ALPHA HOSPITALITY CORP, POS AM, 1997-01-27

ALPHA HOSPITALITY CORP
POS AM, 1997-01-27
MISCELLANEOUS AMUSEMENT & RECREATION

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<PAGE>

FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1997

REGISTRATION STATEMENT NO. 333-3606

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 1 TO

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

ALPHA HOSPITALITY CORPORATION
(Exact name of Registrant as specified in its charter)

DELAWARE 7011, 7993 13-3714474
- ------------------------------------------------------------------------------
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code)
organization)
12 EAST 49TH STREET
NEW YORK, NEW YORK 10017
(212) 750-3500
-----------------------
(Address, including zip code and telephone number,
including area code, of Registrant's principal
executive offices)

JAMES A. CUTLER
CHIEF FINANCIAL OFFICER
ALPHA HOSPITALITY CORPORATION
12 EAST 49TH STREET
NEW YORK, NEW YORK 10017
(212) 750-3500
------------------------------
(Name, address, including zip code and telephone number,
including area code, of agent for service)

Copies To:

------------------------------
JAY M. KAPLOWITZ, ESQ.
GERSTEN, SAVAGE, KAPLOWITZ, FREDERICKS & CURTIN, LLP
101 EAST 52ND STREET
NEW YORK, NEW YORK 10022
(212) 752-9700

------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and from
time to time.
------------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [x]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
-------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

<PAGE>

* The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that the Registration
Statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

(ii)

<PAGE>

ALPHA HOSPITALITY CORPORATION

CROSS REFERENCE SHEET

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

FORM S-1 ITEM NUMBER AND CAPTION PROSPECTUS CAPTIONS

1. Forepart of Registration Cover Page of Registration Statement
Statement and Outside Front and Outside Front Cover Page of
Cover Page of Prospectus Prospectus

2. Inside Front and Outside Inside Front and Outside Back Cover
Back Cover Pages of Prospectus Pages of Prospectus; Available
Information

3. Summary Information, Risk Prospectus Summary - The Company;
Factors and Ratio of Earnings Risk Factors
to Fixed charges

4. Use of Proceeds Use of Proceeds

5. Determination of Offering Price Calculation of Registration Fee

6. Dilution Inapplicable

7. Selling Security Holders Selling Stockholders

8. Plan of Distribution Plan of Distribution

9. Description of Securities Description of Securities
to be Registered

10. Interests of Named Experts Legal Matters; Experts
and Counsel

11. Information with Respect to Business; Properties; Certain Market
the Registrant Information; Management's Discussion and
Analysis of Financial Condition and
Results of Operations.

12. Disclosure of Commission Undertakings
Position on Indemnification
for Securities Act Liabilities

(iii)
<PAGE>
PROSPECTUS
ALPHA HOSPITALITY CORPORATION

2,542,095 SHARES OF COMMON STOCK

PAR VALUE, $.01 PER SHARE

This Prospectus relates to up to 2,542,095 shares (the "Selling
Stockholders' Shares") of common stock, $.01 par value (the "Common Stock"), of
Alpha Hospitality Corporation (the "Company") which may be sold by certain
stockholders (the "Selling Stockholders") who have acquired or will acquire such
shares from the Company as follows: (i) 689,469 shares of Common Stock initially
issued to an escrow agent on behalf of B.C. of Mississippi, Inc. ("B.C.")
(formerly known as Bayou Caddy, Inc.) and shareholders of B.C. and subsequently
transferred to B.C. and such shareholders pursuant to an agreement dated
November 15, 1995 by and among the Company, the Company's subsidiary Alpha Gulf
Coast, Inc. and B.C. (the "B.C. Agreement"), (ii) 747,609 shares of Common Stock
initially issued to an escrow agent on behalf of shareholders of the Cotton Club
of Greenville, Inc. and subsequently transferred to such shareholders in
connection with the acquisition by the Company of all of the issued and
outstanding shares of Cotton Club of Greenville, Inc., (iii) 409,000 shares of
Common Stock to be issued upon the exercise of options granted pursuant to the
Company's 1993 Stock Option Plan, and (iv) 696,017 shares of Common Stock issued
to an escrow agent on behalf of Bally Gaming, Inc. in connection with the
restructuring of the mortgage on the Company's gaming vessel, the Bayou Caddy's
Jubilee Casino. An aggregate of 142,411 shares of Common Stock were previously
sold pursuant to the Registration Statement of which this Prospectus forms a
part and are no longer included in the number of shares offered hereby. See
"Certain Transactions -- Bayou Caddy Acquisition", "Selling Stockholders,"
"Management -- 1993 Stock Option Plan" and "Plan of Distribution -- Selling
Stockholders' Shares."

The Company's Common Stock is traded on the over-the-counter market on the
Nasdaq Stock Market ("NASDAQ") under the symbol "ALHY" and on the Boston Stock
Exchange ("BSE") under the symbol ("ALH"). On January 23, 1997, the closing bid
and asked quotations for the Common Stock as reported by NASDAQ were $2 5/16 and
$2 7/16 per share.

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS PROCEEDS TO ISSUER
<S> <C> <C> <C>
Per Share for 409,000 Selling Stockholders' Shares....................... At the market (1) -- $ 1,527,250(2)
Per Share for 2,133,095 Selling Stockholders' Shares..................... At the market (1) -- --
</TABLE>

(1) The Selling Stockholders' Shares that may be offered from time to time by
Selling Stockholders may be sold through ordinary brokerage transactions in
the over-the-counter market or on the BSE, in negotiated transactions, or
otherwise, at market prices prevailing at the time of the sale or at
negotiated prices.

(2) Represents amounts the Company may receive from Selling Stockholders upon
the exercise of options for which the underlying shares are being registered
hereunder. Based upon the current price of the Company's Common Stock and
the exercise prices of the options for which the underlying shares are being
registered hereunder, the Company does not anticipate that the Selling
Stockholders will exercise such options in the immediate future. See "Use of
Proceeds" and "Selling Stockholders."

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL
DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. PURCHASERS SHOULD CAREFULLY CONSIDER THE
MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 7.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The Selling Stockholders' Shares that may be offered from time to time by
Selling Stockholders may be sold through ordinary brokerage transactions in the
over-the-counter market or on the BSE, in negotiated transactions or otherwise,
at market prices prevailing at the time of sale or at negotiated prices.

The Selling Stockholders' each may be deemed to be "an underwriter," as
defined in the Securities Act of 1933 (the "Securities Act"). If any
broker-dealers are used by the Selling Stockholders, any commissions paid to
broker-dealers and, if broker-dealers purchase any shares of Common Stock as
principals, any profits received by such broker-dealers on the resales of the
shares of Common Stock may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any profits realized by the Selling
Stockholders may be deemed to be underwriting commissions. All costs, expenses
and fees in connection wi of the securities offered by the Selling Stockholders
will be borne by the Company. All brokerage commissions, if any, attributable to
the sale of the Securities offered by the Selling Stockholders will be borne by
the Selling Stockholders. See "Selling Stockholders" and "Plan of Distribution
- -- Selling Stockholders."

The Company will not receive any of the proceeds from any sales by Selling
Stockholders of Selling Stockholders' Shares, but will receive the exercise
price upon the exercise of options by the Selling Stockholders. See "Plan of
Distribution" and "Use of Proceeds."

No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any sale hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation.

Under the Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations thereunder, any person engaged in a distribution of the securities
offered by this Prospectus may not simultaneously engage in market-making
activities with respect to shares of the Common Stock during the applicable
"cooling off" period (two or nine days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rule 10b-5,
in connection with transactions in the securities, which provisions may limit
the timing of purchases and sales of the securities by the Selling Stockholders.

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

The date of this Prospectus is , 1997

<PAGE>
AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission
("Commission") a registration statement (as amended, the "Registration
Statement") under the Securities Act with respect to the securities offered by
this Prospectus. This Prospectus does not contain all the information set forth
in the Registration Statement. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and to the exhibits and schedules filed therewith, which may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, NW, Washington, DC, 20549, and copies of the material contained therein
may be obtained from the Commission upon payment of applicable copying charges.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.

Except for material contracts or portions thereof accorded confidential
treatment, all registration statements are available for public inspection,
during business hours, at the principal office of the Commission in Washington,
D.C. Electronic registration statements made through the Electronic Data
Gathering, Analysis, and Retrieval System are publicly available through the
Commission's Web site (http://www.sec.gov).

The Company is subject to the reporting and other informational requirements
of the Exchange Act and, in accordance therewith, files reports, proxy
statements, and other information with the Commission. Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at the offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC,
20549, and at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511, and at 7
World Trade Center, New York, New York, 10048. Copies of such materials can also
be obtained by written request to the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, NW, Washington, DC, 20549, at prescribed
rates.

The Company's Common Stock is listed on NASDAQ and the BSE at the offices of
NASDAQ at 1735 K Street, NW, Washington, DC, 20006 or the offices of the BSE at
1 Boston Place, Boston, Massachusetts, 02108, and the Company's periodic
reports, proxy statements, and other information can be inspected at NASDAQ and
the BSE at the offices of NASDAQ at 1735 K Street, NW, Washington, DC, 20006 or
the offices of the BSE at 1 Boston Place, Boston, Massachusetts, 02108.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE STATED OR IS MADE OBVIOUS FROM
THE CONTEXT, THE TERM THE "COMPANY" SHALL INCLUDE ITS SUBSIDIARIES ALPHA GULF
COAST, INC., JUBILATION LAKESHORE, INC. (FORMERLY KNOWN AS THE COTTON CLUB OF
GREENVILLE, INC.), ALPHA MISSOURI, INC., ALPHA MONTICELLO, INC., ALPHA RISING
SUN, INC., ALPHA ST. REGIS, INC., AND ALPHA HOTEL MANAGEMENT COMPANY, INC.

THE COMPANY

Alpha Hospitality Corporation (the "Company"), through its seven
subsidiaries, is engaged in (i) the ownership and operation of a gaming vessel,
the Bayou Caddy's Jubilee casino (the "Jubilee Casino"), located in Greenville,
Mississippi, which is operated by the Company's subsidiary Alpha Gulf Coast,
Inc. ("Alpha Gulf"), (ii) the pursuit of gaming licenses for additional casinos
in various states (which is accomplished through the Company's subsidiaries
Alpha Missouri, Inc. ("Alpha Missouri"), Alpha Monticello, Inc. ("Alpha
Monticello"), Alpha Rising Sun, Inc. ("Alpha Rising Sun") and Alpha St. Regis,
Inc. ("Alpha St. Regis"), and (iii) the provision of management services to
hotels owned by third-parties (which is conducted through the Company's
subsidiary Alpha Hotel Management Company, Inc. ("Alpha Hotel")). From December
1995 to July 16, 1996, the Company, through its subsidiary Jubilation Lakeshore,
Inc. ("Jubilation Lakeshore"), formerly known as the Cotton Club of Greenville,
Inc. (the "Cotton Club"), operated a second gaming vessel, the Jubilation casino
(the "Jubilation Casino") located in Lakeshore, Mississippi. See "Business --
Casino Operations," "Business -- Casino Operations -- Development Activities"
and "Business -- Hotel Operations."

In connection with its casino operations, the business strategy of the
Company has been to increase return on the Company's existing gaming assets in
Mississippi. Consistent with this strategy, in October 1995, the Company
acquired the Jubilation Casino in connection with its acquisition of all of the
issued and outstanding shares of the Cotton Club (the "Cotton Club
Acquisition"). Specifically, the Company and the Cotton Club stockholders
entered into an agreement (the "Cotton Club Agreement") pursuant to which the
Company acquired 100% of the issued and outstanding shares of the Cotton Club,
existing stockholder notes in the amount of approximately $8 million and certain
additional assets of affiliates of the Cotton Club, which support the casino
operations in exchange for $5,821,700 in cash and promissory notes in addition
to 782,609 shares of the Company's Common Stock. After the Cotton Club
Acquisition, the Company moved the larger Jubilee Casino, formerly operated at
Lakeshore to Greenville (which site was acquired in the Cotton Club Acquisition)
and moved the Jubilation Casino (which was acquired in the Cotton Club
Acquisition) to Lakeshore. The Company relocated the Jubilee Casino and the
Jubilation Casino as stated above in order to accommodate and better serve the
larger market in Greenville.

Although management is satisfied with results of operations of the Jubilee
Casino since the relocation, the Jubilation Casino continued to operate at a
deficit. As a result, in July 1996 management began to implement its plan to
close the Jubilation Casino during August 1996. On July 16, 1996, operation of
the Jubilation Casino was suspended in compliance with a directive of the
Mississippi Commission which raised certain issues with regard to the operation
of the Jubilation Casino and asserted that the working capital available to the
Jubilation Casino was not sufficient. On July 17, 1996, representatives of
Jubilation Lakeshore met with the Mississippi Commission. As a result of that
meeting, the non-working capital issues raised by the Mississippi Commission
have been resolved to the Mississippi Commission's satisfaction. However, the
Mississippi 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. See "Business -- Casino Operations -- The Jubilation Casino"
and "Business -- Casino Operations -- The Jubilee Casino."

The Company's pursuit of additional gaming licenses is accomplished through
the business of four of its subsidiaries, Alpha Missouri, Alpha Monticello,
Alpha Rising Sun and Alpha St. Regis. Alpha Missouri

3
<PAGE>
has applications pending for site approval and a gaming license with respect to
the development of a riverboat gaming facility in Missouri. The Company entered
into a memorandum of understanding with Catskill Development L.L.C. ("Catskill")
pursuant to which Alpha Monticello is to participate in the development and
management of a casino to be built adjacent to the Monticello Raceway in
Sullivan County, New York. Alpha Rising Sun and Alpha St. Regis are currently
inactive although they were previously utilized to explore the establishment of
gaming facilities in Indiana and Hogansburg, New York, respectively. See
"Business -- Development Activities -- New York," "Business -- Development
Activities -- Missouri," and "Business -- Development Activities -- Indiana."

In connection with its hotel operations, through Alpha Hotel, the Company
provides management services to fourteen (14) hotels or motels. The Company
provides management, financial, administrative and marketing services
("Management Services") to thirteen (13) of such hotels or motels primarily
under a service agreement (the "Service Agreement") with Bryanston Group, Inc.
("Bryanston"). The Company provides Management Services to these thirteen (13)
hotels on behalf of Bryanston (which is 50% owned by Mrs. Beatrice Tollman, the
spouse of the Company's Chairman and co-Chief Executive Officer, and 50% owned
by a trust for the benefit of a child of Mr. Monty D. Hundley, the Company's
former President and co-Chief Executive Officer), pursuant to individual
management agreements (the "Management Agreements"). The rights to provide the
Management Services were acquired by the Company in partial consideration for
the issuance of the Company's Common Stock to Bryanston. Such rights were
recorded by the Company at no cost to the Company based on its predecessor's
cost, which was $0. Pursuant to the Service Agreement, the Company is the sole
provider to such hotels of Management Services required of Bryanston, and
receives substantially all fees due to Bryanston under the Management Agreement.
Under the Service Agreement, the Company is compensated for its services by
receiving a percentage of total net revenues of the managed hotels. Additional
fees may be earned from various incentive agreements and accounting fees. In
addition, the Company provides Management Services to a hotel located in Myrtle
Beach, South Carolina, under an agreement with the hotel's owner. All of the
fourteen (14) hotels are "mid-priced," ranging between $40 and $70 per night,
and all but one are operated as Days Inns hotels. In addition to the provision
of such Management Services, the Company is seeking to expand its management of
hotels through its marketing efforts. See "Business -- Hotel Operations,"
"Business -- Hotel Operations -- Marketing," and "Certain Transactions --
Bryanston."

The Company was incorporated in Delaware on March 19, 1993, Alpha Gulf was
incorporated in Delaware on May 4, 1993, Jubilation Lakeshore was incorporated
in Mississippi on December 8, 1992, Alpha Missouri was incorporated in Delaware
in Delaware on March 17, 1995, Alpha Monticello was incorporated in Delaware on
May 30, 1996, Alpha Rising Sun was incorporated in Delaware on August 6, 1993,
Alpha St. Regis was incorporated in Delaware on June 24, 1994, and Alpha Hotel
was incorporated in Delaware on March 19, 1993. The Company's principal
executive offices are located at 12 East 49th Street, New York, New York, 10017
and its telephone number is 212-750-3500.

4
<PAGE>
THE OFFERING

SECURITIES OFFERED

<TABLE>
<S> <C>
SELLING STOCKHOLDERS' SHARES.... 2,542,095 shares of Common Stock which may be sold by the
Selling Stockholders who have acquired or will acquire
such shares from the Company as follows: (i) 689,469
shares of Common Stock initially issued to an escrow agent
on behalf of B.C. and certain shareholders of B.C. and
subsequently transferred to B.C. and such shareholders in
connection with the B.C. Agreement, (ii) 747,609 shares of
Common Stock initially issued to an escrow agent on behalf
of shareholders of the Cotton Club of Greenville, Inc. and
subsequently transferred to such shareholders in
connection with the acquisition by the Company of all of
the issued and outstanding shares of Cotton Club of
Greenville, Inc., (iii) 409,000 shares of Common Stock to
be issued upon the exercise of options granted pursuant to
the Company's 1993 Stock Option Plan, and (iv) 696,017
shares of Common Stock issued to an escrow agent on behalf
of Bally Gaming, Inc. in connection with the restructuring
of the mortgage on the Company's gaming vessel, the Bayou
Caddy's Jubilee Casino. An aggregate of 142,411 shares of
Common Stock were previously sold pursuant to the
Registration Statement of which this Prospectus forms a
part and are no longer included in the number of shares
offered hereby. See "Certain Transactions-Bayou Caddy
Acquistion," "Plan of Distribution -- Selling
Stockholders' Shares," and "Selling Stockholders."

The Company may receive approximately $1,527,250 from
certain Selling Stockholders upon the exercise of options
for which the underlying shares are being registered
hereunder. Based upon the current market price of the
Company's Common Stock and the exercise prices of the
options for which the underlying shares are being
registered hereunder, the Company does not anticipate that
the Selling Stockholders will exercise such options in the
immediate future. See "Use of Proceeds."

The exercise prices of the shares of Common Stock issuable
upon the exercise of options, and the number of shares
issuable, may be subject to adjustment in the event of a
merger, stock split, stock dividend and similar
transaction. See "Executive Compensation -- 1993 Stock
Option Plan" and "Description of Securities."

COMMON STOCK OUTSTANDING AT THE
DATE OF THIS PROSPECTUS........ 13,478,325 Shares

AFTER THE OFFERING(1)........... 13,887,325 Shares

COMMON STOCK SYMBOLS............ NASDAQ: ALHY
BSE: ALH
</TABLE>

5
<PAGE>

<TABLE>
<S> <C>
USE OF PROCEEDS................. The Company may receive proceeds from certain Selling
Stockholders upon the exercise of options for which the
underlying shares are being registered hereunder which
proceeds would be used for working capital purposes. See
"Use of Proceeds."

RISK FACTORS.................... An investment in the Company's Common Stock involves a
high degree of risk and should be made only after a
careful consideration of the significant risk factors that
may affect the Company. Such risks include special risks
concerning the Company and its business, including among
other risks, History of Losses; Explanatory Paragraph in
Independent Auditor's Report, and Defaults in Outstanding
Indebtedness; Loan Covenants and Security Interest. See
"Risk Factors."
</TABLE>

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

(1) Assumes the issuance of all 2,542,095 shares of Common Stock being offered
hereby.

6
<PAGE>
SUMMARY FINANCIAL INFORMATION

The summary financial information set forth below is derived from the
financial statements appearing elsewhere in this Prospectus. Such information
should be read in conjunction with such financial statements, including the
notes thereto.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER YEAR ENDING PERIOD ENDING
30, DECEMBER 31, DECEMBER 31,
------------ -------------------------- -------------

1996 1995 1994 1993
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>

Statement of Earnings Data:
Revenues.............................. $ 37,399,944 $ 30,520,276 $ 46,100,441 $ 876,977
Net loss.............................. $(22,680,829) $(17,993,633) $ (9,900,543) $(4,704,714)
Loss per share........................ $(1.71) $(1.69) $(.97) $(.53)

Balance Sheet Data:
Working capital (deficit)............. $(25,671,162) $(39,993,555) $(17,341,755) $(9,535,249)
Total assets.......................... $ 44,846,691 $ 66,773,492 $ 45,490,305 $47,201,031
Total liabilities..................... $ 43,087,252 $ 64,869,712 $ 32,347,801 $35,319,490
Total stockholders' equity............ $ 1,759,439 $ 1,903,780 $ 13,142,504 $11,881,541
</TABLE>

7
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS
WELL AS ALL OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS.

1. HISTORY OF LOSSES; EXPLANATORY PARAGRAPH IN INDEPENDENT AUDITOR'S REPORT.

Since its inception, the Company has suffered significant losses from
operations. The Company had net losses of $17,993,633 in the fiscal year ended
December 31, 1995, $9,900,534 in the fiscal year ended December 31, 1994, and
$4,704,714 in the fiscal year ended December 31, 1993, of which $13,103,928,
$11,270,048 and $0, respectively, were incurred by the Jubilee Casino. The
Company had net losses of $22,680,829, and $10,177,539 for the nine months ended
September 30, 1996 and September 30, 1995, respectively, of which $1,958,501 and
$8,611,999, respectively, were incurred by the Jubilee Casino. As of December
31, 1995 the Company has a working capital deficit of $39,993,555 and an
accumulated deficit of $32,598,881. As a result of the material uncertainties
relating to the Company's ability to continue as a going concern and fund its
operations, the Company's independent auditors have included an explanatory
paragraph in their report on the Company's financial statements addressing such
uncertainties. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Financial Statements."

2. CLOSING OF THE JUBILATION CASINO; POSSIBLE INABILITY TO MEET OBLIGATIONS TO
CREDITORS.

In July 1996 the Company began to implement its plans to close the
Jubilation Casino during August 1996 due to the losses sustained and the
expectation of continued losses of the Jubilation Casino. On July 16, 1996,
operation of the Jubilation Casino was suspended in compliance with a directive
of the Mississippi Commission which raised certain issues with regard to the
operation of the Jubilation Casino and asserted that the working capital
available to the Jubilation Casino was not sufficient. On July 17, 1996,
representatives of Jubilation Lakeshore met with the Mississippi Commission. As
a result of that meeting, the non-working capital issues raised by the
Mississippi Commission have been resolved to the Mississippi Commission's
satisfaction. However, the Mississippi 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. The Company has had
preliminary discussions with secured creditors of the Jubilation with regard to
the liquidation of its secured obligations. There can be no assurance that the
Jubilation will be able to repay all of its obligations to its creditors. In the
event that the Jubilation is unable to repay its obligations to its creditors,
the Jubilation may file a voluntary petition under the Bankruptcy Code, or
creditors may initiate proceedings against the Jubilation thereby forcing the
Jubilation into bankruptcy. In either event, creditors may assert claims against
the Company seeking satisfaction of the Jubilation's debts. While the Company is
not liable for the Jubilation's debts, there can be no assurance that creditors
of the Jubilation will not assert claims against the Company, or that the
Company will be able to successfully defend against any such claims. See
"Business -- Casino Operations -- The Jubilation Casino."

