ALPHA HOSPITALITY CORP, PRE 14A, 1996-10-28

ALPHA HOSPITALITY CORP
PRE 14A, 1996-10-28
MISCELLANEOUS AMUSEMENT & RECREATION

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ X ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

ALPHA HOSPITALITY CORPORATION
-----------------------------------------------------------------------------
(Name of Registrant as specified in its charter)

- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement), if other than Registrant

Payment of Filing Fee (Check the appropriate box):

[ ] $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l) or 14a-
6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.

(1) Title of each class of securities to which transaction
applies:
-------------------------------------------------------

(2) Aggregate number of securities to which transaction
applies:
--------------------------------------------------------

(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: (A)
-----------

(4) Proposed maximum aggregate value of transaction:
--------

(5) Total fee paid:
-----------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.

(1) Amount Previously Paid:
-----------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------
(3) Filing Party:
--------------------------------------------------
(4) Date Filed:
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<PAGE>
ALPHA HOSPITALITY CORPORATION
12 EAST 49TH STREET
NEW YORK, NEW YORK 10017

-----------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 12, 1996

TO THE STOCKHOLDERS OF ALPHA HOSPITALITY CORPORATION:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Meeting")
of Alpha Hospitality Corporation ("Company") will be held at the Days Inn-Lake
Buena Vista, 12490 Apopka Vineland, Orlando, Florida, 32830 on December 12,
1996, at 2:30 p.m., local time for the following purposes:

1. To elect the directors of the Company for the ensuing year;

2. To approve an amendment to the Company's Amended Certificate of
Incorporation to increase the number of authorized shares of the
Company's Common Stock, $.01 par value per share, from 17,000,000 to
25,000,000;

3. To ratify the appointment of Rothstein, Kass & Company, P.C. as the
Company's independent certified public accountants for the ensuing
year; and

4. To act upon such other business as may properly come before the
Meeting or any adjournment thereof.

Stockholders of record at the close of business on October 29, 1996 are
entitled to notice of and to vote at the Meeting.

In order to ensure a quorum, it is important that stockholders representing
a majority of the voting power of all stock outstanding be present in person or
represented by their proxies. Therefore, whether you expect to attend the
Meeting in person or not, please sign, fill out, date and return the enclosed
proxy in the self-addressed, postage-paid envelope also enclosed. Anyone giving
a proxy may revoke it at any time before it is exercised by giving the Chairman
of the Board of Directors of the Company written notice of the revocation, by
submitting a proxy bearing a later date or by attending the Meeting and voting.
A broker non-vote on a matter (i.e., shares held by brokers or nominees as to
which the broker or nominee does not have discretionary power to vote on a
particular matter) is considered not entitled to vote on that matter and,
therefore, will not be counted in determining whether a quorum is present or
whether a matter has been approved.

Dated: November 7, 1996

By Order of the Board of Directors

Stanley S. Tollman
Chairman, President and
Chief Executive Officer

<PAGE>
ALPHA HOSPITALITY CORPORATION
12 EAST 49TH STREET
NEW YORK, NEW YORK 10017

---------------------------

PROXY STATEMENT
---------------------------

ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD AT 2:30 P.M. AT THE DAYS INN-LAKE BUENA VISTA
12490 APOPKA VINELAND
ORLANDO, FLORIDA 32830 ON DECEMBER 12, 1996

This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Alpha Hospitality Corporation ("Company") for use
at the Annual Meeting of Stockholders of the Company ("Meeting") to be held at
2:30 p.m. at The Days Inn-Lake Buena Vista, 12490 Apopka Vineland, Orlando,
Florida 32830 on December 12, 1996, and at all adjournments thereof. Anyone
giving a proxy may revoke it at any time before it is exercised by giving the
Chairman of the Board of Directors of the Company written notice of the
revocation, by submitting a proxy bearing a later date or by attending the
Meeting and voting. This Proxy Statement, the accompanying Notice of Meeting
and form of proxy have been first sent to the stockholders on or about November
7, 1996.

All properly executed, unrevoked proxies on the enclosed form, which
are received in time will be voted in accordance with the stockholder's
directions, and unless contrary directions are given, will be voted in
accordance with the Board of Directors' recommendations.

OWNERSHIP OF SECURITIES

Only stockholders of record at the close of business on October 29,
1996, the date fixed by the Board of Directors in accordance with the Company's
By-Laws, are entitled to vote at the Meeting. As of October 29, 1996, the
record date fixed for the determination of stockholders entitled to vote at the
Meeting, there were issued and outstanding 13,478,325 shares of common stock,
$.01 par value ("Common Stock") and 738,163 shares of series B preferred stock,
$.01 par value ("Series B Preferred Stock").

Each outstanding share of each class of stock is entitled to one vote
on all matters properly coming before the Meeting. A majority of the
outstanding shares of Common Stock and Series B Preferred Stock entitled to vote
at the Meeting present in person or represented by proxy at the Meeting, is
necessary to constitute a quorum for the Meeting.

The following table sets forth certain information as of October 29,
1996 with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of Common Stock and Series B Preferred Stock of the Company,
each officer, director and nominee for director of the Company and all officers
and directors as a group. Unless otherwise indicated, the address of each such
person or entity is c/o Alpha Hospitality Corporation, 12 East 49th Street, New
York, New York, 10017.

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NUMBER OF PERCENT
TITLE OF CLASS NAME AND ADDRESS SHARES(1)(2) OF CLASS(2)
- -------------- ---------------- --------- ----------

Common Stock
$.01 Par Value Stanley S. Tollman(3)(4) 498,975 3.7
Beatrice Tollman(4)(12) 1,852,890 13.7
Sanford Freedman(5) 271,158 2.0
Thomas W. Aro(6) 100,200 0.7
Brett G. Tollman(7) 493,078 3.6
James A. Cutler(8) 116,000 .9%
Howard Zukerman(9) 89,208 0.7
Patricia Cohen(10) 1,898,246 13.7
Matt B. Walker 145,632 1.1
Bally Gaming, Inc.(11) 701,017 5.2
6601 South Bermuda Road
Las Vegas, NV
Bryanston Group, Inc.(12) 5,551,240 29.17%
1886 Route 52
Hopewell Junction, NY
All officers and
directors as a group
(7 persons)(3)(5-10) 5,465,387 38.8

Series B
Preferred Stock
$.01 Par Value Bryanston Group, Inc.(12) 693,905 94.0
1886 Route 52
Hopewell Junction, NY

BP Group, Ltd.(13) 44,258 6.0
6 Danton Lane South
Lattington, NY

- -----------

(1) Each person exercises sole voting and dispositive power with respect to the
shares reflected in the table, except for those shares issuable upon the
exercise of options, which shares cannot be voted until the options are
exercised by the holders. Includes shares of Common Stock which may be
acquired upon exercise of options or conversion of convertible
securities which are presently exercisable or convertible or become
exercisable or convertible within 60 days.

(2) Assumes approval of Proposal No. 2 of this Proxy Statement to amend the
Amended Certificate of Incorporation to increase the authorized number of
shares of Common Stock.

(3) Represents 498,975 shares owned by the Tyler Windfield Hundley Living Trust
of which trust Mr. Tollman is the sole trustee. Mr. Tollman exercises
voting power with respect to such shares. Tyler Windfield Hundley is the
son of Monty D. Hundley, a former officer and director of the Company who
resigned from such positions as of March 23, 1995.

(4) As to Stanley S. Tollman, does not include 1,852,890 shares of Common Stock
owned by Stanley S. Tollman's spouse, Beatrice Tollman. As to Beatrice
Tollman, does not include 498,975 shares of Common

2
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Stock beneficially owned by Stanley S. Tollman, her spouse. Stanley S.
Tollman and Beatrice Tollman, in the aggregate, beneficially own 2,351,865
shares of Common Stock, which constitutes 17.4% of the class outstanding.
Mr. and Mrs. Tollman each disclaim beneficial ownership of the shares
beneficially owned by each other.

(5) Includes options granted to Mr. Freedman to purchase 60,000 shares of the
Company's Common Stock, all of which are currently exercisable.

(6) Includes options granted to Mr. Aro to purchase 60,000 shares of the
Company's Common Stock, all of which are currently exercisable.

(7) Includes options granted to Mr. Brett G. Tollman to purchase 60,000 shares
of the Company's Common Stock, all of which are currently exercisable.
Brett G. Tollman is the son of Stanley S. Tollman and Beatrice Tollman.
Each of Brett G. Tollman, Stanley S. Tollman and Beatrice Tollman
disclaim beneficial ownership of the shares beneficially owned by each
other.

(8) Includes options granted to Mr. Cutler to purchase 40,000 shares of the
Company's Common Stock, all of which are currently exercisable. Does not
include 4,000 shares owned by Mr. Cutler's children of which he disclaims
beneficial ownership.

(9) Includes options granted to Mr. Zukerman to purchase 35,000 shares of the
Company's Common Stock, all of which have are currently exercisable.

(10) Represents (i) 1,544,182 shares of Common Stock owned by Patricia Cohen
and (ii) 354,064 shares of Common Stock issuable upon conversion of
44,258 shares of Series B Preferred Stock owned by BP Group, LTD ("BP"),
a company of which Patricia Cohen is the sole stockholder.

(11) Represents shares issued to an escrow agent on behalf of Bally Gaming, Inc.
("Bally") in connection with the restructuring of the mortgage on Bayou
Caddy's Jubilee casino ("Jubilee Casino").

(12) Represents 5,551,240 shares of Common Stock Bryanston Group, Inc.
("Bryanston") issuable upon conversion of 693,905 shares of Series B
Preferred Stock. Bryanston is an affiliate of the Company, and Beatrice
Tollman, Stanley S. Tollman's spouse, is a 50% stockholder of Bryanston.
Bryanston and Beatrice Tollman each disclaim beneficial ownership of the
shares beneficially owned by each other.

(13) Patricia Cohen, a director of the Company, is the sole stockholder of BP.

3
<PAGE>

PROPOSAL 1

ELECTION OF DIRECTORS

Seven directors, to constitute the entire Board of Directors of the
Company, are to be elected at the Meeting to serve until the next annual meeting
of stockholders or until their successors are elected. Unless such authority is
withheld, proxies will be voted for the election of the seven persons named
below, all of whom, are now serving as directors, and each of whom has been
designated as a nominee. If, for any reason not presently known, any said per-
son is not available to serve as a director, another person who may be nominated
will be voted for in the discretion of the proxies.

NAME AGE POSITION WITH THE COMPANY
- ---- --- --------------------------

Stanley S. Tollman 65 Chairman of the Board, President and Chief
Executive Officer

Sanford Freedman 60 Vice President, Secretary and Director

Thomas W. Aro 54 Vice President and Director

Brett G. Tollman 35 Vice President and Director

James A. Cutler 45 Treasurer, Chief Financial Officer and
Director

Patricia Cohen 41 Director

Matthew B. Walker 46 Director

STANLEY S. TOLLMAN has served as Chairman of the Board of Directors and
Co-Chief Executive Officer of the Company since its formation. Since March 1995
Mr. Tollman has served as President and Chief Executive Officer. He served as
Chairman of the Tollman-Hundley Hotel Group from 1979 to June 1996. He currently
serves as Chairman of Bryanston Group, Inc., a hotel management company, and of
Trafalgar Tours International, a tour operator. He has also served as Chairman
of the Board of Directors of Buckhead America Corporation, which was formerly
the franchiser of Days Inns hotels.

SANFORD FREEDMAN has served as a Director, Vice President and Secretary of
the Company from its formation until October 29, 1993 and was re-elected to
those positions on February 1, 1994. He has served as Executive Vice President
of the Tollman-Hundley Hotel Group since 1983, and served as a Director,
Executive Vice President and Secretary of Bryanston Group, Inc. from 1983
through March 1996.

4
<PAGE>

THOMAS W. ARO has served as a Director of the Company since February 1,
1994 and a Vice President of the Company since its formation. Mr. Aro also
serves as Chairman of the Board of Directors and Chief Executive Officer of the
Company's subsidiary Alpha Gulf Coast, Inc. He has served as Executive Vice
President of the Tollman-Hundley Hotel Group since 1982, and Executive Vice
President of the Bryanston Group, Inc.

BRETT G. TOLLMAN served as a Vice President of the Company from its
formation until October 29, 1993 and was re-elected to that position and was
elected a Director of the Company on February 1, 1994. Mr. Tollman also serves
as President of the Company's subsidiary, Alpha Hotel Management Company, Inc.
He has served as Executive Vice President of the Tollman-Hundley Hotel Group
from 1984 to June 1996 and currently serves as Executive Vice President and
Secretary of Bryanston Group, Inc. He is also a Director of HMG Worldwide
Corporation, a publicly held corporation. Mr. Tollman is the son of Stanley S.
Tollman, the Chairman and Chief Executive Officer of the Company.

JAMES A. CUTLER has served as Treasurer and Chief Financial Officer of the
Company since its formation. He also served as Secretary of the Company from
October 29, 1993 to February 1, 1994. Mr. Cutler was elected a Director of the
Company on June 12, 1995. He served as Senior Vice President and Treasurer of
the Tollman-Hundley Hotel Group until June 1996 and currently serves as
Executive Vice President and Chief Financial Officer of Bryanston Group, Inc.

PATRICIA COHEN was elected a Director of the Company on February 1, 1994.
She is a principal shareholder of Westfield Financial Corporation, one of the
underwriters of the Company's initial public offering and has been engaged for
more than the past five years as a private investor. Westfield Financial
Corporation is no longer operating as a broker-dealer.

MATTHEW B. WALKER has served as a director of the Company since
December 4, 1995, when he was elected by the Board to fill the vacancy resulting
from the resignation of Charles Gargano in September 1995. He is an independent
businessman involved in international business ventures including the Brazilian
based Walker Marine Oil Supply Business, which he has been a consultant to since
1988. Mr. Walker co-founded the Splash Casino in Tunica, Mississippi in February
1993, where he remained employed until October 1995. In February 1994, he co-
founded the Cotton Club Casino in Greenville, Mississippi, where he remained
employed and a shareholder of until October 1995. In addition, since 1972, Mr.
Walker has been involved in numerous real-estate transactions in the capacity of
consultant, and has managed E.B. Walker & Son Lumber Company, a family-owned
lumber business based in Alabama, since such time.

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.

5
<PAGE>

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

The Board has four committees, the Executive Committee, the Audit
Committee, the Compensation Committee and the Stock Option Committee. The
Executive Committee, which is comprised of Stanley S. Tollman and Sanford
Freedman, has the same authority to act as the Board of Directors (with
certain limitations prescribed by the General Corporation Law of the State of
Delaware). The Audit Committee, which is comprised of Matthew B. Walker and
Stanley S. Tollman, is responsible for reviewing with the Company's
independent certified public accountants the scope and results of their
audits and reviewing with the independent certified public accountants and
management, the Company's accounting and reporting principles, policies and
practices, as well as the Company's accounting, financial and operating
controls and staff. The Compensation Committee, which is comprised of
Patricia Cohen and Sanford Freedman, is responsible for establishing and
reviewing the appropriate compensation of directors and officers of the
Company and reviewing employee compensation plans. The Stock Option
Committee, which is comprised of Stanley S. Tollman, Matthew B. Walker and
Patricia Cohen is responsible for considering and making grants and awards
under and administering the Company's 1993 Stock Option Plan.

During the 1995 fiscal year there was one formal meeting of the Company's
Board of Directors on June 12, 1995, at which all of the Directors were either
present or participated by telephone conference call. There was one unanimous
written consent of the Company's Board of Directors, pursuant to Section 141
of the General Corporation Law of Delaware, dated October 15, 1995. During
the 1995 fiscal year there were no formal meetings of any of the Company's
committees and there was one unanimous written consent of the Executive
Committee dated October 25, 1995. The Executive Committee, however, holds
informal meetings approximately every four weeks and advises the other
members of the Board of Directors of the matters discussed at the informal
meetings.

STOCKHOLDER VOTE REQUIRED

The election of the directors will require the affirmative vote of the
holders of a plurality of the shares present in person or represented by proxy
at the Meeting and entitled to vote on the election of directors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
TO THE BOARD OF DIRECTORS OF THE COMPANY OF EACH OF THE NOMINEES.

6
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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, 1995, December 31, 1994, and December 31, 1993, paid to the
Company's Chief Executive Officer, the four other most highly compensated
executive officers (the "Named Executive Officers") at the end of the above
fiscal years whose total compensation exceeded $100,000 per annum, and up to two
persons whose compensation exceeded $100,000 during the above fiscal years,
although they were not executive officers at the end of such years.

NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS RESTRICTED OPTIONS/SARS ALL OTHER
- --------------------------- ---- -------- ---- STOCK ----------- COMPENSATION
AWARDS ------------
------
<S> <C> <C> <C> <C> <C> <C>
Stanley S. Tollman,
Chairman of the Board of 1995 $250,000 -- -- -- --
Directors, Co-Chief 1994 $250,000 -- -- -- $31,250(2)
Executive Officer 1993 $250,000

Monty D. Hundley, 1995 $62,500 -- -- -- --
President and Co-Chief 1994 $250,000 -- -- -- --
Executive Officer(3) 1993 $250,000 -- -- -- $31,250(2)

</TABLE>

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(1) No portions of the cash salaries to which each of the Co-Chief Executive
Officers were entitled during the periods indicated have been paid; the
expense and liability have been accrued without interest.

(2) Represent shares of the Company's Common Stock equal to $31,250 issued as
additional compensation.

(3) As of March 23, 1995, Mr. Hundley resigned as an officer and director of
the Company at which time Mr. Hundley waived any present or future claim to
all accrued and unpaid salaries.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

During the last completed fiscal year, the Company did not grant any
options or stock appreciation rights to any Named Executive Officers.

COMPENSATION OF DIRECTORS

Directors do not receive compensation for serving as directors but are
reimbursed for expenses incurred in connection with the performance of their
duties.

7
<PAGE>

EMPLOYMENT AGREEMENTS

The Company and Mr. Stanley S. Tollman entered into an employment agreement
dated June 1, 1993, whereby Mr. Stanley S. Tollman agreed to serve as Chairman
of the Board and Co-Chief Executive Officer of the Company for a term of three
years from the date of the agreement. Thereafter, the agreement is automatically
renewable for successive 12 month periods, unless either party shall advise the
other on 90 days written notice of his or its intention not to extend the term
of the employment. The agreement has been renewed until June 1, 1997. Mr.
Stanley S. Tollman's employment agreement provides for a salary in the amount
of $250,000 per year, none of which has been paid under the agreement since
the date thereof. The unpaid salary accumulates and the Company does not pay
any interest or other penalty thereon. The agreement provides for Mr. Stanley
S. Tollman to devote no less than 20% of his business time to the affairs of
the Company and its subsidiaries. The agreement contains a non-disclosure
provision pursuant to which Mr. Stanley S. Tollman agrees not to use or
disclose any information, knowledge or data relating to or concerning the
Company's operations, sales, business or affairs to any individual or entity,
other than the Company or its designees, except as required in connection
with the business and affairs of the Company. The agreement also contains a
limited non-competition clause pursuant to which Mr. Stanley S. Tollman has
agreed not to own, manage, operate, or otherwise be connected with any entity
or person (other than Bryanston Group, Inc. ("Bryanston") or Alpha Hotel
Management Company ("Alpha Hotel") (i) that renders management services to
hotels of the same kind, class and character, as the hotels for which Alpha
Hotel provides management services or (ii) that owns, manages or operates a
gaming casino within a 100 mile radius of the Jubilation Casino ("Jubilation
Casino").

CONSULTING AGREEMENTS

The Company and Mr. Sanford Freedman entered into a consulting agreement
dated March 1, 1996, whereby Mr. Freedman agreed to render consulting services
to the Company with respect to development activities relating to the Company's
casino and hotel operations. Mr. Freedman's services as Secretary and Director
of the Company do not relate to the Company's development activities and are
not compensated under the consulting agreement. Mr. Freedman serves as an
independent contractor at will pursuant to the agreement and will be
compensated at the rate of $350 per hour. The agreement may be terminated at
any time by either party. The Company has indemnified Mr. Freedman against
any claims, losses, expenses or liabilities, including reasonable attorney
fees, Mr. Freedman may incur arising out of the performance of any services
rendered by Mr. Freedman pursuant to the agreement.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors consists of Patricia
Cohen and Sanford Freedman. There is no insider participation on the
Compensation Committee.

8
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BOARD COMPENSATION REPORT

EXECUTIVE COMPENSATION POLICY

CASH COMPENSATION. The Company's executive officers, other than Stanley
S. Tollman, are not directly compensated 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 executive officers and employee compensation
plans. However, all of the Company's executive officers provide management,
financial and administrative services, through the Company's subsidiary Alpha
Hotel, on behalf of Bryanston. Bryanston directly compensates the Company's
executive officers for such services and, pursuant to the terms of an expense
reimbursement agreement between the Company and Bryanston ("Expense
Reimbursement Agreement"), the Company reimburses Bryanston on a monthly
basis for direct payroll. The Compensation Committee does not determine the
compensation paid by Bryanston to the Company's executive officers for
providing these services on behalf of Bryanston, as such compensation is
solely determined by Bryanston.

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 remain
closely aligned with those of the Company's stockholders. The Board believes
that stock options in the Company provide a direct link between executive
compensation and stockholder value. By attaching vesting requirements, stock
options also create an incentive for executive officers 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 the agreement. The unpaid salary accumulates and the Company
does not pay any interest or other penalty thereon. The terms of the
employment agreement were determined based upon Stanley S. Tollman's ability
to establish and retain a strong management team and to develop and implement
the Company's business plans. The Company also appraised its financial
position and reviewed compensation levels of chief executive officers at
comparable companies with the Company's industry.

Patricia Cohen
Sanford Freedman
Members of the
Compensation Committee

9
<PAGE>

CORPORATE PERFORMANCE GRAPH

The following graph shows a comparison of cumulative total stockholder
returns from November 5, 1993 through September 30, 1996 for the Company, the
Russell 2000 Index ("Russell") and the Dow Jones Entertainment and Leisure -
Casino Index ("DJ Casinos").

[The graph shows that the cumulative stockholder returns for
such investment in the Company, Russell and DJ Casinos
resulted in values of $172, $100 and $101, respectively, on
December 31, 1993; values of $78, $98 and $77, respectively,
on December 31, 1994; values of $47, $126 and $103,
respectively, on December 31, 1995; and values of $26, $140
and $121, respectively, on September 30, 1996.]

The graph assumes that the value of the investment in the Company's Common
Stock, Russell and DJ Casinos was $100 on November 5, 1993 and that all
dividends were reinvested. No dividends have been declared or paid on the
Company's Common Stock.

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.'s Automated Quotation System. Specific due dates for these reports have
been established. During the year ended December 31, 1995, all reports for all
transactions were filed on a timely basis except for an inadvertent late
filing of a Form 3 for Matthew Walker relating to his appointment as director
in December 1995. Upon discovery of this oversight, a Form 3 setting forth
an initial statement of beneficial ownership for Matthew Walker was promptly
filed.

10
<PAGE>

CERTAIN PROCEEDINGS INVOLVING MANAGEMENT

Bryanston was formerly known as Buckhead Hotel Management Company,
Inc. ("BHMC"), and prior to February 1, 1992, BHMC was known as Days Inns
Management Company, Inc. BHMC was formerly a subsidiary of Buckhead America
Corp. ("BAC") which, prior to February 1, 1992, was known as Days Inn of
America, Inc. Messrs. Stanley S. Tollman, Thomas W. Aro, Brett G. Tollman,
Sanford Freedman and James A. Cutler, each directors and/or officers of the
Company, were officers and/or directors of BAC and certain of its subsidiaries.

On September 27, 1991, BAC, BHMC and certain affiliates and
subsidiaries thereof filed petitions for protection from creditors under the
Bankruptcy Code, commencing proceedings in the United States Bankruptcy Court,
in the District of Delaware (the Bankruptcy Court). ("In re Buckhead America
Corporation, et al., f/k/a Days Inn of America Inc. et al., Debtors"-case
numbers 91-978 through 91-986.)

The Plan of Reorganization for BAC and its subsidiaries was filed and
approved in December 1992 and became effective on December 28, 1992. Under the
Plan of Reorganization, BHMC assigned certain assets related to its business
of hotel management and was relieved of certain obligations not related to its
business of hotel management.

Messrs. Stanley S. Tollman and Sanford Freedman are limited partners
in and directors and officers of the corporate general partner of Pacific Shore
Associates Limited Partnership ("Pacific Shore"). Messrs. Brett G. Tollman and
James A. Cutler are officers of the corporate general partner of Pacific Shore.
In connection with and in response to a foreclosure proceeding instituted by the
first deed of trust holder of the hotel owned by Pacific Shore, it filed a
voluntary petition under the Bankruptcy Code, Case No. La-91-81347-KL in the
United States Bankruptcy Court for the Central District of California.
Subsequently, the Bankruptcy Court lifted the automatic stay in the proceeding,
thereby allowing foreclosure, and dismissed the Chapter 11 proceeding.

Messrs. Stanley S. Tollman, Brett G. Tollman and Sanford Freedman were
limited partners of six limited partnerships, each of which was the owner of an
individual hotel, which filed Chapter 11 proceedings in 1991. Mr. Stanley S.
Tollman was the stockholder of the corporate general partners of the limited
partnerships. Messrs. Stanley S. Tollman, Brett G. Tollman, Sanford Freedman,
James A. Cutler and Howard Zukerman were directors and/or officers of such
corporate general partners. The six hotels, together with a seventh which is
the subject of a pending foreclosure proceeding in the state courts of
Florida, which has been withdrawn, received mortgage financing from Security
Pacific Commercial Mortgage Trust VII (the Trust) which was formed for the
purpose of financing the seven hotels. The Trust defaulted on its debt
obligations and Financial Security Assurance, which had guaranteed the
obligations of the Trust, proceeded to initiate foreclosure proceedings
against the seven hotels. Faced with the threat of foreclosure, the six
limited partnerships filed for protection under the Bankruptcy Code. With
regard to five of the bankruptcy proceedings, the Bankruptcy Court lifted
the bankruptcy stay and permitted foreclosure sales of the hotels. With
regard to the sixth hotel a Plan of Reorganization has been approved by the
Bankruptcy Court, which approval has been appealed by the lender to the U.S.
District Court. The U.S. District Court confirmed the decision below and the
lender has further appealed to the U.S. Appellate Court for the Fifth
District.

11
<PAGE>

Stanley S. Tollman, Brett G. Tollman and Sanford Freedman hold limited
partnership interests in KLL and Mr. Stanley S. Tollman is a stockholder of the
corporate general partner of KLL. Messrs. Stanley S. Tollman, Howard Zukerman
and James A. Cutler were directors and or officers of such corporate general
partner. The Plan of Reorganization was confirmed by the Bankruptcy Court and
has been declared effective.

Emeryville Days Limited Partnership ("Emeryville"), a California
limited partnership filed a Chapter 11 proceeding in the United States
Bankruptcy Court for the Eastern District of California in May 1996. The
proceeding was filed to prevent the imminent foreclosure of the Days Inn hotel
owned by Emeryville. Messrs. Stanley S. Tollman, Brett G. Tollman and Sanford
Freedman hold limited partnership interests in Emeryville and Mr. Stanley S.
Tollman is a stockholder of the corporate general partner of Emeryville.
Messrs. Stanley S. Tollman, Howard Zukerman and James A. Cutler were directors
and/or officers of such corporate general partner.

