non-disclosure
provision pursuant to which Mr. Tollman agreed 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. Mr.
Tollman waived his right to receive the $250,000 salary for each of
the years 2001 and 2000. As of September 30, 2001, accrued salary
payable to Mr. Tollman amounted to $1,529,167. On September 30,
2001, the Mr. Tollman agreed to be paid only in common stock of the
Company and rescinded any previous conversion agreements.
Accordingly, the balance sheet as of December 31, 2001 reflects a
reclassification of $1,529,167 to common stock payable. During the
year ended December 31, 1999, the Company recorded a noncash
compensation charge of $3,251,000 resulting from a previous
conversion agreement and an increase in the market price of the
Company's common stock since the date of that agreement. The
$3,251,000 charge was reversed in 2000 to reflect the decrease in the
market price of the Company's common stock during the year.
BOARD COMPENSATION REPORT
Executive Compensation Policy
General. Decisions concerning executive
officers' salaries for 2001 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 2001 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.
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 interests 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. Mr. Tollman
waived his rights to receive the $250,000 salary for each of the years
2001 and 2000. On September 30, 2001, Mr. Tollman agreed to be
paid his accrued compensation of $1,529,167 in common stock of the
Company. 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
25,000 shares of the Company's Common Stock.
In March 2002, subsequent to the
retirement of Mr. Tollman, the Company entered into an employment
agreement with Robert A. Berman providing for an annual salary of
$300,000, payment of which is subject to deferral under certain
circumstances. Additionally, Mr. Berman was granted an option to
purchase, at an exercise price of $17.49 per share, up to 95,016
shares of the Company's common stock, which number of shares is
subject to be increased to 295,689 shares upon shareholder approval.
In addition, in March 2002 the Company
entered into an employment agreement with Scott A. Kaniewski
providing for an annual salary of $200,000, payment of which is
subject to deferral under certain circumstances. Additionally Mr.
Kaniewski was granted an option to purchase, at an exercise price of
$17.49 per share, up to 95,016 shares of the Company's common
stock, which number of shares is subject to be increased to 295,689
shares upon shareholder approval.
Robert A. Berman
Thomas W. Aro
Scott A. Kaniewski
Herbert F. Kozlov
Brett G. Tollman
Paul de Bary
William W. Hopson
Corporate Performance Graph. The
following graph shows a comparison of cumulative total
stockholders' returns from December 31, 1996 through December 31,
2001 for the Company, the Russell 2001 Index ("Russell") 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, 1996 and that all
dividends were reinvested. No dividends have been declared or
paid on the Company's Common Stock.
The Company's warrants expired on December 31, 2001 and are no
longer listed on the OTCBB and Boston Stock Exchange.
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 Company's common stock must report on
their ownership of the Company's 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.
Berman, Kaniewski and Aro), 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 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 400,000 and 90,000 shares of the Company's
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
a share of the Company's 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 the Company's 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 such other
conditions on exercise as it deems appropriate.
Option Grants
Under the Stock Option Plans, net of
certain simultaneous cancellations to existing employees and
excluding the aforementioned options granted in February 2002 to
Mr. Berman and Mr. Kaniewski, there were 24,500, 0 and 138,900
total options granted, including 8,000, 0 and 77,500 to executive
officers, during the fiscal years ended December 31, 2001, 2000 and
1999, respectively. As of December 31, 2001, 175,550 and 62,100
options to purchase shares of the Company's 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OWNERSHIP OF SECURITIES
As of April 1, 2002, there were issued and
outstanding 4,804,315 shares of the Company's common stock,
44,258 shares of Series B Preferred Stock and 1,080 shares of Series
D Preferred Stock.
Each share of Common Stock entitles the
holder thereof to one vote, and each share of Series B Preferred Stock
entitles the holder thereof to .8 votes. The Series D Preferred Stock
has no voting rights prior to its conversion into the Company's
common stock.
The following table sets forth certain
information as of April 1, 2002, with respect to each beneficial owner
of five percent (5%) or more of the outstanding shares of the
Company's 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, 29-76
Northern Boulevard, 2nd Floor, Long Island City, New York 11101
Title of Class Name and Address No. of Percent
Shares(1) of Class(2)
Common Stock Robert A. Berman (13) 2,903,331 60.43
$.01 par value Scott A. Kaniewski (14) 2,902,731 60.42
Stanley Tollman (3) (4) 50,000 1.03
Beatrice Tollman (4) (7) 181,589 4.11
Thomas W. Aro (5) 46,200 0.95
Brett G. Tollman (6) 198,988 3.98
Herbert F. Kozlov (9) 25,500 0.53
Craig Kendziera (10) 8,530 0.18
Robert Steenhuisen (11) 8,500 0.18
Philip Berman (15) (16) 2,902,710 60.42
Watertone Holdings, LP
(16) (19) 2,902,710 60.42
c/o Scott Kaniewski
2412 Central Park Avenue
Evanston, IL
New York Gaming LLC
(17) (19) 575,874 11.99
c/o Scott Kaniewski
2412 Central Park Avenue
Evanston, IL
BKB, LLC (18) (19) 2,902,710 60.42
c/o Scott Kaniewski
2412 Central Park Avenue
Evanston, IL
Bryanston Group, Inc. (7) 2,326,857 48.44
1886 Route 52
Hopewell Junction, N.Y.
Societe Generale (14) 69,412 1.42
1221 Ave of the Americas
New York, NY
All Current Officers and Directors
as a group without duplicating
Shared beneficial interest
(7 persons)
(5, 6, 9-11, 13,14) 3,191,049 64.6
Preferred Stock, BP Group, Ltd. (10) 44,258 100.0
Series B 8306 Tibet Butler Rd.
$29.00 Windemere, Fl
liquidation
value
Preferred Stock,
Series D Societe Generale 1,080 100.0
$1,000.00
liquidation
value
(1) Except as noted below, 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 of
common stock 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.
(2) Each beneficial owner's percentage
ownership is determined 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.
(3) Includes 50,000 shares of common
stock issuable upon the exercise of options
granted to Stanley S. Tollman, previously
the Chairman of the Board, Chief
Executive Officer and President of the
Company until his retirement on February
12, 2002. Does not include any shares of
common stock issuable upon payment of
Mr. Tollman's accrued compensation of
$1,529,167. 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.
(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.
(5) Includes 46,000 shares of common
stock issuable upon the exercise of options
granted to Mr. Aro, all of which options
are currently exercisable.
(6) Includes 43,000 shares of common
stock issuable upon the exercise of options
granted to Brett G. Tollman, all of which
options are currently exercisable, and
100,000 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.
(7) Includes: (i) 621,790 shares of
common stock issued upon conversion in
January 2002 of 777,238 shares of Series
B Preferred Stock owned by Bryanston;
and (ii) 324,389 shares of common stock
issuable upon conversion in January 2002
of 135,162 shares of Series C Preferred
Stock owned by Bryanston. On May 17,
1998, the Company declared a dividend of
approximately 151,900 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. During 2000, the Company
declared and issued 42,600 and 183,100
additional shares of common stock in lieu
of cash dividends payable with respect to
Bryanston's shares of Series B Preferred
Stock for the 1999 and 1998 calendar
years, respectively. In April 2001, the
Company declared and issued dividends
for the 2000 year with respect to
Bryanston's shares of Series B Preferred
Stock amounting to 299,610 shares of the
Company's common stock. In January
2002, the Company declared and issued
dividends for the 2001 year with respect to
Bryanston's shares of Series B Preferred
Stock amounting to 241,202 shares of the
Company's common stock. In January
2002, the Company declared and issued
dividends for the 1998, 1999, 2000 and
2001 years with respect to Bryanston's
shares of Series C Preferred Stock
amounting to a total of 161,128 shares of
the Company's common stock. In
February 2002, the Company issued with
respect to indebtedness owing to
Bryanston, 237,991 shares of common
stock. 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.