3. GOVERNMENT REGULATION.

GENERAL

8
<PAGE>
without substantial cost or interruption of its operations, or that any present
or future federal, state or local regulations may not restrict the Company's
present and possible future activities. In the event that the Company is unable
to comply with any such requirements, the Company could be subject to sanctions,
which could have a materially adverse effect upon the Company's business. See
"Business -- Government Regulation -- General," and "Business -- Casino
Operations -- Current Operations."

LICENSING; LOSS OF GAMING LICENSE

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. In
almost all instances, the governing body has broad discretion in granting,
renewing and revoking licenses. The loss or suspension of any license would have
a material adverse effect on the Company. The requirement that the governmental
body approve substantial shareholders, directors, officers and key personnel
could discourage, delay or prevent a change in control of the Company.

The operations of the Jubilee Casino and the Jubilation Casino are regulated
by the Mississippi Commission. In October 1995, the Company's original licenses
to operate the Jubilee Casino and the Jubilation Casino were renewed until
December 1997. Each Mississippi gaming license has a term of two years and is
subject to renewal. In July 1996, the Company began to implement its plans to
close the Jubilation Casino during August 1996. On July 16, 1996, operation of
the Jubilation Casino was suspended in compliance with a directive of the
Mississippi Commission which raised certain issues with regard to the operation
of the Jubilation Casino and asserted that the working capital available to the
Jubilation Casino was not sufficient. On July 17, 1996, representatives of
Jubilation Lakeshore met with the Mississippi Commission. As a result of that
meeting, the non-working capital issues raised by the Mississippi Commission
have been resolved to the Mississippi Commission's satisfaction. However, the
Mississippi 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. The Company's license to operate the Jubilation Casino was
withdrawn. The Company does not believe that the issues raised by the
Mississippi Commission regarding the operation of the Jubilation Casino will
adversely affect the license to operate the Jubilee Casino since the Jubilee
Casino is operating in compliance with applicable regulations, including
regulations relating to issues raised by the Mississippi Commission regarding
the operation of the Jubilation Casino. There can be no assurance, however, that
the issues raised by the Mississippi Commission will not adversely affect the
license, or the renewal of the license, to operate the Jubilee Casino, or any
future licenses for which applications may be submitted in Mississippi or
elsewhere. In the event the Mississippi Commission were to revoke or fail to
renew the Company's license to operate the Jubilee Casino, the Company's
operations and financial condition would be materially adversely affected.

The Company recently withdrew its application in Colorado since the Company
does not intend to proceed with the acquisition for which such license was
required.

The Company applied for a gaming license in Missouri in the early part of
1995. At present the Company cannot predict when a final determination will be
made regarding its license application in Missouri since the Missouri gaming
authority (the "Missouri Commission") makes such determination at its discretion
and is not required to do so within a fixed period of time. However, based upon
discussions with the Missouri Commission, the Company does not anticipate
receiving a final determination with respect to its license application within
the next six months. The failure of the license to be granted could

9
<PAGE>
have a material adverse effect on the Company's expansion plans. See "Business
- -- Casino Operations -- Development Activities."

4. DEFAULTS IN OUTSTANDING INDEBTEDNESS; LOAN COVENANTS AND SECURITY INTEREST.

The Company has incurred substantial indebtedness in connection with its
operations and the acquisition of its casino properties; a substantial portion
of this indebtedness is presently held by Bryanston, an affiliate of the
Company. Substantially all of the Company's assets utilized in connection with
its casino operations are pledged as security for these loans. The various loan
documents contain covenants and restrictions which may limit or interfere with,
the operation of the Company's business. See "Certain Transactions --
Bryanston."

At September 30, 1996, the Company was in default of (i) its mortgage notes
payable aggregating approximately $11,456,000 for non-payment, (ii) the
equipment notes relating to the Jubilation Casino aggregating approximately
$3,433,000 for the breach of several loan covenants and (iii) a loan payable to
Bryanston of approximately $2,474,000 for non-payment. The Company received a
waiver of the defaults of the loan payable and the 7,800,000 mortgage note
payable to Bryanston through December 31, 1997. Accordingly, the mortgage note
payable in the amount of $3,656,000 and the equipment notes payable ($3,433,000)
relating to the Jubilation Casino, are reflected in current liabilities at
September 30, 1996.

In the event of a violation by the Company of any of the loan covenants, or
upon the occurrence of any other events of default set forth in the loan
documents, the lenders could exercise rights of foreclosure under the
agreements, which would have a materially adverse effect on the Company's
financial condition.

While no default or acceleration has been declared by any of the lenders, no
assurance can be given that a default will not be declared in the future.
Declaration of a default would allow the lender whose indebtedness was in
default to foreclose on any collateral for the loan and have a material adverse
effect on the Company's business and operations.

5. INTENSE INDUSTRY COMPETITION.

MISSISSIPPI GAMING OPERATIONS

The Company believes that its major market area is approximately 150 miles
around the Jubilee Casino, based upon analysis of customer records completed by
marketing and operational employees at the site. Within the market area of the
Jubilee Casino there are presently 7 other casinos in operation and one
additional casino in the planning stage. The Company is unaware of any progress
on the planning of this additional casino. Two of the existing casinos is
immediately adjacent to the Company's casino. Substantially all of these
competitors have significantly greater financial, and other, resources than the
Company and more experience in the gaming industry. It is likely that the
intense competition in the Company's market area may limit the profitability of
its operations, or even render them unprofitable.

In addition, the Company experienced declining revenues during the year
ended December 31, 1995 with respect to the operation of the Jubilation Casino.
In management's opinion, this decline was due to the remote location of the
Jubilation Casino and the increasing casino development in the Biloxi and
Gulfport markets, which have proven more attractive to casino patrons. Due to
the current level of competition and the anticipated increase in the competition
around the Jubilation Casino, in July 1996, management began to implement its
plans to close the Jubilation Casino during August 1996. Thereafter, on July 16,
1996 the Jubilation Casino was closed at the direction of the Mississippi
Commission. In view of the conditions required to reopen and the earlier
decision to close the Jubilation Casino, the Company determined not to reopen
the Jubilation Casino. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Casino Operations."

10
<PAGE>
HOTEL OPERATIONS

There are many hotel management companies that provide services to hotels
similar to the services provided by the Company. Many of the other companies are
larger, better capitalized and have more experience in the management of hotels.
While the Company believes that its management has expertise in operating major
mid-market hotel franchises, economies of scale, innovative marketing
strategies, there can be no assurance that the Company will be able to expand
this segment of its business or that existing agreements will be renewed as they
expire.

6. RELIANCE ON SIGNIFICANT CLIENTS; ADVERSE EFFECT OF TERMINATION OF AGREEMENTS.

The Company provides Management Services to fourteen (14) hotels or motels.
Of such hotels, twelve (12) 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 revenues from hotel operations, respectively, in the
Company's 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 underlying Management Agreements is terminable at the discretion of the
hotel owner, all are terminable upon a sale of the property by the owner and
others are terminable if there is a material decrease in the hotel's operating
results. The termination of a significant number of Management Agreements would
have a material adverse effect on the Company's financial condition and results
of operations.

One of the management agreements, which accounted for 17.0% of Alpha Hotel's
1995 revenues, was terminated in 1995 due to the sale of the subject hotel and
the new owner's termination of the agreement, as permitted by the terms of the
agreement. One of the management agreements, which accounted for 12.7% of Alpha
Hotel's 1995 revenues, expired in June 1996 and was not renewed by the owner.
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 a
Management Agreement to manage a hotel in Branson, Missouri, which was
subsequently terminated due to the owner's inability to secure financing. If
additional management agreements are not obtained during 1997, future revenues
of Alpha Hotel will be impacted adversely.

In addition, because almost 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. See "Business -- Hotel Operations."

The Service Agreement pursuant to which the Company provides Management
Services expire on various dates, subject to renewal if the underlying
Management Agreements are renewed. The majority of the Management Agreements
expire in the years 2001 and 2002. There can be no assurance that such
agreements will be renewed. See "Business -- Hotel Operations."

7. DEPENDENCE ON SUCCESS OF MANAGED HOTELS.

As the Company's hotel management revenues are based upon a percentage of an
individual managed hotel's net revenues, any decline in a particular hotel's
revenues because of a decrease in the number of hotel guests or other
significant profit center, such as a hotel's restaurant or bar, would adversely
affect the Company's results of operations. Furthermore, any downturn in general
economic conditions, or of economic conditions in the localities where such
managed hotels are located could likewise have an adverse effect on the
Company's results of operations. See "Business -- Hotel Operations."

8. POSSIBLE INSUFFICIENCY OF LIABILITY INSURANCE.

The Company maintains and intends to continue to maintain general liability
insurance in amounts which management believes will be sufficient to cover
casualty risks associated with the operation of its business, including fire
property damage, personal injury, liquor liability, etc. At present, the Company
is a

11
<PAGE>
defendant in two proceedings in each instance based upon the theory of "liquor
liability" for the service of alcohol to a customer. The Company believes that
its exposure in these two proceedings is adequately covered by the levels of
insurance currently maintained. There can be no assurance, however, that such
insurance will be adequate to cover unanticipated liabilities. See "Business --
Legal Proceedings."

9. TAXATION OF GAMING OPERATIONS.

The Company believes that the prospect of significant additional revenue
through taxation is one of the primary reasons why jurisdictions legalize
gaming. As a result, gaming operators are typically subject to significant taxes
and fees in addition to normal federal and state corporate income taxes, and
such taxes and fees are subject to increase at any time. Any material increase
in these taxes or fees would adversely affect the results of operations of the
Company. Presently, the Company pays approximately 12% of gaming revenues in
taxes and fees in Mississippi.

With respect to any future operations in Missouri, the tax is 5% of the
first $1,000,000, 12% of the next $2,000,000 and 20% of all adjusted gross
receipts above $3,000,000. In addition there is a boarding tax of $1 payable to
each of the local government and the state. See "Business -- Casino Operations
- -- Development Activities -- Alpha Missouri."

10. SEASONAL FLUCTUATIONS.

The results of the casinos' operations have been seasonal, with the greatest
activity occurring during the months of May through September. Consequently, the
Company's operating results during the calendar quarters ending in December and
March are not as profitable as those quarters ending in June and September, and
losses result from time to time. The seasonal nature of the casinos' operations
increases the risk that natural disasters or the loss of the casinos for any
other reason during the May through September period would have a material
adverse effect on the Company's financial condition and results of operations.

The hotel industry is in general seasonal. Though the hotels that receive
Management Services from the Company are distributed through various regions of
the country, the revenues generated by such hotels are anticipated to be
typically lower in the first and fourth quarters of each year. Since fees
received by the Company are based on a percentage of the total net revenues
generated by such hotels, the Company's operations are susceptible to seasonal
variations.

11. CONFLICTS OF INTEREST.

Mrs. Beatrice Tollman, the spouse of Mr. Stanley S. Tollman, the Chairman of
the Board, President and Chief Executive Officer of the Company, is one of the
principal owners of Bryanston. Certain conflicts of interest may arise with
regard to the negotiation of agreements and business opportunities between the
Company and Bryanston. Furthermore, Stanley S. Tollman is one of the principal
owners of the Tollman-Hundley Hotel Group (the "T-H Hotel Group"), the
constituent companies of which own or manage hotel properties containing an
aggregate of 5,593 rooms and which may be in direct competition with hotels that
receive Management Services from the Company. While Stanley S. Tollman and the
T-H Hotel Group have entered into agreements with the Company pursuant to which
each has agreed that any opportunity to provide Management Services to hotel
properties owned by third-parties will be offered first to the Company for a
period of five years commencing September 1, 1993 and the Company has
established a policy that any agreements between the Company and Bryanston or
the T-H Hotel Group must be approved by a majority of disinterested members of
the Company's Board of Directors, there can be no assurance that conflicts of
interest will not arise among such parties and the Company. See "Certain
Transactions -- Bryanston."

12
<PAGE>
12. DEPENDENCE UPON KEY PERSONNEL; ABSENCE OF FULL-TIME MANAGEMENT.

The success of the Company is largely dependent upon the personal efforts of
Mr. Stanley S. Tollman, its President and Chief Executive Officer. The Company
does not maintain and does not intend to obtain a key employee life insurance
policy on the life of Mr. Stanley S. Tollman. Although Mr. Stanley S. Tollman is
only required to devote approximately 20% of his business time to the operations
of the Company, the loss of the services of Mr. Stanley S. Tollman would have a
material adverse effect on the prospects of the Company. In addition, although
the casino operations are managed by full-time personnel, the Company and its
hotel management operations are managed by individuals who also work for
Bryanston." See "Management" and "Certain Transactions -- Bryanston."

13. NO ASSURANCE OF PUBLIC MARKET FOR SECURITIES.

Although the Company's Common Stock is quoted on NASDAQ and listed on the
Boston Stock Exchange, there can be no assurance that the Company will be able
to maintain such quotation or listing, or that, if maintained, a significant
public market will be sustained. For continued listing on NASDAQ, a company,
among other things, must have at least $2,000,000 in total assets and $1,000,000
in capital and surplus, and the listed security must have a minimum bid price of
$1.00 per share. Recently, a proposal has been made to increase the continued
listing criteria on NASDAQ. If implemented as proposed, stricter criteria for
continued listing on NASDAQ would be imposed, including the implementation of a
$2,000,000 net tangible assets test, higher public float and market value of
public float criteria and the implementation of new corporate governance rules.
No assurance can be given that such proposal will be adopted, or, if adopted,
will be adopted in its current form. The Boston Stock Exchange's maintenance
criteria require the Company to have total assets of at least $1,000,000 and
total stockholders' equity of at least $500,000. At September 30, 1996
(unaudited), the Company had stockholders' equity of $1,759,439 and assets of
$44,846,691. The Company has continued to operate at a loss through the date of
this Prospectus.

In the event the Common Stock were delisted from NASDAQ, trading, if any,
would be conducted on the Boston Stock Exchange and in the over-the-counter
market on the NASD's electronic bulletin board, in what are commonly referred to
as the "pink sheets." As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Company's
securities. In addition, the Common Stock would be subject to Rules 15g1-15g6
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally, a person with assets in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with his or her spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, these rules may
affect the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in the Offering to sell their securities in the
secondary market.

The Commission has also recently adopted regulations that define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the regulations require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.

While many NASDAQ-listed securities are covered by the definition of penny
stock, transactions in a NASDAQ-listed security are exempt from all but the sole
market-maker provision for (i) issuers who have $2,000,000 in tangible assets
($5,000,000 if the issuer has not been in continuous operation for three years),

13
<PAGE>
(ii) transactions in which the customer is an institutional accredited investor,
or (iii) transactions that are not recommended by the broker-dealer. In
addition, transactions in a NASDAQ security directly with a NASDAQ market-maker
for such security are subject only to the sole market-maker disclosure, and the
disclosure with respect to commissions to be paid to the broker-dealer and the
registered representative.

Finally, all NASDAQ securities would be exempt from the recently-adopted
regulations regarding penny stocks if NASDAQ raised its requirements for
continued listing so that any issuer with less than $2,000,000 in net tangible
assets or stockholders' equity would be subject to delisting. These criteria are
more stringent than the current NASDAQ maintenance requirements.

14. SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.

The Company has 25,000,000 shares of Common Stock authorized, of which
13,478,325 are issued and outstanding. In addition, 409,000 shares may be issued
upon the exercise of outstanding and currently exercisable options.

Of the 13,478,325 shares of Common Stock currently issued and outstanding,
4,654,443 shares of Common Stock are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act, in that such shares
were issued and sold by the Company in transactions not involving a public
offering and are, as of November 5, 1995, eligible for sale under Rule 144. In
general, under Rule 144 as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the Company, after
at least two years have elapsed from the sale by the Company or any affiliate of
the restricted securities, can (along with any person with whom such individual
is required to aggregate sales) sell, within any three-month period, a number of
shares of restricted securities that does not exceed the greater of 1% of the
total number of outstanding shares of the same class, or, if the Common Stock is
quoted on NASDAQ or a national securities exchange, the average weekly trading
volume during the four calendar weeks preceding the sale. A person who has not
been an affiliate of the Company for at least three months, after at least three
years have elapsed from the sale by the Company or an affiliate of the
restricted securities, is entitled to sell such restricted shares under Rule 144
without regard to any of the limitations described above. The 4,654,443 shares
are eligible for sale pursuant to Rule 144 by affiliates of the Company who are
restricted as to the number of securities they can sell during any three-month
period. Possible or actual sales of such Common Stock by stockholders of the
Company under Rule 144 may have a depressive effect upon the price of the Common
Stock, and could also render difficult the sales of Common Stock by investors.
See "Description of Securities."

15. POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK.

The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares, par value $.01 per share, of "blank check" preferred stock
(the "Preferred Stock") with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. The Company has
outstanding 738,163 shares of Series B Preferred Stock which is convertible into
Common Stock (See "Certain Transactions -- Bryanston" and "Certain Transactions
- -- BP Group") and still has 261,837 shares of Preferred Stock available for
issuance. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue the remaining Preferred Stock, or any Preferred Stock which
becomes authorized but unissued after conversion into Common Stock, with
dividend, liquidation, conversion, voting or other rights that could adversely
affect the voting power or other rights of the holders of the Common Stock. The
Preferred Stock could be utilized under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. There
can be no assurance that additional shares of Preferred Stock of the Company
will not be issued at some time in the future. See "Description of Securities --
Preferred Stock" and "Certain Transactions -- Bryanston" and "Certain
Transactions -- BP Group."

14
<PAGE>
16. OTHER POSSIBLE ADVERSE EFFECTS OF PREFERRED STOCK

The Company has 738,163 shares of Series B Preferred Stock outstanding.
These shares were issued to Bryanston and BP Group, Ltd. ("BP"), a corporation
wholly-owned by Ms. Patricia Cohen, a director of the Company (See "Certain
Transactions -- Bryanston" and "Certain Transactions -- BP Group") in connection
with the conversion of indebtedness owed by the Company to them. 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, payable quarterly, 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. There
are presently three debt instruments which prohibit the payment of cash
dividends. Therefore, the Company, until payment in full of such indebtedness,
will be required to pay a 13% Series B Preferred Stock dividend in Common Stock.

The conversion of Series B Preferred Stock into Common Stock and/or the
issuance of Common Stock in payment of the Series B Preferred Stock dividend,
may dilute the value of the outstanding shares of Common Stock, may adversely
affect the Company's ability to obtain equity capital, and, if such Common Stock
was sold in the public market, when permitted by law, may adversely affect the
market price of the Common Stock. See "Description of Securities" and "Dividend
Policy."

15
<PAGE>
USE OF PROCEEDS

The Company may receive approximately $1,527,250 from certain Selling
Stockholders upon the exercise of options for which the underlying shares are
being registered hereunder. However, there can be no assurance that any or all
of such options will be exercised particularly since the Company cannot redeem
or cancel such options to encourage their exercise. Should such options be
exercised, any proceeds derived therefrom will be used by the Company for
working capital purposes, which may include the repayment of debt and/or
payables, depending upon if and when any such funds are received. Based upon the
current market price of the Company's Common Stock and the exercise prices of
the options for which the underlying shares are being registered hereunder, the
Company does not anticipate that the Selling Stockholders will exercise such
options in the immediate future. See "Selling Stockholders."

16
<PAGE>
CERTAIN MARKET INFORMATION

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock and its Redeemable Common Stock Purchase Warrants
(the "Warrants") are traded on the Automated Quotation System of the National
Association of Securities Dealers, Inc. ("NASDAQ") and the Boston Stock Exchange
under the symbols "ALHY" and "ALHYW," and "ALH" and "ALHW." The following table
sets forth the high and low sale prices for Common Stock and Warrants as
reported by NASDAQ.

<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>

1996 QUARTERS
First....................................................... $ 3.25 $ 2.375 $ 7/16 $ 1/8
Second...................................................... 4.75 2.00 7/8 11/32
Third....................................................... 4.125 2.00 19/32 1/4
Fourth...................................................... 2.375 1.25 9/16 1/4

1995 QUARTERS
First....................................................... $ 6.875 $ 3.375 $ 9/16 $ 33/64
Second...................................................... 4.250 2.250 3/8 3/16
Third....................................................... 4.375 2.215 7/16 5/32
Fourth...................................................... 6.125 4.00 9/16 5/16

1994 QUARTERS
First....................................................... $ 18.251 $ 11.75 $ 7 $ 4 5/8
Second...................................................... 13.325 5.265 4 1/8 1 1/4
Third....................................................... 6.75 5.50 2 1/8 7/8
Fourth...................................................... 7.50 4.625 1 1/4 5/8
</TABLE>

As of January 27, 1996, 13,478,325 shares of Common Stock and 738,163 shares
of Preferred Stock of the Company were issued and outstanding. The outstanding
shares of Common Stock were held of record by approximately 800 persons
including ownership by nominees who may hold for multiple beneficial owners.

17
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1996 and December 31, 1995, and as adjusted to reflect the
satisfaction of the obligations for which the Selling Stockholders' Shares are
being registered. This table should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included herein.

<TABLE>
<CAPTION>
ACTUAL AND AS ADJUSTED
----------------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- ------------
(UNAUDITED)
<S> <C> <C>

Current portion of long-term debt................................ $ 10,573,082 $ 27,319,666
Long-term debt, less current maturities.......................... $ 13,598,400 $ 2,311,751
Stockholders' Equity
Preferred Stock, $.01 par value, authorized 1,000,000 shares;
738,163 issued and outstanding at September 30, 1996
(unaudited)..................................................... $ 7,382 $ --
Common Stock, $.01 par value, authorized 17,000,000 shares;
issued and outstanding 13,478,325 and 12,354,482 shares at
September 30, 1996 (unaudited) and December 31, 1995,
respectively................................................. $ 134,782 $ 123,544
Capital in excess of par value................................. $ 57,432,153 $ 32,779,117
Common Stock subscribed........................................ $ -- $ 1,600,000
Accumulated deficit............................................ $ (55,814,878) $(32,598,881)
Total Stockholders' equity..................................... $ 1,759,439 $ 1,903,780
Total capitalization............................................. $ 15,357,839 $ 4,215,531
</TABLE>

18
<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 a loan to the Company currently held by Bryanston (the
"Term Loan"), the Company may not pay cash dividends without the consent of
Bryanston until the Term Loan is paid in full. Two additional debt instruments
are subordinate to the Term Loan and also prohibit the payment of cash dividends
until paid in full. These are: (i) equipment leases originally held by Bally and
subsequently sold to General Electric Credit Corp. which had an aggregate
balance of approximately $3,433,000 at September 30, 1996, accrues interest at
rates of 12% and 12.75%, and mature in 1997 and (ii) a mortgage held by
Caterpillar on the Jubilation Casino which had an outstanding balance of
approximately $3,656,000 at September 30, 1996, accrues interest based upon the
30 day commercial paper rate and matures at May 1, 2000. See "Certain
Transactions--Bryanston" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity and Capital Resources."