CERTAIN TRANSACTIONS

BAYOU CADDY ACQUISITION

Pursuant to an asset purchase agreement dated as of May 14, 1993 among
Alpha Gulf Coast, Inc. ("Alpha Gulf"), B.C. of Mississippi, Inc. ("B.C.")
(formerly known as Bayou Caddy, Inc.) and certain stockholders of B.C., the
Company acquired certain of the assets of B.C., including B.C.'s leasehold
interests under certain lease agreements, certain other assets incidental to the
development and ownership of the Bayou Caddy's Jubilee Casino, and B.C.'s
interest in certain related license applications, approvals and permits. As part
of the purchase, the Company assumed liabilities aggregating approximately
$1,100,000. The purchase price was $3,500,000, which was evidenced by a
promissory note that bore interest at the rate of 10% per annum and was
convertible into shares of Alpha Gulf ("B.C. Note"). Pursuant to an agreement
also dated May 14, 1993 among B.C., the Company, Stanley S. Tollman and Monty D.
Hundley, the Alpha Gulf shares into which the B.C. Note was convertible were
further convertible into shares of Company's Common Stock upon the happening of
certain events. On November 15, 1995, the Company, Alpha Gulf and B.C. entered
into an agreement ("B.C. Agreement") under which (i) the B.C. Note was deemed
converted on February 1, 1994 and (ii) B.C. received rights which, upon the
effective date of the Registration Statement of which this Prospectus is a part,
entitle B.C. to receive 791,880 shares of the Company's Common Stock. As
contemplated by the B.C. Agreement, B.C. subsequently distributed rights to
receive 700,000 of the shares of Company Common Stock to its shareholders and
retained rights to receive 91,880 of such shares. The conversion of the B.C.
Note into 791,880 shares was determined in accordance with a formula contained
in the May 14, 1993 agreements that allowed for conversion of the note into 12%
of the shares of the Company's Common Stock held by Messrs. Tollman and Hundley
at the time the Company notified B.C. of its election to convert. In order to
avoid further dilution to the Company's stockholders, and to enhance its
position in the Company, Bryanston agreed to contribute a number of its shares
of the Company's Common Stock to the Company in order to help satisfy the number
of shares of Common Stock into which the B.C. Note converted. In accordance
therewith, Bryanston made a capital contribution to the Company of 716,881
shares of Common Stock of the Company owned by Bryanston, which were held by the
Company as treasury stock. In September 1996 the Company issued the

<PAGE>

791,800 shares to B.C. and the B.C. shareholders and in October 1996 the shares
previously held in treasury stock were cancelled.

BRYANSTON

In connection with the formation of the Company and the initial
capitalization of the Company, Bryanston (i) contributed $626,004 in cash to the
Company in exchange for 3,564,987 shares of the Company's Common Stock, valued
at 17.6CENTS per share, (ii) entered into the Service Agreements, and (iii)
loaned the Company $4,009,740 (the "Bryanston Loan"). The Company utilized the
$626,004 and the proceeds of the Bryanston Loan for the development and
construction of the Jubilee Casino.

Under a service agreement, effective as of September 1, 1993, between
Alpha Hotel and Bryanston ("Service Agreement"), the Company provides
management, financial, administrative and marketing services ("Management
Services") to hotels and motels on behalf of Bryanston. Bryanston is an
affiliate of the Company, and Beatrice Tollman, Mr. Stanley S. Tollman's spouse,
is a 50% stockholder of Bryanston. The Service Agreement, which is co-terminus
with the last to expire of individual management agreements between Bryanston
and 13 hotels ("Management Agreements"), states that the Company will provide
certain management services for hotels managed by Bryanston for certain
unaffiliated owners. Pursuant to the Service Agreement, Bryanston receives a
fee of 1% of the aggregate compensation paid to the Company pursuant to the
Management Agreements. The Bryanston Hotel Division is the provider of direct
services to all managed hotels pursuant to the Management Agreements with the
individual hotels. Through its subsidiary Alpha Hotel, the Company provides
management, financial, administrative and marketing services on behalf of
Bryanston. Pursuant to the Management Agreements, the Company is compensated for
its services in an amount equal to a percentage of total net revenues of the
managed hotels, ranging between 2% and 5%. In connection with the Service
Agreement, effective September 1, 1993, the Company entered into the Expense
Reimbursement Agreement with Bryanston for the use of certain office space at
its Hopewell Junction, New York facility in connection with the Company's hotel
management operations. Pursuant to the terms of the Expense Reimbursement
Agreement, the Company reimburses Bryanston on a monthly basis for its share of
rent, office expenses and direct payroll.

The Bryanston Loan had an initial interest rate of 12% per annum and
payment is subordinated to payment of the Term Loan, described below. A portion
of principal and accrued interest in the aggregate amount of $1,012,500 was
repaid from the proceeds of the Company's initial public offering ("IPO") and
principal and accrued interest in the aggregate amount of $1,206,355 was repaid
from the proceeds of the underwriters' over-allotment option exercised in
connection with the IPO. The balance of the Bryanston Loan ($1,972,532) accrued
interest at the rate of 12% per annum, which accrued until the second
anniversary of the opening of the Jubilee Casino, and thereafter, together with
such accrued interest amount ($501,294), interest accrues at the rate of 9% per
annum, payable quarterly in equal installments over a 10-year period, and will
be prepaid pro rata with the BP Group Loan ("BP Loan"), described below, from
the proceeds of the exercise, if any, of the Company's outstanding warrants and
the HFS Options, described below, provided the Company is current under the Term
Loan. At March 31, 1996 and December 31, 1995, the principal balance (which
includes accrued interest through the second anniversary) was $2,473,826 and
accrued interest at March 31, 1996 was $59,176.

13
<PAGE>

In August and October 1993, Bryanston advanced a bridge loan (the
"Bryanston Bridge Loan"), in the aggregate amount of $7,419,000, which was also
applied to the development and construction of the Jubilee Casino. The
Bryanston Bridge Loan bore interest at the rate of 10% per annum from the date
advanced and was originally due and payable on the earlier of October 31, 1993
or the closing of the IPO. A portion of the principal and accrued interest on
the Bryanston Bridge Loan, in the aggregate amount of $3,625,000, was repaid
from the proceeds of the Term Loan and a $4,000,000 bridge loan (the "HFS Bridge
Loan") from HFS Gaming Corp. ("HFS") (which was repaid from the proceeds of the
IPO), and the balance was repaid from the proceeds of the IPO.

As of January 1, 1994, Bryanston agreed to loan the Company up to
$9,000,000 ("Initial Working Capital Loan") to meet working capital requirements
of the Company. The note bore interest at prime rate plus 2%, per annum, and
had a maturity date of December 31, 1995. On December 31, 1994 the Company
authorized the issuance of 625,222 shares of its preferred stock, valued at
$6.625 per common share, in settlement of $8,284,196 due Bryanston, pursuant to
the Initial Working Capital Loan, which amount includes approximately $349,000
of accrued interest. In October 1995, the 625,222 shares of preferred stock
were converted into 1,250,444 shares of the Company's Common Stock.

On November 15, 1995, the Company, Alpha Gulf and B.C. entered into
the B.C. Agreement under which (i) the B.C. Note was deemed converted on
February 1, 1994, and (ii) B.C. received rights which, upon entitled B.C. to
receive 791,880 shares of the Company's Common Stock. Bryanston agreed to
contribute 716,881 shares of Common Stock of the Company owned by Bryanston, in
order to help satisfy the number of shares of Common Stock into which the B.C.
Note converted. Bryanston agreed to make this capital contribution to the
Company in order to avoid further dilution to the Company's stockholders and to
enhance its position in the Company.

As of January 5, 1995, Bryanston agreed to loan the Company up to
$20,000,000 ("Working Capital Loan") to meet the working capital requirements of
the Company. Therefore, the Company is obligated under a $20,000,000
non-revolving promissory note ($19,413,856 and $17,360,861 outstanding at
March 31, 1996 and December 31, 1995, respectively) with Bryanston. The note,
which bears interest at prime rate (8.5% at March 31, 1996 and December 31,
1995) plus 2%, is payable at the lesser of the outstanding principal amount or
$2,000,000 per annum through December 31, 1999. Beginning 1996, interest
accrued monthly is due and payable by the following month. All remaining
principal and accrued interest (approximately $437,000 and $503,000 at March 31,
1996 and December 31, 1995, respectively) shall be due on December 31, 2000.
Additionally, commencing May 1, 1996 and for each of the next succeeding three
years thereafter, the Company will be required to make additional principal
payments equal to "Available Cash Flow of Maker" as defined in the note to mean
an amount equal to the consolidated annual net income of the Company before
depreciation but after provision for taxes and principal payments on account of
all debt, less an amount equal to the sum of (a) an annual replacement reserve
equal to 3% of the consolidated revenues of the Company and its subsidiaries,
excluding Alpha Hotel, and (b) $1,000,000.

On September 22, 1995, Bryanston purchased an outstanding loan to the
Company ("Term Loan") which was then held by HFS Gaming Corp. ("HFS"), having a
balance of $7,816,000 from HFS, which was in default at such time. The Company
received the Term Loan from HFS in the

14
<PAGE>

original principal amount of $8,000,000 for a five-year term, in October 1993.
The Term Loan bears interest at a rate of 10% per annum and requires monthly
payments of principal and interest through November 1998. The Term Loan is
secured by a first preferred ship mortgage on the Jubilee Casino. As
consideration for Bryanston purchasing the Term Loan (which was then in
default), and for Bryanston agreeing to make the Working Capital Loan, in
October 1995, the Company issued 347,826 shares of Common Stock, valued at $4.50
per share, and an option to purchase 347,826 shares of Common Stock at an
exercise price of $4.50 per share, to Bryanston. In addition, Bryanston
acquired 96,429 shares of the Company's Common Stock from an affiliate of HFS.
At March 31, 1996 and December 31, 1995, the balance due on the Term Loan is
$7,8000,000 and accrued interest is $640,724 and $446,789, respectively.

As of November 1, 1995, Bryanston had sold all of the Common Stock of
the Company it had previously held.

Since the Company began to implement its plans to close the Jubilation
Casino in July 1996, the Company updated its assessment of the realizability of
the leasehold improvements and related assets of the Jubilation Casino. This
resulted in an impairment loss of approximately $14,165,000 and stockholders'
deficit of $14,000,000 below the requirements for continued listing of the
Company's securities on NASDAQ. In order to avoid the delisting of the Company's
securities from NASDAQ, Bryanston proposed that the Company convert the Working
Capital Loan into Series B Preferred Stock, which would enable the Company to
maintain its NASDAQ listing. Therefore, effective June 26, 1996, Bryanston
converted the amount due on the Working Capital Loan (approximately $19,165,000)
into shares of the Company's Series B Preferred Stock. The Company was charged
a 5% transaction fee (approximately $958,000), which was also converted into
shares of the Company's Series B Preferred Stock. The conversion was effective
June 26, 1996 and the total of approximately $20,123,000 converted into 693,905
shares of Series B Preferred Stock based on the fair market value of the
Company's Common Stock on the date of conversion ($3.625). Each share of
outstanding Series B Preferred Stock (i) entitles the holder to one vote; (ii)
has a liquidation value of $29.00 per share; (iii) has a cash dividend rate of
10% of liquidation value, which increases to 13% of liquidation value if the
cash dividend is not paid within 30 days of the end of each fiscal year and in
such event is payable in Common Stock valued at the then market price; and (iv)
is convertible into eight shares of Common Stock. At present the Company does
not have sufficient authorized but unissued Common Stock to reserve for the
conversion of the Series B Preferred Stock and the Company is seeking
stockholder approval to increase the Company's authorized number of shares of
Common Stock as set forth in Proposal 2 of this Proxy Statement. In the event
that by December 31, 1996, the stockholders have not approved an amendment to
the Company's Amended Certificate of Incorporation to increase the authorized
Common Stock to an amount sufficient to permit the reservation of Common Stock
necessary for the conversion, the outstanding Series B Preferred Stock will be
entitled to eight votes per share thereafter.

BP GROUP

BP advanced $1,927,759 to the Company, representing the proceeds of
the BP loan ("BP Loan"). The BP Loan had an initial interest rate of 12% per
annum and payment is subordinated to payment of the Term Loan. Principal and
accrued interest in the aggregate amount of $487,500 was repaid from the
proceeds of the Company's IPO and principal and

15
<PAGE>

accrued interest in the aggregate amount of $575,560 was repaid from the
proceeds of the underwriters' over-allotment option. The balance of the BP
Loan, $864,699, accrues interest at the rate of 12% per annum, which shall
accrue until the second anniversary of the opening of the Jubilee Casino, and
thereafter, together with such accrued interest, at the rate of 9% per annum,
payable quarterly in equal installments over a 10-year period, and will be
prepaid, pro rata with the Bryanston Loan, from the proceeds of the exercise, if
any, of the Company's outstanding warrants and the HFS Options, provided the
Company is current under the Term Loan.

BP also advanced a bridge loan (the "BP Bridge Loan") in the amount of
$2,200,000, which was applied to the development of the Casino. The BP Bridge
Loan bore interest at the rate of 10% per annum from the date advanced and was
originally due and payable on the earlier of October 31, 1993 or the closing of
the Offering. The BP Bridge Loan was repaid in full, from the proceeds of the
Term Loan and the HFS Bridge Loan, which was repaid by the Company from the
proceeds of the IPO.

In July 1993 Ms. Cohen, a director of the Company and the sole
stockholder of BP, contributed $511,961 to the capital of the Company for which
she was issued 1,544,182 shares of Common Stock valued at 33.2CENTS per share.

Ms. Cohen was also a principal stockholder of Westfield Financial
Corporation, one of the underwriters of the Company's IPO. Westfield Financial
Corporation is no longer operating as a broker-dealer.

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.

HFS

On October 27, 1993, the Company borrowed an aggregate of $12,000,000
from HFS Gaming Corp. ("HFS") under two loans ("HFS Bridge Loan" and "HFS Term
Loan;" together, "HFS Loans"). Approximately

16
<PAGE>

$5,853,000 of this amount was used to repay a portion of the Bryanston Bridge
Loan ($3,625,000) and the BP Bridge Loan in full ($2,238,000), and the balance
was used to fund construction, development, opening and initial operating costs
of the Casino. The HFS Bridge Loan, in the principal amount of $4,000,000,
evidenced by the HFS Bridge Note, bore interest at the Merrill Lynch margin loan
rate (currently 6-1/4%) and was guaranteed by Bryanston, which also provided
certain collateral for such loans. The HFS Bridge Note was paid in full from
the proceeds of the Company's Offering. The HFS Term Loan, in the principal
amount of $8,000,000, is evidenced by the five-year HFS Term Note, secured by a
first mortgage on the Company's barge and related facilities and property and a
second lien on certain of the Company's gaming and other equipment. The HFS
Term Note bears interest at HFS's cost of funds (initially, approximately 5% per
annum) to be adjusted annually. Principal and interest are due monthly over the
five-year term, with principal payments aggregating $100,000, $200,000,
$300,000, $750,000 and $750,000, respectively, in the first through fifth years
and the balance of $5,900,000 due at the end of the fifth year.

HFS and the Company, each through subsidiaries, have entered into a
marketing agreement ("HFS Marketing Agreement"). The fees for the services
provided under the HFS Marketing Agreement are payable in monthly installments
at the annual rate of approximately $1.9 million. In June 1994, the Mississippi
Gaming Commission found HFS suitable and the marketing fees were changed to the
greater of $1,650,000 or 4% of the Casino gaming revenue (of which 1% will be
allocated to the Company's local marketing programs). On September 22, 1995,
HFS sold the HFS Term Note to Bryanston and terminated the HFS Marketing
Agreement.

In connection with the HFS Loans, the Company issued to HFS five-year
options to purchase up to 600,000 shares (the HFS Options) at an exercise price
of $14.00 per share, subject to adjustment in the event of certain events, such
as stock dividends, recapitalization or the sale by the Company of shares of
Common Stock below the market price of the Common Stock.

17
<PAGE>
PROPOSAL 2

AMENDMENT OF AMENDED CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK

The Board of Directors of the Company has adopted resolutions
proposing an amendment to the Company's Amended Certificate of Incorporation
which would amend the first paragraph of Article IV of the Company's Amended
Certificate of Incorporation to increase the authorized number of shares of
Common Stock, $.01 par value, to 25,000,000 shares from the 17,000,000 shares
currently authorized. There are currently 11,880,055 shares of Common Stock and
738,163 Series B Preferred Stock outstanding.

Under the terms of the Series B Preferred Stock, each share of
Preferred Stock is convertible into eight shares of Common Stock after December
31, 1996. At present the Company does not have sufficient authorized but
unissued Common Stock to reserve for the conversion of the Series B Preferred
Stock. In the event that by December 31, 1996 the stockholders have not
approved an amendment to the Company's Amended Certificate of Incorporation to
increase the authorized Common Stock to an amount sufficient to permit the
reservation of Common Stock necessary for the conversion, the vote per share of
the Series B Preferred Stock will increase from one to eight votes per share
thereafter.

The proposed amendment to the Company's Amended Certificate of
Incorporation would increase the authorized number of shares of Common Stock to
an amount greater than the amount sufficient to permit the reservation of Common
Stock necessary for the conversion of the Series B Preferred Stock. The Board
believes that the availability of such shares for issuance in the future will
give the Company greater flexibility (with respect to the purpose of such
issuance and the nature of any consideration that may be received therefor) and
permit such shares to be issued without the expense and delay of holding a
stockholders meeting. The shares would be available for issuance by the Board
without further stockholder authorization, except as may be required by law or
by the rules of the NASDAQ (or any other national quotation system or stock
exchange on which the shares of Common Stock may then be listed). The issuance
of any additional shares of Common Stock may result in a dilution of the voting
power of the holders of outstanding shares of Common Stock and their equity
interest in the Company.

STOCKHOLDER VOTE REQUIRED

Approval of the amendment to the Amended Certificate of Incorporation
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock and Series B Preferred Stock, which are the shares
entitled to vote thereon.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE COMPANY'S AMENDED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK.

18
<PAGE>
PROPOSAL 3

RATIFICATION OF ROTHSTEIN, KASS & COMPANY, P.C. AS THE
COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.

The Board of Directors has unanimously approved and unanimously
recommends that the stockholders approve the appointment of Rothstein, Kass &
Company, P.C. as the Company's independent certified public accountants for the
ensuing year. Unless a stockholder signifies otherwise, the persons named in
the proxy will so vote. A member of Rothstein, Kass & Company, P.C. will be
available to answer questions and will have the opportunity to make a statement
if he or she so desires at the Meeting.

STOCKHOLDER VOTE REQUIRED

Ratification of the appointment of Rothstein, Kass & Company, P.C. as
independent certified public accountants requires the affirmative vote of the
holders of a majority of the shares present in person or represented by proxy at
the Meeting and entitled to vote thereon.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF
THE APPOINTMENT OF ROTHSTEIN, KASS & COMPANY, P.C. AS THE COMPANY'S
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.

OTHER MATTERS

The Board of Directors does not know of any matters other than those
referred to in the Notice of Meeting which will be presented for consideration
at the Meeting. However, it is possible that certain proposals may be raised at
the Meeting by one or more stockholders. In such case, or if any other matter
should properly come before the Meeting, it is the intention of the person named
in the accompanying proxy to vote such proxy in accordance with his or her best
judgment.

SOLICITATION OF PROXIES

The cost of soliciting proxies will be borne by the Company.
Solicitations may be made by mail, personal interview, telephone, and telegram
by directors, officers and employees of the Company. The Company will reimburse
banks, brokerage firms, other custodians, nominees and fiduciaries for
reasonable expenses incurred in sending proxy material to beneficial owners of
the Company's capital stock.

STOCKHOLDER PROPOSALS

In order to be included in the proxy materials for the Company's next
annual meeting of stockholders, stockholder proposals must be received by the
Company on or before July 10, 1997.

19
<PAGE>

ANNUAL AND QUARTERLY REPORTS TO THE SECURITIES AND EXCHANGE
COMMISSION

A copy of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 and a copy of the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 as filed with the
Securities and Exchange Commission (without exhibits) are attached hereto.

By Order of the Board of
Directors of Alpha
Hospitality Corporation

Stanley S. Tollman
Chairman, President and
Chief Executive Officer

November 7, 1996

<PAGE>

GENERAL PROXY - ANNUAL MEETING OF STOCKHOLDERS OF ALPHA HOSPITALITY CORPORATION

The undersigned hereby appoints Stanley S. Tollman, with full power of
substitution, proxy to vote all of the shares of Common Stock of the undersigned
and with all of the powers the undersigned would possess if personally present,
at the 1996 Annual Meeting of Stockholders of Alpha Hospitality Corporation
("Company"), to be held at Days Inn-Lake Buena Vista, 12490 Apopka Vineland,
Orlando Florida 32830, and at all adjournments thereof, upon the matters
specified below, all as more fully described in the Proxy Statement dated
November 7, 1996 and with the discretionary powers upon all other matters which
come before the Meeting or any adjournment thereof.

THIS PROXY IS SOLICITED ON BEHALF OF ALPHA HOSPITALITY CORPORATION'S BOARD OF
DIRECTORS.

1. To elect directors for a term of one year.

Nominees: Stanley S. Tollman, Sanford Freedman, Thomas W. Aro, Brett G.
Tollman, James A. Cutler, Patricia Cohen and Matthew B. Walker.

/ / FOR ALL NOMINEES / / WITHHELD FOR ALL NOMINEES

INSTRUCTION: To withhold authority to vote for any individual, write that
nominee's name in the space provided below:

--------------------------------------------------------------------------

2. To approve an amendment to the Company's Amended Certificate of
Incorporation which would increase the authorized shares of the Company's
Common Stock to 25,000,000.

/ / FOR / / AGAINST / / ABSTAIN

3. To ratify the appointment of Rothstein Kass & Company, P.C. as the
Company's independent certified public accountants.

/ / FOR / / AGAINST / / ABSTAIN

4. In their discretion, upon such other matter or matters that may properly
come before the Meeting, or any adjournment thereof.

- ------------------------------------------------------------------------------

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>

(CONTINUED FROM OTHER SIDE)

Every properly signed proxy will be voted in accordance with the specifications
made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 AND 3.

The undersigned hereby acknowledges receipt of a copy of the accompanying Notice
of Meeting and Proxy Statement and hereby revokes any proxy or proxies
heretofore given.

Please mark, date, sign and mail your proxy promptly in the envelope provided.

Date: , 1996
----------------------------

----------------------------------------
(Print name of Stockholder)

---------------------------------------
Signature

Number of Shares
----------------------------
Note: Please sign exactly as name appears
in the Company's records. Joint
owners should each sign. When
signing as attorney, executor or
trustee, please give title as such.
<PAGE>

ALPHA HOSPITALITY CORPORATION
QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1996
INDEX

PART I FINANCIAL INFORMATION PAGE NO.

Item 1. Financial Statements

Consolidated Balance Sheets June 30, 1996 (Unaudited) and
December 31, 1995....................................... 1

Consolidated Statements of Operations Six Months Ended
June 30, 1996 and 1995 (Unaudited)...................... 2

Consolidated Statements of Operations Three Months Ended
June 30, 1996 and 1995 (Unaudited)...................... 3

Consolidated Statements of Cash Flows Six Months Ended
June 30, 1996 and 1995 (Unaudited)...................... 4-5

Notes to Consolidated Financial Statements................ 6-13

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 14-20

PART II OTHER INFORMATION

Item 1. Legal Proceedings......................................... 21

Item 3. Default upon Senior Securities............................ 21

Signatures................................................ 22

All items which are not applicable or to which the answer is negative have
been omitted from this report.
<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of $270 and $330 in 1996
and 1995, respectively.................................. $ 1,626 $ 2,316
Accounts receivable, less allowance for doubtful accounts
of $319 and $354 in 1996 and 1995, respectively......... 532 703
Inventories............................................... 433 536
Prepaid insurance......................................... 843 1,977
Other current assets...................................... 532 1,168
--------- ---------
Total current assets.................................... 3,966 6,700
--------- ---------
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of $15,053 and
$13,385 in 1996 and 1995, respectively.................... 42,211 59,255
--------- ---------
OTHER ASSETS, deposits and other............................ 1,462 831
--------- ---------

$ 47,639 $66,786
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt...................... $10,368 $27,319
Notes payable............................................. 2,173 3,816
Accounts payable and other accrued expenses............... 10,340 10,709
Accrued payroll and related liabilities................... 3,961 2,862
Due to affiliate, current maturity........................ 931 2,000
--------- ---------
Total current liabilities............................... 27,773 46,706
--------- ---------
LONG-TERM DEBT, less current maturities..................... 14,348 2,312
--------- ---------
DUE TO AFFILIATE, less current maturity, including
accrued interest of $503.................................. 503 15,864
--------- ---------
AMOUNT DUE UNDER REDEMPTION AGREEMENT,
including accrued interest of $174........................ 174 --
--------- ---------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, authorized
1,000 shares, 738 issued................................ 7 --
Common stock, $.01 par value, authorized
17,000 shares, 13,478 and 12,354 shares
issued in 1996 and 1995, respectively................... 135 124
Capital in excess of par value............................ 58,221 32,779
Common stock subscribed................................... 1,600
Accumulated deficit....................................... (53,522) (32,599)
--------- ---------
Total stockholders' equity.............................. 4,841 1,904
--------- ---------
$47,639 $66,786
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1995
-------- --------

REVENUES:
Casino............................................. $25,321 $12,647
Food and beverage.................................. 641 580
Hotel management fees.............................. 1,049 1,338
Retail and other................................... 163 58
-------- --------
Total revenues................................... 27,174 14,623
-------- --------

COSTS AND EXPENSES:
Casino............................................. 10,074 6,848
Food and beverage.................................. 1,109 862
Hotel management costs............................. 619 741
Selling, general and administration................ 14,526 7,178
Interest........................................... 2,643 1,340
Depreciation and amortization...................... 3,445 1,955
Development costs.................................. 156 88
Debt conversion fee................................ 1,019
Write-off of Lakeshore leasehold and improvements.. 14,507
Write-off of capitalized costs related to Indiana.. 858
-------- --------
Total costs and expenses......................... 48,098 19,870
-------- --------

NET LOSS............................................. $(20,924) $(5,247)
-------- --------
-------- --------

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................................ 13,201 10,947
-------- --------
-------- --------

LOSS PER COMMON SHARE................................ $ (1.59) $ (0.48)
-------- --------
-------- --------

See accompanying notes to consolidated financial statements

<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

THREE MONTHS ENDED
JUNE 30,
--------------------
1996 1995
-------- --------

REVENUES:
Casino............................................. $12,484 $6,414
Food and beverage.................................. 294 283
Hotel management fees.............................. 600 793
Retail and other................................... 130 36
-------- --------
Total revenues................................... 13,508 7,526
-------- --------

COSTS AND EXPENSES:
Casino............................................. 4,949 3,230
Food and beverage.................................. 456 432
Hotel management costs............................. 299 358
Selling, general and administration................ 7,401 3,371
Interest........................................... 1,270 739
Depreciation and amortization...................... 1,642 978
Development costs.................................. 61 48
Debt conversion fee................................ 1,019
Write-off of Lakeshore leasehold and improvements.. 14,507
Write-off of capitalized costs related to Indiana.. 810
-------- --------
Total costs and expenses......................... 31,604 9,996
-------- --------

NET LOSS............................................. $(18,096) $(2,440)
-------- --------
-------- --------

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................................ 13,440 10,947
-------- --------
-------- --------

LOSS PER COMMON SHARE................................ $ (1.35) $ (0.22)
-------- --------
-------- --------

See accompanying notes to consolidated financial statements

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss..................................................... $(20,924) $(5,247)
--------- ---------
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities
Depreciation and amortization...................... 3,445 1,955
Capital lease restructuring........................ (268)
Debt conversion fee................................ 1,019
Write-off of Lakeshore leasehold and improvements.. 14,507
Amortization of deferred finance costs............. 35
Imputed interest on long-term debt................. 141
Gains on sales of property and equipment........... (7)
Write-off of capitalized costs related to Indiana.. 858
Changes in operating assets and liabilities:
Decrease in accounts receivable............... 171 199
(Increase) decrease in inventories............ 103 (66)
Decrease in prepaid insurance................. 1,134 422
(Increase) decrease in other current assets... 636 (120)
Decrease in accounts payable and other
accrued expenses........................... (80) (393)
Increase in accrued payroll and related liabilities 1,099 857
---------- ---------
Total adjustments.......................... 21,766 3,881
---------- ---------

NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................................... 842 (1,366)
---------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................... (1,358) (622)
Proceeds from sales of property and equipment................ 24
Payments for deposits and other assets....................... (707) (470)
---------- ---------

NET CASH USED IN INVESTING ACTIVITIES.......................... (2,065) (1,068)
---------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate...................................... 2,736 3,031
Proceeds from notes payable.................................. 22
Proceeds from long-term debt................................. 38
Payments on notes payable.................................... (1,215) (344)
Payments on long-term debt................................... (1,048) (573)
---------- ---------

NET CASH PROVIDED BY FINANCING ACTIVITIES...................... 533 2,114
---------- ---------

NET DECREASE IN CASH........................................... (690) (320)

CASH, beginning of period...................................... 2,316 1,180
---------- ---------

CASH, end of period............................................ $ 1,626 $ 860
---------- ---------
---------- ---------

</TABLE>
See accompanying notes to consolidated financial statements

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1995
-------- ---------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest during
the period........................................ $ 1,222 $ 835
-------- ---------
-------- ---------

SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:

Amount due under redemption agreement,
includes accrued interest of $174................. $ 174 $ --
-------- ---------
-------- ---------

Capital lease restructuring, includes $74 of accrued
interest........................................ $ 268 $ --
-------- ---------
-------- ---------

Common stock issued for payment of long-term debt. $ 2,454 $ --
-------- ---------
-------- ---------

Preferred stock issued in settlement of long-term
debt, includes $41 of accrued interest and $1,019
of debt conversion fee........................... $ 21,407 $ --
-------- ---------
-------- ---------

Write-off of Indiana capitalized costs........... $ -- $ 592
-------- ---------
-------- ---------

See accompanying notes to consolidated financial statements

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

NOTE 1 - NATURE OF BUSINESS

Alpha Hospitality Corporation (the "Company") was incorporated in
Delaware on March 19, 1993 and has adopted a December 31 year end. The Company
owns and operates a dockside casino located in Greenville, Mississippi. The
Company also is pursuing casino development and management opportunities in
Missouri and New York. In addition, the Company provides services for the
management of hotels and motels located in ten states.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SELECTED SIGNIFICANT
ACCOUNTING POLICIES

FINANCIAL STATEMENTS - The accompanying unaudited consolidated financial
statements of Alpha Hospitality Corporation and subsidiaries have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principals.
All adjustments which are of a normal and recurring nature and, in the opinion
of management, necessary for a fair presentation have been included. The
unaudited financial statements should be read in conjunction with the audited
financial statements of December 31, 1995, included in the 10-K.

