================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-K

                                   ----------


            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     For the Fiscal Year ended June 30, 1996

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT of 1934 [NO FEE REQUIRED]

                                   ----------


                         Commission file number 33-75806

                          CAPITOL QUEEN & CASINO, INC.

                                   ----------


          MISSOURI                           43-1652885
          (State or other jurisdiction of    (I.R.S. employer
          incorporation  or organization)    identification no.)

                           740 South Decatur Boulevard
                             Las Vegas, Nevada 89107
                    (Address of Principal Executive Offices)
                  Registrant's telephone number: (702) 258-5200

                                   ----------

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
            12% First Mortgage Notes due November 15, 2000, Series B
                                (Title of class)

           Indicate  by check  mark  whether  the  Registrant  (1) has filed all
         reports  required to be filed by Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 during the preceding 12 months
        (or for such  shorter  period that the  Registrant  was required to file
          such reports), and (2) has been subject to such filing
                       requirements for the past 90 days.

                        Yes        X       No  _______

            Indicate by check mark if disclosure of delinquent  filers  pursuant
        to Item 405 of Regulation S-K is not contained herein,
       and will not be contained, to the best of Registrant's knowledge,
         in definitive proxy or information statements incorporated by
        reference in Part III of this Form 10-K or any amendment to this
                               Form 10-K: _______

           The aggregate market value of the  Registrant's  voting stock held by
         non-affiliates  of the  Registrant  at  September  15, 1996 was $0. The
         number of shares of the Registrant's Common Stock
                 outstanding as of September 15, 1996 was 100.

                       DOCUMENTS INCORPORATED BY REFERENCE
             Specified exhibits listed in Part IV of this report are
                            incorporated by reference
         to the Registrant's Statement on Form S-4 (33-75806) previously
                                     filed.
================================================================================

Item 1.    Business

      Capitol  Queen & Casino,  Inc.  ("CQC"  or the  "Company")  was  formed to
develop,  construct,  own and  operate  the Capitol  Queen  riverboat  casino in
Jefferson City, Missouri,  where it was granted a three-year exclusive franchise
by the city pursuant to a Riverfront Development Agreement dated as of September
1, 1992 (the "Development  Agreement"),  subject to state licensing to operate a
gaming facility.  CQC commenced development and construction work on the Capitol
Queen in November  1993.  The riverboat was completed and is being stored by the
builder.  CQC also  acquired the  necessary  permits from the United States Army
Corps of Engineers for its land-based  development and performed certain initial
dredging and other site preparation work.  Funding for the Capitol Queen project
was raised in November 1993 through the sale of the Company's 12% First Mortgage
Notes due November 15, 2000 (the "CQC Notes") and the concurrent  sale of common
stock purchase  warrants (the "Warrants") by the Company's  parent  corporation,
Becker Gaming,  Inc. ("BGI"),  which contributed the net proceeds from such sale
to the Company.

      On September 28, 1994, the Missouri Gaming  Commission (the  "Commission")
denied,  without  investigative  review, the Company's  application for a gaming
license and prohibited the Company from  reapplying for a license for two years.
The  Commission's  ruling  was based on a  finding  that the  Company  failed to
disclose material and substantive  information on its gaming license application
relating to a Purchase Agreement dated September 20, 1993, pursuant to which BGI
agreed to issue promissory notes  aggregating  $5,925,000 in principal amount to
various people in Missouri in consideration for development services provided by
them in connection  with the Capitol Queen project.  The Purchase  Agreement was
rescinded by the parties in early 1995.

      The Company  believes its Missouri  application was complete and accurate.
Moreover,  the Company  fully  disclosed the existence and terms of the Purchase
Agreement, as well as the services rendered by the persons to be compensated, in
post-  application   filings  and   communications   with  the  Missouri  Gaming
Commission's  staff.  The Company  also  disclosed  these  matters to the Nevada
gaming authorities,  who investigated and conducted public hearings on these and
other issues relating to applications  for licenses and approvals,  all of which
were  unanimously  granted  to  the  Company  in May  1994.  The  Nevada  gaming
authorities most recently  reexamined the issue in connection with Becker Gaming
Group and  Innerout,  Inc.'s  applications  for licenses at  Charlie's  Bar Down
Under, which were unanimously  granted in March 1995. The Company's then audited
financial statements and public documents filed with the Securities and Exchange
Commission, all of which were submitted to the Missouri Gaming Commission,  also
made these disclosures.  Management  believes that, based on the foregoing,  the
Commission's  ruling was and remains  without  basis.  Accordingly,  the Company
challenged  the ruling  through  administrative  and  judicial  channels,  which
challenges have been largely successful.
See "Item 3. - Legal Proceedings".