The Company has 738,163 shares of Series B Preferred Stock outstanding,
which (i) entitles the holders to one vote per share; (ii) has a liquidation
value of $29.00 per share; (iii) has a cash dividend rate of 10% of liquidation
value, payable quarterly, which increases to 13% of liquidation value if the
cash dividend is not paid within 30 days at the end of each fiscal year and in
such event is payable in Common Stock at the then market price and (iv) is
convertible into eight shares of Common Stock. Since there are three debt
instruments which prohibit the payment of cash dividends, the Company will be
required to pay a 13% Series B Preferred Stock dividend in Common Stock. See
"Description of Securities."

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<PAGE>

SELECTED FINANCIAL DATA

Period ended December 31, 1993 and years ended December 31, 1994 and 1995
and the nine months ended September 30, 1996.

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 19, 1993
(DATE OF
INCEPTION)
NINE MONTHS ENDED YEAR ENDED DECEMBER TO
SEPTEMBER 30, 31, DECEMBER 31,
------------------------ --------------------- -----------------
1996 1995 1995 1994 1993
----------- ----------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)

Revenues................................. $ 37,400 $ 22,313 $ 30,520 $ 46,100 $ 877
Net Loss................................. $ (22,681) $ (10,177) $ (17,994) $ (9,901) $ (4,705)
Loss per common share.................... $ (1.71) $ (0.99) $ (1.69) $ (.97) $ (.53)
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------ -------------------------------
1996 1995 1995 1994 1993
----------- ----------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>

Total assets................................ $ 44,847 $ 41,812 $ 66,773 $ 45,490 $ 47,201
Long-term debt.............................. $ 24,171 $ 28,019 $ 29,631 $ 20,100 $ 24,874
Mandatorily redeemable common stock......... $ -- $ -- $ -- $ 565 $ --
Stockholders' equity........................ $ 1,759 $ 3,530 $ 1,904 $ 13,143 $ 11,882
</TABLE>

SEE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND CONSOLIDATED FINANCIAL STATEMENTS.

20
<PAGE>
BUSINESS

Alpha Hospitality Corporation (the "Company"), through its seven
subsidiaries, is engaged in (i) the ownership and operation of gaming vessel the
Bayou Caddy's Jubilee casino (the "Jubilee Casino"), located in Greenville,
Mississippi, which is operated by the Company's subsidiary Alpha Gulf Coast,
Inc. ("Alpha Gulf"), (ii) the pursuit of gaming licenses for additional casinos
in various states (which is accomplished through the Company's subsidiaries
Alpha Missouri, Inc. ("Alpha Missouri"), Alpha Monticello, Inc. ("Alpha
Monticello"), Alpha Rising Sun, Inc. ("Alpha Rising Sun") and Alpha St. Regis,
Inc. ("Alpha St. Regis"), and (iii) the provision of management services to
hotels owned by third-parties (which is conducted through the Company's
subsidiary Alpha Hotel Management Company, Inc. ("Alpha Hotel")). From December
1995 to July 16, 1996, the Company, through its subsidiary Jubilation Lakeshore,
Inc. ("Jubilation Lakeshore"), formerly known as the Cotton Club of Greenville
Inc. (the "Cotton Club"), operated a second gaming vessel, the Jubilation
Casino.

The Company was incorporated in Delaware on March 19, 1993, Alpha Gulf was
incorporated in Delaware on May 4, 1993, Jubilation Lakeshore was incorporated
in Mississippi on December 8, 1992, Alpha Missouri was incorporated in Delaware
on March 17, 1995, Alpha Monticello was incorporated in Delaware on May 30,
1996, Alpha Rising Sun was incorporated in Delaware on August 6, 1993, Alpha St.
Regis was incorporated in Delaware on June 24, 1994, and Alpha Hotel was
incorporated in Delaware on March 19, 1993. The Company's principal executive
offices are located at 12 East 49th Street, New York, New York, 10017 and its
telephone number is 212-750-3500.

CASINO OPERATIONS

CURRENT OPERATIONS

From December 1995 through July 16, 1996, the Company operated two casinos
in their respective new locations in an effort to increase return on such gaming
assets. Although management is satisfied with the results of operation of the
Jubilee Casino since the relocation, the Jubilation Casino continued to operate
at a deficit. As a result, in July 1996 management began to implement its plans
to close the Jubilation Casino during August 1996. On July 16, 1996, operation
of the Jubilation Casino was suspended in compliance with a directive of the
Mississippi Commission which raised certain issues with regard to the operation
of the Jubilation Casino and asserted that the working capital available to the
Jubilation Casino was not sufficient. On July 17, 1996, representatives of
Jubilation Lakeshore met with the Mississippi Commission. As a result of that
meeting, the non-working capital issues raised by the Mississippi Commission
have been resolved to the Mississippi Commission's satisfaction. However, the
Mississippi 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. See "The Jubilation Casino."

THE JUBILATION CASINO

The Jubilation Casino, located in Lakeshore, near Waveland, Hancock County,
Mississippi on the Gulf of Mexico, is owned and operated by the Company's
wholly-owned subsidiary, Jubilation Lakeshore. In October 1995, the Company
consummated the Cotton Club Acquisition through which it acquired the Jubilation
Casino and certain additional assets that support its operation as a casino,
including leasehold interests incidental to the ownership of the Jubilation
Casino relating to its original location in Greenville, Mississippi.
Specifically, 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 operation as a
casino. 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,
consisting of 782,609 shares valued at $5.75 per share, as determined by the
closing bid price of the Common Stock as of the day prior to the closing of the
transaction. Prior to the Cotton Club Acquisition, the Company applied for and
received the required license renewals and approvals from the Mississippi

21
<PAGE>

Commission. The operation of the Jubilation Casino is subject to state and local
regulation. See "Business -- Government Regulation -- Licensing -- Mississippi."

Following the consummation of the Cotton Club Acquisition, the Jubilation
Casino was moved from Greenville to Lakeshore, where it reopened on December 21,
1995. Management believes that the Cotton Club Acquisition and the subsequent
relocation of the Jubilation Casino to Lakeshore were consistent with its
strategy to maximize the profitability of its gaming assets. In particular,
management believed that the smaller Jubilation Casino could adequately service
the existing Lakeshore market with substantially reduced cost of operations.
However, based upon the Jubilation Casino's limited capacity, remote location
and the increasing casino development in the Biloxi and Gulfport markets (which
have proven more attractive to casino patrons), the Jubilation Casino was unable
to overcome operating deficits. As a result, in July 1996 management began to
implement its plans to close the Jubilation Casino during August 1996. On July
16, 1996, operation of the Jubilation Casino was suspended in compliance with a
directive of the Mississippi Commission which raised certain issues with regard
to the operation of the Jubilation Casino and asserted that the working capital
available to the Jubilation Casino was not sufficient. On July 17, 1996,
representatives of Jubilation Lakeshore met with the Mississippi Commission. As
a result of that meeting, the non-working capital issues raised by the
Mississippi Commission have been resolved to the Mississippi Commission's
satisfaction. However, the Mississippi 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.

In connection with the plan to close the Jubilation Casino, management
believes it has taken the appropriate action required by federal law with
respect to providing notice of such closing to its employees. In connection with
the closing of the Jubilation Casino, management 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 $14,507,000 and
stockholders' equity below the requirements for continued listing of the
Company's securities on NASDAQ. In order to maintain continued listing on
NASDAQ, the Company accepted proposals by Bryanston and BP to convert
approximately $19,165,000 and $1,222,000, respectively, of debt to 693,905 and
44,258 shares of Series B Preferred Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Certain
Transactions -- Bryanston" and "Certain Transactions -- BP Group."

THE JUBILEE CASINO

The Jubilee Casino, located in Greenville, Mississippi, is owned and
operated by the Company's wholly-owned subsidiary Alpha Gulf. On May 14, 1993,
pursuant to an asset purchase agreement among Alpha Gulf, B.C. of Mississippi,
Inc. ("B.C.") (formerly known as Bayou Caddy, Inc.), and certain shareholders of
B.C., the Company acquired B.C.'s leasehold interests under certain lease
agreements and certain other assets incidental to the development and ownership
of the Jubilee Casino. The Company proceeded with this acquisition because it
gave the Company the opportunity to enter the casino business in Lakeshore,
Mississippi, the original site of the Jubilee Casino. Moreover, B.C. had already
initiated the process of obtaining requisite approvals for casino operation in
Lakeshore, thereby expediting the Company's ability to conduct casino operations
in Mississippi. See "Certain Transactions -- Bayou Caddy Acquisition."

The Company initiated the Jubilee Casino's gaming operations on January 12,
1994, subsequent to its construction on a marine vessel in 1993, which
construction received the requisite approvals from the U.S. Army Corps of
Engineers and the Mississippi Department of Natural Resources. Prior to the
initiation of the Jubilee Casino's gaming operations, the Company applied for
and received the required license renewals and approvals from the Mississippi
Commission. See "Business -- Government Regulation -- Licensing -- Mississippi."

Following the Cotton Club Acquisition, the Company transferred the Jubilee
Casino from Lakeshore to Greenville. The Jubilee Casino reopened in Greenville
on November 17, 1995. The movement of the

22
<PAGE>
Jubilee Casino to Greenville increased the capacity at Greenville and brought an
upscale facility to the Greenville market. Management believed that the
relocation of the Jubilee Casino to Greenville was an appropriate action
designed to increase the return on the Company's gaming assets in Mississippi.

The Jubilee Casino has 838 slot machines and 29 table games. In addition to
its gaming activities, the Jubilee Casino includes a 175 seat buffet, a 350 seat
showroom, a 98 seat restaurant and parking to accommodate 950 customer vehicles.
In January 1996, the Company completed renovation of its leased restaurant
facility at Greenville in order to give customers a dining alternative, offering
fine dining in an elegant setting. Management believes that the Jubilee Casino,
which offers an attractive casino environment and significant casino capacity,
will be able to capture a significant portion of the Greenville market. In
addition, the Company believes that its management's experience, together with
ongoing entertainment and promotional efforts, will enable it to expand the
market for the Jubilee Casino to areas outside of Greenville.

DEVELOPMENT ACTIVITIES

NEW YORK

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 "Tribe"). 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 below.

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., a
company of which the Company's 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 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 the Company 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.

Catskill purchased the 225 acre Monticello Raceway in June 1996. Catskill
plans to continue Monticello's racing program and to explore other development
at the site in addition to the St. Regis Mohawk Casino.

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

MISSOURI

In February 1995, the City of Louisiana, Missouri, designated the Company as
the exclusive designee to enter into negotiations with the city to develop a
riverboat gaming facility at the city's Mississippi River shoreline. The City of
Louisiana is currently competing with other cities in Missouri for the next
gaming license to be granted in the state. In the event that the state gaming
authorities select Louisiana, Missouri as the locality to receive the next
gaming license to be granted, the Company, as the city's exclusive designee,
would be the recipient of such license. Consequently, the Company's wholly-owned
subsidiary

23
<PAGE>
Alpha Missouri entered into a lease agreement with the City of Louisiana
relating to certain city-owned riverfront 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 Commission the initial
applications for site approval and a gaming license. The Missouri Commission
conducted meetings with the Company in the first quarter of 1996 at which time
the Company presented its project for priority consideration. There are no
objective criteria which the Missouri Commission is required to follow in making
its determinations. However, based upon discussions with the Missouri
Commission, the Company does not anticipate receiving a final determination with
respect to its license application within the next six months. 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. In the
fall of 1995, the Company filed the requisite forms with the Colorado Division
of Gaming for approval of the Company's operation of Doc Holliday's casino in
Central City, Colorado. Since the Company's due diligence investigation revealed
that the acquisition was not in the best interests of the Company, in early 1996
the Company decided not to proceed with the acquisition and exercised its
contractual right to terminate the agreement.

INDIANA

In February 1995, Alpha Rising Sun entered into two letters of intent with
subsidiaries of Bally Entertainment Corporation ("Bally") to develop and manage
a proposed casino and related upland development at the City of Rising Sun.
Therefore, the Company, through its subsidiary Alpha Rising Sun, filed an
application for a riverboat gaming license for the County of Ohio, City of
Rising Sun, with the Indiana Gaming Commission in the first quarter of 1994.
Since the license was awarded to another entity, the Company has discontinued
its efforts to expand its casino operations in Indiana. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

MARKETING

The Company concentrates its sales, marketing and promotional activities for
the Jubilee Casino in a target market within a 150 mile radius of the casino.
The target markets 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 award of
complimentary services is consistent with standard industry practices and is
based upon a customer's duration of play and average amount wagered. 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.

24
<PAGE>
The Company has established a bus program at the Jubilee Casino in order to
facilitate travel to the casino from areas within a reasonable distance from the
casino. The Company markets its bus program 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 Jubilee Casino on a 24-hour
basis.

The Company seeks to maintain and upgrade its gaming vessel so that it is
competitive in the industry. With the closing of the Jubilation Casino the
Company has discontinued its marketing activities relating to the Jubilation
Casino. See "Business -- Current Operations."

COMPETITION

There are currently 17 casinos located on the Mississippi River. In the
Greenville market, the Company's Jubilee Casino competes with the Las Vegas
Casino and the Lighthouse Point Casino, which opened in November 1996. The
opening of the Lighthouse Point Casino resulted in a decrease in the gaming
revenues of the Jubilee Casino which is expected to be corrected as the
marketing programs of the new Lighthouse Point Casino help to increase the total
Greenville market. Since the opening of the new casino, the Jubilee Casino's
fair share of the market, based on the number of player positions in the market,
has improved. The Company believes that the Jubilee Casino is well-positioned to
compete successfully with the two other casinos in the Greenville market.
Approximately 60 miles south of Jubilee Casino is Vicksburg. Vicksburg has four
casinos: the Isle of Capri, Harrahs Vicksburg, Ameristar, and Rainbow Casino.
Approximately 110 miles south of Jubilee Casino is Natchez with the Lady Luck
Natchez Casino. Approximately 90 miles north of the Jubilee Casino is Coahoma
County with the Lady Luck Coahoma Casino. Tunica County is approximately 180
miles north of the Jubilee Casino and has eight casinos -- Harrahs Tunica, Sams
Town, Fitzgeralds, Sheraton, Hollywood Casino, Circus Circus, Horseshoe Casino
and Ballys. Since casinos within a 60 or 180 mile radius of the Jubilee Casino
are not considered by the Company to be within its competitive market, the
Company does not deem the casinos in Vicksburg, Coahoma County, or Tunica County
to be among its competitors.

The Company has remained competitive in the markets affecting the Jubilee
Casino by keeping its gaming vessel well-maintained and by offering superior
accommodations, entertainment programs and special events. In addition, the
Company's advertising and marketing efforts have focused on maintaining the
Company's presence in its market.

Although the Jubilee Casino has remained competitive, the Jubilation Casino,
located on the Mississippi Gulf Coast, was unable to compete satisfactory with
the major casino developments in the Biloxi and Gulfport markets. This resulted
in management's decision to close the Jubilation Casino during August 1996. See
"Casino Operations -- Current Operations -- The Jubilation Casino."

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.

SEASONAL FLUCTUATIONS

The results of the casinos' operations have been seasonal, with the greatest
activity occurring during the fair weather months of May through September.
Consequently, the Company's operating results during the calendar quarters ended
in December and March are not as profitable as those quarters ending in June and
September, and losses result from time to time. The seasonal nature of the
casinos' operations increases the risk that natural disasters or the loss of the
casinos for any other reason during the May through September period would have
a material adverse effect on the Company's financial condition and results of
operations.

25
<PAGE>
GOVERNMENT REGULATION

GENERAL

The Company's ownership and operation of its properties are subject to
regulation by federal, state and local governmental and regulatory authorities,
including regulation relating to environmental protection. While the Company has
not been the subject of any complaints or other formal or informal proceedings
alleging any violations of government regulations, no assurance can be given
that the Company is, or in the future will be, able to comply with, or continue
to comply with current or future governmental regulations in every jurisdiction
in which it conducts or will conduct its business operations without substantial
cost or interruption of its operations, or that any present or future federal,
state or local regulations may not restrict the Company's present and possible
future activities. In the event that the Company is unable to comply with any
such requirements, the Company could be subject to sanctions, which could have a
materially adverse effect upon the Company's business. See "Business --
Government Regulation -- General," and "Business -- Casino Operations -- Current
Operations."

LICENSING

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

26
<PAGE>
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.

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.

27
<PAGE>
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.

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.

28
<PAGE>
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.

On July 16, 1996, operation of the Jubilation Casino was suspended in
compliance with a directive of the Mississippi Commission which raised certain
issues with regard to the operation of the Jubilation Casino and asserted that
the working capital available to the Jubilation Casino was not sufficient. On
July 17, 1996, representatives of Jubilation Lakeshore met with the Mississippi
Commission. As a result of that meeting, the non-working capital issues raised
by the Mississippi Commission have been resolved to the Mississippi Commission's
satisfaction. However, the Mississippi 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. The Company does not
believe that the issues raised by the Mississippi Commission regarding the
operation of the Jubilation Casino will adversely affect the license to operate
the Jubilee Casino since the Jubilee Casino is operating in compliance with
applicable regulations, including regulations relating to issues raised by the
Mississippi Commission regarding the operation of the Jubilation Casino. There
can be no assurance, however, that the issues raised by the Mississippi
Commission will not adversely affect the license, or the renewal of the license,
to operate the Jubilee Casino, or any future licenses for which applications may
be submitted in Mississippi.

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.

29
<PAGE>
MISSOURI AND NEW YORK

Missouri law and the Federal Indian Gaming Law (as it relates to the
Company's proposed operation in New York), 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. With respect to the Company's
compact with the Tribe relating to the proposed casino to be built in Sullivan
County, New York, the State of New York has provided for regulation of Indian
gaming casinos through the New York State Racing and Wagering Board. 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, the Company has
commenced the application and approval process with the Missouri Gaming
Commission. The Company does not anticipate receiving a final determination with
respect to its license application within the next twelve months. In connection
with its proposed operations in New York, the Company is preparing the
documentation required to be filed with the National Indian Gaming Commission.

HOTEL OPERATIONS

GENERAL

Through Alpha Hotel, the Company provides Management Services to fourteen
(14) hotels or motels. The Company provides Management Services to thirteen (13)
of such hotels or motels primarily under Service Agreements with Bryanston. The
Company provides Management Services to these thirteen (13) hotels on behalf of
Bryanston (which is 50% owned by Mrs. Beatrice Tollman, the spouse of the
Company's Chairman and co-Chief Executive Officer, and 50% owned by a trust for
the benefit of a child of Mr. Monty D. Hundley, the Company's former President
and co-Chief Executive Officer), pursuant to individual Management Agreements.
The rights to provide the Management Services were acquired by the Company in
partial consideration for the issuance of the Company's Common Stock to
Bryanston. Such rights were recorded by the Company at no cost to the Company
based on its predecessor's cost, which was $0. Pursuant to the Service
Agreement, the Company is the sole provider to such hotels of Management
Services required of Bryanston, and receives substantially all fees due to
Bryanston under the Management Agreements. In addition, the Company provides
Management Services to one hotel located in Myrtle Beach, South Carolina under
an agreement with the hotel's owner. All of the fourteen (14) hotels are
"mid-priced," ranging between $40 and $70 per night, and all but one are
operated as Days Inns.

The Company and Bryanston have designed a financial management system
whereby all accounting information is processed in a 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
connection with the Service Agreement, effective September 1, 1993, the Company
entered into an expense reimbursement agreement (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 Expense Reimbursement Agreement allows for
cost-effective centralization and management of the Company's operations, partly
based on the Service Agreement and partly based on the fact that Bryanston,
which employs some of the Company's employees, is also based at the Hopewell
Junction office. See "Certain Transactions" and "Management."

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 in
the years 2001 and 2002. The Management Agreements contain termination
provisions that are consistent with hotel industry practice

30
<PAGE>
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,
nine Management Agreements have been terminated, six of which were terminated
due to the sale of the subject hotels two of which were terminated due to the
conversion of the subject hotels to different hotels and one of which was not
renewed by the owner upon expiration of the agreement's term. In eight of the
nine cases the new owners exercised their rights to terminate the agreements
upon the occurrence of the above-stated events.

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, which is ordinarily 8% of total net revenue 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% since the elimination of the "basic fee"
reduces the license fee to 3%, such reduction is economically significant to
such hotels, and is favorable to the Company since the arrangement acts is an
incentive for Days Inn licensees to enter into management agreements with the
Company. The term of the special exemption 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). The discount is not available, however, for any hotels other than
those hotels currently operated by Bryanston. There is no discretion in the
licenser, 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 and 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 support staff comprised of accounting, marketing,
sales and supervisory personnel. This comprehensive support staff helps ensure
that all of the managed hotels maximize potential revenue and profit
opportunities by implementing financial controls, marketing the Company's
services to existing and potential clients, and advising on programs related to
hotel management services.

The fourteen 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 2002 None
Days Inn-Downtown, Atlanta, GA............................................... 262 2012 2022
Days Inn-Savannah, Savannah Bay, GA.......................................... 253 2001 None
Days Inn-Lakeshore, Chicago, IL.............................................. 580 2006 2021
Days Inn-Kankakee, Kankakee, IL.............................................. 98 2007 None
Days Inn-Henderson, Henderson, KY............................................ 115 2002 None
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 2001 None
Days Inn-Madisonville, Madisonville, KY...................................... 141 2002 None
Sheraton -- Myrtle Beach, SC................................................. 219 2004 None
-----
2,687
-----
-----
</TABLE>

31
<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. To date, the Company has only engaged in preliminary
negotiations with such hotel owners.

SIGNIFICANT CLIENTS

Twelve 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 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, which accounted
for 17.0% of Alpha Hotel's 1995 revenues, was terminated in 1995 due to the sale
of the subject hotel and the new owner's termination of the agreement, as
permitted by the terms of the agreement. One of the management agreements, which
accounted for 12.7% of Alpha Hotel's 1995 revenues, expired in June 1996 and was
not renewed by the owner. 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 which
was subsequently terminated due to the owner's inability to secure financing. If
additional management agreements are not obtained during 1997, 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.

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 licensee 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 licenser 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. See
"Business -- Hotel Operations -- General."

The Company's advertising and marketing strategies enable the Company to
remain competitive in the markets affecting its hotel operations. In addition,
the Company's reputation of providing competent management services help
maintain the Company's presence in this market. The terms of the Service
Agreement also enable the Company to offer competitive rates for its services.
See "Business -- Hotel Operations -- General".

MARKETING

The Company engages in marketing efforts at a national level and directs
such marketing activities toward a wide range of affiliated and non-affiliated
hotel facilities. The Company's marketing efforts for its hotel operations are
focussed on maintaining and expanding its existing client base. In order to
further develop existing accounts, as well as procure additional accounts, the
Company works to maintain and improve its relationships with its existing
clients. Besides actively soliciting business from these sources, the Company
makes efforts to maintain a public awareness of its management services.