OPERATIONS AND PRINCIPLES OF CONSOLIDATION - The accompanying statements
include the accounts of the company and all of its wholly-owned subsidiaries.
All intercompany transactions and balances have been eliminated in
consolidation.

LOSS PER COMMON SHARE - Loss per common share is based on the weighted
average number of shares outstanding. The Company's outstanding stock options
and warrants are excluded in the computation since they would have an
antidilutive effect on loss per common share. Bally's 701 shares being held in
escrow are included in this calculation (See Note 8).

PROMOTIONAL ALLOWANCES - Revenues do not include the retail amount of
food and beverage of approximately $2,152, $1,786, $1,086 and $869 provided
gratuitously to customers, for the six months and three months ended June 30,
1996 and 1995, respectively.

NEWLY ISSUED ACCOUNTING STANDARDS - In March 1995, Statement of Financial
Accounting Standard No. 121 (SFAS 121), "Accounting for the Impairment of
Long-lived Assets and for the Long-lived Assets to be Disposed of" was issued.
The Company has adopted SFAS 121 in the first quarter of 1996.

Statement No. 121 requires that long-lived assets (and certain
intangibles) to be held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.

The Company periodically reviews the carrying value of certain of its
assets in relation to historical results, as well as management's best estimate
of future trends, events and overall business climate on the Gulf Coast.

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.

6
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SELECTED SIGNIFICANT
ACCOUNTING POLICIES - (CONTINUED)

RECLASSIFICATIONS - Certain amounts have been reclassified in 1995 to
conform to the 1996 presentation.

NOTE 3 - PROPERTY AND EQUIPMENT

Details of property and equipment at June 30, 1996 and December 31, 1995
are as follows:

1996 1995
-------- --------
Land and building............................. $ 214 $ 214
Boat, barge and improvements.................. 23,875 23,590
Leasehold and improvements.................... 14,536 30,001
Gaming equipment.............................. 10,178 10,042
Furniture, fixtures and equipment............. 7,379 7,264
Transportation equipment...................... 1,038 1,034
Construction in progress...................... 44 495
-------- --------
57,264 72,640
Less accumulated depreciation
and amortization.............................. 15,053 13,385
-------- --------
$42,211 $59,255
-------- --------
-------- --------

Included in property and equipment at June 30, 1996 and December 31, 1995 was
approximately $1,319 related to assets recorded under capital leases. Included
in accumulated depreciation and amortization at June 30, 1996 and December 31,
1995 was approximately $459 and $422, respectively, of amortization related to
assets recorded under capital leases.

In accordance with its policy on impaired long-lived assets, effective
June 30, 1996, the Company recorded an impairment loss of $14,507, representing
the leasehold and improvements from the Company's Lakeshore casino of $16,284
and accumulated amortization of $1,777.

NOTE 4 - NOTES PAYABLE
Notes payable at June 30, 1996 and December 31, 1995 are comprised of the
following:

INTEREST JUNE 30 DECEMBER 31
RATE 1996 1995
-------- ------- -----------
<S> <C> <C> <C>
Revolving line of credit with payments of principal
and interest due monthly, collateralized by funds held
at the Company's casino and guaranteed by an
affiliate................................................... Prime +2% $ 34 $ 145
Notes payable to former Cotton Club stockholders................ 10% 1,897 3,293
Revolving line of credit of $500 with payments of principal
and interest due September 1, 1996, collateralized by cash
advances.................................................... 222 200

</TABLE>

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

NOTE 4 - NOTES PAYABLE - (CONTINUED)
<TABLE>
<CAPTION>

INTEREST JUNE 30 DECEMBER 31
RATE 1996 1995
--------- -----------
<S> <C> <C> <C>
Note payable to third party with payments of principal and
interest due monthly, collateralized by certain vehicles.... 11% 103
Unsecured note payable.......................................... 53
Employee loans.................................................. Various 20 22
--------- ---------
$2,173 $ 3,816
--------- ---------
--------- ---------

NOTE 5 - LONG-TERM DEBT
Long-term debt at June 30, 1996 and December 31, 1995 are comprised of the following:

INTEREST JUNE 30 DECEMBER 31
RATE 1996 1995
--------- -------- -----------
Mortgage note payable, Bryanston, principal and interest
due monthly through November 1998, collateralized by the
barge located in Greenville, Mississippi, and certain other
assets...................................................... 10% $ 7,800 $ 7,800

Mortgage note payable in monthly installments of $70 plus
interest at 30-day commercial paper rate (5.52% at
June 30, 1996) plus 3.5% adjusted quarterly, funded with
weekly deposits of $25 into a restricted cash account,
collateralized by the barge and improvements located
in Lakeshore, Mississippi................................... 9% 3,656 3,736

Equipment notes payable monthly through November 1999
and collateralized by certain assets........................ 11-14% 10,184 13,432

Capitalized lease obligations, payable monthly, expiring
in various years through 2001............................... 10-15% 498 925

Loans payable in equal quarterly installments
of principal and interest over 10 years , commencing
in January 1996. Loans are subordinated to the Bryanston
mortgage note payable and will be repaid only if the
Company maintains certain financial ratios
approximately $2,474 is owed to Bryanston at June 30, 1996
and December 31, 1995, respectively......................... 9% $2,474 $ 3,655

Line of credit of $49, principal and interest due monthly
through April 1999, collateralized by certain equipment..... 10.75% 36

Bank notes, payable monthly through 1997, collateralized
by certain equipment........................................ 8-10% 68 83
-------- ---------
24,716 29,631
Less current portion 10,368 27,319
-------- ---------
$14,348 $ 2,312
-------- ---------
-------- ---------

</TABLE>
8

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

NOTE 5 - LONG-TERM DEBT - (CONTINUED)

Aggregate future required principal payments are approximately as follows:

Year ending June 30:
1997......................................$10,368
1998...................................... 3,083
1999...................................... 8,401
2000...................................... 1,197
2001...................................... 304
Thereafter................................ 1,363
------
$24,716
------
------

Effective April 12, 1996, the Company restructured its capital sign lease
of approximately $745 with an unrelated party. The terms of the restructure
reduces the lease principal amount to $475 and forgives approximately $74 of
accrued interest. The effective rate of the restructured lease is 10% per
annum, with a four-year term.

Effective June 26, 1996, the Company issued 44 shares of its preferred
stock in settlement of a certain loan payable of $1,181, accrued interest of $41
and a five percent transaction fee of $61.

At June 30, 1996, the Company was in default of (i) its mortgage notes
payable for non-payment, (ii) the Lakeshore equipment notes aggregating
approximately $3,433 for the breach of several loan covenants and the loan
payable to Bryanston of approximately $2,474 for non-payment. The Company
received a waiver of the defaults of the loan payable and mortgage note payable
to Bryanston through December 31, 1997. Accordingly, the Lakeshore mortgage
note payable ($3,656) and the Lakeshore equipment notes payable ($3,433) are
reflected in current liabilities at June 30, 1996.

At December 31, 1995, the Company was in default of (i) its mortgage
notes payable for non-payment, (ii) the equipment notes aggregating
approximately $13,432 for the breach of several loan covenants and (iii) a
capital lease of approximately $745 for non-payment and certain loans payable
aggregating approximately $3,655 went into default in 1996 due to non-payment.
The Company received a waiver of the default of the loan payable to Bryanston.
Accordingly, the mortgage notes payable ($11,536), equipment notes payable
($13,432), capital lease ($745) and a certain loan payable ($1,181) were
reflected in current liabilities at December 31, 1995.

NOTE 6 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES
Accounts payable and other accrued expenses are comprised of the
following:

June 30 December 31
1996 1995
-------- -----------
Construction.............................. $ 1,326 $ 1,218
Insurance financing....................... 581 1,585
Accrued professional fees................. 667 851
Accrued property taxes.................... 610 843
Accrued interest.......................... 1,928 974
Other..................................... 5,228 5,238
-------- ----------
$10,340 $10,709
-------- ----------
-------- ----------

<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

The Company is obligated under a $20,000 non-revolving promissory note
with Bryanston. Effective June 26, 1996, the Company issued 694 shares of its
preferred stock in settlement of $19,165 of its note and a five percent
transaction fee of $958. The outstanding balance at June 30, 1996 and December
31, 1995 is $931 and $17,361, respectively. The note, which bears interest at
prime rate (8.25% at June 30, 1996) plus 2%, is payable at the lesser of the
outstanding principal amount or $2,000 per annum through December 31, 1999.
Beginning 1996, interest accrued monthly is due and payable by the following
month. All remaining principal and accrued interest (approximately $503) shall
be due on December 31, 2000. Additionally, commencing May 1, 1996 and for each
of the next succeeding three years thereafter, the Company will be required to
make additional principal payments equal to "Available Cash Flow of Maker" as
defined in the note.

In accordance with Mississippi law, the Company's casino licenses have
initial terms of two years and will be subject to periodic renewal. In October
1995, the Company received renewals of their casino licenses through October
1997.

In July 1996 the Company closed its Lakeshore Casino. (See Note 11)

Failure to retain the Greenville license could have a material adverse
effect on the Company's operations.

In October 1994, Alpha Gulf was named as a defendant in an action brought
in the United States District Court for the Southern District of Mississippi
(Susan E. Wolff, et al v. James C. Zamecnik, et al.) on the theory of "liquor
liability" for the service of alcohol to a customer, who subsequently was
involved in an automobile collision with the Plaintiff. The principle theory of
liability against Alpha Gulf is based on its service of alcohol to a customer
when it knew, or should have known, he was intoxicated and then allowed him to
drive his automobile from the casino. The Company was named as an additional
defendant in May 1995 based primarily on the allegation that it is the alter-ego
of its subsidiary, and secondarily on the theory of liquor liability. The
Plaintiff initially sought $20,000. Early in the litigation, Plaintiff sought a
default judgment against Alpha Gulf relating to evidence that was destroyed.
The court denied the action, but granted Plaintiff's attorney fees in an amount
to be determined, but to date not yet determined. The Plaintiff also initiated
a declaratory judgment action in the same court against Alpha Gulf and its
insurance carriers seeking a determination as to the liability of such carriers
under the insurance policies issued by the carriers to Alpha Gulf and the
Company for any damages found against Alpha Gulf in the primary litigation up to
the policy limits. The declaratory judgment action appears to have been brought
in response to issues raised by the primary insurance carrier as to timely
notice of the incident and possible spoilation of evidence. Subsequently, the
primary insurance carrier initiated its own declaratory judgment action against
Alpha Gulf and the Company (Commerce & Industry Company v. Alpha Gulf Coast,
Inc. and Alpha Hospitality Corporation, Inc.: United States District Court for

<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

NOTE 7 - COMMITMENTS, CONTINGENCIES AND RELATED
PARTY TRANSACTIONS - (CONTINUED)

the Southern for District of Mississippi, Jackson Division) seeking a
determination that it is not liable under the subject insurance policy. The
declaratory judgment action instituted by Plaintiff was dismissed in June
1996 and the declaratory judgment action instituted by the primary insurance
carrier is subject to dismissal. In addition, a settlement has been reached
between Plaintiff and the Company's insurance carrier with respect to the
underlying personal liability action in the amount of $5,125, with respect to
all issues relating to the underlying personal liability action, subject to
completion of the settlement documents and the approval of the court. The
principal insurance carrier which will pay the settlement may attempt to
assert that the Company and Alpha Gulf have an obligation to reimburse it for
payment of the settlement amount, which dispute may be litigated.
Accordingly, no provision for any liability to the Company that may result
upon adjudication has been made in the accompanying consolidated financial
statements.

In January 1996, the Company was named as a defendant in an action
brought in the Circuit Court of Hinds County, Mississippi (Amos vs Alpha Gulf
Coast, Inc.; Batiste vs Alpha Gulf Coast, Inc., Dycre vs Alpha Gulf Coast, Inc.;
Johnston vs Alpha Gulf Coast, Inc.; Rainey vs Alpha Gulf Coast, Inc.). Based on
the theory of "liquor liability" for the service of alcohol to a customer,
Plaintiffs alleged that on January 16, 1995, a vehicle operated by Mr. Amos
collided with a vehicle negligently operated by Mr. Rainey, an individual that
was served alcoholic beverages by the Company. Plaintiffs alleged that they
suffered personal injuries and seek compensatory damages aggregating $17.1
million and punitive damages aggregating $37.5 million. The ultimate outcome of
this litigation cannot presently be determined as this case is presently in the
early phases of discovery. Accordingly, no provision for liability to the
Company that may result upon adjudication has been made in the accompanying
consolidated financial statements. The Company believes that the risk referred
to in this paragraph is adequately covered by insurance.

The Company is a party to various other legal actions which arise in the
normal course of business. In the opinion of the Company's management, the
resolution of these other matters will not have a material adverse effect on the
financial position of the Company.

NOTE 8 - AMOUNT DUE UNDER REDEMPTION AGREEMENT

Effective October 15, 1995, the Company restructured certain equipment
notes, aggregating approximately $9,000, with unrelated parties. Pursuant to
the restructuring requirements, the Company will repay approximately $6,500 in
48 monthly installments of $166, which includes interest of 10% per annum,
commencing December 15, 1995. The balance of $2,500 bears interest at 10% per
annum, is due on November 15, 1999, and may either be partially or fully repaid,
pursuant to an escrow agreement, from the net proceeds from the sale of
approximately 701 shares of the Company's common stock held in escrow. To the
extent that the net proceeds exceeds $2,500 plus accrued interest, the excess
will be applied to the $6,500 portion of the debt. However, if the net proceeds
are less than the $2,500 plus accrued interest, then the Company will be
required to remit the balance due at maturity. The escrow agreement provides
for the unrelated party to have full voting rights pertaining to the escrowed
shares and the right to sell any or all of the shares. The Company has the
right of first refusal to purchase the shares that the unrelated party desires
to sell. The debt is collateralized by the Company's barge and certain gaming
equipment.

<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

NOTE 8 - AMOUNT DUE UNDER REDEMPTION AGREEMENT - (CONTINUED)

At June 30, 1996, the amount due under the redemption agreement is $174
of accrued interest only, since the fair market value of the stock at June 30,
1996 ($3.8125) exceeded the price at the date of the agreement ($3.50).

NOTE 9 - STOCKHOLDERS' EQUITY
Effective June 26, 1996, the Company issued 694 and 44 shares,
respectively, of its preferred stock, in settlement of $19,165 and $1,222,
respectively, of their unsecured debt with Bryanston and an unrelated third
party (see Notes 5 and 7). The Company was charged a five percent transaction
fee of approximately $1,020, which was also converted into shares of the
Company's preferred stock. The conversion rate was based on the fair market
value of the Company's common stock at the date of conversion ($3.625). Each
preferred share is convertible into eight shares of the Company's common stock
after December 31, 1996 and carries voting rights of one vote per preferred
share. The preferred stock also carries a dividend of $3.05 per share, payable
quarterly.

Changes in stockholders' equity during the six months ended June 30, 1996
include the net loss of $20,924, common stock with a value of $2,454 issued to a
creditor and placed in escrow, pursuant to the October 15, 1995 restructuring of
certain equipment notes and preferred stock issued in settlement of unsecured
debt aggregating $21,406.

NOTE 10 - INCOME TAXES
The Company and all of its subsidiaries file a consolidated federal
income tax return. Income tax expense is allocated pursuant to the separate tax
attributes of each subsidiary. At June 30, 1996 and December 31, 1995, the
Company's deferred federal tax asset is comprised of the tax benefit (cost)
associated with the following items based on the 35% tax rate currently in
effect (dollars in thousands):
<TABLE>
<CAPTION>

JUNE 30 DECEMBER 31
1996 1995
-------- -----------
<S> <C> <C>
Pre-opening costs currently deducted for financial
reporting and amortized over 5 years for tax purposes........... $ 1,579 $1,788
Net operating loss carry forward.................................... 18,413 11,524
Differences between financial and tax depreciation methods.......... (1,862) (2,077)
Differences between financial and tax basis of assets and
liabilities..................................................... 1,776 1,737
Interest capitalized for financial reporting and expensed
for tax purposes................................................ (218) (224)
Other............................................................... (89) (77)
-------- -----------
Deferred tax asset.................................................. 19,599 12,671
Valuation allowance on deferred tax asset........................... (19,599) (12,671)
-------- -----------
$ -- $ --
-------- -----------
-------- -----------

</TABLE>

<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

NOTE 10 - INCOME TAXES - (CONTINUED)

The Company has available for federal income tax purposes, a net
operating loss carryover of approximately $37,450 of which $883, $7,407, $24,637
and $19,682 will expire in the years 2008, 2009, 2010, and 2011 respectively.

NOTE 11 - SUBSEQUENT EVENT

On July 2, 1996 the Company notified the Mississippi Gaming Commission
(the "Commission") and the employees of the Jubilation Casino of its plans to
close the Jubilation Casino by the end of August 1996. On July 16, 1996,
operation of the Jubilation Casino was suspended in compliance with a directive
of the Commission which raised that its working capital available to the
Jubilation Casino was not sufficient. The Commission required that the
Jubilation Casino's working capital be increased. This working capital
requirement was reviewed by Jubilation Lakeshore in light of its previously
announced plan to close the Jubilation Casino during August 1996 and the costs
which would be incurred to reopen the Jubilation Casino. Based on this review,
Jubilation Lakeshore decided not to reopen the Jubilation Casino and
surrendered its gaming license for the Lakeshore site.

On July 26, 1996, the Company was in default of its notes payable to
former Cotton Club stockholders in the amount of $1,897 (See Note 4), for
non-payment.

<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS - CASINOS
RESULTS OF OPERATIONS - ALPHA GULF

The following table sets forth the statement of operations for the Alpha
Gulf's casino operations before income taxes for the six months and three months
ended June 30, 1996 and 1995 (in thousands):

SIX MONTHS THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
Revenues:
Casino.......................... $18,921 $12,647 $9,360 $ 6,414
Food, beverage and other........ 569 638 293 319
------- ------- ------- -------
Total revenues............... 19,490 13,285 9,653 6,733
------- ------- ------- -------

Operating expenses:
Casino.......................... 6,596 6,473 3,346 3,112
Food, beverage and other........ 763 862 305 432
Selling, general and administration 8,763 6,789 4,529 3,119
------- ------- ------- -------
Total operating expenses.... 16,122 14,124 8,180 6,663
------- ------- ------- -------

Income (loss) from operations.... 3,368 (839) 1,473 70
------- ------- ------- -------

Other expenses:
Interest....................... 1,035 1,084 525 586
Depreciation and amortization.. 2,384 1,955 1,156 978
------- ------- ------- -------
Total other expense......... 3,419 3,039 1,681 1,564
------- ------- ------- -------

Loss before intercompany charges and
deferred income tax credit..... $ (51) $(3,878) $ (208) $(1,494)
------- ------- ------- -------
------- ------- ------- -------

SIX MONTHS ENDED JUNE 30, 1996 AND 1995:
Alpha Gulf generated revenues of $19,490 and $13,285 in 1996 and 1995,
respectively. Casino revenues were $18,921 and $12,647 in 1996 and 1995,
respectively. Food, beverage and other revenues were $569 and $638 in 1996 and
1995, respectively. This increase in casino revenues is primarily due to the
relocation of the Alpha Gulf's Bayou Caddy's Jubilee Casino from Lakeshore,
Mississippi to Greenville, Mississippi in November 1995. During this period the
Jubilee Casino achieved 50% market share in the Greenville market. In addition
the Greenville market increased by 7.5% over the same period last year.

At the locations referred to above, Alpha Gulf's casino operating
expenses were $6,596 and $6,848, (35% and 54% of casino revenues) in 1996 and
1995, respectively. Food, beverage and other expenses were $763 and $862 (134%
and 135% of food, beverage and other revenues) in 1996 and 1995, respectively.

The reduced casino expenses in 1996 when compared to 1995 of $252 was the
net result of reduced staffing levels ($91), the decrease in the costs related
to food and beverages provided gratuitously to customers ($590), which is the
direct result of the reduction of gratuitous food and beverages provided to
casino customers and the related costs thereto, an increase in gaming taxes
($712), which is directly related to increased revenues and a decrease in
operating expenses ($283), which is the result of management operating more
efficiently.

<PAGE>

Food and beverage revenue does not include the retail value of food and
beverage of approximately $1,492 and $1,787 provided gratuitously to customers
in 1996 and 1995, respectively.

The reduction of food, beverage and other costs are directly related to
the reduced volume of food and beverage revenues.

Selling, general and administrative expenses consists of payroll and
related benefits of approximately $2,827 and $2,975, marketing and advertising
of approximately $3,503 and $1,617, occupancy costs of approximately $871 and
$1,024, and operating expenses of approximately $1,563 and $1,173 in 1996 and
1995, respectively. The reduced payroll and related costs of $148 was a direct
result of management's cost-cutting measures instituted during the first quarter
of 1995. The $1,886 increase in marketing and advertising is directly related
to the increased volume of business and management's introduction of marketing
programs focused on identifying new customers. The reduction of occupancy costs
of $153 is primarily due to reduced insurance costs. The increase in operating
expenses of $390 was directly related to the increased volume of business.

Interest expense was primarily related to the first mortgage on the
gaming vessel, equipment financing and various capitalized leases.

Depreciation and amortization was $2,384 and $1,955 in 1996 and 1995,
respectively. The increase was the direct result of an increase in capital
expenditures related to the relocation of the gaming vessel to Greenville,
Mississippi and the purchase of equipment and fixtures.

THREE MONTHS ENDED JUNE 30, 1996 AND 1995:
Alpha Gulf generated revenues of $9,653 and $6,733 in 1996 and 1995,
respectively. Casino revenues were $9,360 and $6,414 in 1996 and 1995,
respectively. Food, beverage and other revenues were $293 and $319 in 1996 and
1995, respectively. This increase in casino revenues is primarily due to the
relocation of the Alpha Gulf's Bayou Caddy's Jubilee Casino from Lakeshore,
Mississippi to Greenville, Mississippi in November 1995.

At the locations referred to above, Alpha Gulf's casino operating
expenses were $3,346 and $3,112, (36% and 49% of casino revenues) in 1996 and
1995, respectively. Food, beverage and other expenses were $305 and $432 (104%
and 135% of food, beverage and other revenues) in 1996 and 1995, respectively.

The increased casino expenses in 1996, when compared to 1995 of $234, is
the net result of increased staffing levels ($63), due to the increased volume
of business, the decrease in the costs related to food and beverages provided
gratuitously to customers ($177), which is a direct result of the reduction of
gratuitous food and beverages provided to casino customers and the related costs
thereto and an increase in gaming taxes ($345), which is the direct result of
increased revenues.

Food and beverage revenue does not include the retail value of food and
beverage of approximately $748 and $869 provided gratuitously to customers in
1996 and 1995, respectively.

The reduction of food, beverage and other costs are directly related to
the reduced volume of food and beverage revenues.

Selling, general and administrative expenses consists of payroll and
related benefits of approximately $1,423 and $1,447, marketing and advertising
of approximately $1,621 and $626, occupancy costs of approximately $427 and $517
and operating expenses of $763 and $529 in 1996 and 1995, respectively. The
reduced payroll and related costs of $24 was a direct result of management's
cost-cutting measures instituted during the first quarter of 1995. The $995
increase in marketing and advertising is directly related to the increased
volume of business and management's introduction of marketing programs focused
on identifying new customers. The reduction of occupancy costs of $90 is
primarily due to reduced insurance costs. The increase in operating expenses of
$144 was the direct result of the increase in volume of business.

<PAGE>

Interest expense was primarily related to the first mortgage on the
gaming vessel, equipment financing and various capitalized leases.

Depreciation and amortization was $1,156 and $978 in 1996 and 1995,
respectively. The increase was a direct result of an increase in capital
expenditures related to the relocation of the gaming vessel to Greenville,
Mississippi and the purchase of equipment and fixtures.

FUTURE OPERATIONS - ALPHA GULF

Alpha Gulf's Bayou Caddy's Jubilee Casino operating results have improved
since its relocation to Greenville. The gaming revenues achieved to date by the
Jubilee Casino in Greenville far exceed the revenues of its predecessor gaming
vessel at that site. Alpha Gulf's casino operations in Greenville have become a
major factor in the Greenville market and has helped to expand that market.

A third gaming vessel has announced that it will be opening in the last
quarter of this year in Greenville. It is unknown at this time what impact this
third gaming vessel will have on the Greenville casino market. Management
believes that this third gaming vessel will negatively impact Alpha Gulf's
current market achievement but to what extent this act will have on future
revenues is uncertain at this time.

RESULTS OF OPERATIONS - JUBILATION

The Company acquired the Jubilation gaming vessel (formerly known as the
Cotton Club) on October 26, 1995. The vessel's operations in Greenville was
terminated on October 30, 1995. After its relocation to Lakeshore, Mississippi
the Jubilation reopened for business December 21, 1995. The following table
sets forth the statement of operations for the Jubilation casino operations
before income taxes and intercompany charges for the six months and three months
ended June 30, 1996 (in thousands):

SIX MONTHS THREE MONTHS
ENDED JUNE 30, 1996 ENDED JUNE 30, 1996
------------------- -------------------
Revenues:
Casino.......................... $ 6,400 $ 3,124
Food, beverage and other........ 236 131
-------- --------
Total revenues........... 6,636 3,255
-------- --------

Expenses:
Casino.......................... 3,478 1,603
Food, beverage and other........ 346 151
Selling, general and administrative 5,070 2,591
-------- --------
Total operating expenses. 8,894 4,345
-------- --------

Loss from operations............... (2,258) (1,090)
-------- --------

Other expenses:
Interest........................ 514 268
Capital lease restructuring..... (268)
Write-off of leasehold and
improvements............. 14,507 14,507
Depreciation and amortization... 1,060 486
-------- --------
Total and other expenses. 15,813 15,261
-------- --------

Loss before intercompany charges and
deferred income tax credit..... $(18,071) $(16,351)
-------- --------
-------- --------

<PAGE>
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1996

The Jubilation experienced a loss from operations of $2,258 and $1,090
during the six months and three months ended June 30, 1996, respectively.
During the second quarter of 1996, management became uncertain as to whether the
Jubilation Casino would be profitable during the remainder of fiscal 1996.
Management reduced operating costs and monitored the operation very closely. To
overcome the Jubilation Casino's declining revenues, the Company would have to
construct additional amenities which would require a substantial investment of
funds. Since revenues did not improve during May and June 1996, which are part
of the peak season, a continued decline was expected by management in the third
quarter. Therefore, on July 2, 1996, the Company notified the Mississippi
Gaming Commission (the "Commission") and the employees of the Jubilation Casino
of its plans to close the Jubilation Casino by the end of August 1996. In
connection with the plan to close the Jubilation Casino, the realizability of
the capital leasehold and improvements related to the Jubilation Casino were
reassessed. Effective for the second quarter ended June 30, 1996, management
recorded an impairment loss of $14,507 to property and equipment, representing
the unamortized balance of these leasehold improvements.