       Notwithstanding  its efforts to seek redress of the Commission's  ruling,
in  December  1994,  the  Company,  with the  approval of the holders of the CQC
Notes, adopted a two-step plan (the "Repayment Plan") to repay the CQC Notes and
any accrued and unpaid  interest  thereon.  The first step,  effected in January
1995,  involved the repurchase of $20,000,000  principal amount of the CQC Notes
and the  payment of accrued  and unpaid  interest  thereon  with  proceeds  then
remaining in the Capitol Queen project  escrow  account.  The second step of the
Repayment  Plan, not yet effected,  required the Company,  by March 31, 1995, to
sell its  riverboat,  land site and  other  projects  assets  and to use the net
proceeds realized upon the sale of such assets to offer to repurchase additional
CQC Notes.

      The Company has actively  marketed its riverboat and other assets for sale
and  continues to do so.  Notwithstanding  the  Company's  failure to effect the
second step of the Repayment Plan to date, the holders of the CQC Notes have not
indicated any current intention to exercise any remedies they may have under the
CQC Indenture or otherwise as a result of such default. Under the CQC Indenture,
the  holders of 25% or more in  principal  amount of the CQC Notes may cause the
CQC Notes to be  accelerated,  in which event they would become  immediately due
and payable in full. An aggregate of $20,000,000  principal  amount of CQC Notes
are outstanding.  If CQC Notes were to be accelerated,  the Company (and Arizona
Charlie's,  Inc.  ("AC"), a sister company which has  unconditionally  and fully
guaranteed  the  payment  of the CQC  Notes)  would  not be able to pay such CQC
Notes, absent a large capital infusion, which is not expected to be available.

      On November  7, 1995,  voters in  Jefferson  City  rejected  an  ordinance
permitting  riverboat  gambling,  reversing  the vote of an earlier  election in
which Jefferson City voters approved riverboat  gambling.  Because the Company's
Development  Agreement  with  Jefferson  City was entered  into  pursuant to the
earlier ordinance permitting riverboat gambling,  the Company believes that as a
matter of law the 1995 election does not affect the validity of the  Development
Agreement. To avoid the cost and uncertainty of litigation, however, the Company
and Jefferson City in June 1996 entered into an agreement  pursuant to which the
Development  Agreement was rescinded and Jefferson City refunded $300,000 of the
$400,000 the Company had paid to the City pursuant to the Agreement.


Item 2.    Properties

      CQC owns a site located  across the Missouri  River from the State capitol
in Jefferson City, Missouri,  on which CQC had intended to construct the Capitol
Queen Square.  The site,  which was originally 80 acres,  currently  consists of
approximately  65 to 75 acres as a result  of land  lost to the  Missouri  River
during  major  flooding  in the  Midwest  in 1993 and  1994.  CQC has  completed
construction of a riverboat  casino that was to be located  adjacent to the land
site.  The  riverboat  vessel  is  approximately  218 feet long and 62 feet wide
providing  approximately  26,000  square  feet  of  interior  space  for  up  to
approximately 1,600 passengers.


Item 3.    Legal Proceedings

      The Company is a party to various  lawsuits  relating  to routine  matters
incidental  to  their  respective  businesses,  in  addition  to the  litigation
discussed  below.  Based on the amounts and issues believed to be in controversy
and management's  evaluation of the merits of the claims after consultation with
counsel, management does not believe that the outcome of such litigation, in the
aggregate,  will have a material  adverse  effect on the results of  operations,
cash flows, or financial condition of the Company.
     On October 31,  1994,  CQC and BGI  petitioned  the Cole  County,  Missouri
Circuit  Court in  Jefferson  City for a writ of  mandamus  with  respect to the
ruling of the  Missouri  Gaming  Commission.  In response to the  petition,  the
Circuit Court issued an order declaring that by denying CQC's  application for a
riverboat  gaming  license  without  first  conducting an  investigation  and by
deliberating  in a closed session,  the Missouri Gaming  Commission had violated
Missouri  gaming and open meeting  laws.  The Circuit Court issued a preliminary
writ of mandamus  declaring  the  Commission's  decision  void and  ordering the
Commission to immediately commence a full investigation and thereafter to act on
CQC's application. The Circuit Court ordered the Commission to show cause within
30 days why the preliminary writ should not be made permanent.

      In response to the Circuit  Court's  order to show cause,  the  Commission
filed two actions,  both unsuccessful,  in the Missouri Court of Appeals for the
Western District.  On November 16, 1994, the Commission  petitioned the Court of
Appeals for a writ of prohibition against the Circuit Court,  contending,  among
other things,  that CQC was not entitled to judicial  relief  because it had not
exhausted  its  administrative  remedy  of an  evidentiary  hearing  before  the
Commission.  The  Court  of  Appeals  initially  issued  a  preliminary  writ of
prohibition  staying further  proceedings in the Circuit Court.  However,  in an
opinion  issued  on April 18,  1995,  the Court of  Appeals  concluded  that its
preliminary  writ of prohibition  had been  improvidently  granted,  quashed the
preliminary  writ,  and denied the  Commission's  request for a permanent  writ,
relegating the Commission to its remedies in the Circuit Court.  On December 13,
1994, the Commission  also filed an appeal of the Circuit  Court's order to show
cause.  On  December  23, CQC moved to dismiss the appeal on the ground that the
preliminary  writ of  mandamus  was  not a final  order  and  therefore  was not
appealable.  On January 5, 1995,  the Court of Appeals  granted CQC's motion and
dismissed the appeal.