32
<PAGE>
SEASONAL FLUCTUATIONS

The hotel industry in general seasonal. Though the hotels that receive
Management Services from the Company are distributed through various regions of
the country, the revenues generated by such hotels are anticipated to be
typically lower in the first and fourth quarters of each year. Since fees
received by the Company are based on a percentage of the total net revenues
generated by such hotels, the Company's operations are susceptible to seasonal
variations.

EMPLOYEES

In connection with its casino operations, as of September 30, 1996 the
Company employed approximately 1,065 employees, of which 908 are full-time
employees. Management considers its employment relations to be satisfactory. In
connection with the closing of the Jubilation Casino and pursuant to the Workers
Adjustment and Retraining Notification Act, the Company provided the 320
employees of the Jubilation Casino with notice of its plans to close the
Jubilation Casino within 60 days of the anticipated closing date, as required
under the act. Therefore, management believes it has taken appropriate action
required by federal law with respect to providing notice of the closing of the
Jubilation Casino to the employees of the Jubilation Casino. See "Casino
Operations."

In connection with its hotel operations, although not directly employed by
the Company, 1,030 individuals engaged in the operations of managed hotels are
employed by Bryanston and Atlantic Shore Resort, the owner of the hotel located
in Myrtle Beach, South Carolina, and are supervised by the Company.
Approximately 15% of the 951 Bryanston employees are unionized. The Company
believes that Bryanston's relations with its unions are satisfactory.

PROPERTIES

The Company maintains its executive office at leased premises located at 12
East 49th Street, New York, New York, 10017. This lease expires December 31,
2004.

33
<PAGE>
CASINO OPERATIONS

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION PRINCIPLE USE AREA OWNED/LEASED EXPIRES
- --------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Hancock County Mooring site of 25 acres Leased July 21, 2001 with
Waveland, MS casino vessel option to extend 2
five year terms

Hancock County Rights to adjoining 1,250 waterfront feet Leased (1)
Waveland, MS waters to the mooring
site of casino vessel

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

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

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

Washington County Mooring site of 1,000 waterfront feet Leased December 29, 1997
Greenville, MS casino vessel with option to extend
3 five year terms

Washington County Accounting offices 10,000 square feet Leased December 1, 1998 with
Greenville, MS and warehouse option to extend two
years
</TABLE>

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

(1) In December 1996, the State of Mississippi terminated the lease for
nonpayment of rent and agreed to allow the Company until March 31, 1997 to
remove the Jubilation Casino from the mooring site. In the event that the
Jubilation Casino is not removed from the mooring site by March 31, 1997, it
will be deemed forfeited to the state. Management believes that there are
other mooring sites readily available and is in the process of selecting a
mooring site for the relocation of the Jubilation Casino.

The Company considers its property to be suitable and adequate for its
present needs. In connection with the closing of the Jubilation Casino, the
realizability of the capital leasehold and improvements related to the
Jubilation Casino was reassessed. This resulted in an impairment loss of
approximately $14,507,000 and stockholders' equity below the requirements for
continued listing of the Company's securities on NASDAQ. In order to avoid
NASDAQ delisting, the Company accepted proposals from Bryanston and BP to
convert certain debt owed to such entities into equity in the Company. See
"Business -- Casino Operations," "Certain Transactions -- Bryanston," "Certain
Transactions -- BP Group," "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

34
<PAGE>
LEGAL PROCEEDINGS

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 $20,000,000. Early in the litigation Plaintiff sought a default
judgment against Alpha Gulf relating to evidence that was destroyed. The court
denied the motion, but granted Plaintiff attorney's 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
the Southern District of Mississippi, Jackson Division) seeking a determination
that it is not liable under the subject insurance policy. The Company has been
dismissed from this litigation and the declaratory judgment action instituted by
Plaintiff was dismissed in June 1996. 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 $5,125,000, with respect
to all issues relating to the underlying personal liability action. The
principal insurance carrier which has paid the settlement has asserted in the
declaratory judgment action that Alpha Gulf has an obligation to reimburse it
for payment of the settlement amount, which dispute is being 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.

In August 1996, Alpha Gulf was named as a defendant in an action brought in
the United States District Court for the Southern District of Mississippi
(Joseph R. Cure, Joseph E. Cure, Jr., Cynthia Cure Rutherford, Michael Cure and
Susan Cure Gollot vs. Alpha Gulf Coast, Inc.) for alleged past due and future
accelerated rentals and other costs under an operating lease relative to real
property located in Lakeshore, Mississippi. Plaintiffs seek past due rentals of
approximately $967,000 and future rentals of $800,000 annually through March 31,
2000 and $950,000 annually through July 31, 2011. The consolidated financial
statements include a provision for the liability on past due rents of $627,000
at September 30, 1996. The ultimate outcome of this litigation cannot presently
be determined as this case is in the early phases of discovery. Accordingly, no
provision for liability to the Company, except as mentioned above, that may
result upon adjudication has been made in the accompanying consolidated
financial statements.

35
<PAGE>

construction contract. Plaintiff seeks actual and compensatory damages of
approximately $1,200,000. The consolidated financial statements include a
provision for the liability of $928,000 for this contract at September 30, 1996.
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, except as mentioned above, that may result upon
adjudication has been made in the accompanying consolidated financial
statements.

In December 1996 the Company and Alpha Gulf were named as defendants in an
action brought in the United States District Court for the Southern District of
New York (Bally Gaming, Inc. v. Alpha Hospitality Corp. and Alpha Gulf Coast,
Inc.) for allegedly engaging in conduct which would impair the collateral held
as security for certain financial obligations. Such conduct includes the failure
to pay certain monetary obligations unrelated to the obligations secured by the
collateral. Defendants seek specific performance of particular actions
defendants believe are necessary to protect the collateral that secures the
financial obligations, unspecified damages and attorney's fees, among other
things. The ultimate outcome of this case cannot presently be determined as this
case is in its preliminary stages.

36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

CASINO OPERATIONS

MISSISSIPPI

On May 14, 1993, 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 Jubilee Casino,
and B.C.'s interest in certain related license applications, approvals and
permits. The Jubilee Casino commenced gaming operations in Lakeshore, near
Waveland, Hancock County, Mississippi, on January 12, 1994. In October 1995, the
Company consummated the Cotton Club Acquisition, through which it acquired the
Jubilation Casino in its original location in Greenville, Mississippi.
Immediately following the Cotton Club Acquisition, the Company relocated the
Jubilee Casino to Greenville, and the Jubilation Casino to Lakeshore. Management
believed that these relocations were appropriate in order to increase the return
on the Company's gaming assets, since management believed that the Jubilee
Casino would better serve the larger Greenville market, and that the Jubilation
Casino would adequately serve the smaller Lakeshore market. The Jubilee Casino
reopened in Greenville on November 17, 1995, and the Jubilation Casino reopened
in Lakeshore on December 21, 1995. In July 1996, the Company began to implement
its plans to close the Jubilation Casino during August 1996 due to the
Jubilation Casino being unable to overcome operating deficits. Considering the
impact of the aforementioned factor, management updated its assessment of the
realizability of the leasehold improvements and related assets of the Jubilation
Casino. In accordance with its accounting policy for long-lived assets,
effective for the second quarter ended June 30, 1996, management recorded an
impairment loss of approximately $14,507,000 to property and equipment. Since
this recordation would result in the reduction of stockholders' equity to a
level below the requirements for continued listing of the Company's securities
on NASDAQ, the Company accepted proposals by Bryanston and BP to convert an
aggregate of approximately $20,387,000 of debt owed by the Company to Bryanston
and BP into shares of the Company's Series B Preferred Stock. Thereafter, on
July 16, 1996, operation of the Jubilation Casino was suspended in compliance
with a directive of the Mississippi Commission which raised certain issues with
regard to the operation of the Jubilation Casino and asserted that the working
capital available to the Jubilation Casino was not sufficient. On July 17, 1996,
representatives of Jubilation Lakeshore met with the Mississippi Commission. As
a result of that meeting, the non-working capital issues raised by the
Mississippi Commission have been resolved to the Mississippi Commission's
satisfaction. However, the Mississippi 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. See "Certain Transactions
- -- Bryanston" and "Certain Transactions -- BP Group."

RESULTS OF OPERATIONS -- ALPHA GULF

The following table sets forth the statement of operations for the Alpha
Gulf's Jubilee Casino's operations before intercompany charges and income taxes
for the nine months ended September 30, 1996

37
<PAGE>

(unaudited) and 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
NINE MONTHS ENDED YEAR ENDED (DATE OF
SEPTEMBER 30, DECEMBER 31, INCEPTION)
------------------------ --------------------- ------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
----------- ----------- ---------- --------- ------------------

<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>

Revenues:
Casino..................................... $ 27,901 $ 19,312 $ 25,713 $ 41,344 $ --
Food, beverage and other................... 794 966 1,122 1,921 19
----------- ----------- ---------- --------- -------
Total revenues............................. 28,695 20,278 26,835 43,265 19
----------- ----------- ---------- --------- -------
Operating expenses:
Casino..................................... 9,770 9,785 14,933 20,989
Food, beverage and other................... 1,053 1,286 729 1,223
Selling, general and administration........ 12,417 10,832 15,190 20,769 --
----------- ----------- ---------- --------- -------
Total operation expenses................... 23,240 21,903 30,852 42,981 --
----------- ----------- ---------- --------- -------
Income (loss) from operations.............. 5,455 (1,625) (4,017) 284 19
----------- ----------- ---------- --------- -------
Other expenses:
Interest................................... 1,537 1,601 2,178 2,317 375
Other non-operating........................ 2,431 2,620 1,535 5,439
Depreciation and amortization.............. 3,622 2,963 4,161 3,763 --
----------- ----------- ---------- --------- -------
Total other expense........................ 5,159 6,995 8,959 7,615 5,814
----------- ----------- ---------- --------- -------
Income (loss) before intercompany charges and
deferred income tax credit.................. $ 296 $ (8,620) $ (12,976) $ (7,331) $ (5,795)
----------- ----------- ---------- --------- -------
----------- ----------- ---------- --------- -------
</TABLE>

YEARS ENDED DECEMBER 31, 1995 AND 1994:

Alpha Gulf generated revenues of $26,835,000 and $43,265,000 in 1995 and
1994, respectively. The Jubilee 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. To
overcome such declining revenues, management attempted many different marketing
programs, some of which showed moderate results. However, upon the acquisition
of the Jubilation Casino, and the leasehold interests incidental to the
ownership of the Jubilation Casino relating to its original location in
Greenville, Mississippi, the Company announced plans to relocate the Jubilee
Casino to Greenville so that the larger Jubilee Casino could better serve the
larger Greenville market, and thereby combat the declining revenues. 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 predecessor's gaming vessel at this
site during the same period in 1994.

Alpha Gulf's casino operating expenses were $14,933,000 and $20,989,000, for
the fiscal years ended December 31, 1995 and 1994, respectively, which amounts,
constituted 58% and 51% of casino revenues during each respective period. The
increase in casino expenses as a percentage of revenue (7%) was due to the
combination of the cost, payroll and overhead of food and beverage, provided
gratuitously to customers, not decreasing at the same rate as revenues (4%) and
other operating expenses not decreasing at the same rate as revenues (3%). Food,
beverage, retail and other expenses were $729,000 and $1,223,000 for the fiscal
years ended December 31, 1995 and 1994, respectively, which amounts constituted
65% and 64% of food, beverage, retail and other revenues during each respective
period. 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 for the fiscal years ended December 31, 1995 and 1994, respectively.
The reduced casino expenses incurred in 1995 when compared to 1994 of
approximately $6,000,000 was the

38
<PAGE>
results of the following factors, (i) reduced gaming taxes of $1,876,000 due to
reduced gaming revenue, and (ii) 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 $5,700,000 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 for the fiscal years ended December 31,
1995 and 1994, respectively. The reduced payroll and related costs of $1,600,000
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.
Other non-operative expenses of $2,620,000, $1,535,000 and $5,439,000 for the
fiscal years ended December 31, 1995, 1994, and 1993, respectively, consist
primarily of pre-opening and development 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. The increase was directly related to a corresponding
increase in capital expenditures.

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:

Alpha Gulf generated revenues of $28,695,000 and $20,278,000 in 1996 and
1995, respectively. Casino revenues were $27,901,000 and $19,312,000 in 1996 and
1995, respectively. Food, beverage and other revenues were $794,000 and $966,000
in 1996 and 1995, respectively. This increase in casino revenues is primarily
due to the relocation of the 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 4.2% over the same period last year.

At the locations referred to above, Alpha Gulf's casino operating expenses
were $9,770,000 and $9,785,000 (35% and 51% of casino revenues) in 1996 and
1995, respectively. Food, beverage and other expenses were $1,053,000 and
$1,286,000 (133% of food, beverage and other revenues) in 1996 and 1995,
respectively.

The reduced casino expenses in 1996 when compared to 1995 of $15,000 was the
net result of reduced staffing levels ($246,000), the decrease in the costs
related to food and beverages provided gratuitously to customers ($820,000),
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 ($965,000) and an increase in customer slot payouts ($419,000),
which are directly related to increased revenues and a decrease in operating
expenses ($333,000), which is the result of management operating more
efficiently.

Food and beverage revenue does not include the retail value of food and
beverage of approximately $2,232,000 and $2,788,000 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
costs of approximately $4,249,000 and $4,456,000, marketing and advertising of
approximately $4,985,000 and $2,720,000, occupancy costs of approximately
$1,914,000 and $2,309,000, and operating expenses of approximately $1,537,000
and $1,348,000 in 1996 and 1995, respectively. The reduced payroll and related
costs of $207,000 was a direct result of management's cost-cutting measures
instituted during the first quarter of 1995. The $2,265,000 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.

39
<PAGE>

The reduction of occupancy costs of $395,000 is primarly due to reduced
insurance costs. The increase in operating expenses of $189,000 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 $3,622,000 and $2,963,000 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.

FUTURE OPERATIONS -- ALPHA GULF

Alpha Gulf'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 opened November 6, 1996 in Greenville. Historically,
addition of gaming facilities expands local gaming markets in Mississippi. 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 LAKESHORE

The Company acquired the Jubilation Casino on October 26, 1995. The
Jubilation Casino's operations in Greenville was terminated on October 30, 1995.
After its relocation to Lakeshore, the Jubilation Casino reopened for business
on December 21, 1995. The following table sets forth the statement of operations
for the Company's Jubilation Casino operations before intercompany charges and
deferred tax credits for

40
<PAGE>

the nine months ended September 30, 1996 (unaudited) and for the period October
26, 1995 (date of acquisition) to December 31, 1995 (in thousands):

<TABLE>
<CAPTION>
OCTOBER 26,
1995
NINE MONTHS (DATE OF INCEPTION)
ENDED SEPTEMBER 30, TO DECEMBER 31,
1996 1995
------------------- -------------------
(UNAUDITED)
<S> <C> <C>

Revenues:
Casino................................................................................ $ 6,913 $ 806
Food, beverage and other.............................................................. 303 16
-------- -------
Total revenues...................................................................... 7,216 822
-------- -------
Expenses:
Casino................................................................................ 3,559 797
Food, beverage and other.............................................................. 381 89
Selling, general and administrative................................................... 6,641 1,718
-------- -------
Total operating expenses............................................................ 10,581 2,604
-------- -------
Loss from operations.................................................................... (3,365) (1,782)
-------- -------
Other expenses (Income):
Interest.............................................................................. 748 120
Other non-operating................................................................... 223
Write-off of leasehold improvements................................................... 14,507
Depreciation and amortization......................................................... 1,166 333
-------- -------
Total other expenses................................................................ 16,421 676
-------- -------
Loss before intercompany charges and deferred tax credit................................ $(19,786) $(2,458)
-------- -------
-------- -------
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1996

The Jubilation Casino experienced a loss from operations of $3,365,000
during the nine months ended September 30, 1996. 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
quarter ended June 30, 1996, management recorded an impairment loss of
$14,507,000 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 certain issues with
regard to the operation of the Jubilation Casino and asserted that the working
capital available to the Jubilation Casino was not sufficient. On July 17, 1996,
representatives of Jubilation Lakeshore met with the Commission. As a result of
that meeting, the non-working capital issues raised by the Commission have been
resolved to the Commission's satisfaction. However, 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.

41
<PAGE>
CASINO DEVELOPMENT

INDIANA -- ALPHA RISING SUN

Alpha Rising Sun proposed to build a destination resort hotel, entertainment
and riverboat casino facility located in Rising Sun, Ohio County, Indiana. This
project was awarded to another developer in 2nd quarter 1995.

During 1994, $260,000 preopening costs were incurred in this project.

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.

NEW YORK -- ALPHA ST. REGIS

In March 1996, 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. Upon formation of the
joint venture, the Company paid $485,000 for the reimbursement of certain
expenses and would have been obligated for an additional $400,000 upon approval
by the Tribe. The Company believes that upon receiving the Class 3 gaming
license, there will be funds available through the public debt or equity markets
to complete this project, however, there can be no assurance that such funds
will be available or, if available, will be on terms acceptable to the Company.
However, 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 below.

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.

CASINO DEVELOPMENT

NEW YORK -- ALPHA MONTICELLO

On January 19, 1996, the Company, through its subsidiaries, 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 $516,000 and
$20,000, respectively, of costs primarily associated with its participation with
Catskill.

During 1996, Alpha Monticello incurred $496,000 related to corporate
expenditures for casino development.

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 $87,000 and $179,000 in 1996 and 1995,
respectively, related to its proposed development of a riverboat casino in
Louisiana, Missouri.

42
<PAGE>

During 1996, Alpha Missouri also incurred $496,000 related to corporate
expenditures for casino development.

HOTEL MANAGEMENT -- ALPHA HOTEL

The following table sets forth selected financial data of Alpha Hotel for
the nine months ended September 30, 1996 (unaudited) and for the years ended
December 31, 1995, 1994 and 1993 (1993 includes eight months of the Company's
predecessor Bryanston Group, Inc.) (in thousands).

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993
----------- ----------- --------- --------- ---------

<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>

Income Statement Data:
Management fees......................................... $ 1,489 $ 2,035 $ 2,863 $ 2,835 $ 3,091
----------- ----------- --------- --------- ---------
Operating expenses:
Direct payroll and related expenses..................... 885 931 1,236 1,474 1,291
Selling, general and administrative..................... 78 182 276 236 550
----------- ----------- --------- --------- ---------
963 1,113 1,512 1,710 1,841
----------- ----------- --------- --------- ---------
Income from management fees before intercompany charges
and income taxes......................................... $ 526 $ 922 $ 1,351 $ 1,125 $ 1,250
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>

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 the 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 net decrease in total hotel management fees was the result of a
decrease in revenues due to 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

43
<PAGE>
agreement for a property under receivership for the first three months of 1993,
and the increase in management fees of $156,000 from the hotels subject to
ongoing management agreements. This increase in management fee revenues of
$156,000 resulted from 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 the 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.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:

Total management fees decreased during the nine months ended September 30,
1996 compared to the nine months ended September 30, 1995 by approximately
$546,000 (26.8%). The decrease was principally from the net result of $54,000
increase in fees from continuing management agreements and a decrease of
$600,000 related to the loss of five management agreements (which related to
hotels whose ownership changed) and one management agreement which expired. 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 4.9% to $885,000 for the nine
months ended September 30, 1996 from $931,000 for the nine months ended
September 30, 1995. This 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 $78,000 for the
nine months ended September 30, 1996 from $182,000 for the nine months ended
September 30, 1995. This decrease is a result of office relocation to a less
expensive area.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 1996, the Company achieved net cash
provided by operating activities of $859,000. During this period, the Company
experienced a net loss of $22,681,000. The positive aggregate net cash flow from
operating activities resulted from non-cash expenses of $20,159,000 and a
positive net change in operating assets and liabilities of $3,418,000. Non-cash
expenses primarily consisted of depreciation and amortization of $4,788,000,
debt conversion fee of $1,019,000 and the write-off of the Lakeshore leasehold
improvements of $14,507,000. The change in operating assets and liabilities
primarily consisted of a decrease in prepaid insurance of $1,670,000, a decrease
in other current assets of $1,085,000, a decrease in accounts payable and other
accrued expenses of $1,097,000 and an increase in accrued payroll and related
liabilities of $1,137,000.

Cash used in investing activities of $2,290,000 consisted of $1,421,000 in
purchases of property and equipment primarily related to the relocation of
casinos to each of their current sites and $869,000 in payments for deposits and
other assets primarily attributable to $607,000 in deferred costs relating to
casino development in Missouri and New York.

44
<PAGE>

Cash provided by financing activities of $476,000 was attributable to
$3,220,000 in net advances under the $20,000,000 non-revolving promissory note
with Bryanston and the principal reduction of notes payable and long-term debt
of approximately $2,850,000.

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 $20,000,000. Early in the litigation Plaintiff sought a default
judgment against Alpha Gulf relating to evidence that was destroyed. The court
denied the motion, 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
the Southern District of Mississippi, Jackson Division) seeking a determination
that it is not liable under the subject insurance policy. The Company has been
dismissed from this litigation and the declaratory judgment action instituted by
Plaintiff was dismissed in June 1996. 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 $5,125,000, with respect
to all issues relating the underlying personal liability action. The principal
insurance carrier which has paid the settlement has asserted in the declaratory
judgment action that Alpha Gulf has an obligation to reimburse it for payment of
the settlement amount, which dispute is being litigated. Accordingly, no
provision for any liability to the Company that may result upon adjudication has
been made in the accompanying consolidated financial statements.

45
<PAGE>

In September 1996, the Company and Alpha Gulf were named as defendants in an
action brought in the Circuit Court of Hancock County, Mississippi (Durward
Dunn, Inc. vs. Alpha Hospitality Corporation; Durward Dunn, Inc. vs. Alpha Gulf
Coast, Inc.) for alleged failure to make payments pursuant to a construction
contract. Plaintiff seeks actual and compensatory damages of approximately
$1,200,000. The consolidated financial statements include a provision for the
liability of $928,000 for this contract at September 30, 1996. 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, except as mentioned above, that may result upon
adjudication has been made in the accompanying consolidated financial
statements.

Effective June 26, 1996 the Company issued 738,163 shares of its Series B
Preferred Stock (convertible into Common Stock of the Company on the basis of
eight common shares per preferred share) to (a) liquidate a loan payable of
approximately $1,283,000 (including accrued interest of approximately $41,000
and a transaction fee of approximately $61,000); and (b) partially liquidate the
non-revolving promissory note issued to Bryanston. The amount of the Bryanston
note liquidated was approximately $20,123,000 (including a transaction fee of
approximately $958,000). The principal amount of approximately $1,416,000 plus
accrued interest remain outstanding under the Bryanston note.