On July 16, 1996, operation of the Jubilation Casino was suspended in
compliance with a directive of the Commission which raised that the working
capital available to the Jubilation Casino was not sufficient. The Commission
required that the Jubilation Casino's working capital be increased. This
working capital requirement was reviewed by Jubilation Lakeshore in light of its
previously announced plan to close the Jubilation Casino during August 1996 and
the costs which would be incurred to reopen the Jubilation Casino. Based on
this review, Jubilation Lakeshore decided not to reopen the Jubilation Casino.

CASINO DEVELOPMENT

NEW YORK - ALPHA MONTICELLO

On January 19, 1996, the Company, through its subsidiary, Alpha St.
Regis, entered into a memorandum of understanding with Catskill Development,
L.L.C. ("Catskill") regarding the development and management of a casino to be
built adjacent to the Monticello Raceway in Sullivan County, New York. The
development and management of this casino will be undertaken by Mohawk
Management L.L.C., of which the Company's wholly-owned subsidiary, Alpha
Monticello, owns 50%, and will be responsible for the day-to-day operations. It
is intended that the casino will be owned by the St. Regis Mohawk Tribe and will
be located on land to be placed in trust for the benefit of the Tribe.

On August 2, 1996, Mohawk Management L.L.C. executed an agreement with
the St. Regis Mohawk Tribe for the management of the proposed casino referred to
above. The Tribe has submitted this agreement to the National Indian Gaming
Commission for its approval.

During 1996 and 1995, Alpha Monticello incurred approximately $490 and
$20, respectively, of costs primarily associated with its participation with
Catskill.

NEW YORK - ALPHA ST. REGIS

In March 1994, the Company entered into a joint venture agreement
relating to the operation and development of a gaming facility located on the
reservation of the St. Regis Mohawk Tribe of Hogansburg, New York. The Company
does not intend to proceed with the project at Hogansburg, New York, since the
Company and the Tribe are exploring a more suitable arrangement relating to the
development of a casino in Sullivan County, New York, as discussed above.

<PAGE>
NEW YORK - ALPHA ST. REGIS - (CONTINUED)

During 1995 Alpha St. Regis incurred costs of approximately $177 relating
to its proposed development of a gaming facility in Hogansburg, New York.

MISSOURI - ALPHA MISSOURI

Alpha Missouri has not commenced operations. Alpha Missouri has
applications pending for site approval and a gaming license with respect to the
development of a riverboat gaming facility in Louisiana, Missouri. It has
incurred development costs of approximately $87 and $179 in 1996 and 1995,
respectively, related to its proposed development of a riverboat casino in
Louisiana, Missouri.

COLORADO

Effective May 1, 1996, the Company terminated its stock acquisition
agreement with Doc Holliday, Inc., which owns and operates Doc Holliday Casino,
located in Central City, Colorado.

HOTEL MANAGEMENT - ALPHA HOTEL MANAGEMENT COMPANY, INC. ("ALPHA HOTEL")

The following table sets forth selected financial data of Alpha Hotel
Management Company, Inc. (Alpha Hotel) for the six months and three months
ended June 30, 1996 and 1995 (in thousands):

SIX MONTHS THREE MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------- --------------
1996 1995 1996 1995
------- ------- ------ ------
Income Statement Data:
Management fees................ $1,049 $1,338 $599 $793
------- ------- ------ ------

Operating expenses:
Direct payroll and related expenses 597 636 289 306
Selling, general and administrative 39 123 16 54
------- ------- ------ ------
Total operating expenses..... 636 759 305 360
------- ------- ------ ------

Income from management fees before
intercompany charges and income taxes $ 413 $ 579 $294 $433
------- ------- ------ ------
------- ------- ------ ------

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1996 AND 1995:
Total management fees decreased during the six months ended June 30, 1996
compared to the six months ended June 30, 1995 by approximately $289 (21.6%).
The decrease was principally from the net result of $83 increase in fees from
continuing management agreements and a decrease of $372 related to the loss of
five management agreements (which related to hotels whose ownership changed).
The increase in fees earned was the result of increases in the hotels' gross
revenues on which the management fees are based. The factors that influence
such gross revenues are general economic conditions, competitive changes in
geographic regions, foreign exchange rates relative to the strength of U.S.
dollar, the price of gasoline, air fares and general weather conditions.

Direct payroll and related costs decreased 6.1% to $59 for the six months
ended June 30, 1996 from $636 for the six months ended June 30, 1995. The
decrease was the result of a reduction in staffing to accommodate the decrease
in management contracts being serviced.

Selling, general and administrative expenses decreased to $39 for the six
months ended June 30, 1996 from $123 for the six months ended June 30, 1995.
This decrease is a result of office relocation to a less expensive area.

<PAGE>

THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Total management fees decreased during the three months ended June 30,
1996 compared to the three months ended June 30, 1995 by approximately $194
(24.5%). The decrease was principally from the net result of $64 increase in
fees from continuing management agreements and a decrease of $258 related to the
loss of five management agreements (which related to hotels whose ownership
changed).

Direct payroll and related costs decreased 5.6% to $289 for the three
months ended June 30, 1996 from $306 for the three months ended June 30, 1995.
The decrease was the result of a reduction in staffing to accommodate the
decrease in management contracts being serviced.

Selling, general and administrative expenses decreased to $16 for the
three months ended June 30, 1996 from $54 for the three months ended June 30,
1995. This decrease is a result of office relocation to a less expensive area.

LIQUIDITY AND CAPITAL RESOURCES
The Company continues to suffer significant losses from operations and
has a working capital deficit and accumulated deficit. In addition, the Company
was not in compliance with certain long-term debts which are included in current
liabilities. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management plans include continuing to
operate the Jubilee Casino profitability (see Future Operations Alpha
Gulf), developing future casino locations in Missouri and New York and
continuing to reduce and monitor operating expenses. In early July 1996 the
Company began implementation of a plan to close the Jubilation Casino in August
1996. On July 16, 1996, operation of the Jubilation Casino was suspended in
compliance with a directive of the Mississippi Gaming Commission which raised
that its working capital available to the Jubilation Casino was not sufficient.
The Commission required that the Jubilation Casino's working capital be
increased. This working capital requirement was reviewed by Jubilation
Lakeshore in light of its previously announced plan to close the Jubilation
Casino during August 1996 and the costs which would be incurred to reopen the
Jubilation Casino. Based on this review, Jubilation Lakeshore decided not to
reopen the Jubilation Casino.

Although the Company experienced a net loss of $20,924, for the six
months ended June 30, 1996, there was cash provided by operating activities
of $852. The inflow of cash from operating activities resulted from non-cash
expenses of $18,703 and a positive net change in operating assets and
liabilities of $3,063. Non-cash expenses primarily consisted of depreciation
are amortization of $3,445, debt conversion fee of $1,019 and the write-off
of the Lakeshore leasehold improvements of $14,507. The change in operating
assets and liabilities primarily consisted of a decrease in prepaid insurance
of $1,134, a decrease in other current assets of $636 and an increase in
accrued payroll and related liabilities of $1,099.

Although the Company experienced a net loss of $5,247, for the six
months ended June 30, 1995, net cash used in operating activities was only
$1,366. The inflow of cash from operating activities resulted from non-cash
expenses of $2,982 and a positive net change in operating assets and
liabilities $899. Non-cash expenses primarily consisted of depreciation and
amortization of $1,955 and the write-off of capitalized costs related to
Indians of $858. The change in operating assets and liabilities primarily
consisted of an increase in accrued payroll and related liabilities of $857.

<PAGE>

and its insurance carriers seeking a determination as to the liability of such
carriers under the insurance policies issued by the carriers to Alpha Gulf and
the Company for any damages found against Alpha Gulf in the primary litigation
up to the policy limits. The declaratory judgment action appears to have been
brought in response to issues raised by the primary insurance carrier as to
timely notice of the incident and possible spoilation of evidence.
Subsequently, the primary insurance carrier initiated its own declaratory
judgment action against Alpha Gulf and the Company (Commerce & Industry Company
v. Alpha Gulf Coast, Inc. and Alpha Hospitality Corporation, Inc.: United
States District Court for the Southern District of Mississippi, Jackson
Division) seeking a determination that it is not liable under the subject
insurance policy. The declaratory judgment action instituted by Plaintiff was
dismissed in June 1996 and the declaratory judgment action instituted by the
primary insurance carrier is subject to dismissal. In addition, a settlement
has been reached between Plaintiff and the Company's insurance carrier with
respect to the underlying personal liability action in the amount of $5,125,
with respect to all issues relating to the underlying personal liability action,
subject to completion of the settlement documents and the approval of the court.
The principal insurance carrier which will pay the settlement may attempt to
assert that the Company and Alpha Gulf have an obligation to reimburse provision
it for payment of the settlement amount, which dispute may be litigated.
Accordingly, no provision for any liability to the Company that may result upon
adjudication has been made in the accompanying consolidated financial
statements.

In January 1996, the Company was named as a defendant in an action
brought in the Circuit Court of Hinds County, Mississippi (Amos vs Alpha Gulf
Coast, Inc.; Batiste vs Alpha Gulf Coast, Inc.; Dycre vs Alpha Gulf Coast, Inc.,
Johnston vs Alpha Gulf Coast, Inc.; Rainey vs Alpha Gulf Coast, Inc.). Based on
the theory of "liquor liability" for the service of alcohol to a customer,
Plaintiffs alleged that on January 16, 1995, a vehicle operated by Mr. Amos
collided with a vehicle negligently operated by Mr. Rainey, an individual that
was served alcoholic beverages by the Company. Plaintiffs alleged that they
suffered personal injuries and seek compensatory damages aggregating $17.1
million and punitive damages aggregating $37.5 million. The ultimate outcome of
this litigation cannot presently be determined as this case is presently in the
early phases of discovery. Accordingly, no provision for liability to the
Company that may result upon adjudication has been made in the accompanying
consolidated financial statements. The Company believes that the risk refereed
to in this paragraph is adequately covered by insurance.

Effective June 26, 1996, the Company issued 44 shares of its preferred
stock in settlement of a certain loan payable of $1,181, accrued interest of $41
and a five percent transaction fee of $61.

At June 30, 1996, the Company was in default of (i) its mortgage notes
payable for non-payment, (ii) the equipment notes relating to the Jubilation
Casino aggregating approximately $3,433 for the breach of several loan covenants
and a loan payable to Bryanston of approximately $2,474 for non-payment. The
Company received a waiver of the defaults of the loan payable and mortgage note
payable to Bryanston. Accordingly, the mortgage note payable ($3,656) and the
equipment notes payable ($3,433), relating to the Jubilation Casino, are
reflected in current liabilities at June 30, 1996.

<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 on file with the Securities and Exchange
Commission. During the quarter ended June 30, 1996, the Company was not a party
to any material, newly instituted legal proceedings except those legal
proceedings which are covered by insurance. There have been no other material
developments during such period to any existing legal proceeding.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As of August 12, 1996, the Company was in default of its Lakeshore
mortgage note payable of approximately $3,656,000 and its Lakeshore equipment
notes payable aggregating approximately $3,433,000, for non-payment. The total
arrearage of principal and interest payments on the aforementioned debt is
approximately $2,573,000.

<PAGE>

ALPHA HOSPITALITY CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1995
INDEX

PART I

Item 1. Business ....................................................... 1

Item 2. Properties ..................................................... 13

Item 3. Legal Proceedings .............................................. 14

Item 4. Submission of Matters to Vote of Security Holders .............. 15

PART II

Item 5. Market Information ............................................. 15

Item 6. Selected Financial Data ........................................ 17

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 18

Item 8. Financial Statements ........................................... 25

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ........................... 25

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(A) of the Exchange Act .............. 26

Item 11. Executive Compensation ......................................... 28

Item 12. Security Ownership of Certain Beneficial
Owners and Management .......................................... 34

Item 13. Certain Relationships and Related Transactions ................. 34

Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K ............................................ 37

<PAGE>

ITEM 1. BUSINESS

THE COMPANY

(a) Alpha Hospitality Corporation (the "Company"), through its subsidiaries, is
engaged in (i) the ownership and operation of two gaming vessels: the
Bayou Caddy's Jubilee Casino (the "Greenville Casino") located in
Greenville, Mississippi, and the Jubilation Casino (the "Lakeshore Casino")
located on the Gulf Coast of Mississippi in Lakeshore, Mississippi and (ii)
providing of management services to hotels owned by third parties. The
Company acquired the Lakeshore Casino gaming vessel in October 1995 in
connection with its acquisition of all of the outstanding shares of Cotton
Club of Greenville, Inc. ("Cotton Club") now known as Jubilation Lakeshore,
Inc. ("Cotton Club Acquisition"). The Company has also formed wholly owned
subsidiaries to pursue gaming licenses for additional casinos in various
states. See "Business - Proposed Operations"; "Business - Government
Regulation" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition." The Company completed an initial
public offering of its securities on November 5, 1993.

(b) Financial information about industry segments is included in the
consolidated financial statements included herein.

THE LAKESHORE CASINO:

The Lakeshore Casino, located near Waveland, Hancock County, Mississippi on
the Gulf of Mexico, is owned and operated by the Company's wholly-owned
subsidiary, Jubilation Lakeshore, Inc. It operates Las Vegas-style
gambling with a variety of slot machines, craps, roulette, blackjack and
other table games. The Company's wholly-owned subsidiary Alpha Gulf Coast,
Inc. ("Alpha Gulf") initiated the Company's gaming operations at the
Lakeshore site on January 12, 1994. Alpha Gulf owns and operates the Bayou
Caddy's Jubilee Casino which was constructed on a marine vessel in 1993.
This vessel was operated at Lakeshore until October 30, 1995 when it was
moved to the Greenville site acquired in the "Cotton Club Acquisition". In
place of the Bayou Caddy's Jubilee Casino, the Company through its wholly-
owned subsidiary Jubilation Lakeshore, Inc. relocated its Jubilation gaming
vessel from Greenville and commenced operations on December 21, 1995. The
Jubilation gaming vessel is an ocean going vessel that was renovated for
gaming purposes in 1993. The Jubilation casino has 550 slot machines and
11 table games. Management believes that the smaller Jubilation facility
can adequately service the existing Lakeshore market with substantially
reduced cost of operations. However, based upon limited capacity, it is
uncertain that the casino will be successful. The Jubilation is
permanently moored to a dock, consequently, accessibility by patrons is not
limited to pre-schedule departure and arrival times. The Mississippi
Gaming Control Act (the "Mississippi Act") stipulates that, at a county's
option, gaming may be conducted on a vessel in navigable waters of the
counties bordering on the Mississippi River or on a vessel in the Gulf of
Mexico. Mississippi law permits unlimited wagering, 24-hour operations and
the issuance of house credit to qualified patrons. Gaming debts incurred
in Mississippi casinos are recognized as legally enforceable in the State
of Mississippi.

Pursuant to an asset purchase agreement dated as of May 14, 1993, among
Alpha Gulf, Bayou Caddy, Inc. ("BCI") and certain BCI stockholders, the
Company, through Alpha Gulf acquired BCI's leasehold interests under
certain lease agreements and certain other assets incidental to the
development and ownership of the Lakeshore Casino. See "Certain
Transactions" and "Consolidated Financial Statements."

The Lakeshore Casino is located within a 300-mile radius of approximately
3,300,000 people and is the closest Mississippi dockside gaming
establishment to the New Orleans metropolitan area, being approximately 50
miles from the center of New Orleans. A substantial portion of the New
Orleans target population is located in its eastern suburbs which are
considerably closer to the Casino than central New Orleans.

<PAGE>

THE GREENVILLE CASINO

In October 1995, the Company acquired 100% of the outstanding stock of
Cotton Club, existing shareholder notes in the amount of approximately $8
million and certain additional assets of affiliates of Cotton Club, which
support its current casino operation. The Company paid to the shareholders
of Cotton Club $2,404,898 in cash and $3,293,020 in notes and transferred
$4,500,000 worth of its Common Stock, as determined by the closing bid
price of the stock as of the day prior to the closing of the transaction.
(SEE FINANCIAL STATEMENTS CONTAINED HEREIN). Prior to the acquisition of
the Cotton Club, the Company applied for and received the required licenses
and approvals from the Mississippi Commission.

Following the Cotton Club Acquisition, the Company transferred its Bayou
Caddy's Jubilee Casino located at Lakeshore on the Gulf coast to the Cotton
Club site in Greenville. The Bayou Caddy's Jubilee Casino reopened in
Greenville, Mississippi on November 17, 1995. At the same time, the Cotton
Club's gaming vessel was transferred to the Company's Lakeshore,
Mississippi location. The movement of the Company's Jubilee gaming vessel
to the Greenville site increased the capacity at the Greenville site and
brought an upscale facility to the Greenville market. The Bayou Caddy's
Jubilee Casino has 835 slot machines and 38 table games. In addition to
its gaming activities, the Greenville facility includes a 175 seat buffet,
a 350 seat showroom, a 110 seat restaurant and parking for 950 customer
vehicles. Management believes the Jubilee vessel, with aggressive
entertainment and promotional programs and what it believes to be a
superior product and casino capacity, will be able to capture a significant
portion of the Greenville market. The Company believes that its
management's experience together with active entertainment/promotional
efforts, it will be able to expand the market for the casino to areas
outside of Greenville.

PROPOSED OPERATIONS

NEW YORK

On January 19, 1995, the Company, through its subsidiary, Alpha St. Regis,
Inc. ("Alpha St. Regis"), entered into a memorandum of understanding with
Catskill Development, L.L.C. ("Catskill") pursuant to which Alpha St. Regis
is to participate in the development of, and thereafter manage, a casino to
be built adjacent to the Monticello Raceway in Sullivan County, New York.
It is intended that the casino will be owned by the St. Regis Mohawk Indian
Tribe (the "Tribe") and will be located on land to be placed in trust for
the benefit of the Tribe. The Monticello Raceway is located 90 miles from
New York City. The projected casino would be the closest casino to the
metropolitan New York City area.

The casino project is subject to approval by the U.S. Department of the
Interior and its Bureau of Indian Affairs, the National Indian Gaming
Commission and the Governor of the State of New York, as well as the
execution of definitive agreements with the Tribe. It is contemplated that
the Company will be required to contribute an amount preliminarily
estimated at $250,000 toward the design, architectural and other costs of
developing plans for the casino. Under the memorandum of understanding,
Catskill and Alpha St. Regis commit to enter into a definitive agreement on
the terms established in the memorandum, but there can be no assurance that
such an agreement will ever be consummated. Bryanston Group, Inc., an
affiliate ("Bryanston") is a 25% member of Catskill.

Catskill is the contract vendee for the purchase of the 225 acre Monticello
Raceway. It plans to continue Monticello's racing program and to explore
other development at the site in addition to the St. Regis Mohawk Casino.

<PAGE>

MISSOURI

In February 1995, the City of Louisiana, Missouri, designated the Company
as the city's exclusive designee to enter into negotiations with the city
to develop a riverboat gaming facility at the city's Mississippi River
shoreline. Consequently, the Company's wholly owned subsidiary Alpha
Missouri, Inc. ("Alpha Missouri") entered into a lease agreement with the
City of Louisiana relating to certain City owned river front property
required for the project. Except for certain preliminary payments to the
City, the Company's obligation under the lease are conditioned on the grant
a gaming license by the Missouri gaming authorities.

Alpha Missouri has submitted to the Missouri gaming authorities the initial
applications for site approval and a gaming license. The Missouri
Commission has notified the Company that, due to scarce resources, it
intends to conduct meetings with applicants in the first quarter of 1996 in
order to determine the order of priority in which the Missouri Commission
will conduct investigations and make determinations on all applications.
Alpha Missouri has met with the Missouri Commission to present its project
for priority consideration. There are no objective criteria which the
Missouri Commission is required to follow in making its determinations.
See "Risk Factors - Licensing and Regulation."

The City of Louisiana is located approximately 60 miles north of
metropolitan St. Louis and 70 miles from Springfield, Illinois, that
state's capital.

The Company anticipates that it will provide a gaming vessel with a
capacity of approximately 750 gaming positions. The project cost is
presently expected to be approximately $20 million.

COLORADO

On January 25, 1995, the Company entered into an agreement to acquire all
of the outstanding common stock of Doc Holliday, Inc. ("Doc Holliday"), the
owner and operator of an 18,000 square foot casino in Central City,
Colorado. The Company will issue 92,000 shares of its Common Stock and a
five-year option to purchase up to 500,000 shares of Common Stock at an
exercise price of $3.50 per share in payment for the Doc Holliday stock.
The agreement may be terminated by the Company at anytime prior to closing
for any reason, and by any of the parties if the transaction is not
consummated by March 31, 1996. Management has negotiated an extension to
the agreement for an unspecified period of time.

The acquisition is subject to the satisfactory completion of due diligence
by the Company, the execution of final purchase documents, and the issuance
of the required licenses and approvals by the Colorado licensing
authorities. In the Fall, 1995, the Company filed the requisite forms with
the Colorado Division of Gaming (the "Colorado Division") for approval of
the Company's operation of Doc Holliday's casino in Central City, Colorado,
as contemplated by the Doc Holliday Acquisition. The Colorado Division is
expected to complete its investigation and review of the Company's
application within six months from the date of submission.

Central City is located at an altitude of 8,000 feet in the Rocky
Mountains. It is a historic mining town located approximately 45 minutes
by automobile from Denver and Boulder and one hour from Vail and
Breckenridge. It is one of only three locations in Colorado at which
gaming is allowed. The casino is located in two renovated historic
buildings which date back to Central City's years as a mining center.

<PAGE>

MARKETING

The Company concentrates its sales, marketing and promotional activities
for the Lakeshore Casino and the Greenville Casino in target markets within
150 mile radii of each casino. Target markets (such as New Orleans, the
communities on the north shore of Lake Pontchartrain, Baton Rouge, the Gulf
Coast and central Mississippi for the Lakeshore Casino) are reached through
a combination of billboards, radio, television, newspaper advertising, and
direct mail. Also, casino brochures are placed in tourist information
areas, local and regional hotels, restaurants and bars.

The Company has developed an in-house mailing list in excess of 225,000
casino customers. These customers are made up of table game players and
"Slot Club" members. Table game customers are identified through the
casino's marketing representatives and their play is monitored to evaluate
whether the customer warrants complimentary services provided by the
casino. The "Slot Club" is an operation which allows the casino's
computerized tracking system to identify customers, amount of play and
other pertinent characteristics. The "Slot Club" is an ongoing promotion
where members are issued cards and accumulate points based on the amount of
their play. Such points are redeemable for food, beverages or merchandise.
Tournaments for blackjack, craps and poker are held, along with other
special events and promotions.

The Company markets its bus program for both the Lakeshore Casino and
Greenville Casino to generate business in areas extending both within and
beyond the 150-mile radius of concentrated advertising. The marketing
department coordinates with various tour groups, travel agencies and junket
representatives who develop regular scheduled and chartered bus service to
bring customers to the Casino sites on a 24-hour basis.

In addition, the Company has erected a 100-foot Las Vegas-style sign on
leased property fronting Highway 90 in Hancock County, Mississippi,
directing customers to the Lakeshore Casino.

In December of 1994, the Company completed the refurbishment of its leased
dinner boat, the "Jubilation." The Jubilation gives the Lakeshore Casino
two dining alternatives. The new restaurants are the "Captains Table,"
offering fine dining in an elegant, nautical setting and the "Jubilation
Cafe," which offers a more casual and moderately priced fare.

In January 1996, the Company completed renovation of its leased restaurant
facility in Greenville. The Jubilee Cafe and Grill with a capacity of 110
gives the Greenville casino customer a dining alternative offering fine
dining in an elegant setting.

COMPETITION

The Company believes that the sources of the Lakeshore Casino's primary
competition are the numerous existing gaming operations on the Gulf Coast
of Mississippi and various operations established in Louisiana. Many of
these competitors are larger in terms of their size and number of gaming
facilities and are located in more advantageous sites than the Company's
Lakeshore Casino. Secondary riverboat competition exists from current
gaming operations in Natchez, Vicksburg, Greenville, Coahoma County and
Tunica, Mississippi. Gaming has also been established on Indian
reservations in Louisiana and Mississippi. The Choctaw Indians in late
summer of 1994, opened a land-based casino located on their reservation
near Philadelphia, Mississippi, which is approximately 200 miles north of
the Gulf Coast. In early 1995, the Grand Casino Coushatta near Lake
Charles, Louisiana opened with full scale Las Vegas style gaming.

<PAGE>

There are currently 12 dockside gaming operations on the Mississippi Gulf
Coast. Eight of these operations- Isle of Capri, President, Casino Magic
Biloxi, Lady Luck, Grand Casino Biloxi, Palace, Treasure Bay Biloxi and
Boomtown are located in Biloxi, approximately 30 miles east of the
Lakeshore Casino. Grand Casino Gulfport and Copa Casino are located in
Gulfport which is approximately 22 miles east of the Lakeshore Casino.
Approximately 10 miles east of the Lakeshore Casino is Bay St. Louis where
the Casino Magic is located. The casinos located on the Mississippi River
are at least 150 miles from the Lakeshore Casino and are not considered
direct competition to the Lakeshore Casino.

There are currently 16 casinos located on the Mississippi River. Next to
the Greenville Casino is the Las Vegas Casino. Currently, there is a
proposed casino project which will be located north of the Greenville
Casino. This proposed casino project has not at this time received the
necessary governmental approvals. Management believes that if this project
is completed it will impact current revenue levels being realized at the
Greenville Casino. Approximately 90 miles south of Greenville Casino is
Vicksburg. Vicksburg has four casinos: the Isle of Capri, Harrahs
Vicksburg, Ameristar, and Rainbow Casino. Approximately 90 miles north of
the Greenville Casino is Coahoma County with the Lady Luck Coahoma Casino.
Tunica County is approximately 180 miles north of the Greenville Casino and
has eight casinos - Harrahs Tunica, Sams Town, Fitzgeralds, Sheraton,
Hollywood Casino, Circus Circus, Horshoe Casino and Ballys.

The Mississippi Act does not limit the number of licenses that may be
granted for an area, however, development throughout the state has slowed
considerably. The Company believes that few, if any, new casinos will open
on the Mississippi Coast, or if they do, such casinos will open in the
Biloxi area which is not in the Casino's primary market. Although any
increase in supply in the general area dilutes the market. The Company
believes that only two of the proposed New Orleans area facilities provide
competition in Alpha Gulf's primary target market.

Louisiana approved unlimited stakes riverboat gaming in 1993 and set aside
up to 15 licenses for issuance. The first of the New Orleans area
riverboats opened in December 1993. A land-based casino in downtown New
Orleans was also approved and its temporary facility opened in May 1995.
That casino closed in December 1995 and filed for protection from creditors
under Chapter 11 of the Bankruptcy Act. The Company understands that there
are on-going discussions between the owner of the New Orleans casino, the
State of Louisiana, City of New Orleans, and the casino's bondholders
concerning the possible reorganization of that casino.

GOVERNMENT REGULATION

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 the operator, each owner of a substantial interest
(usually 5% or more) in the operator, members of the Board of Directors,
each officer and all key personnel found suitable, and be approved, by the
applicable governing body. The failure of any present, or future, person
required to be approved to be, and remain qualified to hold a license could
result in the loss of license.

<PAGE>

MISSISSIPPI

GENERAL

The ownership and operation of casino facilities in Mississippi are subject
to extensive state and local regulation, primarily the licensing and
regulatory control of the Mississippi Commission and the Mississippi State
Tax Commission (collectively, the "Mississippi Authorities").

The laws, regulations and supervisory procedures of Mississippi and the
Mississippi 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 Commission in
view of their recent adoption. Changes in Mississippi law or regulations
may limit or otherwise materially affect the types of gaming that may be
conducted and could have an adverse effect on the Company and the Company's
Mississippi gaming operations.

The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Mississippi Gulf Coast
or the Mississippi River, but only if the voters in such counties have not
voted to prohibit gaming in that county. As of January 1, 1996, dockside
gaming was permissible in 9 of the 14 eligible counties in the state and
gaming operations had commenced in Adams, Hancock, Harrison, Tunica and
Warren counties. The law permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of
space that may be utilized for gaming. There are no limitations on the
number of gaming licenses that may be issued in Mississippi.