(8) On May 17, 1998, the Company
declared a dividend of approximately
8,600 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
Common Stock were issued on January 5,
1999. In addition, during 2000, the
Company declared and issued to BP
approximately 2,400 and 11,100
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. In April 2001, the Company
declared and issued dividends for the 2000
year with respect to BP's shares of Series
B Preferred Stock amounting to 17,061
shares of common stock. In February
2002, the Company declared and issued
dividends for the 2001 year with respect to
BP's shares of Series B Preferred Stock
amounting to 12, 995 shares of common
stock. Patricia Cohen is the sole
stockholder of BP. This table does not
include 35,406 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.
(9) Includes 25,500 shares of common
stock issuable upon the exercise of options
granted to Mr. Kozlov, all of which
options are currently exercisable.
(10) Includes 8,500 shares of common
stock issuable upon the exercise of options
granted to Mr. Kendziera, all of which
options are currently exercisable.
(11) Includes 8,500 shares of common
stock issuable upon the exercise of options
granted to Mr. Steenhuisen, all of which
options are currently exercisable.
(12) Consists of 56,912 shares of common
stock issuable to Societe Generale to reach
the maximum issuable of 3,300,000 in
connection with its remaining 1,080 shares
of the Company's Series D Preferred
Stock and 12,500 shares issuable upon the
exercise of warrants, which warrant are
currently exerciable.
(13) Consists of 600 shares owned by Mr.
R. Berman, 575,874 shares owned by New
York Gaming, LLC (with respect to which
Mr. R. Berman has shared voting and
disposition rights) and the Bryanston
Shares (as defined below) (with respect to
which Mr. R. Berman has shared voting
rights for the limited purpose provided for
under the Bryanston Proxy (as defined
below)). Does not include the 95,016
shares with respect to which Mr. R.
Berman has been granted an option under
his employment agreement since such
options are neither currently exercisable
nor exercisable within 60 days. Does not
include options granted to Mr. Berman to
purchase, at an exercise price of $17.49
per share, up to 95,016 shares of the
company's common stock which are
increased to 295,689 shares of the
Company's common stock, upon
shareholder approval.
(14) Consists of 575,874 shares owned by
New York Gaming, LLC (with respect to
which Mr. Kaniewski has shared voting
and disposition rights) and the Bryanston
Shares (with respect to which Mr.
Kaniewski has shared voting rights for the
limited purpose provided for under the
Bryanston Proxy). Does not include the
95,016 shares with respect to which Mr.
Kaniewski has been granted an option
under his employment agreement since
such options are neither currently
exercisable nor exercisable within 60 days.
Does not include options granted to Mr.
Kaniewski to purchase, at an exercise
price of $17.49 per share, up to 95,016
shares of the company's common stock
which are increased to 295,689 shares of
the Company's common stock, upon
shareholder approval.
(15) Consists of 575,874 shares owned by
New York Gaming, LLC (with respect to
which Mr. P. Berman has shared voting
and disposition rights) and the Bryanston
Shares (with respect to which Mr. P.
Berman has shared voting rights for the
limited purpose provided for under the
Bryanston Proxy).
(16) Consists of 575,874 shares owned by
New York Gaming, LLC (of which
Watertone Holdings, LP is the manager)
and the Bryanston Shares (with respect to
which Watertone Holdings, LP had been
granted a proxy for the limited purpose
provided for under the Bryanston Proxy).
(17) Consists of 575,874 shares owned by New York
Gaming, LLC.
(18) Consists of 575,874 shares owned by New York
Gaming, LLC (of which Watertone Holdings, LP is the
manager and of which BKB, LLC is the general partner) and
the Bryanston Shares (with respect to which Watertone
Holdings, LP had been granted a proxy for the limited
purpose provided for under the Bryanston Proxy).
(19) Bryanston has granted a limited proxy (the "Bryanston
Proxy") to Watertone Holdings, LP ("Watertone") to vote
Bryanston's 2,326,856 shares (the "Bryanston Shares") at the
next meeting of stockholders in favor of a proposal to
approve the grant of an additional 205,538 options to each of
Robert A. Berman and Scott A. Kaniewski. Additionally,
Watertone is the manager of New York Gaming LLC, which
owns 575,874 shares,
and BKB, LLC is the general partner in Watertone. Robert
A. Berman, Scott A. Kaniewski and Philip Berman have
shared power to direct BKB, LLC (as the general partner in
Watertone) to exercise the vote attendant to such shares
owned by New York Gaming LLC and to exercise the vote
attendant to the shares covered by the Bryanston Proxy.
None of such persons has any power to dispose or to direct
the disposition of the shares covered by such proxy. Each of
Watertone, BKB, LLC and Messrs. R. Berman, Kaniewski
and P. Berman disclaims beneficial ownership of any of the
Bryanston Shares for any purpose other than voting on the
above-referenced proposal.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Bryanston
Bryanston, a major shareholder 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 Series B Preferred Stock based on
the fair market value of a share of common stock on the date of
conversion ($3.625).
Each share of outstanding Series B Preferred Stock: (i)
entitles the holder to .8 votes; (ii) has a liquidation value of $29.00 per
share; (iii) has a cash dividend rate of 10% of the liquidation value,
which rate increases to 13% of the liquidation value if the cash
dividend was 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) wis
convertible into .8 shares of common stock. On December 17, 1997,
the Company declared a 1996 dividend payable to Bryanston in
approximately 73,000 shares of common stock, which were issued in
April 1998. On May 12, 1998, the Company declared a 1997 dividend
payable to Bryanston in approximately 151,900 shares of common
stock, which were issued on January 5, 1999. During 2001, the
Company declared and issued 42,600 and 183,100 additional shares
of common stock in lieu of cash dividends payable with respect to
Bryanston's shares of Series B Preferred Stock for the 1999 and 1998
calendar years, respectively. In April 2001, the Company declared
and issued dividends for the 2000 year with respect to Bryanston's
shares of Series B Preferred Stock amounting to 299, 610 shares of
common stock. In February 2002, the Company declared and issued
dividends for the 2001 year with respect to Bryanston's shares of
Series B Preferred stock amounting to 241,202 shares of common
stock. In addition, in February 2002, Bryanston converted its shares
of Series B Preferred Stock to common shares and received 621,790
shares of common stock.
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. 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. 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 an
annual dividend of $5.65 per share. In addition, the terms of the
preferred shares included a provision allowing the Company the
option of calling the preferred shares based upon the occurrence of
certain capital events that realize a profit in excess of $5,000,000. In
January 2002, the Company declared and issued dividends for the
1998, 1999, 2000 and 2001 years with respect to Bryanston's shares
of Series C Preferred stock amounting to a total of 161,128 shares of
common stock. In addition, in February 2002, Bryanston converted
its shares of Series C Preferred Stock into common shares and
received 324,389 shares of common stock. Additionally, in January
2002, in extinguishment of the remaining balance of $1,448,773 of
principal and interest on the aforementioned $3,000,000 promissory
note on the Company's idle gaming vessel and an additional $455,151
liability pertaining to a transferred a portion of its of an interest in
CDL, Bryanston received 237,991 shares of common stock.