At September 30, 1996, the Company was in default of (i) its mortgage notes
payable aggregating approximately $11,456,000 for non-payment, (ii) the
equipment notes relating to the Jubilation Casino aggregating approximately
$3,433,000 for the breach of several loan covenants and (iii) a loan payable to
Bryanston of approximately $2,474,000 for non-payment. The Company received a
waiver of the defaults of the loan payable and the $7,800,000 mortgage note
payable to Bryanston through December 31, 1997. Accordingly, the mortgage note
payable in the amount of $3,656,000 and the equipment notes payable
($3,433,000), relating to the Jubilation Casino, are reflected in current
liabilities at September 30, 1996.

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 has minimized continuing
losses from the Jubilation Casino by closing the operation in July 1996.
Management is currently working with the Jubilation Casino's unsecured creditors
regarding future payment of its obligations. Management is also in discussion
with the Jubilation Casino's secured creditors in an attempt to settle its
outstanding obligations.

Management's plans include operating the Jubilee Casino profitably and
maintaining positive cash flow. Management is currently seeking a source of
refinancing its Jubilee Casino debt. There is no assurance that a source for
refinancing will be obtained. Management will also be seeking sources of
financing for casino development projects, if certain approvals are received.
Management believes that financing will be available, however, there are no
assurances that financing will be obtained.

46
<PAGE>
MANAGEMENT

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

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>

Stanley S. Tollman................................... 65 Chairman of the Board, President and Chief Executive
Officer
Sanford Freedman..................................... 60 Vice President, Secretary and Director
Howard D. Zukerman................................... 50 Vice President and Assistant Secretary
Thomas W. Aro........................................ 53 Vice President and Director
Brett G. Tollman..................................... 34 Vice President and Director
James A. Cutler...................................... 45 Treasurer, Chief Financial Officer and Director
Patricia Cohen....................................... 43 Director
Matthew B. Walker.................................... 46 Director
</TABLE>

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.

HOWARD D. ZUKERMAN currently serves as the Company's Vice President and
Assistant Secretary, positions he held from March 1993 through October 1993, and
from February 1994 to date. Mr. Zukerman serves as the Senior Vice President of
the Tollman-Hundley Hotel Group, a position he has held since 1985.

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

47
<PAGE>
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 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. Directors are reimbursed for expenses incurred in
connection with the performance of their duties.

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

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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.

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.

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.

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<PAGE>
EXECUTIVE COMPENSATION

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 or 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.

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 $300 - $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.

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 the Expense Reimbursement Agreement
between the Company and Bryanston, 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.

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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

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 the investment of $100 in the Company's Common Stock on
November 5, 1993 and the investment of $100 in Russell and DJ Casinos on October
31, 1993, and that all dividends were reinvested. No dividends have been
declared or paid on the Company's Common Stock.

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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.

<TABLE>
<CAPTION>
RESTRICTED
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS AWARDS OPTIONS/SARS COMPENSATION
- ------------------------------------------- --------- ---------- ----------- --------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>

Stanley S. Tollman, 1995 $ 250,000 -- -- -- -- -- -- -- --
Chairman of the Board of 1994 $ 250,000 -- --
Directors, Co-Chief 1993 $ 250,000 -- $ 31,250(2)
Executive Officer

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

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

(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, without interest.

(2) Represents 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 as which time Mr. Hundley waived any present or future claim to all
accrued and unpaid salaries.

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<PAGE>
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.

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.

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 409,000 shares of Common
Stock underlying options granted pursuant 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.

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<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 1, 1995. Options to purchase 409,000 shares of
Common Stock have been granted to employees to date.

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<PAGE>
CERTAIN TRANSACTIONS

BAYOU CADDY ACQUISITION

Pursuant to an asset purchase agreement dated as of May 14, 1993 among 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 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 (the "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 (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 the effective date of the Registration Statement of which this
Propsectus 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 the Company is currently holding as treasury stock
until the issuance to B.C. and the B.C. shareholders, promptly after the
effective date of the Registration Statement.

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 17.6 CENTS 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 the Service Agreement, effective as of September 1, 1993, between
Alpha Hotel and Bryanston, the Company provides 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 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, 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 an expense
reimbursement agreement (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

55
<PAGE>
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 (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 ($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 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
September 30, 1996 and December 31, 1995, the principal balance (which includes
accrued interest through the second anniversary) was $2,473,826 and accrued
interest at September 30, 1996 was $133,104.

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
(the "Initial Working Capital Loan") to meet working capital requirements of the
Company. The note bore interest at price 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 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. 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 (the "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 ($1,415,796 and $17,360,861
outstanding at September 30, 1996 and December 31, 1995, respectively) with
Bryanston. The note, which bears interest at prime rate (8.25% at September 30,
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 $503,000) 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)

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<PAGE>
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 (the "Term Loan") which was then held by HFS, having a balance of
$7,800,000 from HFS, which was in default at such time. The Company received the
Term Loan from HFS in the 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
September 30, 1996 and December 31, 1995, the balance due on the Term Loan is
$7,800,000 and accrued interest is $1,030,724 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 $14,507,000 and would have
reduced stockholders' equity 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 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.

BP GROUP

BP advanced $1,927,759 to the Company, representing the proceeds of the BP
loan (the "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 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.

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<PAGE>
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 33.2 CENTS 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.

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 $14,507,000 and would have
reduced stockholders' equity 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, BP proposed that the Company convert the BP Loan into
Series B Preferred Stock, which would enable the Company to maintain its NASDAQ
listing. Therefore, effective June 26, 1996, BP converted the amount due on the
BP Loan (approximately $1,222,000) into shares of the Company's Series B
Preferred Stock. The Company was charged a 5% transaction fee (approximately
$61,000), 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 $1,283,000 was converted into 44,258 shares of Preferred Stock
based on the fair market value of the Company's Common Stock on the date of
conversion $3.625). The terms of the Series B Preferred Stock issued to BP are
identical to those of the Series B Preferred Stock issued to Bryanston in June
1996.

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.

58
<PAGE>
OWNERSHIP OF SECURITIES

The following table sets forth certain information as of January , 1997
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 and director of the Company and all officers and directors as a
group. Unless otherwise indicated, the address of each such person or entity is
c/o Alpha Hospitality Corporation, 12 East 49th Street, New York, New York,
10017.

<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF PERCENT OF CLASS CLASS AFTER
TITLE OF CLASS NAME AND ADDRESS SHARES (1) BEFORE OFFERING OFFERING
- ---------------------------------- ---------------------------------- ---------- ----------------- -------------
<S> <C> <C> <C> <C>

Common Stock
$.01 Par Value.................. Stanley S. Tollman(2)(3).......... 498,975 3.7% 3.6%
Beatrice Tollman(3)(11)........... 1,815,890 13.5 13.1
Sanford Freedman(4)............... 271,158 2.0 1.9
Thomas W. Aro(5).................. 100,200 0.7 0.7
Brett G. Tollman(6)............... 493,078 3.6 3.5
James A. Cutler(7)................ 116,320 0.9 0.8
Howard Zukerman(8)................ 84,208 0.6 0.6
Patricia Cohen(9)................. 1,483,046 11.0 10.4
Matthew Walker.................... 145,632 1.1 1.0
Bally Gaming, Inc.(10)............ 696,017 5.2 5.0
6601 South Bermuda Road
Las Vegas, Nevada
Bryanston Group, Inc.(11)......... 5,899,066 30.4 29.8
1886 Route 52
Hopewell Junction, NY
All officers and directors as a
group (8 persons)(2)(4-9)....... 3,192,617 22.7 22.0
Series B Preferred Stock
$.01 Par Value.................. Bryanston Group, Inc.(11)......... 693,905 94.0 94.0
1886 Route 52
Hopewell Junction, NY
BP Group, Ltd.(12)................ 44,258 6.0 6.0
6 Danton Lane South
Lattington, NY
</TABLE>

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

(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) 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.

(3) As to Stanley S. Tollman, does not include 1,815,890 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 Stock beneficially owned
by Stanley S. Tollman, her spouse. Stanley S. Tollman and Beatrice Tollman,
in the aggregate, beneficially own 2,314,865 shares of Common Stock, which
represents 17.2% of the class outstanding. Mr. and Mrs. Tollman each
disclaim beneficial ownership of the shares beneficially owned by each
other.

59
<PAGE>

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

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

(6) 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 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 are currently exercisable 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 are currently exercisable and none of
which have been exercised.

(9) Represents (i) 1,128,982 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, a company of which Patricia
Cohen is the sole stockholder.

(10) Represents a portion of the 701,017 shares issued to an escrow agent on
behalf of Bally in connection with the restructuring of the mortgage on the
Jubilee Casino.

(11) As to shares of Common Stock held by Bryanston, includes (i) 5,551,240
shares of Common Stock issuable upon conversion of 693,905 shares of Series
B Preferred Stock and (ii) options granted to Bryanston to purchase 347,826
shares of Common Stock, all of which are currently exercisable. 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.

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

60
<PAGE>
SELLING STOCKHOLDERS

The 2,542,095 of the Selling Stockholders' Shares to which this Prospectus
relates may be sold by the Selling Stockholders who have acquired or will
acquire such shares from the Company (i) upon the exercise of issued and
outstanding options granted pursuant to the Company's 1993 Stock Option Plan
(the "Plan"), or (ii) in connection with acquisition agreements or debt
restructuring agreements. An aggregate of 142,411 shares of Common Stock were
previously sold pursuant to the Registration Statement of which this Prospectus
forms a part and are no longer included in the number of shares offered hereby.
The Company will not receive any of the proceeds from the sales of the Selling
Stockholder's Shares, but will receive the exercise price upon the exercise of
options by certain Selling Stockholders. There can be no assurance that any or
all of such options will be exercised. Pursuant to the Plan, options for up to
900,000 shares of Common Stock may be granted, of which options to purchase
409,000 shares have been issued to date, all of which are being offered hereby.
Of such 409,000 options, 385,000 options have an exercise price of $3.25 per
share and 24,000 options have an exercise price of $11.50 per share.

The Selling Stockholders received registration rights with respect to the
shares offered hereunder pursuant to verbal or written agreements with the
Company. All costs, expenses and fees in connection with the registration of the
Selling Stockholders' Shares will be borne by the Company. All brokerage
commission, if any, attributable to the sale of Selling Stockholders' Shares by
Selling Stockholders will be borne by such Selling Stockholders.

The following table sets forth (a) the name of each Selling Stockholder and
relationship to the Company; (b) the number of shares of Common Stock
beneficially owned by each Selling Stockholder before this offering; (c) the
number of shares beneficially owned by each Selling Stockholder that were
initially registered pursuant to the Registration Statement of which this
Prospectus forms a part; (d) the number of shares beneficially owned by each
Selling Stockholder registered hereunder that may be sold pursuant to this
Prospectus; the number of shares of Common Stock and the percentage of the total
class of Common Stock outstanding to be beneficially owned by each Selling
Stockholder following this offering, assuming the sale of all of the Selling
Stockholders' Shares.

61
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF
NUMBER OF SHARES ----------------------- COMMON STOCK
OF COMMON STOCK REGISTERED BENEFICIALLY OWNED
BENEFICIALLY IN AFTER THIS OFFERING
SELLING STOCKHOLDER AND RELATIONSHIP TO OWNED BEFORE THIS OFFERED ----------------------
COMPANY THIS OFFERING(1) OFFERING HEREBY NUMBER PERCENT
- ---------------------------------------------- ----------------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Thomas Wilson(2).............................. 18,000 18,000 18,000 0 *
(Employee)
Craig Kendziera(2)............................ 12,300 12,000 12,000 300 *
(Employee)
Jeffrey Crowley(2)............................ 54,500 10,000 10,000 45,820 *
(Employee)
Robert Steenhuisen(2)......................... 8,000 8,000 8,000 0 *
(Employee)
Thomas Damewood(2)............................ 8,000 8,000 8,000 0 *
(Employee)
Peter Rost(2)................................. 5,000 5,000 5,000 0 *
(Employee)
Alice Abalos(2)............................... 5,300 5,000 5,000 300 *
(Employee)
Betty Drake(2)................................ 6,300 5,000 5,000 1,300 *
(Employee)
Margaret O. Young(2).......................... 5,000 5,000 5,000 0 *
(Employee)
Paul Hitselberger(3).......................... 3,334 5,000 5,000 0 *
(Employee)
Kevin Kurpick(3).............................. 3,334 5,000 5,000 0 *
(Employee)
Thaddeus Rickards(3).......................... 3,334 5,000 5,000 0 *
(Employee)
Ann Williams(3)............................... 1,667 2,500 2,500 0 *
(Employee)
Sherry Kosack(3).............................. 1,667 2,500 2,500 0 *
(Employee)
Danka Maricic(3).............................. 1,733 2,000 2,000 400 *
(Employee)
Kenneth Terry(3).............................. 1,300 1,500 1,500 300 *
(Employee)
Claudia Bowman(3)............................. 333 500 500 0 *
(Employee)
Sherry D. Myers(4)............................ 33,741 33,741 33,741 0 *
Ronald L. Miller(4)........................... 33,726 33,726 33,726 0 *
Richard L. Miller(4).......................... 33,726 33,726 33,726 0 *
James B. Sonnier(4)........................... 2,661 2,661 2,661 0 *
John R. Boggs(4).............................. 3,150 3,150 3,150 0 *
Matthew Walker(4)............................. 145,632 145,632 145,632 0 *
Clifton C. Inge(4)............................ 58,907 58,907 58,907 0 *
Clifton C. Inge, Jr.(4)....................... 15,521 15,521 15,521 0 *
Ashley Inge(4)................................ 15,521 15,521 15,521 0 *
Marguerite Berrigan(4)........................ 15,652 15,652 15,652 0 *
Levee Land Co.(4)............................. 15,320 15,320 15,320 0 *
Corinna Hansen(4)............................. 17,391 17,391 17,391 0 *
Thomas B. Bender(4)........................... 33,266 33,266 23,266 0 *
Frank G. Terrell, Jr.(4)...................... 119,544 119,544 94,544 0 *
Francis Miller(4)............................. 6,373 6,373 6,373 0 *
Casino River Vessels(4)....................... 21,375 21,375 21,375 0 *
Charles R. Crovo(4)........................... 1,575 1,575 1,575 0 *
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF
NUMBER OF SHARES ----------------------- COMMON STOCK
OF COMMON STOCK REGISTERED BENEFICIALLY OWNED
BENEFICIALLY IN AFTER THIS OFFERING
SELLING STOCKHOLDER AND RELATIONSHIP TO OWNED BEFORE THIS OFFERED ----------------------
COMPANY THIS OFFERING(1) OFFERING HEREBY NUMBER PERCENT
- ---------------------------------------------- ----------------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C>
M. Delacy Crovo(4)............................ 1,575 1,575 1,575 0 *
Dina G. Bender(4)............................. 39,085 39,085 39,085 0 *
Hand Arendall, L.L.C. (as agent)(4)........... 168,868 168,868 168,868 0 *
Bally Gaming, Inc.(5)......................... 701,017 701,017 696,017 0 *
B.C. of Missisippi(6)......................... 91,880 91,880 91,880 0 *
John E. Kingsbury(6).......................... 121,397 121,397 121,397 0 *
Jon R. Turner(6).............................. 71,313 71,313 71,313 0 *
David Altman(6)............................... 13,424 13,424 13,424 0 *
Hyun Sil Enomoto(6)........................... 15,840 15,840 15,840 0 *
Jin Ho Kang(6)................................ 15,840 15,840 15,840 0 *
James D. and Cherie Kingsbury(6).............. 11,880 11,880 11,880 0 *
Merle A. and Sharon A. Reed(6)................ 10,560 10,560 10,560 0 *
Patricia C. Derry(6).......................... 2,640 2,640 2,640 0 *
Kyong Soon Cho(6)............................. 47,520 47,520 47,520 0 *
Eugene J. and Patricia A. Lang(6)............. 39,105 39,105 20,105 0 *
Michael Bach(6)............................... 1,320 1,320 1,320 0 *
Roger L. and Carol J. Johnson(6).............. 2,640 2,640 2,640 0 *
Alvin H. Bishop, Jr.(6)....................... 10,560 10,560 10,560 0 *
James Gavin(6)................................ 5,280 5,280 5,280 0 *
Keiko S. Palmero(6)........................... 7,260 7,260 7,260 0 *
Ray Eaton(6).................................. 29,700 29,700 5,000 0 *
Robert M. James(6)............................ 65,313 65,313 37,202 0 *
Stuart Schube(6).............................. 13,200 13,200 0 0 *
William Lady(6)............................... 14,080 14,080 14,080 0 *
James M. Lady(6).............................. 14,080 14,080 0 0 *
Steven Lady(6)................................ 14,080 14,080 14,080 0 *
Mas Hiraike(6)................................ 4,078 4,078 4,078 0 *
David and Karen Uyekawa(6).................... 2,000 2,000 2,000 0 *
Ronald Hirano(6).............................. 960 960 960 0 *
Katsuyi and Yasoyo Kawakubo(6)................ 4,078 4,078 4,078 0 *
Ralph and Barbara Myers(6).................... 4,078 4,078 4,078 0 *
Leo Benavidez(6).............................. 2,000 2,000 2,000 0 *
Carl Feldman(6)............................... 4,078 4,078 4,078 0 *
Thomas Nishi(6)............................... 8,236 8,236 8,236 0 *
Craig and Mable Takenska(6)................... 4,078 4,078 4,078 0 *
Adrianne Tong(6).............................. 6,157 6,157 6,157 0 *
Robert and Dorothy Takasugi(6)................ 10,315 10,315 10,315 0 *
Masayoshi and June Morioka(6)................. 3,039 3,039 3,039 0 *
Domingo and Pauline Sauceda(6)................ 960 960 960 0 *
Alice Brzkcy(6)............................... 4,078 4,078 4,078 0 *
Gary and Susan Zimmerman(6)................... 2,000 2,000 0 0 *
Stacy Hobson(6)............................... 3,039 3,039 3,039 0 *
Yami and Yasuyo Serizawa(6)................... 4,078 4,078 4,078 0 *
Jon Robert Takasugi(6)........................ 2,000 2,000 2,000 0 *
Leslie Takasugi(6)............................ 2,000 2,000 2,000 0 *
James Fitzsimons(6)........................... 4,078 4,078 4,078 0 *
The Sandra S. Monaldi Living Trust(6)......... 7,920 7,920 7,920 0 *
Michael D. and Jospeh Cure, Cynthia C.
Rutherford and Susan Gollott(6)............. 84,438 84,438 84,438 0 *
</TABLE>

63
<PAGE>
- ------------------------

* represents less than 1% of the total outstanding shares of Common Stock.

(1) Includes all shares of Common Stock obtainable by the Selling Stockholder
upon exercise of options granted pursuant to the Plan. Such options are
exercisable as set forth in footnotes 2 and 3 below.

(2) Includes the shares of Common Stock issuable upon the exercise of options.
One third of such Selling Stockholders' options vested on June 10, 1994, one
third vested on December 10, 1994 and the remainder vested on June 10, 1995.

(3) Includes the shares of Common Stock issuable upon the exercise of options.
One-third of such Selling Stockholders' options vested on December 10, 1994,
one-third vested on June 10, 1995 and the remainder vested on December 10,
1995.

(4) Represents the portion 782,609 shares issued initially to an escrow agent on
behalf of the former shareholders of the Cotton Club and subsequently to the
Selling Stockholder in connection with the Cotton Club Acquisition.

(5) Represents shares issued to an escrow agent on behalf of Bally Gaming, Inc.
in connection with the restructuring of the mortgage on the Jubilee Casino.

(6) Represents the portion of the 791,880 shares of Common Stock issued to the
Selling Stockholder in connection with the B.C. Agreement.

(7) Includes 2,640 shares of Common Stock issued to the Selling Stockholder in
connection with the B.C. Agreement.

64
<PAGE>
PLAN OF DISTRIBUTION

The securities offered hereby are the 2,542,095 Selling Stockholders'
Shares. An aggregate of 142,411 shares of Common Stock were previously sold
pursuant to the Registration Statement of which this Prospectus forms a part and
are no longer included in the number of shares offered hereby.

SELLING STOCKHOLDERS' SHARES

The 2,684,506 of the Selling Stockholders' Shares to which this Prospectus
relates may be sold by the Selling Stockholders who have acquired or will
acquire such shares from the Company (i) upon the exercise of issued and
outstanding options granted pursuant to the Company's 1993 Stock Option Plan
(the "Plan"), or (ii) in connection with acquisition agreements or debt
restructuring agreements. The Company will not receive any of the proceeds from
any sales by Selling Stockholders of Selling Stockholders' Shares, but will
receive the exercise price upon the exercise of options by the Selling
Stockholders. See "Selling Stockholders."

The Selling Stockholders' sales of shares of Common Stock may be effected
from time to time in transactions (which may include block transactions) in the
over-the-counter market or the Boston Stock Exchange, in negotiated
transactions, through the writing of options on the Common Stock, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Stockholders' may effect such transactions by selling Common Stock
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholders and/or the
purchasers of Common Stock for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Stockholders and any broker-dealers that act in connection with the sale of the
Common Stock might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act. The Selling Stockholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act.

Because the Selling Stockholders may each be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to prospectus delivery requirements under the
Securities Act. Furthermore, in the event of a "distribution" of its shares, the
Selling Stockholders, any selling broker or dealer and any "affiliated
purchasers" may be subject to Rule 10b-6 under the Exchange Act until its
participation in that distribution is completed.

At the time a particular offer of Selling Stockholders' Shares, made by or
on behalf of any of the Selling Stockholders, to the extent such offer
constitutes as distribution under the Securities Act, a supplement to this
Prospectus will be distributed which will set forth the type and number of
securities being offered by such Selling Stockholders and the terms of such
offering, including the name or names and addresses of any underwriters, dealers
or agents, the purchase price paid by any underwriter for securities purchased
from the Selling Stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers, and the proposed selling price to the
public.

The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the Selling Stockholders'
Shares. However, all brokerage commissions, if any, attributable to the sale of
such shares by holders thereof will be borne by such holders.

65
<PAGE>
DESCRIPTION OF SECURITIES

COMMON STOCK

The authorized capital stock of the Company includes 25,000,000 shares of
Common Stock, $.01 par value per share. The holders of Common Stock (i) have
equal ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors of the Company; (ii) are entitled
to share ratably in all of the assets of the Company available for distribution
to holders of Common Stock upon liquidation, dissolution or winding up of the
affairs of the Company; (iii) do not have preemptive, subscription or conversion
rights and there are no redemption or sinking fund provisions applicable
thereto; and (iv) are entitled to one vote per share on all matters on which
stockholders may vote at all meetings of stockholders. All shares of Common
Stock now outstanding are fully paid and non-assessable, and all shares of
Common Stock offered hereby and underlying the Warrants and Options, when
issued, will be fully paid and non-assessable.

The holders of shares of Common Stock of the Company do not have cumulative
voting rights, which means that the holders of more than 50% of such outstanding
shares, voting for the election of Directors, can elect all of the Directors to
be elected, if they so choose and in such event, the holders of the remaining
shares will not be able to elect any of the Company's Directors.