REGISTRATION AND LICENSING

The Company, a registered publicly-traded holding company under the
Mississippi Act, 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
"Gaming Subsidiary"), is subject to the licensing and regulatory control of
the Mississippi Commission. If the Company is unable to continue to
satisfy the registration requirements of the Mississippi Act, the Company
and its Gaming Subsidiaries cannot own or operate gaming facilities in
Mississippi. Each Gaming Subsidiary must obtain gaming licenses from the
Mississippi Commission to operate casinos in Mississippi. A gaming license
is issued by the Mississippi Commission subject to certain conditions,
including continued compliance with all applicable state laws and
regulations and physical inspection of casinos prior to opening. A license
for the operation of each of the casinos was granted by the Mississippi
Commission.

Gaming licenses are not transferable, are initially issued for a two-year
period and are subject to periodic renewal. No person may receive any
percentage of profits from a gaming subsidiary of a holding company without
first obtaining licenses and approvals from the Mississippi Commission.

<PAGE>

LICENSING OF OFFICERS, DIRECTORS AND EMPLOYEES

Officers, directors and certain key employees of the Company and its Gaming
Subsidiaries must be found suitable or be licensed by the Mississippi
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
those persons must pay the costs and fees associated with such
investigation. The Mississippi 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 Commission. In addition to
its authority to deny an application for a license, the Mississippi
Commission has jurisdiction to disapprove a change in corporate officers.
The Mississippi Commission 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 Common Stock to report the acquisition to the
Mississippi 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 Common Stock, as reported in filings under the Exchange Act, must
apply for a finding of suitability by the Mississippi Commission and must
pay the costs and fees that the Mississippi Commission incurs in conducting
the investigation. The Mississippi 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 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
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 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
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 Commission upon
request the identities of the holders of any debt securities. In addition,
the Mississippi Commission under the Mississippi Act may, in its
discretion, (i) require disclosure of holders of debt securities of
corporations registered with the Mississippi Commission, (ii) investigate
such holders, and (iii) require such holders to be found suitable to own
such debt securities. Although the Mississippi Commission generally does
not require the individual holders of obligations such as notes to be
investigated and found suitable, the Mississippi 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 the Mississippi Commission in connection
with such an investigation.

<PAGE>

REQUIRED RECORDS

The Company must maintain a current stock ledger in Mississippi that the
Mississippi 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 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.

The Mississippi Act requires that the certificates representing securities
of a publicly-traded corporation (as defined in the Mississippi Act) bear a
legend to the general effect that such securities are subject to the
Mississippi Act and the regulations of the Mississippi Commission. The
Mississippi 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 Gaming Subsidiary must be reported to or approved by the
Mississippi 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 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 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 certain circumstances,
required from the Mississippi 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 will also require prior approval by the Mississippi 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 Commission. The Mississippi Commission
may require determinations that, among other things, there are means for
the Mississippi Authorities to have access to information concerning the
out-of-state gaming operations of the Company and its affiliates.

SANCTIONS

If the Mississippi Commission were to decide that a Gaming Subsidiary had
violated a gaming law or regulation, the Mississippi Commission could
limit, condition, suspend or revoke the license of the Gaming Subsidiary.
In addition, the Gaming Subsidiary, the Company and the persons involved
could be subject to substantial fines for each separate violation. Because
of such violation, the Mississippi 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 adversely affect the Company's and the Gaming
Subsidiary's gaming operations.

<PAGE>

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 Gaming Subsidiary's operations will be
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) and 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. The foregoing license fees are allowed as a credit against the
Company's Mississippi income tax liability for the year paid.

MISSOURI, COLORADO AND NEW YORK

Missouri, Colorado and New York law each provide 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.

In connection with its proposed operations in Missouri and Colorado, the
Company has commenced the application and approval process with each of the
Missouri Gaming Commission and the Colorado Division of Gaming.

EMPLOYEES

As of February 1996, the Company had approximately 1,065 employees, of
which 908 are full-time employees. Management considers its employment
relations to be satisfactory.

HOTEL OPERATIONS

GENERAL

The Company provides Management Services to hotels and motels primarily
under the Service Agreement between Alpha Hotel Management, Inc. ("Alpha
Hotel") and Bryanston, the contracting party with the individual owners of
the hotels. All of the hotels are "mid-priced" and all but one are
operated as Days Inns hotels. The Company provides Management Services on
behalf of Bryanston as manager of the managed hotels. The Company and
Bryanston have designed a financial management system whereby all
accounting information is processed in the Company's centralized accounting
office in Hopewell Junction, New York. The system includes management of
all cash, accounts payable and receivable, and generates detailed monthly
financial statements. The Company provides each property with standardized
forms and procedures in order that all accounting in the management system
is uniform. In addition to the Service Agreement the Company provides
Management Services to hotels in Myrtle Beach, South Carolina and in
Branson, Missouri, under agreements with the owners.

<PAGE>

Under the Service Agreement, the Company is compensated for its services in
an amount equal to a percentage of total net revenues of the managed hotels
(net of 1% of aggregate revenue retained by Bryanston). Such percentages
range from 2% to 5%. Additional fees are earned from various incentive
agreements and accounting fees. The Management Agreements typically have a
term of 10 years and most have specified renewal terms. The majority of
the initial terms expire between 1996 and the year 2000. The Management
Agreements contain termination provisions that are consistent with hotel
industry practice and may be terminated by either party due to an uncured
default by the other party. One of the Management Agreements is terminable
at the discretion of the hotel owner and others are terminable if there is
a material decrease in the hotel operating results or upon sale of the
property. Management Agreements may also be terminated upon the sale of
the managed hotels. Since January 1, 1991, eight Management Agreements
have been terminated.

Effective September 1, 1993, the Company entered into an expense
reimbursement agreement with Bryanston. Pursuant to the terms of such
agreement, the Company will reimburse Bryanston for direct payroll and
related costs.

As indicated above, many of the managed hotels are operated as Days Inns by
arrangement with Bryanston, which is a Days Inns licensee. The terms of
Bryanston's license provide for a special, partial exemption from the Days
Inns license fees for each of the hotels for which the Company provides
management services. Each of the managed hotels is charged applicable fees
for marketing and reservation service, but is exempt from the so-called
"basic" fee of 5%, which is economically significant to such hotels. The
term of the special exemptions is equal to the term of the related
Management Agreement, including any extensions for which provision is made
therein, plus a further five-year term (intended to cover a possible future
extension). There is no discretion in the licensor, absent breach, to
eliminate or modify the discount.

The Company's hotel management operations are organized under a regional
management structure. The overall hotel operation is supervised by the
president of Alpha Hotel. Regional executives are utilized to oversee and
monitor the operations. The Company believes this type of organization,
coupled with extensive operational systems and procedures, is the most
effective way to provide management services for the hotels. In addition
to the regional managers, the Company has a comprehensive support staff to
ensure that all of the managed hotels maximize potential revenue and profit
opportunities.

10
<PAGE>

The hotels for which the Company currently provides management services are:

<TABLE>
<CAPTION>
MANAGEMENT
NUMBER AGREEMENT RENEWAL
OF TERMINATION TERMINATION
NAME AND LOCATION ROOMS DATE DATE
- ----------------- ------- ----------- -----------
<S> <C> <C> <C>
Days Inn-Scottsdale, Scottsdale, AZ 167 2001 None

Days Inn-Clearwater, Clearwater, FL 117 2001 None

Days Inn-Buena Vista, Orlando, FL 245 1996 2001

Days Inn-Downtown, Atlanta, GA 262 2012 2022

Days Inn-Savannah, Savannah Bay, GA 253 1996 2001

Days Inn-Lakeshore, Chicago, IL 580 2006 2021

Days Inn-Henderson, Henderson, KY 115 2002 None

Days Inn-Inner Harbor, Baltimore, MD 251 1996 2016

Days Inn-University, Minneapolis, MN 130 2001 None

Days Inn-Roseville, Roseville, MN 114 2001 None

Days Inn-Plymouth, Plymouth, MN 113 2001 None

Days Inn-Butler, Butler, PA 133 1996 2011

Days Inn-Madisonville, Madisonville, KY 141 2002 None

Sheraton - Myrtle Beach, SC 219 2004 None
-----
2,940
-----
-----

</TABLE>

<PAGE>

The Company is seeking additional management contracts directly with hotel
owners who own properties in appropriate locations, allowing the Company to
expand and benefit from the limited incremental costs of adding additional
management activities.

SIGNIFICANT CLIENTS

Sixteen of the hotels for which the Company provides management services are
owned by five companies. These five companies accounted for 22.6%, 18.5%,
17.1%, 17.0% and 12.7% of Alpha Hotel's revenues, respectively, in its most
recent fiscal year. The Management Agreements contain termination provisions
which are consistent with hotel industry practice and may be terminated by
either party due to an uncured default by the other party. One of the
management agreements relating to five hotels, which accounted for 17.0% of
Alpha Hotel's 1995 revenues, was terminated in 1995. The remaining
Management Agreements are terminable if there is a material decrease in the
hotel's operating results and are all terminable on a sale of the property.
In the first quarter of 1996, the Company entered into Management Agreement
to manage a hotel in Branson, Missouri. If additional management agreements
are not obtained during the remainder of 1996, future revenues of Alpha Hotel
will be impacted adversely. In addition, because substantially all of the
Company's current hotel management clients are sub-contracted through
Bryanston, any failure on the part of Bryanston to continue its business
operations or to maintain its Management Agreements would adversely affect
the business, financial condition and results of operations of the Company.

EMPLOYEES

Although not directly employed by the Company, 1,030 employees engaged in the
operations of managed hotels are employed by Bryanston and Atlantic Shore
Resort and supervised by the Company. Approximately 15% of the 1,030
Bryanston employees are unionized. The Company believes that its relations
with its employees and Bryanston's relations with its unions are satisfactory.

COMPETITION

There are many hotel management companies that provide management services to
hotels similar to the services provided by the Company. Many of such
companies are larger and better capitalized and have more experience in the
management of hotels. However, the Company believes that its expertise in
operating major mid-market hotel licensees, economies of scale, its
innovative marketing strategies and favorable arrangements between Bryanston
and the Days Inn licensor will enable it to maintain a competitive position.
The favorable arrangements with Days Inn extend for the duration of the
Service Agreement, plus five years, and, absent breach, there is no
discretion in the licensor to eliminate or to modify the discount. The
discount is not available, however, for any hotels other than those hotels
currently operated by Bryanston, which may inhibit the Company's ability to
attract additional management clients.

<PAGE>

ITEM 2. PROPERTIES

The Company maintains its executive office at leased premises located at
12 East 49th Street, New York, New York. This lease expires December 31,
2004.

CASINO OPERATIONS
<TABLE>
<CAPTION>

LOCATION PRINCIPLE USE APPROXIMATE OWNED/LEASED EXPIRES
AREA
- -------- ------------- ----------- ------------ -------
<S> <C> <C> <C> <C>

Hancock County Mooring site of 25 acres Leased July 21, 2001
Waveland, MS casino vessel with option to
extend 2 five
year terms

Hancock County Rights to 1,250 Leased December 31,
Waveland, MS adjoining waterfront feet 2003 with
waters to be option to extend
above property five years

Hancock County Sign location, 3 acres Leased April 30, 2003
Waveland, MS warehousing with option to
and parking purchase

Hancock County Accounting 1 acre Leased June 30, 1998
Waveland, MS office with option to
extend 3 five
year terms and
right of first
refusal to
purchase

Washington County Customer 2.0 acres Owned --
Greenville, MS parking

Washington County Mooring site of 1,000 Leased December 29,
Greenville, MS casino vessel waterfront feet 1997 with 3
extensions of
five years each

Washington County Accounting 10,000 square Leased December 1,
Greenville, MS offices and feet 1996 with
warehouse option to extend
two years

</TABLE>

The Company considers its property to be suitable and adequate for its
present needs. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

The Company has been named as an additional defendant in an action
brought in the United States District Court for the Southern District of
Mississippi (Susan E. Wolff, et al v. James C. Zamecnik, et al. The
Plaintiff is seeking $20,000,000. However, in recent settlement
discussions between the Plaintiff and the Company's insurance company,
the Plaintiff has offered a settlement of $7,500,000. The Plaintiff has
initiated a declaratory judgment action (Southern Division) against Alpha
Gulf and its insurance carriers seeking a determination as to the liability
of such carriers under the insurance policies issued by the carriers to
Alpha Gulf and the Company for any damages found against Alpha Gulf in the
primary litigation up to the policy limits. The declaratory judgment
action appears to have been brought in response to issues raised by the
primary insurance carrier as to timely notice of the incident and possible
spoilation of evidence. Subsequently, the primary insurance carrier
initiated its own declaratory judgment action against Alpha Gulf and the
Company (Commerce & Industry Company v. Alpha Gulf Coast, Inc. and Alpha
Hospitality Corporation, Inc.: United States District Court for the
Southern District of Mississippi, Jackson Division) seeking a
determination that it is not liable under the subject insurance policy.
The Company has moved to intervene in the declaratory judgment action
brought by the Plaintiff. In both declaratory judgment actions, Alpha
Gulf and the Company are asserting either cross claims or counterclaims
against the insurance carriers involved. Alpha Gulf and the Company have
also moved to consolidate the two declaratory judgment actions with the
Plaintiff's original personal injury action. The ultimate outcome of this
litigation cannot presently be determined. Accordingly, no provision for
any liability to the Company that may result upon adjudication has been
made in the accompanying consolidated financial statements. The Plaintiff
and the Company's insurance carrier are currently conducting settlement
negotiations, although there can be no assurance that a settlement will
be reached.

In January 1996, the Company has been named as a defendant in an action
brought in the Circuit Court of Hynds County, Mississippi (Amos vs Alpha
Gulf Coast, Inc.; Batiste vs Alpha Gulf Coast, Inc.; Ducie vs Alpha Gulf
Coast, Inc.; Johnson vs Alpha Gulf Coast, Inc.; Ramez vs Alpha Gulf Coast,
Inc.). Mr. Amos alleges that in January 16, 1995, a vehicle operated by
him collided with a vehicle negligently operated by an individual that was
served alcoholic beverages by the Company. The defendant seeks compensating
damages of $1,800,00 and punitive damages of $7,500,000. The remaining
defendants allege that they were passengers in the vehicle operated by Mr.
Amos and that they suffered personal injuries. They seek compensating
damages of $1,800,000 each and punitive damages of $7,500,000 each. The
ultimate outcome of this litigation cannot presently be determined.
Accordingly, no provision for liability to the Company that may result
upon adjudication has been made in the accompanying consolidated financial
statements. The Company believes that the risk referred to in this
paragraph is adequately covered by insurance.

<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET INFORMATION

The Company's common stock is traded on the NASDAQ Stock Market and the
Boston Stock Exchange. The following table sets forth, for the periods
indicated, the high and low bid prices for the Company's Common Stock as
reported by NASDAQ. Historical prices are not necessarily indicative of
the price at which the securities may trade in the future.

Quarterly Period Ended Common Stock
- ---------------------- ------------
<S> <C>
High Low
Bid Bid
--- ---
March 31, 1994 18.250 11.750

June 30, 1994 13.325 5.265

September 30, 1994 6.750 5.500

December 31, 1994 7.500 4.625

March 31, 1995 6.875 3.375

June 30, 1995 4.250 2.250

September 30, 1995 4.375 2.125

December 31, 1995 6.125 4.000

</TABLE>

As of March 29, 1996, 13,055,499 shares of Common Stock were issued and
outstanding. Such shares were held of record by approximately 800
persons including ownership by nominees who may hold for multiple
beneficial owners.

<PAGE>

DIVIDEND POLICY

The Company has not paid any dividends, cash or otherwise, since its
inception. The Company plans to use earnings, if any, to fund growth and
presently has no intention to pay any cash dividends in the foreseeable
future. Pursuant to the terms of the first preferred ship mortgage secured
by the Jubilee Casino vessel, the Company may not pay cash dividends without
the consent of Bryanston until the Term Loan is paid in full. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - Liquidity and Capital Resources."

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)

March 19,
1993 (Date of
Inception) to
Year Ended December 31, December 31,
-------------------------
1995 1994 1993
---------- --------- --------
<S> <C> <C> <C>

Revenues $ 30,520 $ 46,100 $ 877

Net loss $ (17,994) $ (9,901) $ (4,705)

Loss per common share $ (1.69) $ (.97) $ (.53)

</TABLE>

<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>

Total assets $ 66,773 $ 45,490 $ 47,201

Long-term debt $ 29,631 $ 20,100 $ 24,874

Mandatorily redeemable common stock $ - $ 565 $ -

Stockholders' equity $ 1,904 $ 13,143 $ 11,882

</TABLE>

See Managements' Discussion and Analysis and Consolidated Financial Statements.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (ALPHA GULF)

The following table sets forth the statement of operations for the Alpha
Gulf's casino operations before income taxes for the years ended December 31,
1995 and 1994 and the period May 3, 1993 (date of inception) to December 31,
1993 (in thousands):

<TABLE>
<CAPTION>
Period May 3,
1993 (Date of
Year Ended Inception) to
December 31, December 31,
-----------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>

Revenues:
Casino $ 25,713 $ 41,344 $ -
Food, beverage and other 1,122 1,921 19
-------- -------- --------
Total revenues 26,835 43,265 19
-------- -------- --------

Operating expenses:
Casino 15,009 19,586
Food, beverage and other 729 1,223
Selling, general and administration 15,114 22,172
-------- -------- --------
Total operating expenses 30,852 42,981
-------- -------- --------

Income (loss) from operations (4,017) 284 19
-------- -------- --------

Other expenses:
Interest 2,178 2,317 375
Other non-operating 2,620 1,535 5,439
Depreciation and amortization 4,161 3,763
-------- -------- --------
Total other expense 8,959 7,615 5,814
-------- -------- --------

Loss before intercompany charges and
deferred income tax credit $(12,976) $(7,331) $(5,795)

</TABLE>

<PAGE>

YEARS ENDED DECEMBER 31, 1995 AND 1994:

Alpha Gulf generated revenues of $26,835,000 and $43,265,000 in 1995 and
1994, respectively. Casino revenues were $25,713, 000 and $41,344,000 in
1995 and 1994, respectively. Food, beverage, retail and other revenues were
$1,122,000 and $1,921,000 in 1995 and 1994, respectively. The Company
experienced declining revenues during the year ended December 31, 1995. In
management's opinion, this decline is due to the related isolated location of
its Lakeshore casino site and the increasing casino development in the Biloxi
and Gulfport markets which have proven more attractive to casino patrons.

Management attempted many different marketing programs, some of which showed
moderate results. In September 1995, the Company announced plans to relocate
the Jubilee Casino to Greenville, Mississippi, upon acquisition of the Cotton
Club Casino. This relocation caused the Jubilee Casino to close for four
weeks, reopening on November 17, 1995 in Greenville. During its first six
weeks of operations in Greenville, the Jubilee Casino had casino revenues of
$5,270,000 compared to $3,787,000 of gaming revenue achieved by its
predecessors gaming vessel at this site during the same period in 1994.

At the locations referred to above, Alpha Gulf's casino operating expenses
were $15,009,000 and $19,586,000, (58% and 47% of Casino revenues). Food,
beverage, retail and other expenses were $729,000 and $1,223,000, (65% and
64% of food, beverage, retail and other revenues). Food and beverage revenue
does not include the retail value of food and beverage of approximately
$3,514,000 and $4,884,000 provided gratuitously to customers in 1995 and
1994, respectively. The reduced casino expenses incurred in 1995 when
compared to 1994 of $4,577,000 was the results of the following factors, (1)
reduced gaming taxes of $1,876,000 due to reduced gaming revenue, and (2)
management's reduction of staffing levels to more closely match the volume of
business. The reduction of food, beverage and other costs are directly
related to the reduced volume of business.

Selling, general and administrative expenses consists primarily of payroll
and related benefits of approximately $4,300,000 and $7,300,000, marketing
and advertising of approximately $4,200,000 and $6,200,000, and occupancy
costs of approximately $1,100,000 and $3,500,000 in 1995 and 1994,
respectively. The reduced payroll and related costs of $3,000,00 was a
direct result of management's cost cutting measures instituted during the
first quarter of 1995. The $2,000,000 reduction in marketing and advertising
was principally the result of management focusing on marketing programs that
had previously demonstrated successful results and elimination of
unsuccessful programs. The reduction of occupancy costs of $2,400,000 is
primarily due to the renegotiated terms of the Lakeshore ground lease and
reduced insurance costs.

Interest expense was primarily related to the first mortgage on the gaming
vessel, equipment financing and various capitalized leases.

Depreciation and amortization was $4,161,000 and $3,763,000 in 1995 and 1994,
respectively.

FUTURE OPERATIONS - ALPHA GULF

Alpha Gulf's Bayou Caddy's Jubilee Casino operating results have improved
since its relocation to Greenville. During January, February and March of
1996, the Jubilee Casino obtained gaming revenues of $2,733,000, $3,132,000
and $3,600,000, respectively. The gaming revenues achieved to date by the
Jubilee Casino in Greenville far exceed the revenues of its predecessor
gaming vessel at that site. Alpha Gulf's casino operations in Greenville
have become a major factor in the Greenville market and has helped to expand
that market. The Company expects that Alpha Gulf will earn net income before
taxes and intercompany charges of approximately $9,000,000 for the year
ending December 31, 1996.

<PAGE>

RESULTS OF OPERATIONS - JUBILATION

The Company acquired the Jubilation gaming vessel on October 26, 1995. The
vessels operations in Greenville was terminated on October 30, 1995. After
its relocation to Lakeshore, the Jubilation reopened for business on December
21, 1995. The following table sets forth the statement of operations for the
Company's Jubilation casino operations before income taxes for the period
October 26, 1995 (date of acquisition) to December 31, 1995 (in thousands):

Revenues:
Casino $ 806
Food, beverage and other 16
-------
Total revenues 822
-------
Expenses:
Casino 777
Food, beverage and other 89
Selling, general and administrative 1,738
-------
Total operating expenses 2,604
-------
Loss from operations (1,782)
-------
Other expenses:
Interest 120
Other non-operating 223
Depreciation and amortization 333
-------
Total other expenses 676
-------
Loss before intercompany charges $(2,458)
-------

</TABLE>

The Jubilation has experienced a loss of approximately $1,100,000 during the
first quarter of 1996 before depreciation and intercompany charges. Due to
the seasonal nature of business on the Gulf Coast of Mississippi, the Company
anticipates improvement during the quarters ending in June and September
1996. At this time management is uncertain that the Jubilation can be
profitable during these quarters. Management has reduced operating costs and
is monitoring the operation very closely. The seasonal nature of the
Lakeshore site increases the risk that natural disasters or the loss of the
Jubilation Casino from service for any other reason during the May through
September period would have a material adverse effect on the Company's
financial condition. The Company has had preliminary discussions with
potential purchasers of the Jubilation Casino. These discussions are ongoing
and no assurance can be given that such discussions will be successful.

<PAGE>

RESULTS OF OPERATIONS - CASINO DEVELOPMENT (SEE LIQUIDITY AND CAPITAL
RESOURCES)

Alpha Missouri has not commenced operations. It has incurred development
costs of approximately $179,000 in 1995 related to its proposed development
of a riverboat casino in Louisiana, Missouri.

During 1995, Alpha Rising Sun was not selected to be the casino developer on
its proposed site in Indiana. Accordingly, all costs (approximately $914,000
in 1995) associated with this project has been expensed.

During 1995, Alpha St. Regis (St. Regis) incurred approximately $197,000 of
costs primarily associated with its participation with the Catskill
Development LLC to develop a casino adjacent to the Monticello Raceway in
Sullivan County, New York. Upon completion of the project, and subject to
governmental and Tribal approvals, St. Regis will be the operator of the
casino. Pursuant to an agreement with Catskill Development LLC, St. Regis
will receive 50% of all management fees plus certain administrative fees
related to management of the casino.

In 1994, St. Regis incurred $509,000 in expenses related to a proposed class
3 casino located on the St. Regis Mohawk Reservation in Hogansburg, New York.
Management does not believe that the project at Hogansburg, New York will go
forward.

21
<PAGE>
RESULTS OF OPERATIONS - GENERAL

The Company complies with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes", which requires an asset and liability approach
to financial accounting and reporting for income taxes. At December 31, 1993
the Company recorded a deferred tax asset of $1,716,000. During the
Company's first years of operation, it experienced a volatile and competitive
market on the Gulf Coast of Mississippi that was not anticipated. As a
result, the Company experienced a significant net loss and has established a
valuation reserve (approximately $12,671,000) equal to the deferred tax asset
as of December 31, 1995. (See Notes to Consolidated Financial Statements).

In March 1995, Statement of Financial Accounting Standard No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" was issued. The Company will adopt SFAS 121 in the first
quarter of 1996. The impact on the Company's financial position and results
of operations is not expected to be material.

HOTEL MANAGEMENT - ALPHA HOTEL MANAGEMENT COMPANY, INC. ("ALPHA HOTEL")

The following table sets forth selected financial data of Alpha Hotel
Management Company, Inc. (Alpha Hotel) for the years ended December 31, 1995,
1994 and 1993 (1993 includes eight months of the Company's predecessor
Bryanston Group, Inc.). (IN THOUSANDS)

Year Ended December 31,
------------------------------------
1995 1994 1993
------- ------- ------
Income Statement Data:
Management fees $ 2,863 $ 2,835 $ 3,091
Operating expenses: ------- ------- -------
Direct payroll and related expenses 1,236 1,474 1,291
Selling, general and administrative 276 236 550
------- ------- -------
1,512 1,710 1,841
Income from management fees before
intercompany charges and income taxes $ 1,351 $ 1,125 $ 1,250
------- ------- -------

<PAGE>

RESULTS OF OPERATIONS

GENERAL

Effective as of September 1, 1993, the Company, through its subsidiary Alpha
Hotel, entered into a Service Agreement with respect to hotels managed by
Bryanston Group, Inc. Hotel Division.

December 31, 1995 Compared to December 31, 1994:
- ------------------------------------------------

Total management fees increased during the year ended December 31, 1995
compared to the twelve months ended December 31, 1994 by approximately
$28,000 (1.0%). The increase was principally the result of increases in the
hotels' gross revenues on which the management fees are based. The factors
that influence such gross revenues are general economic conditions,
competitive changes in geographic regions, foreign exchange rates relative to
the strength of U.S. dollar, the price of gasoline, air fares and general
weather conditions.

Direct payroll and related costs decreased 16.1% to $1,236,000 for the year
ended December 31, 1995 from $1,474,000 for the year ended December 31, 1994.
The decrease was the result of reduced central office staff due to operating
efficiencies achieved.

Selling, general and administrative expenses increased to $276,000 for the
year ended December 31, 1995 from $236,000 for the year ended December 31,
1994. This increase is a result of travel to the managed hotels by regional
and corporate management and costs incurred to obtain additional management
contracts.

In 1995, Alpha Hotel entered into a management agreement for a Sheraton Hotel
in Myrtle Beach, South Carolina directly with the hotel owner.

December 31, 1994 Compared to December 31, 1993:
- ------------------------------------------------

Total management fees decreased during the year ended December 31, 1994
compared to the twelve months ended December 31, 1993 by approximately
$256,000 (8.3%). This was the net result of an increase in management fees of
$156,000 from the hotels subject to ongoing management agreements, the loss
of three management agreements during 1993 and one during 1994 (all of which
related to the hotels) and the addition of a management agreement for a
property under receivership for the first three months of 1993. This was
principally accomplished through increases in the hotels' gross revenues of
which the management fees are based. The factors that influence such gross
revenues are general economic conditions, competitive changes in geographic
regions, foreign exchange rates relative to the strength of U.S. dollar, the
price of gasoline, air fares and general weather conditions.

Direct payroll and related costs increased 14.1% to $1,473,666 for the year
ended December 31, 1994 from $1,291,582 for the year ended December 31, 1993.
The increase was the result of a mid-year increase in salaries and wages of
3% to 4% for the office personnel.

Selling, general and administrative expenses decreased to $235,238 for the
year ended December 31, 1994 from $549,917 for the year ended December 31,
1993. This decrease is a result of the office rent allocation, increase in
reserve for bad debt and travel to the managed hotels by regional and
corporate management.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

On November 5, 1993, the Company completed its public offering for the sale
of 1,500,000 shares of common stock at $9.00 per share and 750,000 redeemable
common stock purchase warrants at $.10 per warrant. On November 18, 1993,
the underwriter exercised its option to purchase 225,000 shares of the
Company's stock at $9.00 per share and 112,500 warrants at $.10 per warrant.

In 1995 cash used in operations of $10,334,000 was primarily attributable to
the net loss of approximately $17,994,000, less depreciation and amortization
of $4,508,000, common stock issued for services of $1,690,000 and an increase
in accounts payable and accrued expenses of $1,527,000.