Casino Ventures
On July 8, 1999, the Company contributed its inactive vessel,
the Jubilation Casino, to Casino Ventures. Matthew Walker, a former
director of the Company from December 4, 1995 to March 21, 2002,
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%. There have been no such quarterly payments made to date,
which has resulted in the default rate of interest of 12.75% being
charged effective September 1, 1999. The Company's current 93%
membership interest in Casino Ventures is subject to dilution or other
reduction in certain circumstances. Mr. Walker advanced funds to
Casino Ventures in 2000 and 2001, which were used for site and
vessel improvements. As of December 31, 2001, the loan payable to
Mr. Walker amounted to $1,480,000. The loan accrues interest at 8%
and is payable in April 2003. In addition, $100,000 and $12,000 of
the Casino Venture start-up costs in 2000 and 1999, respectively, were
made to entities in which Mr. Walker has an ownership interest. The
consolidated financial statements of the Company will include the
accounts of Casino Ventures until such time as the Company's
membership interest decreases therein to less that 50%. All
intercompany items, including the promissory note, are eliminated in
consolidation. During the year ended December 31, 2001, the
Company capitalized $691,000 of costs related to the relocation and
refurbishing of the vessel and improvements to its site in Tunica,
Mississippi. An additional $219,000 of start-up costs were incurred
during 2001. During 1999, the vessel was used as collateral to obtain
funding of $650,000 towards the aforementioned costs of Casino
Ventures. The $650,000 mortgage is currently in default.
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 4,700 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
8,600 shares of common stock, which were issued on January 5, 1999.
In addition, during 2001, the Company declared and issued to BP
approximately 2,400 and 11,100 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. In April 2001, the Company declared and issued
dividends for the 2000 year with respect to BP's shares of Series B
Preferred Stock amounting to 17,061 shares of common stock. In
February 2002, the Company declared and issued dividends for the
2001 year with respect to BP's shares of Series B Preferred Stock
amounting to 12, 995 shares of common stock.
Other
A director of the Company is a partner in a law firm that
provides legal services to the Company. Fees to such firm in the years
ended December 31,2001, 2000 and 1999, have been recorded at
approximately $193,0000, $200,000 and $204,000, respectively,
related to general corporate matter.
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.
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' Reports. . . . . . . . . . . F-1, F-2
Consolidated Balance Sheets . . . . . . . . . . . F-3
Consolidated Statements of Operations. . . . . . . F-4
Consolidated Statements of Stockholders' Equity. . . F-5
Consolidated Statements of Cash Flows. . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . F-8
2. FINANCIAL STATEMENT SCHEDULE
Schedule II Valuation and Qualifying Accounts
for the Years Ended December 31, 2001, 2000 and 1999 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) Form of Indemnification Agreement between the
Company and directors and executive officers of
the Company
*10(c) 1993 Stock Option Plan
*10(d) Form of Service Agreement between the Company
and Bryanston
*10(e) Form of Warrant Agreement among the Company,
the Transfer Agent and the Underwriters
*10(f) Form of Limited Standstill Agreement of the
Existing Stockholders f/b/o the Underwriters
*10(g) Form of Underwriters' Warrant
***10(h) Non-Revolving Promissory Note with
Bryanston Group, Inc.
***10(i) $20,000,000 Non-Revolving
Promissory Note dated January 5,
1996
***10(j) Stock Purchase Agreement dated
October 20, 1996
***10(k) Stock Acquisition Agreement dated
January 25, 1996
***10(l) Form 8-K dated October 31, 1996
***10(m) Deleted
****10(n) Asset Purchase Agreement between
Alpha Gulf Coast, Inc. and Alpha
Greenville Hotel, Inc. and Greenville
Casino Partners, L.P.
10(o) Securities Purchase Agreement dated February 8,
2001
*****10(p) 1998 Stock Option Plan
******10(q) Securities Purchase Agreement, dated February 8,
2001, between the Company and Societe Generale
with respect to the issuance and sale of shares of the
Company's Series D Preferred Stock
******10(r) Certificate of Designations of the
Company's Series D Preferred Stock
******10(s) Registration Rights Agreement, dated
February 8, 2001, between the
Company and Societe Generale with
respect to the shares of common stock
underlying the Company's Series D
Preferred Stock
*******10(t) Securities Purchase Agreement, dated July 31,
2001, between the Company and Societe Generale
with respect to the issuance and sale of the
Company's 4% Convertible Notes due July 31,
2003 and warrants
*******10(u) Registration Rights Agreement, dated July 31,
2001, between the Company and Societe Generale
with respect to the shares of common stock
underlying the Company's 4% Convertible Notes
due July 31, 2003 and the warrants
*******10(v) Form of the Company's 4% Convertible Notes due
July 31, 2003
*******10(w) Form of the Warrants
10(x) Amended and Restated Contribution Agreement,
dated as of February 8, 2002, by and between Alpha
Hospitality Corporation and Watertone Holdings,
LP (incorporated by reference - filed as an exhibit
to Form 8-K filed by Alpha Hospitality Corporation of February
26, 2002)
10(y) Employment Agreement - Berman
Stock Option Agreement - Berman
Employment Agreement - Kaniewski
Stock Option Agreement - Kaniewski
Tag- Along Agreement, dated as of March 12,
2002, by and between Bryanston and Watertone Holdings L.P
10(z) Exhibit 3.1 Amendment to Certificate of
Incorporation
Exhibit 4.1 Specimen Stock Certificate
10(aa) Irrevocable Proxy for Meeting of Shareholders of
Alpha Hospitality Corporation, dated March 12,
2002, given by Bryanston to Watertone Holdings,
L.P.
10(ab) Amendments to By-Laws
23(a) Consent of Rothstein Kass & Co.
*11 Statement Re: Computation of Per Share Earnings
21 List of Subsidiaries
(b) Reports on Form 8-K in the last quarter covered by this report.
Date filed - November 16, 2001
Item 5. Other Events
Date filed - February 12, 2002
Item 4. Changes in Registrants Certifying Accountants
Item 7 - Financial Statements and Exhibits
Date filed - February 26, 2002
Item 5 - Other Events
Item 7 - Financial Statements, Proforma Financial
Information and Exhibits
* 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.
******Incorporated by reference, filed with the Company's Current
Report on Form 8-K as filed with the
Commission on February 15, 2001.
*******Incorporated by reference, filed with the Company's
Registration Statement on Form S-3 as filed with the
Commission on October 12, 2001.
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
Alpha Florida Entertainment,
L.L.C. Florida
Alpha Casino Management Inc. Delaware
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed onits behalf by the undersigned, thereunto
duly authorized.
ALPHA HOSPITALITY CORPORATION
By: /s/ Robert A. Berman
Robert A. Berman
Title: Chairman of the Board
and Chief Executive Officer
Date: April 1, 2002
By: /s/ Robert Steenhuisen
Robert Steenhuisen
Title: Chief Accounting Officer
Date: April 1, 2002
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/ Robert A. Berman Chairman of the Board and April 1, 2002
Robert A. Berman Chief Executive Officer
/s/ Thomas W. Aro Vice President, Secretary April 1, 2002
Thomas W. Aro and Director
/s/ Scott Kaniewski Executive Vice President of April 1, 2002
Scott Kaniewski Development and Finance
and Director
/s/ Brett G. Tollman Vice President and Director April 1, 2002
Brett G. Tollman
/s/ Herbert F. Kozlov Director April 1, 2002
Herbert F. Kozlov
/s/ Paul de Bary Director April 1, 2002
Paul de Bary
/s/ William Hopson Director April 1, 2002
William Hopson
FRIEDMAN ALPREN & GREEN LLP
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
1700 BROADWAY
NEW YORK, NY 10019
212-582-1600
FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ALPHA HOSPITALITY CORPORATION
We have audited the accompanying consolidated
balance sheet of ALPHA HOSPITALITY CORPORATION
AND SUBSIDIARIES as of December 31, 2001, and the
related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with
auditing standards generally accepted in the United States
of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the consolidated 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 audit provides 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,
2001, and the consolidated results of their operations and
their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United
States of America.