PREFERRED STOCK

The Company is authorized to issue up to 1,000,000 shares, $.01 par value,
of "blank check" Preferred Stock with such designations, rights and preferences
as may be determined from time to time by the Board of Directors. The Company
has outstanding 738,163 shares of Series B Preferred Stock which is convertible
into Common Stock and still has 261,837 shares of Preferred Stock available for
issuance. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue the remaining Preferred Stock, or any Preferred Stock which
becomes authorized but unissued after conversion into Common Stock, with
dividend, liquidation, conversion, voting or other rights that could adversely
affect the voting power or other rights of the holders of the Common Stock. Any
authorized but unissued Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. The Company has no present intention to issue any
additional shares of its Preferred Stock.

For a description of the issued and outstanding shares of Preferred Stock
see "Certain Transactions -- Bryanston" and "Certain Transactions -- BP Group."

TRANSFER AND WARRANT AGENT

The Company's transfer agent for the Common Stock and warrant agent for the
Warrants is Continental Stock Transfer & Trust Company, Two Broadway, New York,
New York 10007.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has 25,000,000 shares of Common Stock authorized, 13,478,325 of
which are issued and outstanding. In addition, 409,000 shares may be issued upon
the exercise of outstanding and currently exercisable options.

66
<PAGE>

Common Stock is quoted on NASDAQ or a national securities exchange, the average
weekly trading volume during the four calendar weeks preceding the sale. A
person who has not been an affiliate of the Company for at least three months,
after at least three years have elapsed from the sale by the Company or an
affiliate of the restricted securities, is entitled to sell such restricted
shares under Rule 144 without regard to any of the limitations described above.
The 4,654,443 shares of Common Stock are eligible for sale pursuant to Rule 144
by affiliates of the Company who are restricted as to the number of securities
they can sell during any three-month period. Possible or actual sales of such
Common Stock by stockholders of the Company under Rule 144 may have a depressive
effect upon the price of the Common Stock currently outstanding, and could also
render difficult the sales of Common Stock by investors.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Certificate of Incorporation of the Company provides that no director of
the Company shall be liable to the Company for monetary damages for breach of
fiduciary duty or care as a director except for liability for breach of the
director's duty of loyalty, for acts not in good faith, intentional misconduct
or knowing violations of law, for unlawful payment of dividends or stock
purchases or redemptions or for transactions in which the directors derived an
improper personal benefit. The By-Laws of the Company provide for the
indemnification of officers and directors to the fullest extent permitted by
Delaware law. The Company does not have directors' and officers' liability
insurance but may secure such insurance in the future.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

LEGAL MATTERS

Certain legal matters, including the legality of the issuance of the Selling
Stockholders' Shares being offered hereby, are being passed upon for the Company
by Gersten, Savage, Kaplowitz, Fredericks, & Curtin, LLP, 101 East 52nd Street,
New York, New York 10022, special counsel to the Company.

EXPERTS

The financial statements included in this Prospectus have been audited by
Rothstein, Kass & Company, P.C., independent certified public accountants,
Roseland, New Jersey, to the extent and for the periods set forth in their
reports appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.

ADDITIONAL INFORMATION

67
<PAGE>
Gathering, Analysis, and Retrieval system are publicly available through the
Commission's Web site (http:\\www.sec.gov).

68
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

Independent Auditors Report........................................ F-2
Consolidated Balance Sheets........................................ F-3
Consolidated Statements of Operations.............................. F-4
Consolidated Statements of Stockholders Equity..................... F-5
Consolidated Statements of Cash Flows.............................. F-6-7
Notes to Consolidated Financial Statements......................... F-8-23

BRYANSTON GROUP, INC.

Independent Auditors Report........................................ F-24
Statement of Income Before Taxes................................... F-25
Notes to Financial Statement....................................... F-26-27

COTTON CLUB OF GREENVILLE, INC.

Independent Auditors' Report....................................... F-28
Balance Sheets..................................................... F-29
Statements of Operations........................................... F-30
Statements of Shareholders' Deficit................................ F-31
Statements of Cash Flows........................................... F-32
Notes to Financial Statements...................................... F-33-38
</TABLE>

F-1
<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.

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.

/s/ Rothstein, Kass & Company, P.C.
- -------------------------------

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

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS

CURRENT ASSETS:
Cash, including restricted cash of $272,042 and $63,837 in
1996 and 1995, respectively............................... $ 1,360,534 $ 2,315,719 $ 1,179,605
Accounts receivable, less allowance for doubtful accounts of
$432,000, $353,708 and $35,000 in 1996, 1995 and 1994,
respectively.............................................. 220,376 702,800 1,091,594
Inventories................................................. 320,139 536,221 671,151
Prepaid insurance........................................... 306,768 1,796,132 1,044,139
Other current assets........................................ 82,955 1,349,535 380,777
--------------- --------------- ---------------
Total current assets...................................... 2,290,772 6,700,407 4,367,266
PROPERTY AND EQUIPMENT, less accumulated depreciation and
amortization of $16,226,846, $13,385,041 and $3,765,486 in
1996, 1995 and 1994, respectively............................ 40,931,796 59,254,914 40,069,549
OTHER ASSETS, deposits and other.............................. 1,624,123 818,171 1,053,490
--------------- --------------- ---------------
$ 44,846,691 $ 66,773,492 $ 45,490,305
--------------- --------------- ---------------
--------------- --------------- ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term debt........................ $ 10,573,082 $ 27,319,666 $ 10,026,377
Notes payable............................................... 2,177,714 3,815,887 880,051
Accounts payable and other accrued expenses................. 9,260,716 10,709,533 8,097,396
Accrued payroll and related liabilities..................... 3,999,458 2,848,876 2,705,197
Preferred dividend payable.................................. 535,168 -- --
Due to affiliate, current maturity.......................... 1,415,796 2,000,000
--------------- --------------- ---------------
Total current liabilities................................. 27,961,934 46,693,962 21,709,021
--------------- --------------- ---------------
LONG-TERM DEBT, less current maturities....................... 13,598,400 2,311,751 10,073,870
--------------- --------------- ---------------
DUE TO AFFILIATE, less current maturity, including accrued
interest of $503,138......................................... 503,138 15,863,999
--------------- --------------- ---------------
AMOUNT DUE UNDER REDEMPTION AGREEMENT, including accrued
interest of $235,136......................................... 1,023,780
--------------- --------------- ---------------
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, 738,163 and 625,222 issued in 1996 and 1994,
respectively.............................................. 7,382 6,252
Common stock, $.01 par value, authorized 17,000,000 shares,
13,478,325, 12,354,482 and 10,225,000 shares issued in
1996, 1995 and 1994, respectively......................... 134,782 123,544 102,250
Capital in excess of par value.............................. 57,432,153 32,779,117 27,639,250
Common stock subscribed..................................... 1,600,000
Accumulated deficit......................................... (55,814,878) (32,598,881) (14,605,248)
--------------- --------------- ---------------
Total stockholders' equity................................ 1,759,439 1,903,780 13,142,504
--------------- --------------- ---------------
$ 44,846,691 $ 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

<TABLE>
<CAPTION>
MARCH 19,
1993 (DATE
OF
NINE MONTHS INCEPTION)
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, TO
--------------------------- --------------------------- DECEMBER 31,
1996 1995 1995 1994 1993
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)

REVENUES:
Casino.............................. $ 34,813,979 $ 19,311,595 $ 26,518,657 $ 41,343,854 $ --
Food and beverage................... 852,605 862,756 1,008,940 1,713,057
Hotel management fees............... 1,489,378 2,035,114 2,863,345 2,835,234 858,500
Retail and other.................... 243,982 103,279 129,334 208,296 18,477
------------ ------------- ------------- ------------ ------------
Total revenues.................... 37,399,944 22,312,744 30,520,276 46,100,441 876,977
------------ ------------- ------------- ------------ ------------
COSTS AND EXPENSES:
Casino.............................. 13,328,639 10,321,127 15,034,903 20,994,854
Food and beverage................... 1,434,193 1,285,594 789,086 1,113,093
Hotel management costs.............. 934,070 1,091,606 1,511,786 1,710,060 633,315
Retail and other.................... 21,101 103,276
Selling, general and
administration.................... 20,323,590 11,925,757 17,610,997 21,269,076 44,894
Interest expense.................... 3,529,106 2,033,856 3,213,228 3,014,989 375,335
Depreciation and amortization....... 4,788,078 2,963,404 4,508,947 3,776,262
Pre-opening and development costs... 216,530 437,882 1,290,312 2,303,365 5,394,147
Debt conversion fee................. 1,019,369
Write-off of Lakeshore leasehold and
improvements...................... 14,507,198
Financial advisory services fees.... 1,690,000
Relocation expense.................. 412,492
Buy-out of marketing
agreement......................... 1,500,000 1,500,000
Write-off of unamortized
discount.......................... 931,057 931,057
Compensation to stockholders........ 500,000
Settlement of assumed
liabilities....................... 350,000
------------ ------------- ------------- ------------ ------------
Total costs and expenses.......... 60,080,773 32,490,283 48,513,909 54,284,975 7,297,691
------------ ------------- ------------- ------------ ------------
LOSS BEFORE DEFERRED INCOME TAX
EXPENSE (CREDIT)..................... (22,680,829) (10,177,539) (17,993,633) (8,184,534) (6,420,714)
DEFERRED INCOME TAX EXPENSE
(CREDIT)............................. 1,716,000 (1,716,000)
------------ ------------- ------------- ------------ ------------
NET LOSS.............................. $(22,680,829) $ (10,177,539) $ (17,993,633) $ (9,900,534) $(4,704,714)
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (IN THOUSANDS)........... 13,292 10,321 10,617 10,225 8,833
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
LOSS PER COMMON SHARE................. $ (1.71) $ (0.99) $ (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

<TABLE>
<CAPTION>
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)
Common stock issued for payment
of long-term debt.............. 701,017 7,010 2,446,551
Issuance of subscribed common
stock.......................... 347,826 3,478 1,596,522 (1,600,000)
Issuance of common stock on
converted long-term debt....... 75,000 750 (750)
Preferred stock issued in
settlement of long-term debt... 42,151 422 1,221,948
Preferred stock issued in
settlement of due to
affiliate...................... 660,862 6,609 19,158,391
Preferred stock issued in
settlement of debt conversion
fee............................ 35,150 351 1,019,018
Amount due under redemption
agreement...................... (788,644)
Preferred dividend accrued...... (535,168)
Net loss........................ (22,680,829)
----------- --------- ------------ --------- ------------ ----------- -------------
Balances, September 30, 1996
(unaudited).................... 738,163 $ 7,382 13,478,325 $ 134,782 $ 57,432,153 $ -- $ (55,814,878)
----------- --------- ------------ --------- ------------ ----------- -------------
----------- --------- ------------ --------- ------------ ----------- -------------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-5
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(22,680,829) $(10,177,539) $(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 advi-
sory services.................................... 1,690,000 500,000
Depreciation and amortization...................... 4,788,078 2,963,404 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................. 213,703 336,920 505,680
Amortization of deferred finance costs............. 51,867
Write-off of capitalized costs related to
Indiana.......................................... 592,414
Write-off of unamortized discount on mortgage note
payable.......................................... 931,057
Gain on sales of property and equipment............ (6,641)
Capital lease restructuring........................ (267,683)
Debt conversion fee................................ 1,019,369
Write-off of Lakeshore leasehold and
improvements..................................... 14,507,198
Bad debt expense................................... 113,685
Deferred income tax expense (credit)............... 1,716,000 (1,716,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable....... 369,132 125,116 248,368 (886,034) (240,560)
(Increase) decrease in inventories............... 216,082 (22,581) 200,799 (488,479) (182,672)
(Increase) decrease in prepaid insurance......... 1,669,853 694,476 (230,850) 968,514
(Increase) decrease in other current assets...... 902,091 (34,146) (813,736) 514,715 (750,032)
Increase (decrease) in accounts payable and other
accrued expenses............................... (913,889) 598,269 1,527,398 3,893,329 7,418,525
Increase (decrease) in accrued payroll and
related liabilities............................ 1,138,178 281,031 (186,474) 2,431,108 274,089
------------ ------------ ------------ ----------- -------------
Total adjustments.............................. 23,542,094 6,387,969 7,659,380 12,297,335 5,849,030
------------ ------------ ------------ ----------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.... 861,265 (3,789,570) (10,334,253) 2,396,801 1,144,316
------------ ------------ ------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (1,422,459) (689,897) (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 sales of property and equipment........ 23,573
Proceeds from and payments for deposits and other
assets............................................. (869,994) (204,184) 300,258 (713,039) (291,227)
------------ ------------ ------------ ----------- -------------
NET CASH USED IN INVESTING ACTIVITIES.................. (2,292,453) (870,508) (2,873,620) (3,852,690) (28,166,865)
------------ ------------ ------------ ----------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliate.............................. 3,219,935 5,560,880 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.......................... 61,538 248,181 12,279,232 29,967,521
Payments on notes payable............................ (1,250,007) (418,414) (857,399) (3,994,904)
Proceeds from long-term debt......................... 43,692 8,190,632
Payments on long-term debt........................... (1,599,155) (666,805) (10,820,974) (1,998,939) (17,445,312)
------------ ------------ ------------ ----------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 476,003 4,475,661 14,343,987 1,439,579 28,218,464
------------ ------------ ------------ ----------- -------------
NET INCREASE (DECREASE) IN CASH........................ (955,185) (184,417) 1,136,114 (16,310) 1,195,915
CASH, beginning of period.............................. 2,315,719 1,179,605 1,179,605 1,195,915 --
------------ ------------ ------------ ----------- -------------
CASH, end of period.................................... $ 1,360,534 $ 995,188 $ 2,315,719 $ 1,179,605 $ 1,195,915
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
</TABLE>

F-6
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
MARCH 19,
NINE MONTHS 1993 (DATE OF
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, INCEPTION) TO
-------------------------- ------------------------- DECEMBER 31,
1996 1995 1995 1994 1993
------------ ------------ ------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash
paid for interest during
the period............................................ $ 2,187,994 $ 617,826 $ 1,035,498 $ 1,889,212 $ 623,024
------------ ------------ ------------ ----------- -------------
------------ ------------ ------------ ----------- -------------
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND
FINANCING ACTIVITIES: 4
Capital lease restructuring, includes accrued
interest of $74,571................................ $ 267,683
------------
------------
Common stock issued for payment of long-term debt.... $ 2,453,561
------------
------------
Amount due under redemption agreement, includes
accrued interest of $235,136....................... $ 1,023,780
------------
------------
Preferred stock issued in settlement of long-term
debt, includes $41,222 of accrued interest and a
$61,119 transaction fee............................ $ 1,283,489
------------
------------
Preferred stock issued in settlement of amount due to
affiliate, includes a transaction fee of
$958,250........................................... $ 20,123,250
------------
------------
Write-off of Indiana capitalized costs............... $ 592,414
------------
------------
Write-off of unamortized discount on mortgage note
payable............................................ $ 931,057
------------
------------
Accounts payable and accrued interest capitalized to
long-term debt..................................... $ 1,708,220
------------
------------
Note payable capitalized to long-term debt........... $ 153,332
------------
------------
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.

In May 1996 (unaudited), the Company formed Alpha Monticello, Inc. ("Alpha
Monticello"), which has not commenced operations.

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:

<TABLE>
<CAPTION>
ESTIMATED
ASSETS USEFUL LIVES
- ----------------------------------------------------------------------------- ---------------
<S> <C>

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
</TABLE>

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.

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

F-8
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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 (SEE NOTE
11).

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 $2,942,000 (unaudited),
$3,514,000 and $4,884,000 for the nine months ended September 30, 1996 and the
years ended 1995 and 1994, respectively, provided gratuitously to customers. The
cost of these items of $2,621,000 (unaudited), $4,308,000 and $5,138,000 for the
nine months ended September 30, 1996 and the years ended 1995 and 1994,
respectively, are included in casino 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 7).

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 September 30, 1996 (unaudited) and December 31,
1995.

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 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.

F-9
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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.

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 (CONTINUED)

NOTE 3 -- BUSINESS COMBINATION (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Total revenues................................................... $ 55,927 $ 83,432
------------ ------------
------------ ------------
Net loss......................................................... $ (18,518) $ (8,561)
------------ ------------
------------ ------------
Loss per common share............................................ $ (1.64) $ (.78)
------------ ------------
------------ ------------
</TABLE>

The unaudited pro forma results are not necessarily indicative of what
actually would have occurred if the CCG acquisition 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 opportunities 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 September 30, 1996 (unaudited) and
December 31, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
(UNAUDITED)

Land and building................................................. $ 214,068 $ 214,068 $ --
Boat, barge and improvements...................................... 23,892,149 23,589,464 16,300,132
Leasehold and improvements........................................ 14,540,588 30,000,654 14,026,624
Gaming equipment.................................................. 10,218,186 10,041,722 6,572,884
Furniture, fixtures and equipment................................. 7,421,662 7,264,414 5,375,674
Transportation equipment.......................................... 834,771 1,034,461 547,514
Construction in progress.......................................... 37,218 495,172 1,012,207
-------------- -------------- -------------
57,158,642 72,639,955 43,835,035
Less accumulated depreciation and amortization.................... (16,226,846) (13,385,041) (3,765,486)
-------------- -------------- -------------
$ 40,931,796 $ 59,254,914 $ 40,069,549
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>

Included in equipment was approximately $1,223,000 at September 30, 1996
(unaudited), and December 31, 1995 and 1994 was approximately $1,319,000,
related to assets recorded under capital leases. Included in accumulated
depreciation and amortization at September 30, 1996 (unaudited) and December 31,
1995 and 1994 was approximately $461,000, $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.

In accordance with its policy on impaired long-lived assets, effective June
30, 1996 (unaudited), the Company recorded an impairment loss of approximately
$14,507,000, representing the leasehold and

F-11
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4 -- PROPERTY AND EQUIPMENT (CONTINUED)

improvements from the Company's Lakeshore casino of approximately $16,284,000
and accumulated amortization of approximately $1,777,000.

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 September 30, 1996 (unaudited) and December 31, 1995 and
1994 are comprised of the following:

<TABLE>
<CAPTION>
INTEREST
RATE 1996 1995 1994
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
(UNAUDITED)

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 guaranteed by an affiliate........... Prime + 2% 144,699 685,719
Notes payable to Byranston (purchased and assigned from
former CCG stockholders (SEE NOTE 3))..................... 10% 1,896,510 3,293,020
Revolving line of credit of $500,000, with payments of
principal and interest due December 2, 1996,
collateralized by cash advances........................... 261,754 200,215
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 19,450 21,936 41,000
------------ ------------ ----------
$ 2,177,714 $ 3,815,887 $ 880,051
------------ ------------ ----------
------------ ------------ ----------
</TABLE>

On August 30, 1996 (unaudited), the Company extended its $500,000 revolving
line of credit through December 2, 1996.

At September 30, 1996 (unaudited), the Company was in default of its note
payable to Bryanston. The Company received a waiver of the default through
December 31, 1997.

F-12
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- LONG-TERM DEBT

Long-term debt at September 30, 1996 (unaudited) and December 31, 1995 and
1994 is comprised of the following:

<TABLE>
<CAPTION>
INTEREST
RATE 1996 1995 1994
--------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)

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 $ 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% 3,656,272 3,736,383
Equipment notes payable monthly through November 1999 and
collateralized by certain assets........................ 11-14% 9,739,910 13,431,813 9,282,986
Capitalized lease obligations, payable monthly, expiring
in various years
through 2001............................................ 10-15% 418,187 924,764 1,106,225
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% 2,473,826 3,654,973 2,914,333
Line of credit of $49,217, principal and interest due
monthly through April 1999, collateralized by certain
equipment............................................... 10.75% 37,200
Bank notes, payable monthly through 1997, collateralized
by certain equipment.................................... 8-10% 46,087 83,484 74,795
------------- ------------- -------------
24,171,482 29,631,417 20,100,247
Less current portion..................................... 10,573,082 27,319,666 10,026,377
------------- ------------- -------------
$ 13,598,400 $ 2,311,751 $ 10,073,870
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

F-13
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- LONG-TERM DEBT (CONTINUED)

Aggregate future required principal payments are approximately as follows:

<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1996.......................................................... $27,320,000
1997.......................................................... 210,000
1998.......................................................... 189,000
1999.......................................................... 206,000
2000.......................................................... 226,000
Thereafter.................................................... 1,480,000
-----------
$29,631,000
-----------
-----------
</TABLE>

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 the
agreement, Bryanston also acquired 96,429 shares of common stock owned by HFS
(NOTE 14).

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
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 approximately $26,000, which includes interest at
11.5% per annum, commencing November 24, 1995.

Effective April 12, 1996 (unaudited), the Company restructured its capital
sign lease of approximately $745,000 with an unrelated party. The terms of the
restructure reduce the lease principal amount of $475,000 and forgive
approximately $74,000 of accrued interest. The effective interest rate of the
restructured lease is 10% per annum, with a four-year term.

Effective June 26, 1996 (unaudited), the Company issued 44,258 shares of its
preferred stock in settlement of a certain loan payable of approximately
$1,181,000, accrued interest of approximately $41,000 and a five percent
transaction fee of approximately $61,000.

At September 30, 1996 (unaudited), the Company was in default of (i) its
mortgage notes payable aggregating approximately $11,456,000 for non-payment,
(ii) the equipment notes relating to the Jubilation Casino aggregating
approximately $3,433,000 for the breach of several loan covenants and (iii) a
loan payable to Bryanston of approximately $2,474,000 for non-payment. The
Company received a waiver of the defaults of the loan payable and the $7,800,000
mortgage note payable to Bryanston through December 31, 1997. Accordingly, the
mortgage note payable in the amount of $3,656,000 and the equipment notes

F-14
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- LONG-TERM DEBT (CONTINUED)

payable ($3,433,000), relating to the Jubilation Casino, are reflected in
current liabilities at September 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
$13,432,000 for the breach of several loan covenants (iii) a capital lease of
approximately $745,000 for non-payment and certain loans payable aggregating
approximately $3,655,000 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 ($11,356,000), equipment notes payable
($13,432,000), capital lease ($745,000) and a certain loan payable ($1,181,000)
were reflected in current liabilities at December 31, 1996.

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.

NOTE 8 -- ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES

At September 30, 1996 (unaudited) and December 31, 1995 and 1994, accounts
payable and other accrued expenses are comprised of the following:

<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Construction.......................................................... $ 1,345,000 $ 1,218,000 $ 1,498,000
Insurance financing................................................... 30,000 1,585,000 984,000
Accrued professional fees............................................. 760,000 851,000 375,000
Accrued property taxes................................................ 809,000 843,000 200,000
Accrued interest...................................................... 1,977,000 974,000 561,000
Other................................................................. 4,339,000 5,239,000 4,479,000
------------ ------------- ------------
$ 9,260,000 $ 10,710,000 $ 8,097,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>

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 15 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.