Net cash flows from operations was approximately $2,396,000 in 1994 which was
primarily attributable to depreciation and amortization and deferred Income
tax expense aggregating $5,492,000, an increase in accounts payable and
accrued expenses of $3,893,000, an increase in accrued payroll and related
liabilities of $2,431,000, and a reduction of the net loss of approximately
$9,900,000.

Net cash flows from operations was $1,144,000 in 1993 which was primarily
attributable to an increase in accounts payable and accrued expenses of
$7,418,000, reduced by a deferred tax credit of $1,716,000 and the net loss
of $4,704,000.

In January 1996, the Company was named as a defendant in an action brought in
the Circuit Court of Hynds County, Mississippi (Amos vs Alpha Gulf Coast,
Inc.; Batiste vs Alpha Gulf Coast, Inc.; Ducie vs Alpha Gulf Coast, Inc.;
Johnson vs Alpha Gulf Coast, Inc.; Ramez vs Alpha Gulf Coast, Inc.). Mr.
Amos alleges that in January 16, 1995, a vehicle operated by him collided
with a vehicle negligently operated by an individual that was served
alcoholic beverages by the Company. The defendant seeks compensating damages
of $1,800,00 and punitive damages of $7,500,000. The remaining defendants
allege that they were passengers in the vehicle operated by Mr. Amos and that
they suffered personal injuries. They seek compensating damages of
$1,800,000 each and punitive damages of $7,500,000 each. The ultimate
outcome of this litigation cannot presently be determined. Accordingly, no
provision for liability to the Company that may result upon adjudication has
been made in the accompanying consolidated financial statements. The Company
believes that the risk referred to in this paragraph is adequately covered by
insurance (SEE LEGAL PROCEEDINGS).

The Company is obligated under a $20,000,000 non-revolving promissory note
($17,360,861 outstanding at December 31, 1995) with Bryanston. The note,
which bears interest at prime rate (8.5% at December 31, 1995) plus 2%, is
payable at the lesser of the outstanding principal amount or $2,000,000 per
annum through December 31, 1999. All remaining principal and accrued
interest (approximately $503,000 at December 31, 1995) shall be due December
31, 2000. Additionally, commencing May 1, 1996 and for each of the next
succeeding three years thereafter, the Company will be required to make
additional principal payments equal to "Available Cash Flow of Maker" as
defined in the note. In 1996, Bryanston advanced an additional $1,275,000 to
the Company.

<PAGE>

At December 31, 1995, the Company was in default of (i) its mortgage notes
payable for non-payment, (ii) the equipment notes aggregating approximately
$13,432,000 for the breach of several loan covenants and (iii) a capital
lease of approximately $745,000 for non-payment. The Company is currently in
settlement discussions regarding the capitalized lease which, if successful,
will cure the defaults under this lease. Certain loans payable aggregating
approximately $3,655,000 went into default in 1996 due to non-payment. The
Company received a waiver of default on the loan payable to Bryanston of
$2,474,000.

At December 31, 1995, the Company suffered significant losses from operations
and has a working capital deficit and accumulated deficit. In addition, the
Company was not in compliance with certain long-term debts (described above)
which are included in current liabilities. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management plans include continuing to operate the Greenville Casino
profitable (SEE FUTURE OPERATIONS - ALPHA GULF), sell certain assets located
in Lakeshore develop future casino locations in Mississippi and New York (SEE
DISCUSSION BELOW) and continue to reduce and monitor operating expenses.

ALPHA MISSOURI

In February 1995, the City of Louisiana, Missouri, designated the Company as
the city's exclusive designee to enter into negotiations with the city to
develop a riverboat gaming facility at the city's Mississippi River
shoreline. Consequently, the Company's wholly owned subsidiary Alpha
Missouri, Inc. ("Alpha Missouri") entered into a lease agreement with the
City of Louisiana relating to certain City owned river front property
required for the project. Except for certain preliminary payments to the
City, the Company's obligation under the lease are conditioned on the grant a
gaming license by the Missouri gaming authorities.

Alpha Missouri has submitted to the Missouri gaming authorities the initial
applications for site approval and a gaming license. The Missouri Commission
has notified the Company that, due to scarce resources, it intends to conduct
meetings with applicants in the first quarter of 1996 in order to determine
the order of priority in which the Missouri Commission will conduct
investigations and make determinations on all applications. Alpha Missouri
has met with the Missouri Commission to present its project for priority
consideration. There are no objective criteria which the Missouri Commission
is required to follow in making its determinations.

The City of Louisiana is located approximately 60 miles north of metropolitan
St. Louis and 70 miles from Springfield, Illinois, that state's capital.

The Company anticipates that it will provide a gaming vessel with a capacity
of approximately 750 gaming positions. The project cost is presently
expected to be approximately $20 million.

SAINT REGIS

On January 19, 1995, the Company entered into a memorandum of understanding
with Catskill Development, L.L.C. ("Catskill") pursuant to which Alpha St.
Regis is to participate in the development of, and thereafter manage, a
casino to be built adjacent to the Monticello Raceway in Sullivan County, New
York. It is intended that the casino will be owned by the St. Regis Mohawk
Indian Tribe (the "Tribe") and will be located on land to be placed in trust
for the benefit of the Tribe. The casino project is subject to approval by
the U.S. Department of the Interior and its Bureau of Indian Affairs, the
National Indian Gaming Commission and the Governor of the State of New York,
as well as the execution of definitive agreements with the Tribe. It is
contemplated that the Company will be required to contribute an amount
preliminarily estimated at $250,000 toward the design, architectural and
other costs of developing plans for the casino. Under the memorandum of
understanding, Catskill and Alpha St. Regis commit to enter into a definitive
agreement on the terms established in the memorandum, but there can be no
assurance that such an agreement will ever be consummated.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS

See Index to Financial Statements attached hereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None

<PAGE>
PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

MANAGEMENT

The table below sets forth certain information with respect to the directors
and executive officers of the Company.

NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------

Stanley S. Tollman 64 Chairman of the Board,
President and Chief Executive
Officer

Sanford Freedman 58 Vice President, Secretary and
Director

Thomas W. Aro 52 Vice President and Director

Brett G. Tollman 33 Vice-President and Director

James A. Cutler 44 Treasurer, Chief Financial
Officer and Director

Patricia Cohen 41 Director

Matthew W. Walker 58 Director

STANLEY S. TOLLMAN has served as Chairman of the Board of Directors and
Co-Chief Executive Officer of the Company since its formation. Since March
1995 Mr. Tollman has served as President and Chief Executive Officer. He
has been Chairman of the Tollman-Hundley Hotel Group since 1979 and serves
as Chairman of Bryanston Group, Inc., a hotel management company, and of
Trafalgar Tours International, a tour operator. He has also served as
Chairman of the Board of Directors of Buckhead America Corporation, as
formerly the franchisor of Days Inns hotels.

SANFORD FREEDMAN has served as a Director, Vice President and Secretary of
the Company from its formation until October 29, 1993 and was re-elected to
those positions on February 1, 1994. He has served as Executive Vice
President of the Tollman-Hundley Hotel Group since 1983, and serves as a
Director, Executive Vice President and Secretary of Bryanston Group, Inc.

THOMAS W. ARO has served as a Director of the Company since February 1,
1994 and a Vice President of the Company since its formation. Mr. Aro also
serves as Chairman of the Board of Directors and Chief Executive Officer of
the Company's subsidiary Alpha Gulf Coast, Inc. He has served as Executive
Vice President of the Tollman-Hundley Hotel Group since 1982, and Executive
Vice President of the Bryanston Group, Inc.

<PAGE>

BRETT G. TOLLMAN served as a Vice President of the Company from its
formation until October 29, 1993 and was re-elected to that position and
was elected a Director of the Company on February 1, 1994. Mr. Tollman
also serves as President of the Company's subsidiary, Alpha Hotel
Management Company, Inc. He has served as Executive Vice President of the
Tollman-Hundley Hotel Group since 1984 and is Executive Vice President of
Bryanston Group, Inc. He is also a Director of HMG Worldwide Corporation,
a publicly held corporation. Mr. Tollman is the son of Stanley S. Tollman,
the Chairman and Chief Executive Officer of the Company.

JAMES A. CUTLER has served as Treasurer and Chief Financial Officer of the
Company since its formation. He also served as Secretary of the Company
from October 29, 1993 to February 1, 1994. Mr. Cutler was elected a
Director of the Company on June 12, 1995. He is Senior Vice President and
Treasurer of the Tollman-Hundley Hotel Group and Executive Vice President
and Chief Financial Officer of Bryanston Group, Inc.

PATRICIA COHEN was elected a Director of the Company on February 1, 1994.
She is a principal shareholder of Westfield Financial Corporation, one of
the underwriters of the Company's initial public offering and has been
engaged for more than the past five years as a private investor. Westfield
Financial Corporation is no longer operating as a broker-dealer.

MATTHEW WALKER has served as a director of the Company since December 4,
1995, when he was elected by the Board to fill the vacancy resulting from
the resignation of Charles Gargano in September 1995. He is an independent
businessman involved in international business ventures as well as the
lumber business in Alabama. Mr. Walker is a former shareholder of Cotton
Club.

CERTAIN PROCEEDINGS INVOLVING MANAGEMENT

Bryanston Group, Inc. was formerly known as Buckhead Hotel Management
Company, Inc. ("BHMC"), and prior to February 1, 1992, BHMC was known as
Days Inns Management Company, Inc. BHMC was formerly a subsidiary of
Buckhead America Corp. ("BAC") which, prior to February 1, 1992, was known
as Days Inn of America, Inc. Messrs. Stanley S. Tollman, Thomas W. Aro,
Brett G. Tollman, Sanford Freedman and James A. Cutler, each directors
and/or officers of the Company, were officers and/or directors of BAC and
certain of its subsidiaries.

On September 27, 1991, BAC, BHMC and certain affiliates and subsidiaries
thereof filed petitions for protection from creditors under the Bankruptcy
Code, commencing proceedings in the United States Bankruptcy Court, in the
District of Delaware (the Bankruptcy Court). ("In re Buckhead America
Corporation, et al., f/k/a Days Inn of America Inc. et al., Debtors"-case
numbers 91-978 through 91-986.)

The Plan of Reorganization for BAC and its subsidiaries was filed and
approved in December 1992 and became effective on December 28, 1992. Under
the Plan of Reorganization, BHMC was relieved of certain obligations (and
assigned certain assets) not related to its business of hotel management.

<PAGE>

Messrs. Stanley S. Tollman and Sanford Freedman are limited partners in and
directors and officers of the corporate general partner of Pacific Shore
Associates Limited Partnership ("Pacific Shore"). Messrs. Brett G. Tollman
and James A. Cutler are officers of the corporate general partner of
Pacific Shore. In connection with and in response to a foreclosure
proceeding instituted by the first deed of trust holder of the hotel owned
by Pacific Shore, it filed a voluntary petition under the Bankruptcy Code,
Case No. La-91-81347-KL in the United States Bankruptcy Court for the
Central District of California. Subsequently, the Bankruptcy Court lifted
the automatic stay in the proceeding, thereby allowing foreclosure, and
dismissed the Chapter 11 proceeding.

Kissimmee Lodge, Ltd. ("KLL"), a Florida limited partnership, filed a
Chapter 11 proceeding in the United States Bankruptcy Court for the Middle
District of Florida. The proceeding was filed to prevent the imminent
foreclosure of the Days Suites hotel owned by KLL. Messrs. Stanley S.
Tollman, Brett G. Tollman and Sanford Freedman hold limited partnership
interests in KLL and Mr. Stanley S. Tollman is a stockholder of the
corporate general partner of KLL. Messrs. Stanley S. Tollman, Howard
Zukerman and James A. Cutler were directors and or officers of such
corporate general partner. The Plan of Reorganization was confirmed by the
Bankruptcy Court and has been declared effective.

ITEM 11. EXECUTIVE COMPENSATION

EMPLOYMENT AGREEMENTS

The Company and Stanley S. Tollman entered into an employment agreement
dated June 1, 1993, whereby Mr. Stanley S. Tollman agreed to serve as
Chairman of the Board and Co-Chief Executive Officer of the Company for a
term of three years from the date of the agreement. Thereafter, the
agreement is automatically renewable for successive 12 month periods,
unless either party shall advise the other on 90 days written notice of his
or its intention not to extend the term of the employment. Mr. Stanley S.
Tollman's employment agreement provides for a salary in the amount of
$250,000 per year, none of which has been paid under the agreement since
the date thereof. The Agreement provides for Mr. Stanley S. Tollman to
devote no less than 20% of his business time to the affairs of the Company
and its subsidiaries. The agreement contains a non-disclosure provision as
well as a limited non-competition clause pursuant to which Mr. Stanley S.
Tollman has agreed not to own, manage, operate, or otherwise be connected
with any entity or person (other than Bryanston or Alpha Hotel Management
Company) (i) that renders management services to hotels of the same kind,
class and character, as the hotels for which Alpha Hotel Management Company
provides management services or (ii) that owns, manages or operates a
gaming casino within a 100 mile radius of the Lakeshore Casino.

<PAGE>

SUMMARY COMPENSATION TABLE

The following provides certain information concerning all plan and non-plan
compensation accrued, awarded to or earned by each of the name executive
officers of the Company paid by or owed by the Company for the years ended
December 31, 1995 and 1994 and the period ended December 31, 1993.

YEAR/
YEAR/PERIOD ANNUAL
NAME AND PRINCIPAL POSITION ENDED COMPENSATION (1)
--------------------------- ---------- ----------------
Stanley S. Tollman, Chairman 1995 $ 250,000
of the Board of Directors, 1994 $ 250,000
Co-Chief Executive Officer 1993 $ 281,250 (2)

Monty D. Hundley, President 1995 $ 62,500
and Co-Chief Executive 1994 $ 250,000
Officer (3) 1993 $ 281,250 (2)

- -------------------
(1) No portions of the cash salaries to which each of the Co-Chief Executive
Officers were entitled were paid during the periods indicated; the expense,
and liability, have been accrued.

(2) Includes shares of the Company's Common Stock equal to $31,250 issued as
additional compensation.

(3) As of March 23, 1995, Mr. Hundley resigned as an officer and director of
the Company.

1993 STOCK OPTION PLAN

The purpose of the 1993 Stock Option Plan is 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 1993 Stock Option Plan 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 1993 Stock Option Plan is
qualified in its entirety by reference to the 1993 Stock Option Plan.

<PAGE>

ADMINISTRATION OF THE PLAN

The 1993 Stock Option Plan is administered by a Stock Option Committee
consisting of Messrs. Freedman and Walker and Ms. Cohen 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
1993 Stock Option Plan, 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 1993 Stock
Option Plan; (ii) permit the grant of a stock option under the 1993 Stock
Option Plan with an option 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 1993 Stock Option Plan; (iv) extend
the term of any option or the period during which any option may be granted
under the 1993 Stock Option Plan; 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 1993 Stock Option Plan provides that options may be granted with
respect to a total of 900,000 shares of Common Stock, 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
1993 Stock Option Plan will be adjusted or, under certain conditions, will
terminate, subject to the right of each option holder to exercise his
option or a comparable option 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 1993 Stock
Option Plan. All of the 900,000 shares of Common Stock underlying the
options subject to the 1993 Stock Option Plan are being registered in this
Registration Statement.

PARTICIPATION

Any employee is eligible to receive incentive stock options or
non-qualified stock options granted under the 1993 Stock Option Plan.
Non-employee directors may not receive stock options.

OPTION PRICE

The exercise price of each option will be determined by the Stock Option
Committee, or the Board of Directors until such committee is constituted,
but may not be less than 100% of the fair market value of the shares of
Common Stock covered by the option 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 the Common Stock covered by the option on the date the option is
granted.

<PAGE>

TERMS OF OPTIONS

The Stock Option Committee, or the Board of Directors until such committee
is constituted, shall, in its discretion, fix the term of each option,
provided that the maximum term of each option shall be 10 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 1993 Stock Option
Plan provides 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. 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, or the Board of Directors
until such committee is constituted, may impose other conditions to
exercise as it deems appropriate.

OPTION GRANTS

There were no options granted to either of the named executive officers in
the fiscal year ended December 31, 1995. Options to purchase 384,500
shares of Common Stock have been granted to employees to date.

31
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 29, 1996
with respect to each beneficial owner of five percent (5%) or more of the
outstanding shares of Common Stock of the Company, 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 12 East
49th Street, New York, New York 10017.

SHARES
BENEFICIALLY
TITLE OF CLASS NAME AND ADDRESS OWNED (1)(10) PERCENT
-------------- ---------------- -------------- -------

Common Stock Stanley S. Tollman(2)(3) 498,975 3.82
$.01 Par Value Sanford Freedman(4) 271,158 2.07
Thomas W. Aro(5) 100,200 .76
Brett G. Tollman(6) 493,078 3.77
James A. Cutler(7) 116,000 .88
Howard Zukerman(8) 96,408 .74
Patricia Cohen 1,544,182 11.83
Beatrice Tollman(9) 1,852,890 14.19
Bally Gaming, Inc. 701,017 5.37
6601 South Bermuda Road
Las Vegas, Nevada
All officers and
directors as a group
(7 persons)(2)-(8) 3,120,001 23.87

(2) Includes 498,975 shares owned by the Tyler Windfield Hundley Living
Trust of which trust Mr. Tollman is the sole trustee. Mr. Tollman
exercises voting power with respect to such shares. Tyler Windfield
Hundley is the son of Monty D. Hundley, a former officer and director
of the Company who resigned from such positions as of March 23, 1995.

(3) Does not include 1,852,890 shares of Common Stock owned by Mr. Stanley
S. Tollman's spouse, Beatrice Tollman. Mr. Stanley S. Tollman
disclaims beneficial ownership of the shares held by his spouse.

(4) Includes options granted to Mr. Freedman to purchase 60,000 shares of
the Company's Common Stock, all of which have vested and none of which
have been exercised.

<PAGE>

(5) Includes options granted to Mr. Aro to purchase 60,000 shares of the
Company's Common Stock, all of which have vested and none of which
have been exercised.

(6) Includes options granted to Mr. Tollman to purchase 60,000 shares of
the Company's Common Stock, all of which have vested and none of which
have been exercised.

(7) Includes options granted to Mr. Cutler to purchase 40,000 shares of
the Company's Common Stock, all of which have vested and none of which
have been exercised. Does not include 4,000 shares owned by Mr.
Cutler's children of which he disclaims beneficial ownership.

(8) Includes options granted to Mr. Zukerman to purchase 35,000 shares of
the Company's Common Stock, all of which have vested and none of which
have been exercised.

(9) Beatrice Tollman is the wife of Stanley S. Tollman.

(10) Due to certain distributions of the 3,564,987 shares of the Company's
Common Stock owned by it, Bryanston no longer owns any shares of the
Company's Common Stock. See "Certain Transactions -- Bayou Caddy
Acquisition." The Company has agreed to convert the 625,222 shares of
Preferred Stock into 1,250,444 shares of Common Stock and has
distributed these shares and all other shares previously held of the
Company as of November 1, 1995.

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

BAYOU CADDY ACQUISITION

Pursuant to an asset purchase agreement dated as of May 14, 1993 among
Alpha Gulf, Bayou Caddy Inc. ("BCI") and certain BCI stockholders, the
Company (through Alpha Gulf) acquired certain of the assets of BCI,
including BCI's leasehold interests under certain lease agreements, certain
other assets incidental to the development and ownership of the Greenville
Casino (formerly located at Lakeshore) and BCI's interest in certain
related license applications, approvals and permits. As part of the
purchase, the Company assumed liabilities aggregating approximately
$1,100,000. The purchase price was $3,500,000, which was evidenced by a
convertible promissory note that bore interest at the rate of 10% per annum
(the BCI Note). Effective February 1, 1994 the Company notified BCI of its
election to convert the note into 791,880 shares of the Company's
outstanding stock that will be contributed by Bryanston, a former principal
shareholder of the Company's Common Stock. Bryanston has delivered the
shares to the Company and the Company is currently holding such shares as
treasury stock until the effective date of the Registration Statement of
which this Prospectus is a part, at which time the Company shall issue such
shares to BCI.

BRYANSTON

Effective as of September 1, 1993, Bryanston entered into the Service
Agreement with the Company. The Service Agreement, which is co-terminus
with the last to expire of the Bryanston Management Agreements, states that
the Company will provide certain management services for hotels managed by
Bryanston for certain unaffiliated owners. Pursuant to the Service
Agreement, Bryanston receives a fee of 1% of the aggregate compensation
paid to the Company pursuant to the Management Agreements. The Bryanston
Hotel Division is the provider of direct services to all managed hotels
pursuant to the Management Agreements with the individual hotels. Through
its subsidiary Alpha Hotel Management Company, Inc., the Company provides
all management, financial, administrative and marketing services on behalf
of Bryanston as manager of the managed hotels.

Bryanston contributed $626,404 to the equity of the Company and advanced
$4,009,740, representing the proceeds of the Bryanston loan (the "Bryanston
Loan"), which was applied to the development and construction of the
Casino. The Bryanston Loan currently bears interest at 12% per annum and
payment is subordinated to payment of the a term loan ("Term Loan") secured
by first preferred ship mortgage on Alpha Gulf's gaming vessel, which Term
Loan is presently held by Bryanston, except that principal and accrued
interest in the aggregate amount of $1,012,500 was repaid from the proceeds
of the Company's initial public offering (the "IPO") and principal and
accrued interest in the aggregate amount of $1,206,355 was repaid from the
proceeds of the underwriters' over-allotment option exercised in connection
with the IPO. The balance of the Bryanston Loan accrues interest at the
rate of 12% per annum, which accrued until the second anniversary of the
opening of the Bayou Caddy Jubilee Casino (originally in Lakeshore and
subsequently moved to Greenville), and thereafter, together with such
accrued interest amount, at the rate of 9% per annum, payable quarterly in
equal installments over a 10-year period, and will be prepaid pro rata with
the BP Loan (see discussion below), from the proceeds of the exercise, if
any, of the Company's outstanding warrants and the HFS Options (referred to
below), provided the Company is current under the Term Loan. In exchange
for the foregoing capital contribution and the transfer of the rights to
provide the management services, the Company issued an aggregate of
3,564,987 shares of Common Stock to Bryanston, all of which shares
Bryanston subsequently transferred. Bryanston is an affiliate of the
Company, Mrs. Beatrice Tollman is a 50% stockholder of Bryanston.

<PAGE>

Bryanston also advanced a bridge loan (the "Bryanston Bridge Loan"), in the
aggregate amount of $7,419,000, which was also applied to the development
and construction of the Casino. The Bryanston Bridge Loan bore interest at
the rate of 10% per annum from the date advanced and was originally due and
payable on the earlier of October 31, 1993 or the closing of the IPO. A
portion of the principal and accrued interest on the Bryanston Bridge Loan,
in the aggregate amount of $3,625,000, was repaid from the proceeds of the
Term Loan and the HFS Bridge Loan (which was repaid from the proceeds of
the IPO), and the balance was repaid from the proceeds of the IPO.

On December 31, 1994 the Company authorized the issuance of 625,222 shares
of its preferred stock in settlement of $8,284,196 due Bryanston, which
amount includes approximately $349,000 of accrued interest.

As of January 5, 1995, Bryanston agreed to loan the Company up to
$20,000,000 to meet the working capital requirements of the Company.
Therefore, the Company is obligated under a $20,000,000 non-revolving
promissory note ($17,360,861 outstanding at December 31, 1995). The note,
which bears interest at prime rate (8.5% at December 31, 1995) plus 2%, is
payable at the lesser of the outstanding principal amount or $2,000,000 per
annum through December 31, 1999. All remaining principal and accrued
interest (approximately $503,000 at December 31, 1995) shall be due
December 31, 2000. Additionally, commencing May 1, 1996 and for each of
the next succeeding three years thereafter, the Company will be required to
make additional principal payments equal to "Available Cash Flow of Maker"
as defined in the note.

On September 22, 1995, Bryanston purchased an outstanding loan having a
balance of $7,816,000 from HFS Gaming Corp.. There is presently $7,800,000
due on such loan. In connection with the purchase, Bryanston also acquired
96,429 shares of Common Stock owned by an affiliate of HFS.

347,826 shares of Common Stock are to be issued to Bryanston in
consideration of financial advisory services rendered. In addition, an
option to purchase 347,826 shares of common stock was given to Bryanston at
an exercisable price of $4.50.

As of November 1, 1995, Bryanston had sold all of the common shares of the
Company it had previously held.

BP GROUP

BP Group, Ltd. (BP), a Corporation wholly-owned by Ms. Patricia Cohen, a
director of the Company, advanced $1,927,759 to the Company, representing
the proceeds of the BP loan (the "BP Loan"). The BP Loan bears interest at
the rate of 12% per annum and payment is subordinated to payment of the
Term Loan. Principal and accrued interest in the aggregate amount of
$487,500 was repaid from the proceeds of the Company's IPO and principal
and accrued interest in the aggregate amount of $575,560 was repaid from
the proceeds of the underwriters' over-allotment option. The balance of the
BP Loan, $864,699, bears interest at the rate of 12% per annum, which shall
accrue until the second anniversary of the opening of the Bayou Caddy
Jubilee Casino (originally in Lakeshore), and thereafter, together with
such accrued interest, at the rate of 9% per annum, payable quarterly in
equal installments over a 10-year period, and will be prepaid, pro rata
with the Bryanston Loan, from the proceeds of the exercise, if any, of the
Company's outstanding warrants and the HFS Options, provided the Company is
current under the Term Loan.

<PAGE>

BP also advanced a bridge loan (the "BP Bridge Loan") in the amount of
$2,200,000, which was applied to the development of the Casino. The BP
Bridge Loan bore interest at the rate of 10% per annum from the date
advanced and was originally due and payable on the earlier of October 31,
1993 or the closing of the Offering. The BP Bridge Loan was repaid in
full, from the proceeds of the Term Loan and the HFS Bridge Loan, which was
repaid by the Company from the proceeds of the IPO.

Ms. Cohen, a director of the Company and the sole stockholder of BP, has
contributed $511,961 to the capital of the Company for which she was issued
1,544,182 shares of Common Stock.

Ms. Cohen was also a principal stockholder of Westfield Financial
Corporation, one of the underwriters of the Company's IPO. Westfield
Financial Corporation is no longer operating as a broker-dealer.

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.

<PAGE>

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) The following documents are filed or part of this report:

1. FINANCIAL STATEMENTS

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

Independent Auditors' Report F-1-2

Consolidated Balance Sheets F-3

Consolidated Statements of Operations F-4

Consolidated Statements of Stockholders' Equity F-5

Consolidated Statements of Cash Flows F-5-7

Notes to Consolidated Financial Statements F-8-24

BRYANSTON GROUP, INC.