Our audit was 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 audit 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/ Friedman Alpren & Green LLP
New York, New York
March 20, 2002
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
ALPHA HOSPITALITY CORPORATION
New York, New York
We have audited the accompanying consolidated balance
sheet of Alpha Hospitality Corporation and Subsidiaries as
of December 31, 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows
for each of the years in the two-year period ended December
31, 2000. 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 the auditing
standards generally accepted in the United States of
America. 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 the
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, 2000, and the results
of their operations and their cash flows for each of the
years in the two-year period ended December 31, 2000, in
conformity with accounting principles generally accepted
in the United States of America.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
February 23, 2001
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(In thousands, except for per share data)
2001 2000
ASSETS
CURRENT ASSETS:
Cash 20 $ 1,263
Other current assets 56 696
Total current assets 76 1,959
PROPERTY AND EQUIPMENT, net 11 2,311
INVESTMENT AND ADVANCES IN CATSKILL
DEVELOPMENT, LLC 2,947 2,503
ASSETS OF CASINO VENTURES, including
idle property and
equipment of $7,063 and $6,373 7,176 6,448
DEPOSITS AND OTHER ASSETS 178 312
$ 10,388 $ 13,533
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,770 $ 1,329
Accrued payroll and related liabilities 229 178
Current liabilities of Casino Ventures 1,453 1,597
Total current liabilities 3,452 3,104
LONG-TERM RELATED PARTY DEBT,
including accrued interest 3,640 4,003
LONG-TERM RELATED PARTY LIABILITIES
OF CASINO VENTURES 1,480 804
OTHER LIABILITIES 267 960
LIABILITIES TO BE SETTLED WITH COMMON
STOCK 3,683
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 808 1,086
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.01 par value,7,500
shares authorized, 2,629 and
2,075 issued and outstanding in
2001 and 2000, respectively 26 20
Preferred stock, 5,000
shares authorized $.01 par value;
Series B, 821 issued
and outstanding 8 8
Series C, 135 issued
and outstanding 1 1
Series D, 1 and 2
issued and
outstanding in
2001 and 2000, respectively 0 0
Capital in excess of par value 92,196 86,146
Accumulated deficit (95,173) (82,599)
Total stockholders' equity
(deficiency) (2,942) 3,576
$ 10,388 $ 13,533
See accompanying notes to consolidated financial statements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except for per share data)
2001 2000 1999
REVENUES:
Casino $ 2,898 $ 324 $ --
Food and beverage,
retail and other 217 548 185
Total revenues 3,115 872 185
COSTS AND EXPENSES:
Casino 1,737 215 --
Food and beverage,
retail and other 70 26 --
Stock compensation to
employees 2,594 (3,251) 3,251
Selling, general and
administrative 6,128 2,424 1,649
Interest 443 251 168
Depreciation and amortization 759 113 38
Pre-opening and development
costs 92 1,400 842
Loss on abandonment of assets 1,846 341 --
Total costs and expenses 13,669 1,519 5,948
NET LOSS BEFORE MINORITY INTEREST (10,554) (647) (5,763)
MINORITY INTEREST 1,077 235 --
NET LOSS (9,477) (412) (5,763)
DIVIDENDS ON PREFERRED STOCK (5,789) (6,194) --
LOSS APPLICABLE TO COMMON SHARES $(15,266) $(6,606) $(5,763)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING,
basic and diluted 2,355 1,868 1,677
LOSS PER COMMON SHARE,
basic and diluted $ (6.48) $ (3.54) $ (3.44)
See accompanying notes to consolidated financial statements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except for per share data)
Common
Preferred Stoc Preferred Stock Preferred Stock Capital in Stock
Series B Series C Series D Common Stock Excess of To be Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Par Value Issued Deficit
Balances,
January 1, 1999. . 821 8 135 1 1,518 15 72,508 2,861 (70,230)
Common stock issued
in settlement
of preferred
stock dividend
payable . 160 2 2,859 (2,861)
Common stock issued
from exercise
of warrants . . 2 60
Common stock to be
issued in
settlement of
certain
liabilities. . 50
Stock compensation
to employees. . 3,251
Net loss . . . . . (5,763)
Balances, December
31, 1999. . . 821 8 135 1 1,680 17 78,678 50 (75,993)
Preferred stock issued
in private
placement . . . . 4 0 3,867
Preferred stock
converted to common
stock . . . . . . . . (2) 139 1 (1)
Common stock issued
from exercise of
options. . . . . . . . 14 148
Preferred stock dividend
payable in
common stock . . . . 239 2 6,192 (6,194)
Common stock issued in
settlement of certain
liabilities . . . . 3 50 (50)
Warrant issued . . . . 213
Stock compensation
to employees. . . . . (3,251)
Compensation expense,
services contributed. 250
Net loss . . . . . (412)
Balances, December 31,
2000. . . . . . . 821 8 135 1 2 0 2,075 20 86,146 0 (82,599)
Preferred stock
dividend payable
in common stock . . 317 3 3,094 (3,097)
Stock compensation to
employees. . . . . 2,594
Common stock issued from
exercise of
stock options . . . 29 1 10
Preferred stock
converted to
common stock. . . . (1) 191 2 (2)
Long term debt
converted to
common stock . . . 17 104
Compensation
expense services
contributed . . . . 250
Net loss . . . . . . . (9,477)
Balances, December
31, 2001. . . . . .821 $ 8 135 $ 1 1 $ 0 2,629 $ 26 $92,196 $ 0 $ (95,173)
See accompanying notes to consolidated financial statements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except for per share data)
2001 2000 1999
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (9,477) $ (412) $ (5,763)
Adjustments to
reconcile net loss
to net cash used in
operating activities:
Minority interest (1,077) (235) --
Depreciation and
amortization 759 113 38
Stock compensation to
employees 2,594 (3,251) 3,251
Interest amortized
on loan discount 81 29 --
Compensation payable
in common stock 250 250 --
Loss on abandonment
of assets 1,846 341 --
Changes in operating
assets and
liabilities:
(Increase) decrease
in other
current assets 597 (574) 81
Increase in accounts
payable and
accrued expenses 663 (86) 360
Increase in accrued
payroll and related
liabilities 50 126 75
Decrease in other
liabilities (238) -- --
NET CASH USED IN OPERATING
ACTIVITIES (3,952) (3,699) (1,958)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments and advances
in Catskill Development,
L.L.C. (444) (681) 0
Purchases of property
and equipment (879) (3,087) (385)
(Payments) receipts for
deposits and other assets 23 (90) (39)
NET CASH USED IN INVESTING
ACTIVITIES (1,300) (3,858) (424)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributed by
holders of minority interest 800 1,321 --
Proceeds from sale of
preferred stock, net -- 3,867 --
Proceeds from related
party long-term debt 3,195 -- --
Proceeds from exercised
warrants and stock options 10 148 60
Proceeds from other long-term
debt and warrants, net of
loan costs 4 2,020 650
Payments on long-term debt -- -- (701)
NET CASH PROVIDED IN FINANCING
ACTIVITIES 4,009 7,356 9
NET DECREASE IN CASH (1,243) (201) (2,373)
CASH, beginning of year. 1,263 1,464 3,837
CASH, end of year $ 20 $ 1,263 $ 1,464
See accompanying notes to consolidated financial statements
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except for per share data)
2001 2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid for interest
during the year. . . . . . . . . $ 21 $ 110 $ 158
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Increase in other liabilities
related to an investment
in real property which the Company
received from an affiliate . . . . $ 456
Issuance of stock warrants with debt. $ 213
Common stock issued in
conversion of long-term debt . . $ 104
Increase in other current assets
related to receivable from sale
of equipment. . . . . . $ 35
Common stock issued in settlement
of preferred stock dividends . . $ 3,097 $ 6,194 $ 2,861
See accompanying notes to consolidated financial statements
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, is engaged in the development and
operation of gaming operations in New York, Mississippi and
Florida. In November 2001, the Company ceased operating its
gaming day cruise vessel operating in Florida. The Company is
pursuing additional gaming-related and other opportunities. Its major
effort is investing in the development and management of a potential
casino in Monticello, New York
Note 2. Liquidity
The Company has sustained net losses over the past few years
and, at December 31, 2001, had a net working capital deficit, of
$3,376. In addition, Casino Ventures, a subsidiary of the Company,
is in default of a mortgage on its gaming boat. The Company also
had ceased operations of it gaming boat in Florida and has no other
operations. Its main activity, the development of it interest in a
proposed casino in Monticello, New York, is discussed in Note 5.