F-15
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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
with Bryanston. Effective June 26, 1996 (unaudited), the Company issued 693,905
shares of its preferred stock in partial settlement of $19,165,000 of its note
and a five percent transaction fee of $958,250. The outstanding principal
balance at September 30, 1996 (unaudited) and December 31, 1995 is $1,415,796
and $17,360,861, respectively. The note, which bears interest at prime rate
(8.25% at September 30, 1996 (unaudited)) plus 2%, is payable at the lesser of
the outstanding principal amount or $2,000,000, per annum through December 31,
1999. Beginning 1996, accrued interest is due and payable by the end of the
following month. All remaining principal and accrued interest (approximately
$503,000) shall be due on December 31, 2000. Additionally, commencing May 1,
1996 and for each of the next succeeding three years thereafter, the Company is
required to make additional principal payments equal to "Available Cash Flow of
Maker" as defined in the note.

At September 30, 1996 (unaudited), the Company was in default of the
non-revolving promissory note with Bryanston for failure to make the required
monthly interest payments. The Company received a waiver of the default through
December 31, 1997.

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 the nine months ended September 30, 1996
and the years ended 1995 and 1994 and the period March 19, 1993 (date of
inception) to December 31, 1993 approximated $523,000 (unaudited), $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

F-16
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Effective June 1, 1996 (unaudited), the charter and lease agreement for the
vessel was terminated, as agreed upon by both parties.

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

<TABLE>
<S> <C>
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
--------------
--------------
</TABLE>

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.

In July 1996 (unaudited), the Company closed its Lakeshore casino and
surrendered its casino license for that location. Failure to retain the
Greenville license could have a material adverse effect on the Company's
operations.

F-17
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 declaratory 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.

As of September 30, 1996 (unaudited), a settlement has been reached between
the Plaintiff and the Company's insurance carrier, in the amount of $5,125,000
with respect to all issues relating to the underlying personal liability action.
The principal insurance carrier which has paid the settlement has asserted a
declaratory judgment action that Alpha Gulf has an obligation to reimburse it
for payment of the settlement amount, which dispute is being litigated.
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 had brought a declaratory judgment action against the
insurance carrier seeking a determination of the carrier's liability under the
Company's insurance policies. Subsequently, the primary insurance carrier
initiated a declaratory judgment action against Alpha Gulf and the Company
(Commerce & Industry Company vs. 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 entitled to
reimbursement from Alpha Gulf Coast, Inc. and the Company. The Company has been
dismissed from this litigation and the declaratory judgment action instituted by
Plaintiff was dismissed in June 1996.

In January 1996 (unaudited), 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.; Dyere vs Alpha Gulf Coast, Inc., Dyers 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 allegedly served alcoholic beverages by the Company. Plaintiffs alleged

F-18
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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.

In August 1996 (unaudited), Alpha Gulf was named as a defendant in an action
brought in the United States District Court for the Southern District of
Mississippi (Joseph R. Cure, Jr., Cynthia Cure Rutherford, Michael Cure and
Susan Cure Gollot vs. Alpha Gulf Coast, Inc.) for alleged past due and future
accelerated rentals and other costs under an operating lease relative to real
property located in Lakeshore, Mississippi. Plaintiffs seek past due rentals of
approximately $967,000 and future rentals of $800,000 annually through March 31,
2000 and $950,000 annually through July 31, 2011. The consolidated financial
statements include a provision for the liability on past due rents of $627,000
at September 30, 1996. The ultimate outcome of this litigation cannot presently
be determined as this case is in the early phases of discovery. Accordingly, no
provision for liability to the Company, except as mentioned above, that may
result upon adjudication has been made in the accompanying consolidated
financial statements.

In September 1996 (unaudited), the Company and Alpha Gulf were named as
defendants in an action brought in the Circuit Court of Hancock County,
Mississippi (Durward Dunn, Inc. vs. Alpha Hospitality Corporation; Durward Dunn,
Inc. vs. Alpha Gulf Coast, Inc.) for alleged failure to make payments pursuant
to a construction contract. Plaintiff seeks actual and compensatory damages of
approximately $1,200,000. The consolidated financial statements include a
provision for the liability of $928,000 for this contract at September 30, 1996.
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, except as mentioned above, that may result upon
adjudication has been made in the accompanying consolidated financial
statements.

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.

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

F-19
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 -- COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)
to the Company's consolidated financial statements and, therefore, pro forma
information is not provided (Note 16).

Effective May 1, 1996 (unaudited), the Company terminated its stock
acquisition agreement with Doc Holliday.

NOTE 10 -- AMOUNT DUE UNDER REDEMPTION AGREEMENT (UNAUDITED):

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 approximately $166,000, which includes interest of
10% per annum, commencing December 15, 1995. The balance of approximately
$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 701,000 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.

As of March 1996 (unaudited), the shares were issued and transferred into
escrow and the related debt was reclassified to stockholders' equity.
Stockholders' equity is adjusted for changes in the market value of the
underlying common stock, not to exceed the original debt incurred until the
common stock is sold by the unrelated party.

At September 30, 1996 (unaudited), the amount due under the redemption
agreement is $1,023,780, which includes $235,136 of accrued interest, resulting
from the decrease in the fair market value of the stock at September 30, 1996
($2.375) and the price at the date of the agreement ($3.50).

NOTE 11 -- 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 approximately
$1,136,000. Included in compensation and related expenses in 1993 is $500,000
relating to this transaction. In addition, the Company sold to Bryanston
3,564,987 shares of its common stock at approximately $.18 per share plus the
rights to provide management services pursuant to the Service Agreement (NOTE
9). The rights under the Service Agreement are recorded at Bryanston's cost,
which is zero.

The Company issued 175,000 shares of its common stock in payment of the
brokerage commission related to the purchase of the leasehold interest (NOTE 5).
Included in other expenses in 1993 is $40,000 which is the amount 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-qualified stock options (NQSO's). The Company has reserved 900,000 shares of
common stock for issuance upon the exercise of options to be granted under the
plan. The exercise price of an ISO or NQSO will not be less than 100% of the
fair market value of the Company's common stock at the date of the grant. The
Company granted options to purchase an aggregate

F-20
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 -- STOCKHOLDERS' EQUITY (CONTINUED)
of 384,500 shares of common stock at an exercise price of $3.25 through December
31, 1995. In addition, effective December 8, 1993, the Company granted options
to purchase an aggregate of 24,000 shares of common stock at an exercise price
of $11.50. The maximum term of each option granted under the plan is ten years,
however, options granted to an employee owning greater then 10% of the Company's
common stock will have a maximum term of five years. No options under this plan
were exercised in 1996 (unaudited), 1995, 1994 and 1993.

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.

In 1996 (unaudited), the Company issued the 347,826 shares to Bryanston for
services provided to the Company in the acquisition of the CCG.

In 1996 (unaudited), the Company issued 701,017 shares, to be held in
escrow, related to certain restructured equipment notes (SEE NOTE 10).

Effective June 26, 1996 (unaudited), the Company issued 693,905 and 44,258
shares, respectively, of its preferred stock, in settlement of $19,165,000 and
$1,222,370, respectively, of its 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 $1,020,000, which was also converted into
shares of the Company's preferred stock. The conversion rate as 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 $2.90 per share,
payable quarterly, which increases to $3.77 per

F-21
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11 -- STOCKHOLDERS' EQUITY (CONTINUED)

share if the cash dividend is not paid within 30 days of the end of each fiscal
year. In such event, the dividend will be payable in common stock.

NOTE 12 -- 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 September 30, 1996 and 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>
<CAPTION>
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
(UNAUDITED)

Pre-opening costs currently deducted for financial reporting and amortized over
5 years for tax purposes...................................................... $ 1,805 $ 1,788 $ 2,238
Net operating loss carryforward................................................ 19,791 11,524 3,368
Differences between financial and tax depreciation methods..................... (1,862) (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.......... 1,795 1,737 573
Interest capitalized for financial reporting and expensed for tax purposes..... (213) (224) (234)
Other.......................................................................... (23) (77)
----------- ---------- ---------
Deferred tax asset............................................................. 21,293 12,671 5,392
Valuation allowance on deferred tax asset...................................... (21,293) (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.

At September 30, 1996 (unaudited), the Company has available for federal
income tax purposes, a net operating loss carryover of approximately $56,546,000
of which $883,000, $7,407,000, $24,637,000 and $23,619,000 will expire in the
years 2008, 2009, 2010 and 2011, respectively.

NOTE 13 -- 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, casino revenue includes casino,
food and beverage, and retail and other revenue and casino expenses include
casino, food and beverage, retail and other, selling, general and
administrative, depreciation and financial advisory services fees. Identifiable
assets by business segment are those assets used in Company operations

F-22
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 -- SEGMENT INFORMATION (CONTINUED)
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.

<TABLE>
<CAPTION>
HOTEL
CASINO MANAGEMENT
---------- -------------
<S> <C> <C>
(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.................................................. (3,991) 1,125
Identifiable assets............................................... 44,812 678
Depreciation and amortization..................................... 3,776 --
Capital expenditures.............................................. 3,140 --

1995:
Total revenue..................................................... $ 27,657 $ 2,863(4)
Operating profit (loss)........................................... (11,998) 1,351
Identifiable assets............................................... 66,353 420
Depreciation and amortization..................................... 4,509 --
Capital expenditures.............................................. 23,680 -- (5)
</TABLE>

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

(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.

(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 14 -- 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

F-23
<PAGE>
ALPHA HOSPITALITY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14 -- MANDATORILY REDEEMABLE COMMON STOCK (CONTINUED)
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 15 -- 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 $25,671,162 (unaudited) and
$39,993,555 and an accumulated deficit of $55,814,878 (unaudited) and
$32,598,881 at September 30, 1996 and December 31, 1995, respectively.

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 16 -- SUBSEQUENT EVENT

As of September 30, 1996, Bryanston has advanced approximately $3,500,000 to
the Company pursuant to a non-revolving promissory note effective January 5,
1995 (NOTE 9).

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.

/s/ Rothstein, Kass & Company, P.C.

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

<TABLE>
<S> <C> <C>
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
---------
---------
</TABLE>

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:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
ASSET LIVES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Computer equipment............................................................... 5 Years
Furniture and fixtures........................................................... 7 Years
Leasehold improvements........................................................... 12 Years
</TABLE>

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

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.

F-27
<PAGE>
BRYANSTON GROUP, INC.

F/K/A BUCKHEAD HOTEL MANAGEMENT COMPANY, INC.

HOTEL MANAGEMENT DIVISION

NOTES TO FINANCIAL STATEMENT (CONTINUED)

NOTE 3 -- MANAGEMENT CONTRACTS AND CONTINGENCIES (CONTINUED)
At August 31, 1993, the contracts, excluding extension options contained in
certain agreements, expire as follows:

<TABLE>
<CAPTION>
ESTIMATED
PERCENTAGE
NUMBER OF OF ANNUAL
CONTRACTS TERM REMAINING FEE REVENUES
- --------------- ---------------- -----------------
<C> <S> <C>
15 1-5 Years 54%
3 6-10 Years 6%
3 Over 10 Years 40%
</TABLE>

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.

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-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Cotton Club of Greenville, Inc.

We have audited the accompanying balance sheets of Cotton Club of
Greenville, Inc. as of May 31, 1995 and December 31, 1994 and 1993, and the
related statements of operations, shareholders' deficit, and cash flows for the
five month period ended May 31, 1995, for the year ended December 31, 1994, and
for the period from December 21, 1992 (inception) through December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cotton Club of Greenville,
Inc. at May 31, 1995 and December 31, 1994 and 1993, and the results of its
operations and its cash flows for the five month period ended May 31, 1995, for
the year ended December 31, 1994, and for the period from December 21, 1992
(inception) through December 31, 1993, in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that
Cotton Club of Greenville, Inc. will continue as a going concern. As more fully
described in Note 2, the Company's working capital deficiency raises substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.

/s/ Ernst & Young LLP

New Orleans, Louisiana
July 7, 1995

F-29
<PAGE>
COTTON CLUB OF GREENVILLE, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
MAY 31 --------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 572 $ 831 $ 1,728
Restricted cash................................................................ 101 -- --
Inventories.................................................................... 94 58 69
Prepaid expenses............................................................... 448 574 360
Other current assets........................................................... 2 10 47
--------- --------- ---------
Total current assets....................................................... 1,217 1,473 2,204
PROPERTY AND EQUIPMENT:
Land........................................................................... 140 140 140
Parking lot improvements....................................................... 1,379 1,379 1,350
Riverboat and related improvements............................................. 12,420 12,168 11,037
Gaming equipment............................................................... 5,269 5,220 3,863
Furniture and fixtures......................................................... 2,204 2,105 1,686
Vehicles....................................................................... 517 543 493
--------- --------- ---------
21,929 21,555 18,569
Less accumulated depreciation................................................ 3,921 2,716 193
--------- --------- ---------
18,008 18,839 18,376
--------- --------- ---------
OTHER ASSETS:
Land deposits.................................................................. 220 174 50
Deposits....................................................................... 267 265 512
Deferred licensing costs, net of accumulated amortization of $79,000 at May 31,
1995 and $60,000 at December 31, 1994........................................ 36 55 115
--------- --------- ---------
523 494 677
--------- --------- ---------
$ 19,748 $ 20,806 $ 21,257
--------- --------- ---------
--------- --------- ---------

LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable............................................................... $ 1,808 $ 2,213 $ 2,703
Conversion contract payable.................................................... -- -- 1,268
Accrued expenses............................................................... 1,586 1,838 965
Current portion of accrued interest to related parties......................... 1,289 130 230
Current portion of notes payable to related parties............................ 7,892 130 5,378
Current portion of long-term debt.............................................. 3,404 2,454 4,040
--------- --------- ---------
Total current liabilities.................................................. 15,979 6,765 14,584
Accrued expenses................................................................. 20 -- --
Accrued interest to related parties, less current portion........................ -- 701 --
Notes payable to related parties, less current portion........................... 256 7,972 2,000
Long-term debt, less current portion............................................. 5,604 6,939 7,070
--------- --------- ---------
5,880 15,612 9,070
--------- --------- ---------
SHAREHOLDERS' DEFICIT:
Common stock, no par value, authorized, issued and outstanding 10,000 shares... 2,000 2,000 2,000
Accumulated deficit............................................................ (4,100) (3,484) (4,310)
--------- --------- ---------
(2,100) (1,484) (2,310)
Note receivable from shareholder............................................... (11) (87) (87)
--------- --------- ---------
Total shareholders' deficit................................................ (2,111) (1,571) (2,397)
--------- --------- ---------
Total liabilities and shareholders' deficit.............................. $ 19,748 $ 20,806 $ 21,257
--------- --------- ---------
--------- --------- ---------
</TABLE>

SEE ACCOMPANYING NOTES

F-30
<PAGE>
COTTON CLUB OF GREENVILLE, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 21,
1992
FIVE MONTH (INCEPTION)
PERIOD ENDED YEAR ENDED THROUGH
MAY 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
(IN THOUSANDS)

REVENUE:
Casino.............................................................. $ 12,258 $ 37,332 $ 2,076
Food and beverage................................................... 1,158 3,110 262
Other............................................................... 24 350 382
------------ ------------ ------------
13,440 40,792 2,720
Less promotional allowances......................................... 878 3,060 456
------------ ------------ ------------
12,562 37,732 2,264
------------ ------------ ------------
COSTS AND EXPENSES:
Casino.............................................................. 5,033 14,012 1,057
Food and beverage................................................... 360 1,434 165
Other operating expenses............................................ 1,172 4,029 448
Selling, general and administrative................................. 4,415 12,360 1,055
Depreciation........................................................ 1,211 2,527 193
Preopening costs.................................................... -- -- 3,432
------------ ------------ ------------
12,191 34,362 6,350
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS......................................... 371 3,370 (4,086)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income..................................................... 3 10 8
Interest expense, net of capitalized interest of $304,000 in 1993... (990) (1,729) (232)
Loss on restaurant advances......................................... -- (600) --
------------ ------------ ------------
(987) (2,319) (224)
------------ ------------ ------------
NET INCOME (LOSS)..................................................... $ (616) $ 1,051 $ (4,310)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES

F-31
<PAGE>
COTTON CLUB OF GREENVILLE, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
NOTE
RECEIVABLE
COMMON ACCUMULATED FROM
STOCK DEFICIT SHAREHOLDER TOTAL
----------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)

Issuance of 10,000 shares of common stock at $200 per share...... $ 2,000 $ -- $ -- $ 2,000
Note receivable from shareholder for purchase of common stock.... -- -- (87) (87)
Net loss from December 21, 1992 through December 31, 1993........ -- (4,310) -- (4,310)
----------- ------------ --- ---------
BALANCE AT DECEMBER 31, 1993..................................... 2,000 (4,310) (87) (2,397)
Net income....................................................... -- 1,051 -- 1,051
Cash dividends................................................... -- (225) -- (225)
----------- ------------ --- ---------
BALANCE AT DECEMBER 31, 1994..................................... 2,000 (3,484) (87) (1,571)
Net loss......................................................... -- (616) -- (616)
Payments on note receivable...................................... -- -- 76 76
----------- ------------ --- ---------
BALANCE AT MAY 31, 1995.......................................... $ 2,000 $ (4,100) $ (11) $ (2,111)
----------- ------------ --- ---------
----------- ------------ --- ---------
</TABLE>

SEE ACCOMPANYING NOTES

F-32
<PAGE>
COTTON CLUB OF GREENVILLE, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 21,
1992
FIVE MONTH (INCEPTION)
PERIOD ENDED YEAR ENDED THROUGH
MAY 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
(IN THOUSANDS)

CASH FLOWS FROM OPERATION ACTIVITIES:
Net income (loss)................................................... $ (616) $ 1,051 $ (4,310)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..................................... 1,270 2,652 193
Loss on disposal of fixed assets.................................. -- 3 --
Changes in operating assets and liabilities:
Inventories..................................................... (36) 11 (69)
Prepaid expenses................................................ (199) 92 (109)
Other current assets............................................ 8 37 (47)
Deposits........................................................ (2) 297 (512)
Other assets.................................................... -- -- (115)
Accounts payable................................................ (157) 351 1,709
Accrued expenses................................................ (83) 591 714
Accrued interest, related parties............................... 458 601 230
------ ------------ ------------
Net cash provided by (used in) operating activities................... 643 5,686 (2,316)
------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................. (139) (3,883) (14,454)
Land deposits....................................................... (46) (174) (50)
------ ------------ ------------
Net cash used in investing activities................................. (185) (4,057) (14,504)
------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.............................. -- -- 1,913
Proceeds from long-term debt........................................ -- 606 11,635
Proceeds from notes payable to related parties...................... 216 1,075 9,249
Payments of long-term debt.......................................... (757) (3,630) (2,378)
Payments of notes payable to related parties........................ (151) (352) (1,871)
Dividend paid to shareholder........................................ -- (225) --
Proceeds from payment of note receivable from shareholder........... 76 -- --
Restricted cash..................................................... (101) -- --
------ ------------ ------------
Net cash provided by (used in) financing activities................... (717) (2,526) 18,548
------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (259) (897) 1,728
CASH AND CASH EQUIVALENTS, beginning of period........................ 831 1,728 --
------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 572 $ 831 $ 1,728
------ ------------ ------------
------ ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES

F-33
<PAGE>
COTTON CLUB OF GREENVILLE, INC.

NOTES TO FINANCIAL STATEMENTS

MAY 31, 1995

NOTE 1--ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS--Cotton Club of Greenville, Inc. (the "Company") was
organized on December 21, 1992 and commenced operations in December 1993. The
Company owns and operates a dock-side gaming, restaurant and lounge facility
located on the Mississippi River in Greenville, Mississippi known as the Cotton
Club Casino.

CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with original maturities of three months or less when purchased to
be cash equivalents.

INVENTORIES--Inventories, which consist principally of food, beverage and
operating supplies, are stated at the lower of cost or market using the
first-in, first-out method.

PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed on a straight-line basis over the following estimated
useful lives:

<TABLE>
<S> <C>
15-30
Parking lost improvements....................................... years
Riverboat and related improvements.............................. 10 years
Gaming equipment................................................ 5 years
Furniture and fixtures.......................................... 7 years
Vehicles........................................................ 5 years
</TABLE>

INCOME TAXES--The Company has elected "S" Corporation status under the
provisions of the Internal Revenue Code; accordingly, the Company's taxable
income (loss) is included in the federal income tax returns of its shareholders.
"S" Corporation status is also applicable to the Mississippi jurisdiction where
the Company operates.

DEFERRED LICENSING COSTS--Deferred licensing costs include costs incurred to
obtain the Company's initial Mississippi gaming license. These costs are being
amortized using the straight-line method over a two-year period.

REVENUE RECOGNITION--The Company recognizes as casino revenue the net win
from gaming activities, which is the difference between gaming wins and losses.

PROMOTIONAL ALLOWANCES--Promotional allowances consist of food and beverage
furnished gratuitously to customers. The retail value of such goods and services
are included in the respective revenue classifications and then deducted as
promotional allowances. The estimated costs of providing such promotional
allowances of approximately $758,000 for the five month period ended May 31,
1995 and $818,000 in 1994 are included in casino expenses.

PREOPENING COSTS--Operating costs and expenses incurred prior to the opening
of the gaming facility were capitalized as preopening costs. These costs were
charged to expense at the commencement of operations in December 1993.

RECLASSIFICATION--Certain amounts in 1993 and 1994 have been reclassified to
conform to the May 31, 1995 presentation.

NOTE 2--BASIS OF PRESENTATION

The Company's working capital deficiency of approximately $14,762,000
includes approximately $9,181,000 of obligations to related parties. The
Company's current financial resources are insufficient to repay these
obligations. As a result, substantial doubt exists as to whether the Company
will be able to

F-34
<PAGE>
COTTON CLUB OF GREENVILLE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1995

NOTE 2--BASIS OF PRESENTATION (CONTINUED)
generate sufficient cash flow from operations to repay these obligations without
restructuring or obtaining substantial additional financing. There can be no
assurance that the Company will be able to restructure these obligations or
obtain substantial additional financing on terms favorable to the Company. The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern; however, the uncertainty related to the matters
described above raises substantial doubt about the Company's ability to continue
as a going concern.

The Company has entered into a letter of intent with an unrelated entity for
the proposed sale of the Company in 1995. See Note 7 for information related to
the proposed sale transaction. Management's intentions are to repay these
obligations from the proceeds obtained from the planned sale of the Company.
However, there can be no assurance that the proposed sale of the Company can be
successfully accomplished on terms acceptable to the Company.