      On June 26, 1995, the Circuit Court issued a peremptory  (permanent)  writ
of mandamus similar to the preliminary  writ,  declaring the Commission's  order
void and  ordering the  Commission  to proceed  with an  investigation  of CQC's
application  "with all  deliberate  speed."  On July 21,  1995,  the  Commission
appealed the Circuit  Court's  decision to the Missouri Court of Appeals for the
Western District, and on April 30, 1996, a three-judge panel of that Court ruled
that  mandamus  was not the proper  vehicle  for  challenging  the  Commission's
decision.  The Court of Appeals ruled that CQC may obtain  judicial  review only
after an  administrative  proceeding.  The Court of Appeals  also ruled that the
Missouri statutes did not prohibit the Commission from denying a license without
conducting an  investigation,  and that the claim that the Commission  broke its
promise not to deny a license without first investigating  should be raised in a
breach of contract action, not a mandamus petition. The Court of Appeals did not
address the merits;  that is, it did not decide  whether  the  Commission  acted
arbitrarily  or whether its decision was  justified or a breach of its promises.
While CQC has asked the  Missouri  Supreme  Court to review the Circuit  Court's
decision,  its ruling had  immediate  consequences  for two  reasons.  First,  a
Missouri  Circuit  Court in a  separate  action  (discussed  below)  voided  the
Commission's  decision for the independent  reason that it was made in violation
of Missouri's open meeting law.  Second,  after the decision in the open meeting
law case, CQC notified the Commission that it was withdrawing its application.



      On  November  1, 1994,  concurrent  with its  efforts  to obtain  judicial
relief,  CQC  (with  BGI as a  co-party)  requested  an  administrative  hearing
pursuant to the Missouri  gaming  statutes,  under which a denied  applicant may
request an evidentiary  hearing before a Commission  appointed  hearing officer.
The hearing officer's  decision is subject to review by the Commission,  and the
Commission's  decision is in turn  subject to judicial  review.  The  Commission
filed an answer on November 29,  alleging,  among other things,  that CQC is not
entitled to an administrative hearing because CQC had not been investigated.  On
December  22,  because the  Commission  had not  appointed a hearing  officer or
otherwise responded to CQC's request for a hearing,  CQC moved the Commission to
appoint a hearing  officer and establish a procedural  schedule.  The Commission
did not  respond to this  motion.  However,  in March  1995,  CQC's  counsel was
notified  by a member  of the  Commission's  staff  that he had  been  appointed
hearing officer in the case. Because this person appears to have participated in
the staff's  recommendation  that CQC's license be denied, CQC moved on March 31
for  the  appointment  of  an  impartial,   independent  hearing  officer.   The
Commission's attorney filed a response in opposition to this motion on April 12,
but the  Commission  has not responded to it.  Instead,  on August 10, 1995, the
hearing officer issued an order  proclaiming his ability to proceed  impartially
and  purporting  to deny the motion.  On April 30,  1996,  the  hearing  officer
reversed himself,  recused himself,  and asked the Commission to appoint another
hearing officer. To date, the Commission has not acted on this request.  Hearing
dates have been vacated by  stipulation,  and, after the Circuit  Court's orders
voiding the Commission's decision appeared to make the administrative proceeding
premature,  the hearing was  postponed  indefinitely.  The  withdrawal  of CQC's
application has since rendered the administrative hearing moot.

      On March 23, 1995, the Missouri Attorney General filed misdemeanor charges
against CQC and Bruce Becker  alleging they knowingly  made false  statements on
CQC's gaming  license  application.  CQC and Mr.  Becker  vehemently  denied the
charges and launched a vigorous defense. On July 25, 1995, the Circuit Court for
St. Louis  County,  Missouri,  dismissed  the charges,  ruling that they did not
state an offense,  that the Attorney General lacked authority to bring them, and
that they were filed after the statute of limitations  had expired.  On July 28,
1995, the Attorney  General filed an appeal in the Missouri Court of Appeals for
the Eastern District. CQC's and Bruce Becker's motions to dismiss the appeals as
untimely filed were summarily denied on August 14, 1995. On April 16, 1996, in a
2-1  decision,  a panel of the  Missouri  Court of Appeals  reversed the Circuit
Court's  dismissal.  The Missouri  Supreme Court has exercised its discretion to
review the case. The case has been briefed and the court is expected to schedule
arguments  in the next few  months.  These  charges  are not  expected to have a
material adverse effect on BGI or CQC.