Management is vigorously pursuing the litigation relative to
the development of a casino in Monticello, New York and is raising
funds by selling its inactive properties (see Note 4). In March 2002,
the Company sold its 19% interest in Greenville Casino Partners, LP
("GCP") and related management contract for a gain of
approximately $3,000. The Company has received $500 in cash and
anticipates receiving the remaining $2,500 in April 2002.
The Company anticipates issuing equity securities to meet
working capital requirements and acquire businesses that will
enhance the Company's operations and also take advantage of its net
operating loss carryforwards.
Note 3. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial
statements include the accounts of the Company and its wholly-
owned and majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash. The Company maintains its cash in several banks
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 and improvements 20 years
Leasehold and improvements 10-20 years
Gaming equipment 5-7 years
Furniture, fixtures and equipment 5-7 years
Property and equipment held for disposal is not depreciated
or amortized.
Investments. The Company's 19% limited partnership interest
in Greenville Casino Partners ("GCP") is being accounted for under
the equity method of accounting. Because of GCP's significant
operating losses, the Company wrote the investment down to zero
and did not recognize its proportionate share of GCP's undistributed
earnings or losses (see Note 4). The Company's investment in
Catskill Development, LLC ("CDL") is limited to access to 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.
ALPHA HOSPITALITY CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 3. Summary of Significant Accounting Policies
(CONTINUED)
Pre-opening and Development Costs. The Company incurs
costs in connection with start-up casino operations and joint ventures.
The Company's policy is to expense pre-opening and development
costs as incurred.
Earnings (Loss) Per Common Share. 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 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. Since the effect
of outstanding options and warrants is antidilutive, they have been
excluded from the Company's computation of loss per common
share. Therefore, basic and diluted loss per common share for the
years ended December 31, 2001, 2000 and 1999 were the same.
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 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 is the net win from gaming
activities, which is the difference between gaming wagers less the
amount paid out to patrons.
Promotional Allowances. Promotional allowances primarily
consists of food and beverage furnished gratuitously to customers.
Revenues do not include the retail amount of food and beverage of
$73 and $44 for the years ended December 31, 2001 and 2000,
respectively, provided gratuitously to customers. The cost of these
items of $70 and $39 for the years ended December 31, 2001 and
2000, respectively, are included in casino expenses.
Fair Value of Financial Instruments. The Company's
financial instruments primarily consist of debt owed to related
parties, a mortgage owed to a third party, and the investment in CDL.
The mortgage is currently in default. The fair value of the related
party debt and mortgage is not reasonably determinable because no
market exists for these instruments and it was impracticable to
estimate fair values. The fair value of the investment in CDL is not
reasonably determinable because no market exists for that instrument
and it was impracticable to estimate its fair value.
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. 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 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.
ALPHA HOSPITALITY CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 3. Summary of Significant Accounting Policies
(CONTINUED)
Recent Accounting Pronouncements. In July 2001, the
Financial Accounting Standards Board ("FASB") issued SFAS No.
141 "Business Combinations" and SFAS No. 142 "Goodwill and
Other Intangible Assets". SFAS 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase
method of accounting and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill will be
evaluated against the new criteria and may result in certain amounts
initially recorded as goodwill being separately identified and
recognized apart from goodwill. SFAS No. 142 requires the use of
a non-amortization approach to account for purchased goodwill and
certain intangibles. Under such approach, goodwill and certain
intangibles will not be amortized into results of operations, but
instead would be reviewed for impairment and written down and
charged to operations only in periods in which the recorded value of
goodwill and intangibles exceeds it fair value. The statements are
fully effective January 1, 2002. The provisions of the statements are
not expected to have a significant effect on the Company's financial
position or operating results.
The FASB also recently issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", that is
applicable to financial statements issued for fiscal years beginning
after December 15, 2001. The FASB's new rules on asset
impairment supersede SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", and portions of Accounting Principles Board Opinion
30, "Reporting the Results of Operations". This statement provides
a single accounting model for long-lived assets to be disposed of and
significantly changes the criteria that would have to be met to classify
an asset as held-for-sale. Classification as held-for-sale is an
important distinction since such assets are not depreciated and are
stated at the lower of fair value or carrying amount. This statement
also requires expected future operating losses from discontinued
operations to be displayed in the period(s) in which the losses are
incurred, rather than as of the measurement date as presently
required. The Company has not yet determined the effect of this
statement on its financial position or operating results.
Reclassifications. Certain prior year amounts have been
reclassified to conform to the 2001 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, the Bayou 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,
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. In March 2002, the Company agreed to sell its
19% interest in GCP to JMBS Casino LLC for approximately $2,500
and its management contract to Greenville C.P. Inc. for
approximately $500. The Company will recognize its gain on the
sale in the first quarter of 2002.
Note 5. Investment in Catskill Development, LLC
In October of 1995, Catskill Development, LLC
("CDL") was formed to actively and diligently pursue the
development of the casino gambling idea (the "Casino Project").
The group's business plan envisioned three distinct lines of business
with the members participating in those lines somewhat in proportion
to the expertise that each group brought to the venture. The defined
lines of business included: a) casino activities; b) real estate related
activities; and c) the operation of the Monticello Raceway (the
"Raceway"). CDL's plan was to seek approval under federal statutes
governing Native American gaming for an off-reservation casino to
be located in Monticello, New York. This was a unique plan because
the land involved was not on a reservation itself, but off-reservation,
far removed from the Mohawk Tribe's existing reservation lands in
upstate New York and Canada.