F-35
<PAGE>
COTTON CLUB OF GREENVILLE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1995

NOTE 3--LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31
MAY 31 --------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
9.58% note (30-day commercial paper rate plus 3.5%, adjusted quarterly),
payable in monthly installments of $70,000 plus interest, funded by
weekly deposits of $25,000 into a restricted cash account commencing
May 8, 1995, collateralized by first preferred ship mortgage on the
gaming vessel, net of unamortized loan fees of $61,000 in 1995,
$64,000 in 1994 and $80,000 in 1993................................... $ 4,169,000 $ 4,336,000 $ 5,420,000
12.68% note, payable in monthly installments, including interest, of
$90,000, collateralized by certain gaming equipment................... 1,832,000 1,966,000 2,453,000
13.52% note, payable in monthly installments, including interest, of
$77,000, collateralized by first preferred ship mortgage on barge, net
of unamortized loan fees of $37,000 in 1994 and $86,000 in 1993....... 1,391,000 1,476,000 1,861,000
12.68% note, payable in monthly installments, including interest, of
$46,000, collateralized by slot machines.............................. 1,182,000 1,243,000 -
10.25% note (prime plus 1.75%), payable in monthly installments,
including interest, of $17,000, with a final payment of remaining
principal and interest due July 1995, collateralized by vehicles...... 268,000 342,000 -
9% unsecured note, payable in monthly installments, including interest,
of $29,000............................................................ 158,000 -- -
8% note (prime plus 2%), $250,000 due on demand with remaining principal
and interest due April 1994, collateralized by restricted cash of
$255,000.............................................................. -- -- 500,000
13.5% note (prime plus 5%), payable in monthly principal payments of
$22,000 with a final payment of remaining principal and interest due
December 1994, collateralized by certain gaming equipment............. -- 22,000 325,000
8% note, payable in monthly installments of $100 including interest,
collateralized by certain property.................................... 8,000 8,000 8,000
10% note, due January 1994, collateralized by parking lot
improvements.......................................................... -- -- 293,000
8.75% note (prime plus 2.75%), due July 1994, collateralized by
vehicles.............................................................. -- -- 200,000
12% note, payable in monthly installments of $17,000 including interest,
unsecured............................................................. -- -- 50,000
------------ ------------ ------------
9,008,000 9,393,000 11,110,000
Less current portion.................................................... 3,404,000 2,454,000 4,040,000
------------ ------------ ------------
$ 5,604,000 $ 6,939,000 $ 7,070,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-36
<PAGE>
COTTON CLUB OF GREENVILLE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1995

NOTE 3--LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt for the twelve month periods following May 31,
1995 are as follows:

<TABLE>
<S> <C>
1996.................................................... $3,404,000
1997.................................................... 2,794,000
1998.................................................... 1,112,000
1999.................................................... 847,000
2000.................................................... 847,000
Thereafter.............................................. 4,000
---------
$9,008,000
---------
---------
</TABLE>

See Note 4 for information regarding notes payable.

NOTE 4--RELATED PARTY TRANSACTIONS

The capitalization of the Company consists of 10,000 shares of authorized
common stock issued to the shareholder at an agreed upon purchase price of
$2,000,000. A note receivable in the amount of $87,000 was given to the Company
by the shareholder in February 1993 for the balance due on such purchase. The
note has been offset against shareholders' equity to reflect total consideration
paid of $1,913,000. The note receivable is unsecured and bears annual interest
at 8%.

In February 1993, an agreement (the "Option Agreement") was entered into
between the original shareholder and a group of individuals (the "Optionees")
whereby the original shareholder received $1,653,000 in return for certain stock
options granted to the Optionees. The terms of the Option Agreement grant the
Optionees the right to acquire from the shareholder a portion of his common
stock in the Company, contingent upon certain factors which include compliance
with any law, rule or regulation imposed or enforced by the Mississippi Gaming
commission which are applicable to owners of securities issued by an entity
which holds a state gaming license. If all the Optionees fully exercise their
rights under the terms of the Option Agreement, the shareholder will retain a
13% ownership interest in the Company with the remaining 87% held by the
Optionees, with no one Optionee owning more than 18%. In March 1995, all but one
of the Optionees exercised their options.

In conjunction with the execution of the Option Agreement, certain Optionees
advanced to the Company cash of $2,000,000 in 1993 in return for unsecured
subordinated promissory notes which originally bore an annual interest rate of
8.5%. The terms of these notes provide for an escalated interest rate of 12.5%
in the event the notes were not paid on the original maturity date of January
15, 1995. Additional cash advances of $250,000 were made during 1994 in return
for unsecured subordinated promissory notes which bear an annual interest rate
of 8.5% and mature in December 1995. In March 1995, additional cash advances of
$142,000 were received from certain Optionees, in return for unsecured
subordinated promissory notes which bear an annual interest rate of 10% and
mature in March 1996. While the terms of these notes provide for the payment of
accrued interest on July 15 and January 15 of each year, no interest has been
paid to date and the Optionees have agreed not to demand repayment of any
principal prior to January 1996 and certain Optionees have agreed not to demand
repayment of the interest accrued thereon prior to January 1996.

Further, as a condition precedent to the Option Agreement, the original
shareholder and each of the Optionees agreed to guarantee the repayment of one
or more loans by institutional lenders to the

F-37
<PAGE>
COTTON CLUB OF GREENVILLE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1995

NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED)
Company up to an aggregate principal sum of $4,000,000. As of May 31, 1995 and
December 31, 1994 and 1993, loans totaling $2,530,000 have been guaranteed by
the Optionees.

During 1995, the original shareholder advanced a total of $74,000 in
exchange for one unsecured subordinated promissory note bearing an annual
interest rate of 10%. During 1995, the original shareholder advanced a total of
$825,000 in exchange for one note in the amount of $400,000, secured by certain
real property, bearing an annual interest rate of 10% and payable in monthly
principal payments of $10,000 plus interest, and various other unsecured
promissory notes, each bearing an annual interest rate of 8% with interest and
principal due on various dates in 1995. During 1993, the original shareholder
advanced to the Company $7,245,000 in exchange for various unsecured promissory
notes, each bearing an annual interest rate of 8% with interest and principal
due in August 1996. In 1995, 1994 and 1993, $145,000, $352,000 and $1,871,000,
respectively, of principal and $10,000 of interest had been paid to the
shareholder. Included in the 1995 principal payments is the book value of a
vehicle in the amount of $19,000, the title of which was transferred to the
shareholder. Further, with respect to the various unsecured promissory notes,
the shareholder has agreed not to demand repayment of any principal or interest
accrued thereon prior to January 1996.

The balance of unpaid principal and interest due the shareholder and
optionees is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
MAY 31, 1995 1994 1993
-------------------- -------------------- --------------------
ACCRUED ACCRUED ACCRUED
PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Notes payable to shareholder...... $5,781,000 $ 685,000 $5,852,000 $ 492,000 $5,378,000 $ 75,000
Notes payable to optionees........ 2,367,000 604,000 2,250,000 339,000 2,000,000 155,000
Less current portion.............. 7,892,000 1,289,000 130,000 130,000 5,378,000 230,000
--------- --------- --------- --------- --------- ---------
Noncurrent........................ $ 256,000 $ -- $7,972,000 $ 701,000 $2,000,000 $ --
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>

In March 1994, management began operating an adjacent restaurant facility
owned by an affiliated entity. During 1994, the Company has included in casino
expense in the statements of operations $368,000 paid to this entity for food
and beverage services. Additionally, net advances totaling $750,000 were
provided to this entity to meet working capital needs during 1994. In September
1994, this entity ceased its operations and transferred certain leasehold
improvements and furniture with a net book value of $90,000 and $60,000,
respectively, to the Company as partial repayment of these advances. In 1994,
the remaining unpaid balance of $600,000 was classified in the accompanying
statements of operations as loss on restaurant advances.

The Company advanced $46,000 in 1995, $124,000 in 1994 and $50,000 in 1993
to an affiliated company formed for the acquisition of certain real property
considered to be competitively beneficial to the Company. The uncollected
balance of these unsecured, noninterest-bearing advances was $220,000 at May 31,
1995, $174,000 at December 31, 1994 and $50,000 at December 31, 1993, and are
classified as land deposits in the accompanying balance sheets.

In May 1993, the Company entered into an agreement with a shipbuilding and
repair company, whose principal shareholder is an Optionee, for the conversion
and refurbishment of the Company's riverboat vessel, the refurbishment and
acquisition of a riverboat barge, and the purchase of a diesel generator. Total
consideration under the terms of such agreement, including change orders, was
$9,414,000 in 1993, of which $1,268,000 was paid in 1994 and $8,146,000 in 1993.
The balance of $1,268,000 was reported as a

F-38
<PAGE>
COTTON CLUB OF GREENVILLE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

MAY 31, 1995

NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED)
conversion contract payable as of December 31, 1993. Further, the terms of the
original contract provided for additional interest in the event of untimely
payments. Consistent with this provision, additional interest in the amount of
$50,000 and an additional amount of $25,000 relative to the original conversion,
which had been previously unbilled, was billed to the Company in 1995.

NOTE 5--LEASES

The Company leases various real property and equipment under operating
leases. The rental expense was approximately $337,000 for the five month period
ended May 31, 1995, $744,000 in 1994 and $328,000 for the period ended December
31, 1993. Future minimum payments for noncancelable operating leases with
initial terms of one year or more for the twelve month periods following May 31,
1995 are:

NOTE 6--COMMITMENTS AND CONTINGENCIES

The Company is a defendant in a lawsuit arising out of the conduct of its
business. Management believes the lawsuit is without merit and is vigorously
defending the lawsuit. Management does not believe that the outcome of this
matter will have a material adverse effect on the Company's financial position
or results of operations.

In 1994, the Mississippi State Tax commission completed its examination of
the sales and use tax paid on items purchased in connection with the conversion
of the gaming vessel to a dockside gaming facility. As a result, the Commission
assessed additional taxes of approximately $330,000. The Company paid
approximately $82,000 of this assessment in 1994 and agreed in 1995 to pay
approximately $203,000 in twelve monthly installments, plus interest, beginning
July 15, 1995.

NOTE 7--PROPOSED SALE OF COMPANY

On June 23, 1995, the Company entered into a letter of intent with Alpha
Hospitality Corporation (Alpha) for the proposed acquisition of all of the
outstanding stock of the Company and certain promissory notes issued by the
Company. The purchase price of approximately $10.3 million will be funded
through cash, various notes receivable and the transfer of common stock of
Alpha. The letter of intent is subject to due diligence procedures, negotiation
of a definitive agreement, completion of financing for the acquisition by Alpha
and approval of the Mississippi Gaming Commission. There can be no assurance
that this transaction can be successfully accomplished on terms acceptable to
the Company.

NOTE 8--SUPPLEMENTAL CASH FLOW INFORMATION

Included in accounts payable, long-term debt, and accrued expenses are
purchases of property, plant and equipment and prepaid maintenance financed of
approximately $391,000 for 1995, $1,434,000 for 1994 and $4,115,000 in 1993.
Interest paid was approximately $362,000 in 1995, $1,140,000 in 1994 and
$173,000, net of amounts capitalized of $304,000, in 1993. In 1995, long-term
debt increased by approximately $333,000 due to the financing of accrued
interest and certain accounts payable, and decreased by approximately $38,000 in
1994 in connection with the return of certain equipment. Notes payable to
related parties was reduced by approximately $19,000 in 1995 in connection with
the transfer of a vehicle to the shareholder.

F-39
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 16
Certain Market Information..................... 17
Capitalization................................. 18
Dividends Policy............................... 19
Selected Financial Data........................ 20
Business....................................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 37
Management..................................... 47
Certain Transactions........................... 55
Ownership of Securities........................ 59
Selling Stockholders........................... 61
Plan of Distribution........................... 65
Description of Securities...................... 66
Legal Matters.................................. 67
Experts........................................ 67
Additional Information......................... 67
Financial Statements........................... F-1
</TABLE>

ALPHA HOSPITALITY
CORPORATION
---------------------

PROSPECTUS

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

JANUARY , 1997

- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following is a statement of the estimated expenses to be paid by the Company
in connection with the issuance and distribution of the securities being
registered:

SEC Registration Fee $3,908.45
NASDAQ Filing Fee 7,500.00
Printing Engraving Expenses 3,500.00*
Legal Fees and Expenses 50,000.00*
Accounting Fees and Expenses -0-
Blue Sky Fees and Expenses 5,000.00*
Transfer Agent and Registrar Fees and Expenses 500.00*
Miscellaneous 5,000.00*
----------

Total $75,408.45
----------

*Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law, among other things, and
subject to certain conditions, authorizes the Company to indemnify its officers
and directors against certain liabilities and expenses incurred by such persons
in connection with claims made by reason of their being such an officer or
director. The Certificate of Incorporation and By-Laws of the Company provide
for indemnification of its officers and directors to the full extent authorized
by law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the Company has sold securities to a limited number
of persons, as described below. There were no underwriters involved in the
transactions and there were no underwriting discounts or commissions paid in
connection therewith, except as disclosed below. The issuances of these
securities were considered to be exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended, and the regulations promulgated
thereunder. The purchasers of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the certificates for the securities issued in such
transactions. All purchasers of securities in each such transaction had
adequate access to information about the Registrant.

COMMON STOCK

Date of Purchase
Name Shares Purchase Price Per Share
- ----- ------ -------- ---------------

HFS Gaming Corp.(1) 96,429 11/94 $5.75
Bryanston Group, Inc.(2) 1,250,444 10/95 6.625
Cotton Club of
Greenville, Inc.(3) 782,609 10/95 5.75
Bally Gaming, Inc. 701,017 02/96 (4)

II-1

<PAGE>

- -------------------------------
(1) Issued in settlement of $559,285.59 owed by the Company to HFS.

(2) Issued in settlement of $8,284,196.13 owed by the Company to Bryanston.

(3) Issued in connection with the Cotton Club Acquisition.

(4) Issued in settlement of $2,500,000 owed by the Company to Bally.

PREFERRED STOCK

Date of Purchase
Name Shares Purchase Price Per Share
- ---- ------ -------- ---------------

Bryanston Group, Inc. 625,222 10/94 (1)

Bryanston Group, Inc. 693,905 6/96 (2)

BP Group 44,258 6/96 (3)

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

(1) Issued in conversion of $8,284,196 owed by the Company to Bryanston and
converted into 1,250,444 shares of Common Stock in October 1995.

(2) Issued in conversion of $19,165,000 owed by the Company to Bryanston.

(3) Issued in conversion of $1,222,370 owed by the Company to BP Group.

STOCK OPTIONS

1993 STOCK OPTION PLAN

Date Exercis Exercised
Name Options Issued Price or Expired
- ----- ------- ------ ---- ----------

Sanford Freedman 60,000 06/93 $3.25 None
Brett G. Tollman 60,000 06/93 3.25 None
Howard D. Zukerman 35,000 06/93 3.25 None
Thomas W. Aro 60,000 06/93 3.25 None
James A. Cutler 40,000 06/93 3.25 None
Victor Appleby 18,000 06/93 3.25 None
Charlie Goldman 18,000 06/93 3.25 None
Gavin Tollman 18,000 06/93 3.25 None
Thomas Wilson 18,000 06/93 3.25 None
Craig Kendziera 12,000 06/93 3.25 None
Jeffrey Crowley 10,000 06/93 3.25 None
Robert Steenhuisen 8,000 06/93 3.25 None
Thomas Damewood 8,000 06/93 3.25 None
Peter Rost 5,000 06/93 3.25 None
Alice Abalos 5,000 06/93 3.25 None
Betty Drake 5,000 06/93 3.25 None
Margaret O. Young 5,000 06/93 3.25 None
Paul Hitselberger 5,000 12/93 11.50 None
Kevin Kurpick 5,000 12/93 11.50 None
Thaddeus Rickards 5,000 12/93 11.50 None
Ann Williams 2,500 12/93 11.50 None
Sherry Kosack 2,500 12/93 11.50 None
Danka Maricic 2,000 12/93 11.50 None
Kenneth Terry 1,500 12/93 11.50 None
Claudia Bowman 500 12/93 11.50 None

II-2

<PAGE>

OTHER OPTIONS

Date Exercise Exercised
Name Options Issued Price or Expired
- ---- ------- ------ ----- ----------

Bryanston Group, Inc. 347,826 10/95 4.50 None

Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

2.1 Bryanston Third Amended Joint Plan of Reorganization*
3.1 Certificate of Incorporation*
3.2 Form of Certificate of Amendment to Certificate of Incorporation*
3.3 By-Laws, as amended*
4.1 Form of Common Stock Certificate*
4.2 Form of Warrant Certificate*

5.1 Opinion of Gersten, Savage, Kaplowitz & Curtin, LLP****

10.1 Form of Employment Agreement between the Company and Stanley S. Tollman*
10.2 Form of Employment Agreement between the Company and Monty D. Hundley*
10.3 Form of Indemnification Agreement between the Company and directors and
executive officers of the Company*
10.4 1993 Stock Option Plan*
10.5 Form of Service Agreement between the Company and Bryanston*
10.6 Expense Reimbursement Agreement effective as of September 1, 1993, by and
between the Company and Tollman-Hundley Hotel Group and Bryanston Group,
Inc.*
10.7 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*
10.8 Non-negotiable convertible Promissory Note of Alpha Gulf payable to BCI
in the principal amount of $3,500,000, dated May 14, 1993*
10.9 Shareholders Agreement, dated as of May 14, 1993, between BCI, Alpha
Gulf, the Company and Stanley S. Tollman and Monty D. Hundley.*
10.10 Form of Warrant Agreement among the Company, the Transfer Agent and the
Underwriters*
10.11 Work Order, dated June 7, 1993, of American Marine Corporation*
10.12 Amended Sales and Security Agreement, dated July 8, 1993, between Bally
Gaming, Inc. and Alpha Gulf d/b/a/ Bayou Caddy Casino*
10.13 Agreement, dated May 11, 1993, between Twenty Grand Marine Service, Inc.
and BCI*

10.14 Agreement, dated as of June, 1993 between Alpha Gulf d/b/a Bayou Caddy
Casino and Benchmark and Trustmark National Bank*

10.15 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*
10.16 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*
10.17 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,

II-3

<PAGE>

Cynthia Cure Rutherford, Michael Cure and Susan Cure Gollott and BCI*
10.18 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*
10.19 Lease, dated November 12, 1992, between Dallas Goodwin and BCI*
10.20 Form of Limited Standstill Agreement of the Existing Stockholders f/b/o
the Underwriters*
10.21 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*
10.22 Promissory Note reflecting the BP Bridge Loan dated July 27, 1993 of the
Company payable to BP in the amount of $2,200,000*
10.23 Amendment to the BP Bridge Note dated September 29, 1993*
10.24 Amendment to the Bryanston Bridge Note dated October 29, 1993*
10.25 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*
10.26 HFS marketing Agreement dated October 27, 1993*
10.27 Amended Sales and Security Agreement between Bally and the Company dated
July 8, 1993*
10.28 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
(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)

10.29 Form of Underwriters' Warrant*
10.30 Amended Cure Lease**
10.31 Peoples Bank Loan Agreement**
10.32 Non-Revolving Promissory Note with Bryanston Group, Inc.**
10.33 $20,000,000 Non-Revolving Promissory Note dated January 5, 1995***
10.34 Stock Purchase Agreement dated October 20, 1995***
10.35 Agreement dated October, 1995 by and among Alpha Hospitality Corporation,
Alpha Gulf Coast, Inc. and B.C. of Mississippi, Inc.***
10.36 Stock Acquisition Agreement dated January 25, 1995***
10.37 Form 8-K dated October 31, 1995***
10.38 Restructure of Debt of Alpha Gulf Coast, Inc. with Bally Gaming, Inc.***

10.39 Consulting Agreement dated March 1, 1996 between Sanford Freedman and the
Company****

II-4

<PAGE>

11.1 Statement Re: Computation of Per Share Earnings****

21.1 List of Subsidiaries****
23.1 Consent of Rothstein Kass & Company, P.C.
23.2 Consent of Ernst & Young, LLP

24.1 Consent of Gersten, Savage, Kaplowitz & Curtin, LLP counsel for the
Registrant, (included in Exhibit 5.1)****

* Incorporated by reference; filed with the Company s Registration
Statement filed on Form SB-2 (File No. 33-64236) with the Commission on
June 10, 1993 and as amended on September 30, 1993, October 25, 1993,
November 2, 1993 and November 5, 1993.

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

*** Incorporated by reference; filed with the Company s 10-KSB for the year
ended December 31, 1995

**** Previously filed as part of this Registration Statement.

(b) Financial Statements and Schedules:

The Financial Statements are included in the Prospectus and Schedule VIII
is included at the end of this Part II. All other Schedules are omitted
for the reason that they are not required or are not applicable or the
required information is shown in the financial statements or notes
thereto.

Item 28. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
issuer pursuant to any charter provision, by-law contract arrangements statute,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned issuer hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;

II-5

<PAGE>

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to suit information in the
registration statement.

(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.

(4) For determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement, relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering hereof

II-6

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Post-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on January 24, 1997.

ALPHA HOSPITALITY CORPORATION

By: /s/ Stanley S. Tollman
----------------------------------
Stanley S. Tollman, President,
Chief Executive Officer and Chairman
(Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.

Signature Title Date
--------- ----- -----

/s/ Stanley S. Tollman
- ------------------------------- President, Chief Executive Officer January 24, 1997
Stanley S. Tollman and Chairman (Principal Executive
Officer)

/s/ Sanford Freedman
- ------------------------------- Vice President, Secretary January 24, 1997
Sanford Freedman and Director

/s/ Thomas W. Aro
- ------------------------------- Vice President and Director January 24, 1997
Thomas W. Aro

/s/ Brett G. Tollman
- ------------------------------- Vice President and Director January 24, 1997
Brett G. Tollman

/s/ James A. Cutler
- ------------------------------- Treasurer, Chief Financial Officer January 24, 1997
James A. Cutler and Director (Principal Financial
and Accounting Officer)

*
- ------------------------------- Director January 24, 1997
Patricia Cohen

**
- ------------------------------- Director January 24, 1997
Matthew W. Walker

* By: /s/ Stanley S. Tollman
---------------------------------
Stanley S. Tollman
Attorney-in-fact

** By: /s/ James A. Cutler
--------------------------------
James A. Cutler
Attorney-in-fact

</TABLE>

<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.

S-1

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the use of our report dated February 16, 1996 (except with respect
to Note 15 as to which the date is March 29, 1996) of Alpha Hospitality
Corporation and our report dated February 4, 1994 of Bryanston Group, Inc. in
this post-effective Amendment No. 1 to the Registration Statement of Alpha
Hospitality Corporation (Registration No. 333-3606) on Form S-1 appearing in
the Prospectus.

We also consent to the reference to our Firm under the heading "Experts" in such
Prospectus.

/S/ ROTHSTEIN, KASS & COMPANY, P.C.
- -----------------------------------
ROTHSTEIN, KASS & COMPANY, P.C.

Roseland, New Jersey
January 24, 1997

<PAGE>

EXHIBIT 23.2

Consent of Independent Auditors

We consent to the use of our report dated July 7, 1995, with respect to the
financial statements of Cotton Club of Greenville, Inc. included in the
registration statement (Form S-1 No. 333-3606) of Alpha Hospitality Corporation
for the registration of 2,684,506 shares of its common stock.

/S/ ERNST & YOUNG LLP
- -----------------------
ERNST & YOUNG LLP

New Orleans, Louisiana
January 24, 1997