Independent Auditors' Report F-25

Statement of Income Before Taxes F-26

Notes to Financial Statement F-27-29

2. FINANCIAL STATEMENT SCHEDULE

Schedule VIII Valuation Accounts for the Years Ended
December 31, 1995 and 1994 and the Period March 19, 1993
(Date of Inception) to December 31, 1993 S-1

3. EXHIBITS

*2 Bryanston Third Amended Joint Plan of Reorganization
*3(a)Certificate of Incorporation
*3(b)Form of Certificate of Amendment to Certificate of In
*3(c)By-Laws, as amended
*4(a)Form of Common Stock Certificate
*4(b)Form of Warrant Certificate
*10(a)Form of Employment Agreement between the Company and
Stanley S. Tollman
*10(b)Form of Employment Agreement between the Company and
Monty D. Hundley
*10(c)Form of Indemnification Agreement between the Company
and directors and executive officers of the Company
*10(d)1993 Stock Option Plan
*10(e)Form of Service Agreement between the Company and
Bryanston
*10(f)Expense Reimbursement Agreement effective as of
September 1, 1993, by and between the Company and
Tollman-Hundley Hotel Group and Bryanston Group, Inc.
*10(g)Agreement of Purchase and Sale of Assets by and among
BCI and Alpha Gulf, George Baxter, John Kingsbury,
Jon Turner and Robert James, dated as of May 14, 1993

<PAGE>

*10(h)Non-negotiable convertible Promissory Note of Alpha
Gulf payable to BCI in the principal amount of $3,500,000,
dated May 14, 1993
*10(i)Shareholders Agreement, dated as of May 14, 1993,
between BCI, Alpha Gulf, the Company and Stanley S. Tollman
and Monty D. Hundley.
*10(j)Form of Warrant Agreement among the Company, the
Transfer Agent and the Underwriters
*10(k)Work Order, dated June 7, 1993, of American Marine
Corporation
*10(l)Amended Sales and Security Agreement, dated July 8,
1993, between Bally Gaming, Inc. and Alpha Gulf d/b/a/
Bayou Caddy Casino
*10(m)Agreement, dated May 11, 1993, between Twenty Grand
Marine Service, Inc. and BCI
*10(n)Agreement, dated as of June ---, 1993 between Alpha
Gulf d/b/a Bayou Caddy Casino and Benchmark and Trustmark
National Bank
*10(p)Lease Agreement, dated June 2, 1992, between Joseph E.
Cure, Jr., Joseph R. Cure, Cynthia Cure Rutherford, Michael
Cure and Susan Cure Gollott and BCI
*10(q)Development Agreement, dated September 17, 1992,
between Joseph E. Cure, Jr., Joseph R. Cure, Cynthia Cure
Rutherford, Michael Cure and Susan Cure Gollott and BCI
*10(r)contract for First Right to Buy and Right of First
Refusal for the Sale and Purchase of Real Estate, dated
September 17, 1992, between Joseph E. Cure, Jr., Joseph R.
Cure, Cynthia Cure Rutherford, Michael Cure and Susan Cure
Gollott and BCI
*10(s)Lease Agreement, dated September 17, 1992, between
Joseph E. Cure, Jr., Joseph R. Cure, Cynthia Cure
Rutherford, Michael Cure and Susan Cure Gollott and BCI
*10(t)Lease, dated November 12, 1992, between Dallas Goodwin
and BCI
*10(u)Form of Limited Standstill Agreement of the Existing
Stockholders f/b/o the Underwriters
*10(v)Promissory Note reflecting the Bryanston Bridge Loan,
dated July 27, 1993, of the Company payable to Bryanston in
the amount of $6,555,000; Amendment to the Note dated
September 29, 1993
*10(w)Promissory Note reflecting the BP Bridge Loan dated
July 27, 1993 of the Company payable to BP in the amount
of $2,200,000
*10(x)Amendment to the BP Bridge Note dated September 29,
1993
*10(y)Amendment to the Bryanston Bridge Note dated
October 29, 1993
*10(z)Agreement between BP and the Company dated May 12,
1993, relating to the BP Loan, Amendments thereto dated
August 5, 1993 and September 10, 1993
*10(aa)HFS marketing Agreement dated October 27, 1993
*10(ab)Amended Sales and Security Agreement between Bally
and the Company dated July 8, 1993
*10(ac)Deleted
*10(ad)Documents related to HFS Loans dated October 27, 1993:
(i) Loan Agreement among the Company Alpha Gulf and HFS
(ii) Leasehold Deed of Trust (form)
(iii) First Preferred Ship Mortgage from Alpha Gulf to HFS
(iv) Security Agreement between Alpha Gulf and HFS
(v) Pledge and Security Agreement between Bryanston and
HFS
(vi) $8,000,000 Series A Secured Note

<PAGE>

(vii) $4,000,000 Series B Secured Note
(viii) Guarantee Agreement of Bryanston in favor of HFS
(ix) Guarantee Agreement of the Company in favor of HFS
(x) HFS Option Agreement: HFS Option Certificate
(xi) Bryanston Subordination Agreement
(xii) BP Subordination Agreement
(xiii) Bryanston Subordinated Promissory Note dated as of
August 5, 1993 (Bryanston Loan)
*10(ae) Deleted
*10(af) Form of Underwriters' Warrant
***10(ag) Amended Cure Lease
***10(ah) Peoples Bank Loan Agreement
***10(ai) Non-Revolving Promissory Note with Bryanston Group,
Inc.
10(aj) $20,000,000 Non-Revolving Promissory Note dated
January 5, 1995
10(ak) Stock Purchase Agreement dated October 20, 1995
10(al) Stock Acquisition Agreement dated January 25, 1995
10(am) Form 8-K dated October 31, 1995
10(an) Restructure of Debt of Alpha Gulf Coast, Inc. with
Bally Gaming, Inc.
**11 Statement Re: Computation of Per Share Earnings
12 List of Subsidiaries

(b) Reports on Form 8-K

Date filed - November 13, 1995 - Item 2. Acquisition or Disposition of
Assets
Item 7. Financial Statements 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.

** See Consolidated Financial Statements

*** Incorporated by reference, filed with Company's Form 10-KSB for the year
ended December 31, 1994.

List of Subsidiaries:

NAME STATE OF INCORPORATION

Alpha Gulf Coast, Inc. Delaware
Alpha Hotel Management, Inc. Delaware
Alpha St. Regis, Inc. Delaware
Alpha Missouri, Inc. Delaware
Alpha Rising Sun, Inc. Delaware
Jubilation Lakeshore, Inc. Mississippi

<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Alpha Hospitality Corporation and Subsidiaries
New York, New York

We have audited the accompanying consolidated balance sheets of Alpha
Hospitality Corporation and Subsidiaries as of December 31, 1995 and 1994 and
the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended and the period March 19, 1993 (date of
inception) to December 31, 1993. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alpha
Hospitality Corporation and Subsidiaries as of December 31, 1995 and 1994 and
the results of their operations and their cash flows for the years then ended
and the period March 19, 1993 (date of inception) to December 31, 1993, in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 14 to the financial statements, the Company has suffered significant
losses from operations and has a working capital deficit and an accumulated
deficit at December 31, 1995. In addition, the Company was not in compliance
with certain long-term debt which is included in current liabilities.
Management's plans in regard to these matters are also described in Note 14.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.

F-1

<PAGE>

As discussed in Note 9 to the consolidated financial statements, the Company
is a defendant in lawsuits involving automobile accidents, wherein plaintiffs
are seeking compensatory and punitive damages. The ultimate outcome of such
litigation cannot presently be determined. Accordingly, no provision for any
liability that may result upon adjudication has been made in the accompanying
consolidated financial statements.

Our audits were made for the purpose of forming an opinion on the basic
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 Commissions's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly states, in all material respects, the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.

Roseland, New Jersey
February 16, 1996, except for Note 15 as
to which the date is March 29, 1996

F-2
<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994

1995 1994
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash, including restricted cash of $63,837 in 1995 $ 2,315,719 $ 1,179,605
Accounts receivable, less allowance for doubtful accounts
of $353,708 and $35,000 in 1995 and 1994, respectively 702,800 1,091,594
Inventories 536,221 671,151
Prepaid insurance 1,796,132 1,044,139
Other current assets 1,349,535 380,777
------------ -----------
Total current assets 6,700,407 4,367,266

PROPERTY AND EQUIPMENT, less accumulated depreciation and
amortization of $13,385,041 and $3,765,486 in 1995 and
1994, respectively 59,254,914 40,069,549

OTHER ASSETS, deposits and other 818,171 1,053,490
------------ -----------
$ 66,773,492 $ 45,490,305
------------ -----------
------------ -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 27,319,666 $ 10,026,377
Notes payable 3,815,887 880,051
Accounts payable and other accrued expenses 10,709,533 8,097,396
Accrued payroll and related liabilities 2,848,876 2,705,197
Due to affiliate, current maturity 2,000,000
------------ -----------

Total current liabilities 46,693,962 21,709,021

LONG-TERM DEBT, less current maturities 2,311,751 10,073,870

DUE TO AFFILIATE, less current maturity, including
accrued interest of $503,138 15,863,999

MANDATORILY REDEEMABLE COMMON STOCK,
$.01 par value, 96,429 shares issued in 1994 564,910

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized
1,000,000 shares, 625,222 issued in 1994 6,252
Common stock, $.01 par value, authorized
17,000,000 shares, 12,354,482 and 10,225,000
shares issued in 1995 and 1994, respectively 123,544 102,250
Capital in excess of par value 32,779,117 27,639,250
Common stock subscribed 1,600,000
Accumulated deficit (32,598,881) (14,605,248)
Total stockholders' equity 1,903,780 13,142,504
------------ -----------
$ 66,773,492 $ 45,490,305
------------ -----------
------------ -----------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-3

<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 and 1994 and the Period
March 19, 1993 (Date of Inception) to December 31, 1993

March 19,
1993 (Date of
Year Ended Year Ended Inception) to
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
REVENUES:
Casino $ 26,518,657 $ 41,343,854 $ -
Food and beverage 1,008,940 1,713,057
Hotel management fees 2,863,345 2,835,234 858,500
Retail and other 129,334 208,296 18,477
------------ ------------ -------------
Total revenues 30,520,276 46,100,441 876,977
------------ ------------ -------------

COSTS AND EXPENSES:
Casino 15,786,688 19,585,669
Food and beverage 794,484 1,119,350
Hotel management costs 1,511,786 1,710,060 633,315
Retail and other 23,714 103,312
Selling, general and administration 16,851,201 22,671,968 44,894
Interest expense 3,213,228 3,014,989 375,335
Depreciation and amortization 4,508,947 3,776,262
Pre-opening and development costs 1,290,312 2,303,365 5,394,147
Financial advisory services fees 1,690,000
Relocation expense 412,492
Buy-out of marketing agreement 1,500,000
Write-off of unamortized discount 931,057
Compensation to stockholders 500,000
Settlement of assumed liabilities 350,000
------------ ------------ -------------
Total costs and expenses 48,513,909 54,284,975 7,297,691
------------ ------------ -------------

LOSS BEFORE DEFERRED INCOME TAX
EXPENSE (CREDIT) (17,993,633) (8,184,534) (6,420,714)

DEFERRED INCOME TAX EXPENSE (CREDIT) 1,716,000 (1,716,000)
------------ ------------ -------------

NET LOSS $(17,993,633) $ (9,900,534) $ (4,704,714)
------------ ------------ -------------
------------ ------------ -------------

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 10,617,000 10,225,000 8,833,000
------------ ------------ -------------
------------ ------------ -------------

LOSS PER COMMON SHARE $ (1.69) $ (.97) $ (.53)
------------ ------------ -------------
------------ ------------ -------------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-4

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995 and 1994 and the Period
March 19, 1993 (Date of Inception) to December 31, 1993

Preferred Stock Common Stock Capital in Common
----------------------------- ---------------------------- Excess of Stock Accumulated
Shares Amount Shares Amount Par Value Subscribed Deficit
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales of common
stock - $ - 4,250,000 $ 42,500 $ 1,720,001 $ - $ -

Stock exchanged for
services 540,000

Issuance of shares in
connection with
2 for 1 stock split 4,250,000 42,500 (42,500)

Sales of common stock 1,725,000 17,250 12,811,499

Sale of options 1,455,005

Net loss (4,704,714)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balances,
December 31, 1993 10,225,000 102,250 16,484,005 (4,704,714)

Conversion of long-term
debt 2,882,926

Stock issued for settlement
of note payable and
accrued interest payable 625,222 6,252 8,277,944

Mandatorily redeemable
common stock accretion (5,625)

Net loss (9,900,534)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balances,
December 31, 1994 625,222 6,252 10,225,000 102,250 27,639,250 (14,605,248)

Conversion of preferred
stock to common stock (625,222) (6,252) 1,250,444 12,504 (6,252)

Common stock issued
pursuant to acquisition 782,609 7,826 4,492,174

Common stock exchanged for
financial advisory services 90,000 1,600,000

Mandatorily redeemable
common stock accretion (50,805)

Exercise of options 96,429 964 614,750

Net loss (17,993,633)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balances,
December 31, 1995 - $ - 12,354,482 $ 123,544 $ 32,779,117 $ 1,600,000 $ (32,598,881)
------------- ------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- ------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-5

<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 and 1994 and the Period
March 19, 1993 (Date of Inception) to December 31, 1993

March 19,
1993 (Date of
Year Ended Year Ended Inception) to
December 31, December 31, December 31,
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,993,633) $ (9,900,534) $ (4,704,714)
------------- ------------ -------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Brokerage commission 40,000
Common stock issued in exchange for financial advisory services 1,690,000 500,000
Depreciation and amortization 4,508,947 3,776,262
Write-off of deferred costs, Rising Sun 459,928
Provision for losses on accounts receivable 255,000 35,000
Imputed interest on long-term debt 336,920 505,680
Deferred income tax expense (credit) 1,716,000 (1,716,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 248,368 (886,034) (240,560)
(Increase) decrease in inventories 200,799 (488,479) (182,672)
(Increase) decrease in prepaid insurance (230,850) 968,514
(Increase) decrease in other current assets (813,736) 514,715 (750,032)
Increase in accounts payable and other accrued expenses 1,527,398 3,893,329 7,418,525
Increase (decrease) in accrued payroll and related liabilities (186,474) 2,431,108 274,089
------------- ------------ -------------
Total adjustments 7,659,380 12,297,335 5,849,030
------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (10,334,253) 2,396,801 1,144,316
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,716,978) (3,139,651) (27,886,679)
Cash acquired in connection with purchase of leasehold interest 11,041
Cash acquired in connection with purchase of Cotton Club 543,100
Proceeds from and payments for deposits and other assets 300,258 (713,039) (291,227)
------------- ------------ -------------

NET CASH USED IN INVESTING ACTIVITIES (2,873,620) (3,852,690) (28,166,865)
------------- ------------ -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate 17,863,999
Payments on construction and equipment notes payable (280,452) (4,845,810)
Proceeds from sales of common stock 14,241,250
Proceeds from sale of options 1,455,005
Proceeds from notes payable 248,181 12,279,232 29,967,521
Payments on notes payable (857,399) (3,994,904)
Proceeds from long-term debt 8,190,632
Payments on long-term debt (10,820,974) (1,998,939) (17,445,312)
------------- ------------ -------------

NET CASH PROVIDED BY FINANCING ACTIVITIES 14,343,987 1,439,579 28,218,464
------------- ------------ -------------

NET INCREASE (DECREASE) IN CASH 1,136,114 (16,310) 1,195,915

CASH, beginning of period 1,179,605 1,195,915 -
------------- ------------ -------------

CASH, end of period $ 2,315,719 $ 1,179,605 $ 1,195,915
------------- ------------ -------------
------------- ------------ -------------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-6
<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1995 and 1994 and the Period
March 19, 1993 (Date of Inception) to December 31, 1993

March 19,
1993 (Date of
Year Ended Year Ended Inception) to
December 31, December 31, December 31,
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid for interest during the period $ 1,035,498 $ 1,889,212 $ 623,024
------------- ------------ -------------
------------- ------------ -------------

SUPPLEMENTAL SCHEDULES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:

Accrued interest capitalized to debt $ 1,765,005 $ 213,802
------------- ------------
------------- ------------

Common stock exchanged for financial advisory services $ 1,690,000 $ 540,000
------------- -------------
------------- -------------
Acquisition of casino:
Fair value of net assets acquired $ 21,880,810
Fair value of liabilities assumed 17,380,810
-------------

Equity investment $ 4,500,000
-------------
-------------

Convertible debt exercised $ 2,882,926
------------
------------

Capitalization of accounts payable for common stock $ 559,286
------------
------------

Note payable and accrued interest exchanged for
preferred stock $ 8,284,196
------------
------------
Equipment recorded pursuant to obligations under
capital lease and financing agreements $ 89,000 $ 8,998,000
------------- ------------
------------- ------------

Liabilities assumed in connection with purchase of leasehold
interest:
Fair value of net assets acquired $ 3,844,786
Convertible note payable issued, less discount of $1,166,097 (2,333,903)
Equity investment by certain stockholders (350,000)
------------
Liabilities assumed $ 1,160,883
------------
------------

Capitalization of interest during construction $ 900,000
------------
------------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-7
<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS:

Alpha Hospitality Corporation and Subsidiaries (the Company) was
incorporated in Delaware on March 19, 1993 and has adopted a December year
end. The Company owns and operates dockside casinos located in Lakeshore
and Greenville, Mississippi. In addition, the Company provides services
for the management of hotels and motels located nation-wide.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

OPERATIONS AND PRINCIPLES OF CONSOLIDATION - In 1993, the Company formed
three wholly-owned subsidiaries, Alpha Gulf Coast, Inc. (Alpha Gulf), which
commenced operations in January 1994 to own and operate the Lakeshore
casino (SEE NOTE 3), Alpha Hotel Management Company, Inc. (Alpha Hotel),
which commenced operations in September 1993 to provide hotel management
services, and Alpha Rising Sun, Inc. (Alpha Rising Sun), which has not
commenced operations. In 1994 and 1995, the Company formed Alpha St.
Regis, Inc. (St. Regis) and Alpha Missouri, Inc. (Missouri), wholly-owned
subsidiaries, respectively, which both have not commenced operations.
Additionally, the Company acquired Cotton Club of Greenville, Inc.
(subsequently renamed Jubilation Lakeshore, Inc. (Lakeshore) (SEE NOTE 3))
in November 1995, which owned and operated a casino located in Greenville,
Mississippi. The accompanying consolidated financial statements include
the accounts of the Company and all of its wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated in
consolidation.

CASH - The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has not
incurred any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash.

INVENTORIES - Inventories, which primarily consist of food and beverage and
uniforms, are stated at the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method.

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
ASSETS USEFUL LIVES
------ ------------
Barge and improvements 20 years
Leasehold and improvements 10-20 years
Gaming equipment 5-7 years
Furniture, fixtures and equipment 5-7 years
Transportation equipment 3 years

PRE-OPENING AND DEVELOPMENT COSTS - The Company incurs start-up 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.

F-8

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

LOSS PER COMMON SHARE - Loss per common share is based on the weighted
average number of common shares outstanding. In 1993, weighted average
common shares outstanding include 8,500,000 shares issued within one year
of the Company's initial public offering (IPO), with an issue price less
than the IPO price. The Company's common stock subscribed is included in
the computation and the outstanding stock options and warrants are excluded
from the computation since they would have an antidilutive effect on loss
per common share. All references to the number of shares and per share
amounts have been adjusted for the stock split (NOTE 10).

INCOME TAXES - The Company complies with Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes", which requires
an asset and liability approach to financial accounting and reporting for
income taxes. Deferred income tax assets and liabilities are computed
annually for differences between financial statement and tax basis of
assets and liabilities that will result in future taxable or deductible
amounts, and 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 will not be expected to result in taxable
income upon reversal and thus will not be a temporary difference.

CASINO REVENUE - Casino revenue is the net win from gaming activities,
which is the difference between gaming wins and losses.

PROMOTIONAL ALLOWANCES - Promotional allowances primarily consist of food
and beverage furnished gratuitously to customers. Revenues do not include
the retail amount of food and beverage of approximately $3,514,000 and
$4,884,000 in 1995 and 1994, respectively, provided gratuitously to
customers. The cost of these items of $4,308,000 and $5,138,000 in 1995
and 1994, respectively, are included primarily in casino and selling,
general and administrative expenses.

AMORTIZATION OF DEBT DISCOUNT - The Company amortizes the debt discount on
the mortgage note using the interest method, which yields a constant rate
of interest over the life of the note (NOTE 6).

INTEREST CAPITALIZATION - Interest costs incurred during the construction
and development of the dockside casino and related facilities is
capitalized as part of the cost of such assets.

LOAN FEES - Loan fees included in other assets are being amortized over the
life of the equipment notes payable.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of the Company's
assets and liabilities which qualify as financial instruments under SFAS
No. 107 approximate their fair values at December 31, 1995.

F-9

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.

NEWLY ISSUED ACCOUNTING STANDARD - In March 1995, Statement of Financial
Accounting Standard No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" was issued.
The Company will adopt SFAS 121 in the first quarter of 1996. The impact
on the Company's financial position and results of operations is not
expected to be material.

RECLASSIFICATIONS - Certain amounts have been reclassified in 1994 to
conform to the 1995 presentation.

NOTE 3 - BUSINESS COMBINATION:

Effective October 30, 1995, the Company acquired all of the outstanding
stock of Cotton Club of Greenville, Inc. ("CCG"), the owner and operator of
a dockside gaming casino in Greenville, Mississippi in a business
combination accounted for as a purchase. Accordingly, the results of
operations of CCG are included in the accompanying financial statements
from the date of acquisition. In addition to its dockside gaming vessel,
CCG owned interests in certain real estate in Greenville, which was
primarily used for automobile parking, and certain rights granted by the
City of Greenville and the Greenville Yacht Club to locate its vessel at
its present site on Lake Ferguson which is an inlet of the Mississippi
River.

The stock was acquired from a group of sixteen stockholders (former CCG
stockholders) none of whom had any material relationship to the Company or
any of its affiliates, directors or officers.

Consideration for the acquisition consisted of: (a) cash at closing of
$2,404,148; (b) notes due six months after closing of $1,396,510, bearing
interest at 10% per annum; (c) notes due nine months after closing of
$1,896,510, bearing interest at 10% per annum; and (d) 782,609 shares of
the common stock of the Company valued at $5.75 per share. The cash paid
at the closing was borrowed by the Company from Bryanston Group, Inc.
(Bryanston), an affiliate.

As part of the acquisition, all debt and accrued interest owed by CCG to
its former stockholders, of approximately $9,600,000, is included in the
consideration above and has been assigned to the Company.

Subsequent to the sale and pursuant to approvals granted by the Mississippi
Gaming Commission, certain lenders to CCG and to Alpha Gulf, Alpha Gulf
transferred its casino gaming barge and its related operations to the CCG
site in Greenville, Mississippi, and CCG transferred its riverboat casino
to Alpha Gulf's former site at Lakeshore, Mississippi on the Gulf Coast.
The casinos commenced operations at their new sites in November and
December 1995.

The excess of the purchase price over the net assets of CCG of
approximately $3,043,000 was allocated to property and equipment and will
be depreciated and amortized over the estimated remaining useful lives of
the assets.

F-10

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - BUSINESS COMBINATION (CONTINUED):

The following summarized pro forma information assumes the acquisition had
occurred on January 1, 1994 (in thousands):

Year Ended Year Ended
December 31, December 31,
1995 1994
------------ ------------
Total revenues $ 55,927 $ 83,432
--------- ---------
--------- ---------
Net loss $ (18,518) $ (8,561)
--------- ---------
--------- ---------
Loss per common share $ (1.64) $ (.78)
--------- ---------
--------- ---------

The unaudited pro forma results are not necessarily indicative of what
actually would have occurred if the CCG acquistion had been in effect for
the periods presented. Further, the pro forma results are not intended to
be a projection of future results and do not reflect any integration costs,
cost savings resulting from synergistic opportunitires or the results of
operations of other business acquired or disposed of in 1995 and 1994.

The above amounts reflect adjustments for interest on notes payable issued
as part of the purchase price and depreciation and amortization on revalued
property and equipment.

NOTE 4 - PROPERTY AND EQUIPMENT:

Details of property and equipment at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>

1995 1994
------------ -----------
<S> <C> <C>
Land and building $ 214,068 $ -
Boat, barge and improvements 22,380,617 16,300,132
Leasehold and improvements 31,384,920 14,026,624
Gaming equipment 10,041,722 6,572,884
Furniture, fixtures and equipment 7,088,995 5,375,674
Transportation equipment 1,034,461 547,514
Construction in progress 495,172 1,012,207
------------ ----------
72,639,955 43,835,035
Less accumulated depreciation and amortization (13,385,041) (3,765,486)
-------------- ------------
$59,254,914 $40,069,549
------------- -----------
------------- -----------

</TABLE>
Included in equipment at December 31, 1995 and 1994 was approximately
$1,319,000 related to assets recorded under capital leases. Included in
accumulated depreciation and amortization at December 31, 1995 and 1994 was
approximately $422,000 and $208,000, respectively, of amortization related
to assets recorded under capital leases.

In 1993, the Company capitalized approximately $900,000 of interest, of
which approximately $327,000 is included in barge and improvements and
$573,000 is included in leasehold and improvements.

F-11

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - LEASEHOLD INTEREST:

On May 14, 1993, in connection with the development of a dockside casino in
Lakeshore, Mississippi, Alpha Gulf acquired from an unrelated third party
(Seller), a leasehold interest (the leasehold) and certain other assets,
net of assumption of certain liabilities. The net purchase price was
$3,500,000 and the Company issued a convertible promissory note with a
stated interest rate of 10% and an effective rate of 30%. The difference
in the interest rates represents the implicit economic risks inherent in
the transaction. In addition, the Company charged approximately $350,000,
resulting from the settlement of assumed liabilities, to operations in
connection with the acquisition of the leasehold.

Effective February 1, 1994, the Company exercised its right to convert the
Seller's note and accrued interest (carrying amount of $2,882,926) to
791,880 shares of its outstanding common stock, of which 716,880 shares
were contributed to the Company by a stockholder and the additional 75,000
shares will be issued in 1996.

NOTE 6 - NOTES PAYABLE:

Notes payable at December 31, 1995 and 1994 are comprised of the following:

Interest
Rate 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Note payable to third party 12% $ - $ 153,332

Revolving line of credit with payments of
principal and interest due monthly, collateralized
by funds held at the Company's casino and Prime
guaranteed by an affiliate + 2% 144,699 685,719

Notes payable to former CCG stockholders
(SEE NOTE 3) 10% 3,293,020

Revolving line of credit of $500,000, with
payments of principal and interest due March 1,
1996, collateralized by cash advances (SEE
NOTE 15) 200,215

Note payable to third party with payments
of principal and interest due monthly,
collateralized by certain vehicles 11% 102,796

Unsecured note payable 53,221

Employee loans Various 21,936 41,000
----------- ---------

$ 3,815,887 $ 880,051
----------- ---------

</TABLE>
F-12

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - LONG-TERM DEBT:

Long-term debt at December 31, 1995 and 1994 is comprised of the following:
<TABLE>
<CAPTION>

Interest
Rate 1995 1994
--------- ----------- -------------
<S> <C> <C> <C>

Mortgage note payable, Bryanston, principal
and interest due monthly through November
1998, collateralized by the barge currently
located in Greenville, Mississippi, and
certain other assets 10% $ 7,800,000 $ -

Mortgage note payable, Hospitality Franchise
Systems, Inc. (HFS), less unamortized
discount based on imputed interest rate
of 10%, paid in 1995 (see disclosure
below) 6% 6,721,908

Mortgage note payable in monthly installments
of $70,000 plus interest at 30-day commercial
paper rate (5.83% at December 31, 1995) plus
3.5%, adjusted quarterly, funded with
weekly deposits of $25,000 into a restricted
cash account, collateralized by the barge
and improvements currently located in
Lakeshore, Mississippi 9% 3,736,383

Equipment notes payable monthly through
November 1999 and collateralized by certain
assets 11-14% 13,431,813 9,282,986

Capitalized lease obligations, payable monthly,
expiring in various years through 2000 10-15% 924,764 1,106,225

</TABLE>

F-13
<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - LONG-TERM DEBT (CONTINUED):

Interest
Rate 1995 1994
-------- ------------ ----------
<S> <C> <C> <C>
Loans payable, no interest or principal due
until January 1996, except for proceeds from
exercise of warrants and options (NOTE 9).
Remaining balance of loans are payable in
equal quarterly installments over 10 years
with interest at 9% per annum, commencing
in January 1996. Loans are subordinated
to the Bryanston mortgage note payable
and will be repaid only if the Company
maintains certain financial ratios.
Approximately $2,474,000 and $1,973,000
is owed to Bryanston at December 31, 1995
and 1994, respectively 12% 3,654,973 2,914,333

Bank notes, payable monthly through 1997,
collateralized by certain equipment 8-10% 83,484 74,795
------------ ------------
29,631,417 20,100,247
Less current portion 27,319,666 10,026,377
------------ ------------
$ 2,311,751 $ 10,073,870
------------ ------------
------------ ------------

</TABLE>

Aggregate future required principal payments are approximately as follows:

Year ending December 31:
1996 $ 27,320,000
1997 210,000
1998 189,000
1999 206,000
2000 226,000
Thereafter 1,480,000
----------
$ 29,631,000
----------
----------

In August 1995, Bryanston purchased the mortgage on the Lakeshore barge
from HFS for $7,816,667. This transaction resulted in a write-off on the
unamortized discount on the original note of approximately $930,000. In
connection with agreement, Bryanston also acquired 96,429 shares of common
stock owned by HFS (NOTE 13).

F-14

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - LONG-TERM DEBT (CONTINUED):

At December 31, 1995, the Company was in default of (i) its mortgage notes
payable for non-payment, (ii) the equipment notes aggregating approximately
$13,432,000 for the breach of several loan covenants and (iii) a capital
lease of approximately $745,000 for non-payment. Certain loans payable
aggregating approximately $3,655,000 went into default in 1996 due to non-
payment. The Company received a waiver on the default with the loan
payable to Bryanston (NOTE 15). Accordingly, the mortgage notes payable
($11,356,000), equipment notes payable ($13,432,000), capital lease
($745,000) and a certain loan payable ($1,181,000) are reflected in current
liabilities at December 31, 1995.