ALPHA HOSPITALITY CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 5. Investment in Catskill Development, LLC
(CONTINUED)
On June 3, 1996, CDL acquired the Raceway
for $10,000. Of the real property purchased, 29.31 acres adjacent to
the Raceway were set aside for 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 Mohawk Tribe were
successful, and on July 31, 1996, the first of numerous contracts
between CDL (and its affiliates) and the Mohawk Tribe was entered
into.
Mohawk Management LLC ("MML") was
created by CDL to provide technical and financial expertise to assist
the Mohawks in obtaining financing and to manage, operate and
maintain the proposed casino. Monticello Raceway Development,
LLC ("MRD") was created by CDL to develop the casino property
by providing technical expertise for the planning, design,
engineering, construction and operational start-up of the proposed
casino and the real property surrounding the proposed casino site.
MRD also contracted to assist the Mohawks in obtaining a loan to
finance constructing, equipping and operating the proposed casino.
CDL, in conjunction with its affiliates, assumed responsibility for,
and undertook, seeking and obtaining all local, state and federal
approvals required for construction and operation the Casino Project.
On April 22, 2000, the Company and CDL
became aware of a purported letter agreement between the Mohawk
Tribe and Park Place Entertainment ("PPE"), which agreement
purportedly gave PPE the exclusive rights to develop and manage
any casino development the Mohawk Tribe may have in the State of
New York. The validity of such purported agreement was not, and
is not, clear. On November 13, 2000, MML and CDL (collectively,
the "Plaintiffs") joined in a suit (the "PPE Litigation") filed in United
States District Court, Southern District of New York (the "Court")
against PPE, alleging entitlement to substantial damages as a
consequence of, among other things, PPE's wrongful interference
with several agreements between CDL and the Mohawk Tribe
pertaining to the proposed Casino Project.
Mohawk's and CDL's Federal Application. On
August 2, 1996, the Mohawks and CDL submitted an application to
the United States Department of the Interior, 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,
as provided under Indian Gaming Regulatory Act ("IGRA"). 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 Mohawks and was not detrimental to the surrounding community.
Pursuant to IGRA, 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 CDL's application for the Mohawks 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 Mohawks 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 Mohawks
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
Mohawks and not detrimental to the surrounding community. By
letter dated April 6, 2000, addressed
ALPHA HOSPITALITY CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 5. Investment in Catskill Development, LLC
(CONTINUED)
to Governor George Pataki, Kevin Gover, Assistant Secretary of the
Department of the Interior, advised and notified the Governor of New
York that the Casino Project had been approved and specifically
requested that the Governor concur.
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 a proposed casino on land to be owned
by the Mohawk Tribe. 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 Mohawk Tribe
for the management of a proposed casino to be built on the current
site of the Raceway in Monticello, New York (the "Monticello
Casino"). Among other things, the Management Contract provided
MML with the exclusive right to manage the Monticello Casino for
seven (7) years from its opening and to receive certain fees for the
provision of management and related services.
By its terms, the Memorandum between CDL and AMI
terminated on December 31, 1998, since all of the governmental
approvals necessary for the construction and operation of the
Monticello Casino were not obtained by MML. The Management
Contract between MML and the Mohawk Tribe contained no such
provision. Additionally, the Memorandum was silent as to
the effect 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 derived from the underlying casino management and
development contracts. The original Management Contract
contemplated an arrangement specific to the Mohawk 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 Alpha,
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") 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 its 25% interest in the Raceway's
parimutuel operations to AMI. Under the previous agreement, AMI
did not participate in this source of revenue. As of December 31,
2001 and December 31, 2000, the Company capitalized $2,492 and
$2,047, respectively towards the design, architecture and other costs
of the development plans for the proposed Monticello Casino.
In connection with the final settlement agreement, certain
CDL members (i.e., Americas Tower Partners and Monticello Realty,
LLC) were granted the right to receive $5,000 as a "Senior
Obligation". Under the terms of the settlement agreement, no other
payments are permitted to be made to the members in CDL until the
Senior Obligations (which, as of December 31, 2001, amounted to
approximately $6,000, inclusive of accrued interest) are paid in full.
Additionally, no income with respect to the interests in CDL is to be
distributed to members until certain "Priority Returns" (consisting of
the capital contributions made by the members, together with interest
thereon at 10% per annum, compounded annually) have been paid.
As of December 31, 2001, the aggregate amount needed to satisfy the
payment of Priority Returns was approximately $34,200. In light of
the foregoing, the Company is not expected to receive any
distributions from CDL until CDL has achieved net revenues
sufficient to discharge the Senior Obligations, nor does it anticipate
receiving any distributions of income with respect to its interests in
ALPHA HOSPITALITY CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 5. Investment in Catskill Development, LLC
(CONTINUED)
CDL (other than with respect to its capital contributions and interest
thereon) until CDL has achieved additional net revenues sufficient
also to discharge the payment of the Priority Returns.
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. Details of
how the VLTs will be operated and how revenues will be shared have
yet to be worked out with the Lottery. The Company and its partner,
CDL, are aggressively exploring how this recently enacted VLT
Legislation may impact upon its future activities at the Raceway.
On February 12, 2002, the Company entered into an
agreement with Watertone Holdings, L.P. ("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.
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).
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%.
During 2001, 2000 and 1999, AMI incurred $470, $962 and
$209, respectively, of costs related to the proposed development of
the Casino Project, of which $444, $681, and $0, respectively, has
been capitalized, and the remaining $25, $281 and $209,
respectively, of which has been expensed are substantially as a
corporate overhead allocation.
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 and 2001 that were used for site and
vessel improvements. As of December 31, 2001, the loan payable to
the former director amounted to $1,480. The loan accrues interest at
8% and matures April 2003. In addition, $100 and $12 of the Casino
Ventures start up costs in 2000 and 1999, respectively, were paid to
entities in which the former director has an ownership interest.
During the years ended December 31, 2001, 2000 and 1999, the
Company capitalized $691, $1,859 and $364 of costs, respectively,
related to the refurbishment of the vessel and improvement to its site
in Tunica, Mississippi and incurred $219, $268 and $100 of start-up
costs, respectively. 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 8).
The $650 mortgage is currently in default. Total interest expense on
Casino Venture debt for 2001, 2000 and 1999 amounted to $184, $79
and $22, respectively. Pursuant to an
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 6. Investment in Casino Ventures, L.L.C. (CONTINUED)
amendment agreement effective April 18, 2001, the total
maximum borrowings allowed to be collateralized by the vessel is
$1,000.
At December 31, 2001 and 2000, assets and liabilities of
Casino Ventures consisted of the following:
2001 2000
Assets:
Property and equipment $ 7,063 $ 6,383
Deposits 54 54
Other 59 11
7,176 6,448
Current liabilities:
Long-term liability,
current maturities 683 679
Accounts payable and
accrued expenses 770 918
1,453 1,597
Long-term liabilities,
Long-term debt $ 1,480 $ 804
Note 7. Property and Equipment
At December 31, 2001 and 2000, property and equipment in use is
comprised of the following:
2001 2000
Boat and improvements $ -- $ 1,852
Leasehold improvements -- 88
Gaming equipment -- 280
Furniture, fixtures and
equipment 159 489
159 2,709
Less accumulated depreciation
and amortization 148 398
$ 11 $ 2,311
Since the inception of its operations, the Ella Star
Casino had not achieved the revenues originally anticipated by
management. Following the events of September 11, 2001, the Ella
Star Casino experienced a further decrease in passenger levels as a
result of a general decline in tourism. As a result, the Ella Star
Casino incurred a net loss of $3,800 during the period January 1,
2001 to November 14, 2001. In November 2001, the Company
suspended and subsequently terminated its Ella Star Casino
operations. The Company abandoned its leasehold on the Ella Star
and returned the ship to the lessor, incurring an abandonment loss of
$1,815.
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 December 31,
2001 and 2000, property and equipment held for disposal is as
follows:
2001 2000
Boat and improvements $ 7,872 $ 7,182
Gaming equipment 1,944 1,944
Furniture, fixtures and
equipment 1,471 1,481
11,287 10,607
Less accumulated depreciation
and amortization (4,224) (4,224)
$ 7,063 $ 6,383
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except for per share data)
Note 8. Long-Term Debt and Other Non-Current Liabilities
Long-term debt at December 31, 2001 and 2000 was comprised of the following:
Interest
Rate 2001 2000
Related Party Debt
Loan payable (a). . . . . . . 4% $ 1,046 $ 1,066
Loan payable to a director of
the Company,
due in April 2003. . . . . . 8% 1,480 804
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% 1,407 1,407
Loan payable to Bryanston, due on
demand after January 1, 2003,
including accrued interest . . . . 8% 2,594 --
Accrued compensation (c). . . . 1,529 1,530
Other payables and accrued expenses . 747 --
Total related party debt. . . . . . . 8,803 4,807
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 29
9,486 5,868
Less amounts included in
liabilities of Casino
Ventures (see Note 6). . . . 2,363 1,483
$ 7,123 $ 4,003
(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 125 warrants exercisable at a price of $2.40 per share, which expire
in July 2003. The loan accrues interest at a rate of 4% per annum, and
Bryanston has agreed, subject to certain terms and conditions, to subordinate
its entitlement to receive cash dividends in lieu of payment on 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 2001, $100 of the
principal amount was converted into 17 shares of the Company's common
stock. At December 31, 2001, approximately $109 has been amortized and
the remaining balance of approximately $104 at December 31, 2001 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
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.
ALPHA HOSPITALITY CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 8. Long-Term Debt (CONTINUED)
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 December 31:
2002 . . . . . . $ 683
2003 . . . . . . 5,120
$ 5,830
Interest expenses on related party debt totaled
$450 and $251 for the years ended December 31, 2001 and 2000,
respectively.
The Company has classified $3,683 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:
Note to Bryanston $ 1,407
Accrued compensation 1,529
Other payables and accrued
expenses 747
$ 3,683
In January the Company issued 238 shares of
common stock to settle the note to Bryanston and other liabilities
totaling $1,904.
Note 9. Commitments, Contingencies and Related Party
Transactions
Lease Commitments. The Company is
obligated under operating leases relative to real property and
equipment expiring through 2003. Future aggregate minimum
annual rental payments under all of these leases are as follows:
Years Ending December 31:
2002 . . . . . .$ 342
2003 . . . . . . 11
$ 353
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. Rent expense under these operating and terminated
leases, including a provision in 2001 for a contingent future rentals
on vacated leases of $342, amounted to approximately $1,642, $533
and $375 for the years ended December 31, 2001, 2000 and 1999,
respectively.
On December 19, 2001, the Company
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").
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 theother 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 up to 95 shares of the Company's common
stock, which number of shares is subject to be increased to 296
shares to each of Mr. Berman and Mr. Kaniewski.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 9. Commitments, Contingencies and Related Party
Transactions (CONTINUED)
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 alleges
entitlement to a finder's fee arising out of the sale of the Jubilee
Casino and seeks contractual and compensatory damages of $1,563,
punitive damages of $10,000 and costs, attorneys' fees and interest.
The Company has denied liability in this matter and is vigorously
defending this claim. Trial is scheduled for April 2002.
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
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 (see Note 12), 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. In 2001, the
Company granted to its outside directors options to purchase an
aggregate amount of up to 15.5 shares of its common stock for the
2001 year at an exercise price of $4.40 per share, which can be
exercised at any time up to 2011. In 1999 and 1998 the Company
granted to its outside directors options to purchase an aggregate
amount of up to 15 and 28.5 shares, respectively, of its Common
Stock at an exercise price of $42.50 and $10.63, 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 2001. The amount granted in 1998 represents
options to purchase aggregate amounts of up to 13.5 and 15 shares
for the 1998 and 1999 years of service, respectively. As
compensation to its employee directors, in the Company granted
options to purchase an aggregate amount of up to 8 shares of its
Common Stock for the 2001 year at an exercise price of $4.40 per
share and up to 9.5 shares of its common stock for each of the 2000
and 1999 years at exercise prices of $42.50 and $10.63, respectively,
per share.
Additionally, in both December 1999 and 1998,
pursuant to the 1998 Stock Option 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, were originally exercisable at a price per share equal to
the closing NASDAQ bid prices on the dates of the respective grants.
The exercise price for the 250 options granted in 1999 and 1998 to
the Company's Chairman to purchase the Company's common stock
were exercisable at prices per share equal to 100% and 110%,
respectively, of the closing NASDAQ bid prices on the respective
dates of the grants. As a result of the cancellation and reassurances
(see Note 12) in 2001 of all the aforementioned director options, the
current exercise price is equal to $4.40 per share, the closing
NASDAQ bid price on the cancellation date in 2001.
A director of the Company is a partner in a law
firm that provides legal services to the Company. Fees to such firm
in the years ended December 31, 2001, 2000 and 1999, have been
recorded at approximately $193, $200 and $204, respectively, related
to general corporate matters.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 10. Accounts Payable and Accrued Expenses
At December 31, 2001 and 2000, accounts payable and accrued
expenses are comprised of the following:
2001 2000
Property and equipment $ 557 $ 1,110
Lease (see Note 9
Lease Commitment) 342 --
Advertising 143 --
Insurance 216 167
Accrued professional fees 546 280
Accrued interest 300 114
Other 443 576
Less amounts included in
liabilities of
Casino Ventures
(see Note 6) (777) (918)
$ 1,770 $ 1,329
Note 11. Stockholders' Equity
Activity
In June 2001, shareholder approval was received
to amend the Company's Certificate of Incorporation, which
provided for a 1 for 10 reverse split of the Company's common
stock. Accordingly, common stock and per share data has been
retroactively restated to give effect to the reverse stock split.
In April 2001, the Company issued 317 shares of
the Company's common stock in connection with dividends on its
Series B Preferred Stock (see below).
On June 13, 2001, the Company authorized
satisfied 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 addition, the Company also
agreed in 2001 to satisfy deferred compensation of $1,529 due to
the CEO and on other payables totaling of $250 with common
stock.
A noncash compensation adjustment related to
certain increases in the price of the Company's common stock for
both exercised and unexercised stock options was recorded in 2001,
which is reflected as an increase of $2,594 in capital in excess of par
value.
During 2001, $100 of debt was converted into 17
shares of the Company's common stock.
During 1999, 2000 and 2001, 2, 14 and 29 shares,
respectively, of the Company common stock was issued upon the
exercise of warrants and options.
During 1999 and 2000, the Company recorded a
$3,251 increase and decrease, respectively, to capital in excess of
par value to reflect a noncash compensation adjustment and
fluctuations in the market price of the Company's common stock.
Further, in 2001 and 2000, the Company's Chairman and CEO's
election to waive $250 of salary has been reflected as an increase in
capital in excess of par value for contributed services (see Note 9).