At December 31, 1994, the Company was not in compliance with several
covenants under its lakeshore mortgage note payable for the encumbrance of
the Company's barge, and for the default in payment of a capital lease.
The Company had not received a notice of default under this capital lease,
and believed that it will be able to cure the default within the permitted
grace period. The default under the mortgage note payable resulted in a
cross-default of a certain equipment note. Accordingly, both the mortgage
note ($6,722,000) and the equipment note ($1,102,000) were reflected in
current liabilities at December 31, 1994.

Effective October 15, 1995, the Company restructured certain equipment
notes, aggregating approximately $9,000,000, with unrelated parties.
Pursuant to the restructuring requirements, the Company will repay
approximately $6,500,000 in 48 monthly installments of $166,000, which
includes interest of 10% per annum, commencing December 15, 1995. The
balance of $2,500,000 bears interest at 10% per annum, is due on November
15, 1999, and may either be partially or fully repaid, pursuant to an
escrow agreement, from the net proceeds from the sale of approximately
701,017 shares of the Company's common stock held in escrow. To the extent
that the net proceeds exceeds $2,500,000 plus accrued interest, the excess
will be applied to the $6,500,000 portion of the debt. However, if the net
proceeds are less than the $2,500,000 plus accrued interest, then the
Company will be required to remit the balance due at maturity. The escrow
agreement provides for the unrelated party to have full voting rights
pertaining to the escrowed shares and the right to sell any or all of the
shares. The Company has the right of first refusal to purchase the shares
that the unrelated party desires to sell. The debt is collateralized by
the Company's barge and certain gaming equipment.

Effective October 24, 1995, the Company restructured a certain equipment
note of approximately $800,000 with an unrelated party. The amended terms
call for 36 monthly installments of $26,000, which includes interest at
11.5% per annum, commencing November 24, 1995.

F-15

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES:

At December 31, 1995 and 1994, accounts payable and other accrued
expenses are comprised of the following:

Construction $ 1,218,000 $ 1,498,000
Insurance financing 1,585,000 984,000
Accrued professional fees 851,000 375,000
Accrued property taxes 843,000 200,000
Accrued interest 974,000 561,000
Other 5,239,000 4,479,000
----------- -----------

$ 10,710,000 $ 8,097,000
------------ -----------
------------ -----------

NOTE 9 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS:

Effective September 1, 1993, Alpha Hotel entered into a Service
Agreement and an Expense Reimbursement Agreement with Bryanston.
Under the Service Agreement, Alpha Hotel supplies services for the
management of hotels and motels. Service fees are generated based
upon a percentage of hotel and motel revenues, as defined in the
respective agreements. At December 31, 1995 and 1994 Alpha Hotel
managed 14 and 20 hotels and motels, respectively. Pursuant to the
terms of the Expense Reimbursement Agreement, the Company will
reimburse Bryanston, as the case may be, for direct payroll and
related costs for use of certain office space (approximately $15,000
per month) and its share of office expenses.

In 1993, the Company entered into an agreement with HFS, under
which HFS will provide marketing services. The agreement was for
ten years and could be canceled by the Company after five years.
Prior to the finding of suitability of HFS by the Mississippi
Gaming Commission, the marketing fees were set at $162,834 per month.
In June 1994, the Mississippi Gaming Commission found HFS
suitable and the marketing fees were changed to the greater of 3%
of Alpha Gulf's Gaming Revenue or $1,650,000 per year, computed
monthly, commencing July 1, 1994. On September 22, 1995, the
Company arranged for the termination of the marketing agreement.
The funds required to terminate this agreement ($1,500,000) and to
pay amounts due under the agreement through the date of the
termination were paid by Bryanston. Marketing services incurred
under this agreement were $564,000 and $1,665,000 for the years
ended December 31, 1995 and 1994, respectively.

The Company is obligated under a $20,000,000 non-revolving
promissory note ($17,360,861 outstanding at December 31, 1995) with
Bryanston. The note, which bears interest at prime rate (8.5% at
December 31, 1995) plus 2%, is payable at the lesser of the
outstanding principal amount or $2,000,000 per annum through
December 31, 1999. All remaining principal and accrued interest
(approximately $503,000 at December 31, 1995) shall be due
December 31, 2000. Additionally, commencing May 1, 1996 and for
each of the next succeeding three years thereafter, the Company
will be required to make additional principal payments equal to
"Available Cash Flow of Maker" as defined in the note.

F-16

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED):

The Company is obligated under three property leases at their
dockside casino located in Lakeshore, Mississippi. Two of these
leases provide for changes in the minimum annual rent based on the
Consumer Price Index. One of the leases provides for percentage
rent of up to 6% of gross gaming revenue, as defined in the
agreement. The leases expire between the years 2001 and 2003 and
two of the leases have renewal options for two additional five year
terms. The Company has options to purchase the leased properties
for an amount not to exceed $10,200,000. Rent expense for 1995,
1994 and the period March 19, 1993 (date of inception) to December
31, 1993 approximated $576,000 (which has been reduced by
approximately $500,000 as a result of renegotiated terms of the
lease), $2,030,000 and $100,000, respectively.

On October 13, 1995, the Company amended its ground lease at
Lakeshore, Mississippi. The amended lease provides for rent of up
to 4.5% of gross gaming revenue, as defined in the agreement, for
the Company's vessel located on that leased property in Lakeshore,
Mississippi and one quarter of one (0.25%) of gross gaming revenues
of the Company's vessel which originally operated in Lakeshore,
Mississippi, with a minimum annual rental of $800,000 per annum
through March 31, 2000 and $950,000 per annum until the termination
date of July 31, 2011.

Effective January 1, 1994, the Company entered into a tideland
lease which provides for an initial term of ten years expiring on
December 31, 2003. Subject to certain conditions, the Company has
the option to renew the lease for an additional five year term.
Rent expense in 1995 and 1994 was $200,000 under this lease. In
September 1995, the charter and lease agreement was extended on a
month to month basis at the same terms.

The Company entered into a charter and lease agreement in September
1994 with Bryanston Marine, Inc., a related party, to charter a
vessel to be used for dining. The agreement provides for monthly
rent of $9,250, expired in September 1995 and had a purchase option
of $800,000 which expired July 1995. In September 1995, the
charter and lease agreement was extended on a month to month basis at
the same terms.

Approximate future aggregate minimum annual rental payments under
these leases are as follows:

Year ending December 31:
1996 $ 2,092,000
1997 1,813,000
1998 1,369,000
1999 1,157,000
2000 1,269,000
Thereafter 11,401,000
------------

$ 19,101,000
------------
------------

F-17

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED):

On January 19, 1995, the Company, through its subsidiary, St. Regis,
entered into a memorandum of understanding with Catskill Development,
L.L.C. ("Catskill") pursuant to which St. Regis is to participate in
the development of, and thereafter manage, a casino to be built
adjacent to the Monticello Raceway in Sullivan County, New York.
It is intended that the casino will be owned by the St. Regis
Mohawk Indican Tribe (the "Tribe") and will be located on land to
be placed in trust for the benefit of the Tribe. The casino
project is subject to approval by the U.S. Department of Interior,
the National Indian Gaming Commission and the State of New York, as
well as the execution of definitive agreements with the Tribe. It
is contemplated that the Company will be required to contribute an
amount preliminarily estimated at $250,000 toward the design,
architectural and other costs of development plans for the casino.
Under the memorandum of understanding, Catskill and St. Regis
commit to enter into a definitive agreement on the terms
established in the memorandum, but there can be no assurance that
such an agreement will ever be consummated. Bryanston is a 25%
member of Catskill.

The Company is obligated under a three year employment contract with
a principal stockholder/officer. Under this agreement, the Company
will accrue deferred compensation of $250,000 per year. In the event
of termination of employment, the terminated officer will be retained
to provide consulting services for two years at $175,000 per annum.

In accordance with Mississippi law, the Company's casino licenses
have initial terms of two years and will be subject to periodic
renewal. In October 1995, the Company received renewals of their
casino licenses through October 1997. Failure to retain the licenses
could have a material adverse effect on the Company's operations.

F-18

<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED):

The Company has been named as an additional defendant in an action
brought in the United States District Court for the Southern
District of Mississippi (Susan E. Wolff, et al v. James C. Zamecnik,
et al.) The Plaintiff is seeking $20,000,000. However, in recent
settlement discussions between the Plaintiff and the Company's
insurance company, the Plaintiff has offered a settlement of
$7,500,000. The Plaintiff has initiated a declaratory judgment
action (Southern Division) against Alpha Gulf and its insurance
carriers seeking a determination as to the liability of such
carriers under the insurance policies issued by the carriers to
Alpha Gulf and the Company for any damages found against Alpha
Gulf in the primary litigation up to the policy limits.
Subsequent to the initiation of the declaratory judgment action,
the Company's primary insurance carrier initiated its own
ceclaratory action to determine its liability under its insurance
policy. The declaratory judgment action appears to have been
brought in response to issues raised by the primary insurance
carrier as to timely notice of the incident and possible
spoilation of evidence. Subsequently, the primary insurance
carrier initiated its own declaratory judgment action against
Alpha Gulf and the Company (Commerce & Industry Company v. Alpha
Gulf Coast, Inc. and Alpha Hospitality Corporation, Inc.: United
States District Court for the Southern District of Mississippi,
Jackson Division) seeking a determination that it is not liable
under the subject insurance policy. The Company has moved to
intervene in the declaratory judgment action brought by the
Plaintiff. In both declaratory judgment actions, Alpha Gulf and
the Company are asserting either cross claims or counterclaims
against the insurance carriers involved. Alpha Gulf and the
Company have also moved to consolidate the two declaratory
judgment actions with the Plaintiff's original personal injury
action. The ultimate outcome of this litigation cannot presently
be determined. Accordingly, no provision for any liability to the
Company that may result upon adjudication has been made in the
accompanying consolidated financial statements. The Plaintiff and
the Company's insurance carrier are currently conducting
settlement negotiations, although there can be no assurance that a
settlement will be reached.An unfavorable outcome of this matter
will result in a material adverse effect on the Company's financial
position and results of operations.

In January 1996, the Company has been named as a defendant in an
action brought in the Circuit Court of Hynds County, Mississippi
(Amos vs Alpha Gulf Coast, Inc.; Batiste vs Alpha Gulf Coast, Inc.;
Ducie vs Alpha Gulf Coast, Inc.; Johnson vs Alpha Gulf Coast, Inc.;
Ramez vs Alpha Gulf Coast, Inc.). Mr. Amos alleges that on January
16, 1995, a vehicle operated by him collided with a vehicle
negligently operated by an individual that was served alcoholic
beverages by the Company. The defendant seeks compensating damages
of $1,800,00 and punitive damages of $7,500,000. The remaining
defendants allege that they were passengers in the vehicle operated
by Mr. Amos and that they suffered personal injuries. They seek
compensating damages of $1,800,000 each and punitive damages of
$7,500,000 each. The ultimate outcome of this litigation cannot
presently be determined. Accordingly, no provision for liability
to the Company that may result upon adjudication has been made in
the accompanying consolidated financial statements. The Company
believes that the risk referred to in this paragraph is adequately
covered by insurance and, therefore, will not have a material adverse
effect on the Company's financial position and results of operations.

The Company is a party to various other legal actions which arise in
the normal course of business. In the opinion of the Company's
management, the resolution of these other matters will not have a
material adverse effect on the financial position of the Company.

F-19
<PAGE>

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
(CONTINUED):

On January 25, 1995, the Company entered into an agreement to
acquire all the outstanding common stock of Doc Holliday, Inc.
("Doc Holliday"), the owner and operator of an 18,000 square foot
casino in Central City, Colorado. The Company will issue 92,000
shares of its common stock and a five year option to purchase up to
500,000 shares of common stock at an exercise price of $3.50 per
share in payment for the Doc Holliday stock. The agreement may be
terminated by the Company at any time prior to closing for any
reason and by any of the parties upon written notice if the
transaction is not consummated by March 31, 1996. The transaction
will be accounted for as a purchase. The acquisition would not be
material to the Company's consolidated financial statements and,
therefore, pro forma information is not provided.

NOTE 10 - STOCKHOLDERS' EQUITY:

In May 1993, the Company sold to certain of its founding stockholders
4,935,013 shares of its common stock for an aggregate of
approximately6,000. Included in compensation and related expenses
in 1993 is000 relating to this transaction. In addition, the
Company sold toston 3,564,987 shares of its common stock at
approximately $.18 per plus the rights to provide management
services pursuant to thece Agreement (NOTE 9). The rights under
the Service Agreement areded at Bryanston's cost, which is zero.

The Company issued 175,000 shares of its common stock in payment
of therage commission related to the purchase of the leasehold
interest (5). Included in other expenses in 1993 is $40,000 which
is thet management has ascribed to these shares.

On June 3, 1993, the Company's Board of Directors adopted the 1993
Stock Option Plan (Plan) providing for incentive stock options
("ISO's") and non-fied stock options (NQSO's). The Company has
reserved 900,000 sharesmmon stock for issuance upon the exercise
of options to be granted the plan. The exercise price of an ISO
or NQSO will not be less thanof the fair market value of the
Company's common stock at the date ofrant. The Company granted
options to purchase an aggregate of 384,500s of common stock at an
exercise price of $3.25 through December 31, In addition,
effective December 8, 1993, the Company granted optionsrchase an
aggregate of 24,000 shares of common stock at an exercise of $11.50.
The maximum term of each option granted under the plan isears,
however, options granted to an employee owning greater then 10%e
Company's common stock will have a maximum term of five years.
Inmber 1994, the Company granted to a director, options to purchase
shares of its common stock at an exercise price of $5.00, which can be
exercised any time up to October 1, 1999. No options under this plan
were exercised in 1995, 1994 and 1993.

F-20

<PAGE>

NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED):

On August 20, 1993, the Company's stockholders and the Board of Directors
authorized a 2 for 1 common stock split. As a result of the split,
4,250,000 additional shares were issued and capital in excess of par value
was reduced by $42,500.

On October 26, 1993, the Company entered into an option agreement with HFS
for which the Company received $600. The agreement provides for HFS to
receive an option, expiring on October 31, 1998, to purchase 600,000 shares
of the Company's common stock at an exercise price of $14 per share. The
value ascribed to the option and credited to capital in excess of par value
was $1,455,005, which was the amount of the discount on the mortgage note
payable to HFS (NOTE 7).

On November 5, 1993, the Company completed its public offering for the sale
of 1,500,000 shares of common stock at $9.00 per share and 750,000
redeemable common stock purchase warrants at $.10 per warrant. Each
warrant entitles the holder to purchase one share of common stock at the
exercise price of $12.00, commencing November 5, 1993 until November 4,
1998. On November 18, 1993, the underwriter exercised its option to
purchase 225,000 shares of the Company's common stock at $9.00 per share
and 112,500 warrants at $.10 per warrant. As of December 31, 1995, no
warrants were exercised.

Effective December 31, 1994, the Company issued 625,222 shares of its
preferred stock in settlement of $8,284,196 due to Bryanston, which
includes approximately $349,000 of accrued interest. Effective November 1,
1995, the Company converted 625,222 shares of preferred stock to 1,250,444
shares of common stock in a 2 for 1 exchange.

In consideration for services provided to the Company in the acquisition of
the CCG (NOTE 3), the Company intends to issue 347,826 shares to Bryanston
with a fair value of $1,600,000 and options to a third party with a fair
value of $90,000. The Bryanston shares are included in common stock
subscribed at December 31, 1995. In addition, the Company granted to
Bryanston an option to acquire 347,826 shares of the Company's common stock
at an exercise price per share equal to the closing NASDAQ bid price at of
December 4, 1995 ($5.375 per share). The option expires on December 4,
2000.

F-21

<PAGE>

NOTE 11 - INCOME TAXES:

The Company and all of its subsidiaries file a consolidated federal income
tax return. Income tax expense is allocated pursuant to the separate tax
attributes of each subsidiary. At December 31, 1995 and 1994, the
Company's deferred federal tax asset is comprised of the tax benefit (cost)
associated with the following items based on the 35% tax rate currently in
effect (dollars in thousands):
<TABLE>
1995 1994
-------- --------
<S> <C> <C>
Pre-opening costs currently deducted for financial
reporting and amortized over 5 years for tax purposes $ 1,788 $ 2,238

Net operating loss carryforward 11,524 3,368

Differences between financial and tax depreciation methods (2,077) (150)

Differences in basis of HFS debt due to discount for
warrants received (403)

Differences between financial and tax basis of assets
and liabilities 1,737 573

Interest capitalized for financial reporting and expensed
for tax purposes (224) (234)

Other (77)
-------- -------

Deferred tax asset 12,671 5,392

Valuation allowance on deferred tax asset (12,671) (5,392)
-------- -------

$ - $ -
-------- -------
-------- -------
</TABLE>

For the year ended December 31, 1994, the Federal statutory tax rate and
the Company's effective rate differs due to recording a valuation allowance
for the entire deferred tax asset which includes the reversal of $1,716,000
recorded at December 31, 1993.

The Company has available for federal income tax purposes, a net operating
loss carryover of approximately $32,927,000 of which $883,000, $7,407,000
and $24,637,000 will expire in the years 2008, 2009 and 2010, respectively.

F-22

<PAGE>

NOTE 12 - SEGMENT INFORMATION:

The Company's two business segments are operating casinos in Lakeshore and
Greenville, Mississippi and hotel management services to hotels located in
the United States. The following financial data is presented for the
business segments of the Company for the years ended December 31, 1995,
1994 and 1993 (includes eight months of the Company's predecessor,
Bryanston). Operating profit (loss) by segment is total revenue less
operating expenses. In computing operating profit (loss) by business
segment, none of the following items have been added or deducted: interest
income (expense), pre-opening expenses, income taxes and unusual items.
Identifiable assets by business segment are those assets used in Company
operations in each segment. Corporate assets are included in casino
identifiable assets because they are principally utilized in casino
operations. Capital expenditures include acquisitions of property and
equipment.

Hotel
Casino Management
---------- -----------
(in thousands)

1993:
Total revenue $ - $ 3,092 (1)(2)
Operating profit - 883 (1)
Identifiable assets 45,241 242
Depreciation and amortization - 83 (1)
Capital expenditures 40,607 -

1994:
Total revenue $43,265 $ 2,835 (3)
Operating profit 399 1,125
Identifiable assets 44,816 678
Depreciation and amortization 3,776 -
Capital expenditures 3,140 -

1995:
Total revenue $ 27,657 $ 2,863 (4)
Operating profit (loss) (12,981) 1,351
Identifiable assets 66,353 420
Depreciation and amortization 4,509 -
Capital expenditures 23,680 - (5)

(1) Total revenue, operating profit and depreciation and amortization in
1993 includes eight months of activity for Bryanston.

(2) The Company and Bryanston had five major customers in the hotel
operations segment which accounted for 21%, 18% 16%, 12% and 12% of
revenue, respectively, in 1993.

(3) The Company had five major customers in the hotel operations segment
which accounted for 24%, 23%, 18%, 15% and 13% of revenue,
respectively, in 1994.

F-23

<PAGE>

NOTE 12 - SEGMENT INFORMATION (CONTINUED):

(4) The Company had five major customers in the hotel operations segment
which accounted for 23%, 19%, 17%, 17% and 13% of revenue,
respectively, in 1995.

(5) Includes $19,963 of capital expenditures relating to the acquisition
of CCG (NOTE 3).

NOTE 13 - MANDATORILY REDEEMABLE COMMON STOCK:

In November 1994, the Company entered into an agreement with HFS to settle
approximately $559,000 owed pursuant to the marketing agreement (NOTE 9) by
issuing 96,429 shares of its common stock. HFS was given a put option
which is exercisable during the thirty day period commencing one year from
the date of the agreement at $6.50 per share. The common stock was
recorded at its fair value at the issuance date ($5.80 per share). The
carrying amount was periodically increased for the amount which will be
payable upon redemption. The accretion to the carrying amount ($50,805 and
$5,625 in 1995 and 1994, respectively) was determined using the straight-
line method (which did not materially differ from the interest method) and
resulted in a corresponding decrease to capital in excess of par value. In
October 1995, HFS exercised their put option, purchased 96,429 shares of
common stock for approximately $616,000, and subsequently sold the shares
to Bryanston.

NOTE 14 - CONTINUING OPERATIONS:

The financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has suffered significant losses
from operations and has a working capital deficit of $39,993,555 and an
accumulated deficit of $32,598,881 at December 31, 1995.

Management of the Company recognizes that these conditions raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans include continuing to operate the Greenville
Casino profitably, sell certain assets located in Lakeshore, develop future
casino locations in Missouri and New York, and continue to reduce and
monitor operating expenses. Accordingly, the Company's ability to continue
as a going concern is dependent upon its ability to develop working
capital, attain future profitable operations and meet its creditors'
demands. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

NOTE 15 - SUBSEQUENT EVENTS:

As of March 29, 1996, Bryanston has advanced approximately $1,275,000 to
the Company pursuant to a non-revolving promissory note effective January
5, 1995 (NOTE 9).

On March 29, 1996, the Company received a waiver of default on the
Bryanston note payable of $2,474,000. The waiver provides for the Company
to cure the default by March 31, 1997.

F-24
<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Bryanston Group, Inc.
f/k/a Buckhead Hotel Management Company, Inc.-
Hotel Management Division
Valhalla, New York

We have audited the accompanying statement of income before income taxes for
the eight months ended August 31, 1993 of the Hotel Division of Bryanston
Group, Inc. f/k/a Buckhead Hotel Management Company, Inc. - Hotel Management
Division (the Business). This financial statement is the responsibility of
the management of the Business. Our responsibility is to express an opinion
on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
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 financial statement referred to above presents fairly, in
all material respects, the results of operations before income taxes for the
eight months ended August 31, 1993 of the business in conformity with
generally accepted accounting principles.

As more fully described in the notes to the financial statement, the Business
was part of Bryanston Group, Inc., f/k/a Buckhead Hotel Management Company,
Inc. and had no separate legal status. The method of determining the portion
of the income and expenses of Buckhead included in the accompanying financial
statement of the Business is described in Note 1. Accordingly, the
accompanying financial statement is not indicative of the operating results
of the Business as if it were on a stand-alone basis.

Roseland, New Jersey
February 1, 1994

F-25

<PAGE>

BRYANSTON GROUP, INC.
f/k/a BUCKHEAD HOTEL MANAGEMENT COMPANY, INC.-
HOTEL MANAGEMENT DIVISION

STATEMENT OF INCOME BEFORE INCOME TAXES
Eight Months Ended August 31, 1993

REVENUES:
Management fees $2,232,721
Interest 17,797
----------
Total revenues $2,250,518

COSTS AND EXPENSES:
Direct payroll and related items 868,933
Selling, general and administrative 457,435
Depreciation and amortization 82,930
----------
Total costs and expenses 1,409,298
------------

INCOME BEFORE INCOME TAXES $ 841,220
------------
------------

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENT

F-26

<PAGE>

BRYANSTON GROUP, INC.
f/k/a BUCKHEAD HOTEL MANAGEMENT COMPANY, INC.-
HOTEL MANAGEMENT DIVISION

NOTES TO FINANCIAL STATEMENT

NOTE 1 - BASIS OF PRESENTATION:

On May 17, 1993, Buckhead Hotel Management Company, Inc. (Buckhead) changed
its name to Bryanston Group, Inc. (Bryanston).

Effective September 1, 1993, Bryanston entered into a Service Agreement and
an Expense Reimbursement Agreement with Alpha Hotel Management Company,
Inc., (Alpha Hotel), a related party, whereby Alpha Hotel will supply
services for the management of 21 hotels and motels (the Business) (NOTE
7). Tollman Hundley Hotel Group is also a party to the Expense
Reimbursement Agreement. Service fees are generated based upon a
percentage of hotel and motel revenues, as defined in the respective
agreements. Pursuant to the terms of the Expense Reimbursement Agreement,
Bryanston and Tollman Hundley Hotel Group, as the base may be, will be
reimbursed by Alpha Hotel for direct payroll and related costs, use of
certain office space (approximately $15,000 per month), and its share of
office expenses.

The Business, on a historical basis, had no separate legal status since it
was a division of Bryanston. The accompanying financial statement has been
prepared from the records of Bryanston and include only the operating
results of the Business.

The operating results of the Business do not include a provision for income
taxes. However, the statement of income includes an allocation of selling,
general and administrative expenses from Buckhead America Corporation
(BAC), formerly the parent of Bryanston, (SEE NOTE 5).

The statement of income excludes hotel and motel payroll and related costs,
which are paid by Bryanston and reimbursed by the respective managed hotels
and motels.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DEPRECIATION AND AMORTIZATION - The Company provides for depreciation and
amortization as follows:

ESTIMATED
ASSET USEFUL LIVES

Computer equipment 5 Years
Furniture and fixtures 7 Years
Leasehold improvements 12 Years

AMORTIZATION OF ASSUMED MANAGEMENT CONTRACTS - The cost of assuming
management contracts is being amortized on the straight-line basis over a 5
year term.

F-27

<PAGE>

BRYANSTON GROUP, INC.
f/k/a BUCKHEAD HOTEL MANAGEMENT COMPANY, INC.-
HOTEL MANAGEMENT DIVISION

NOTES TO FINANCIAL STATEMENT

NOTE 3 - MANAGEMENT CONTRACTS AND CONTINGENCIES:

Bryanston managed 24 hotels and motels during the eight months ended
August 31, 1993, principally in the northeastern and southeastern parts of
the United States. Management fees are based on a percentage of managed
property revenues, as defined in the respective management agreements, and
range between 2% and 5%. In addition, certain agreements provide for
incentive fees which can be earned based on operating results. During the
eight months ended August 31, 1993, management fee revenues included
approximately $187,000 earned under incentive fee provisions.

At August 31, 1993, the contracts, excluding extension options contained in
certain agreements, expire as follows:

ESTIMATED
PERCENTAGE
NUMBER OF OF ANNUAL
CONTRACTS TERM REMAINING FEE REVENUES

15 1-5 Years 54%
3 6-10 Years 6%
3 Over 10 Years 40%

Six contracts contain provisions whereby the owner may terminate the
contract if certain performances are not met.

NOTE 4 - FRANCHISE AGREEMENTS:

At August 31, 1993, twenty of the twenty-one hotels managed by Bryanston
are subject to franchise agreements. Pursuant to the franchise agreements,
Bryanston is responsible for collecting reservation and other fees from the
managed properties and remitting them to the franchisor. These franchise
agreements expire simultaneously with the management contracts.

NOTE 5 - RELATED PARTY TRANSACTIONS:

BAC allocated selling, general and administrative expenses based upon (i)
estimates of the time devoted to the Business by certain BAC employees,
(ii) estimated occupancy of the buildings, (iii) sales, or (iv) a
combination of these methods. BAC allocated costs and expenses to the
business of approximately $175,000 in 1993.

F-28

<PAGE>

BRYANSTON GROUP, INC.
f/k/a BUCKHEAD HOTEL MANAGEMENT COMPANY, INC.-
HOTEL MANAGEMENT DIVISION

NOTES TO FINANCIAL STATEMENT

NOTE 6 - MAJOR CUSTOMERS:

In 1993, management fees included revenues earned from each of three major
customers in amounts ranging from $328,000 to $432,000 and aggregating
$1,128,000.

NOTE 7 - SUBSEQUENT EVENT:

In October 1993, one of the management agreements was terminated. This
contract generated management fees of approximately $256,000 for the eight
months ended August 31, 1993.

F-29

<PAGE>

SCHEDULE VIII

ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

VALUATION ACCOUNTS
Years Ended December 31, 1995 and 1994 and the Period
March 19, 1993 (Date of Inception) to December 31, 1993

<TABLE>
<CAPTION>
Additions
--------------------
Balance at Charged to Charged Balance
Beginning Cost and to Other at End
Description of Period Expenses Accounts Deductions of Period
----------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
MARCH 19, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993:
Allowance for doubtful
accounts - - - - -

YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful
accounts - $ 35,000 - - $ 35,000

YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful
accounts $ 35,000 $255,000 $63,708(A) - $353,708

</TABLE>

(A) Assumed in conjunction with the October 1995 acquisition of the Cotton Club
of Greenville, Inc.

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