In February 2000, the Company privately sold 4
shares of its 7% convertible Series D Preferred Stock (see
description below) for an aggregate price of $3,867 net of closing
costs of $133. During 2001 and 2000, 1.02 and 1.9 shares,
respectively, of Series D Preferred Stock were converted into 191
and 139 shares, respectively, of the Company's common stock.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-- (Continued)
(In thousands, except for per share data)
Note 11. Stockholders' Equity (CONTINUED)
In August 2000, in connection with certain debt
financing with the holder of the Company's Series D Preferred
Stock, the Company allocated $213 as the estimated value of
warrants issued in connection with a loan advanced to the Company
by such holder.
In February 2002, the Board of Directors
authorized the issuance of 300 shares of commons stock to settle
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 59 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.
In January 2002, the Company issued 622 and 324
shares of common stock for 777 shares of Series B Preferred Stock
and all of the Series C. Preferred Stock.
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. 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. On May 12, 2000, the Company declared dividends
of $3,097 on the Series B Preferred Stock for both the 1999 and
1998 fiscal years, respectively, amounting to 45 and 194,
respectively, of shares of the Company's common stock. These
shares were issued in July 2000. 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.
The Series C Preferred Stock has voting rights of
2.4 votes per preferred share, is convertible into 2.4 shares of
common stock and carries a sumulative dividend of $5.65 per share.
In addition, the terms of the preferred shares include a provision
allowing the Company the option of calling the preferred shares
based upon the occurrence of certain capital events that realize a
profit in excess of $5,000. In January 2002, the Company declared
and issued dividends for the 1998, 1999, 2000 and 2001 years
amounting to a total of 161 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.
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. In the event such limitation
prevents the conversion of any Series D Preferred Stock, the
dividend rate increases to 15% per annum to be payable in cash in
arrears, semi-annually on June 30 and December 31. The Series D
Preferred Stock has no voting rights prior to its conversion into
common stock.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -- (Continued)
(In thousands, except for per share data)
Note 12. 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 9) and 1993 Stock Option
Plans providing for incentive stock options and non-qualified stock
options. The Company has reserved 400 and 90 shares of common
stock for issuance upon the exercise of options to be granted under
the 1998 and 1993 Stock Option 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.
In June 2001, November 2000 and December 1998,
the Company determined that the purposes of the 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 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 in
2001, 2000 and 1998, respectively, the Company cancelled all
options that were outstanding under the 1998 and 1993 Stock
Option Plans at that time and reissued new options at an exercise
price equal to the closing NASDAQ bid prices on the respective
dates in July 2001 ($4.40 per share), November 2000 and December
1998.
In 2001 and 2000,, the Company repriced certain
stock options which, under Financial Accounting Standards Board
Interpretation Number 44 ("FIN44"), requires them to be accounted
for under variable plan accounting. The application of FIN 44,
which was effective July 1, 2000, resulted in noncash compensation
expense in 2001 of $2,594.
The following table summarizes common stock option activity,
excluding the simultaneous cancellations and reissuances in 2001
and 2000, as noted above:
Weighted
Average
Range of Exercise
Number of Exercise Price Per
Shares Price Share
Options outstanding at
January 1, 1999 127 $10.63-13.75 $10.88
Granted in 1999 139 $13.75 $13.75
Options outstanding at
December 31, 1999 266 $10.63-13.75 $12.38
Exercised in 2000 13 $10.63-20.00 $10.98
Options outstanding at
December 31, 2001 253 $10.63-13.75 $12.45
Granted in 2001 243 $4.40 $4.40
Exercised in 2001 (29) $4.40 $4.40
Cancelled in 2001 (253) $4.40 $4.40
Options outstanding at
December 31, 2001 238
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(In thousands, except for per share data)
Note 12. Stock Options and Warrants (CONTINUED)
The following table summarizes information regarding stock
options outstanding at December 31, 2001:
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 31, 2001 Life in Years Share Dec 31, 2001 Price
$4.40 238 7.5 $4.40 238 $4.40
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; risk-free interest rate of five percent
for 1999; no dividend yield and option life of ten years. For the year
ended December 31, 1999, the Company's net loss and net loss per
share would have increased to the pro forma amounts indicated:
Net loss, as indicated $ (5,763)
Net loss, pro forma (9,918)
Loss per common share,
basic and diluted,
as reported (.34)
Net loss per common shares,
basic and diluted, pro forma (.59)
Other Stock Options
During the years ended December 31,
2000 and 1999, options to purchase 348 and 50 shares, respectively,
of the Company's common stock at exercise prices of $5.375 and
$5.00, respectively, expired. No other options were outstanding at
December 31, 2001.
Warrants
In conjunction with its November 1993
initial public offering, the Company issued 86.3 redeemable common
stock purchase warrants at $1.00 per warrant. Each warrant entitled
the holder to purchase one share of common stock at the exercise
price of $120.00, 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 $40.00
through December 31, 2001 and to $60.00 through December 31,
2001. During the year ended December 31, 1999, 1.5 warrants were
exercised. In connection with a loan to the Company (see Note 8),
the holder of the Company's Series D Preferred Stock (see Note 11)
received 12.5 warrants exercisable at a price of $24.00 per share,
which expire in July 2003. As of December 31, 2001, only the 12.5
warrants to the holder of the Company's Series D Preferred Stock
were outstanding.
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
- (Continued)
(In thousands, except for per share data)
Note 13. Income Taxes
The Company and all of its subsidiaries file a consolidated federal
income tax return. At December 31, 2001 and 2000, the Company's
deferred income tax asset was comprised of the tax benefit associated
with the following items based on the statutory tax rates currently in
effect:
2001 2000
Net operating loss
carryforwards . . . . . $ 25,600 $ 18,236
Differences between financial
and tax bases of assets
and liabilities . . . . . 7,760 7,758
Other . . . . . . . . 277 277
Deferred income tax asset,
gross . . . . . . . . 33,305 26,271
Valuation allowance. . . . . . . (33,505) (26,271)
Deferred income tax asset, net $ -- $ --
As of December 31, 2001, the Company
has available for federal income tax purposes a net operating loss
carryforward of approximately $64,000 expiring in the years 2008
through 2021.
Note 14. Unaudited Quarterly Data
First Second Third Fourth
Quarter Quarter Quarter Quarter
2001
Total revenue. . . . . . $ 982 $ 1,313 $ 681 $ 139
Net loss . . . . . . $ (1,346) $ (737) $(1,346) $(6,048)
Net loss applicable
to common shares . .$ (1,346) $ (3,834) $(1,346) $(8,740)
Net loss per common
share. . . . . . $ (.65) $ (1.59) $ (.55) $ (3.70)
2000
Total revenue. . . . . . $ 36 $ 52 $ 132 $ 652
Net loss
Net loss applicable
to common shares . .$ (129) $ (4,444) $ (120) $(1,913)
Net loss per common
share. . . . . . $ (.10) $ (2.60) $ (.10) $ (.70)
SCHEDULE II
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000 and 1999
(In thousands)
Additions
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Year Expenses Accounts Deductions of Year
Year Ended December 31, 1999: $ 635 -- -- -- 635
Allowance for doubtful
accounts
Year Ended December 31, 2000: $ 635 -- -- -- 635
Allowance for doubtful
accounts
Year Ended December 31, 2001: $ 635 635 0
Allowance for doubtful
accounts
Year Ended December 31, 1999: $ -- 250 -- -- 250
Allowance for doubtful note
Year Ended December 31, 2000: $ 250 -- -- -- 250
Allowance for doubtful note
Year Ended December 31, 2001:
Allowance for doubtful note $ 250 250 0