      On March 24, 1995,  CQC filed an action against the Commission in the Cole
County,  Missouri,  Circuit  Court,  alleging that the  Commission  had violated
Missouri's  open meeting law by  deliberating in a closed session before issuing
its decision denying CQC's license.  The petition requested an order voiding the
Commission's  decision.  On March 27,  1995,  as a  protective  measure  against
possible  arguments  that  Cole  County  is not the  proper  venue,  CQC filed a
substantively  identical action in the St. Louis County Circuit Court. In April,
the Commission filed answers to both complaints denying that it had violated the
open  meeting law. On June 1, 1995,  CQC moved for summary  judgment in the Cole
County  case.  In  its  response,   the  Commission  stated  that  it  "did  not
deliberately  intend to circumvent"  the open meeting law but had deliberated in
closed session based on erroneous advice of counsel.  The Commission argued that
the closed session could  nevertheless be justified  under statutory  exceptions
allowing  agencies to meet privately with their lawyers to discuss  confidential
information  and  litigation.  The  Circuit  Court  heard the motion for summary
judgment on December 19, 1995. In an order issued on April 23, 1996, the Circuit
Court rejected the Commission's  arguments and granted CQC's motion, ruling that
the Commission had violated the open meeting law and declaring the  Commission's
order to be void. The  Commission did not appeal the decision,  and the time for
doing so has expired.  Therefore,  the decision declaring the Commission's order
to be void is final.  As a result,  notwithstanding  the other  related  actions
discussed  above,  there  no  longer  exists  any  denial  of  licenses  by  the
Commission.





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

      None.

                             PART II


Item 5.     Market  for  Registrant's Common  Stock  and  Related
      Stockholder Matters

      There is no established  public  trading  market for the Company's  Common
Stock,  all of which is held by BGI.  The Company  has not  declared or paid any
cash  dividends on its Common Stock and does not  anticipate the payment of cash
dividends in the foreseeable future.



Item 6.   Selected Financial Data


             Capitol Queen and Casino, Inc. Selected Financial Data

                              Years Ended June 30,

                  (amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                               1996         1995
                                                              ----         ----
<S>                                                       <C>          <C>
Income Statement Data:
     Operating revenues ..............................    $   --       $   --

     Operating loss ..................................      (4,996)      (1,388)
     Net loss before extraordinary item ..............      (7,785)      (5,386)
     Extraordinary item-loss early retirement
         of debt (1) .................................        --         (4,089)
     Net loss ........................................      (7,785)      (9,475)
     Net loss per share before extraordinary item ....     (77,850)     (53,860)
     Extraordinary item-loss on early
         retirement of debt ..........................        --        (40,890)
     Net loss per share (2) ..........................     (77,850)     (94,750)

Other Data:
     Interest expenses, net of amounts capitalized ...       2,789        4,608
     Capital expenditures ............................        --          1,724



Balances Sheet Data:
     Unrestricted cash and cash equivalents ..........    $   --       $     45

     Cash in restricted escrow account ...............          30           30
     Total assets ....................................       8,449       12,986
     Long-term obligations (3) .......................        --           --
     Stockholders' equity (deficit) (4) ..............     (14,058)      (6,273)
</TABLE>

<TABLE>
<CAPTION>
                                                               1994         1993
                                                              ----         ----
<S>                                                       <C>          <C>
Income Statement Data:
     Operating revenues ..............................    $   --       $   --

     Operating loss ..................................      (7,094)        --
     Net loss before extraordinary item ..............      (9,530)        --
     Extraordinary item-loss early retirement
         of debt (1) .................................        --           --
     Net loss ........................................      (9,530)        --
     Net loss per share before extraordinary item ....     (95,300)        --
     Extraordinary item-loss on early
         retirement of debt ..........................        --           --
     Net loss per share (2) ..........................     (95,300)        --

Other Data:
     Interest expenses, net of amounts capitalized ...       3,091         --
     Capital expenditures ............................      11,212         --



Balances Sheet Data:
     Unrestricted cash and cash equivalents ..........    $     33     $   --

     Cash in restricted escrow account ...............      24,929         --
     Total assets ....................................      37,412         --
     Long-term obligations (3) .......................        --           --
     Stockholders' equity (deficit) (4) ..............       3,202         --
</TABLE>

----------
(1)   During 1995, CQC retired $20,000 principal amount of the CQC notes at 101%
      of such principal amount plus accrued and unpaid interest. CQC incurred an
      extraordinary loss of approximately $4,089, reflecting the premium paid to
      retire the debt of $200 and the  write-off  of related,  unamortized  debt
      issue costs and original issue discount in the aggregate of $3,889. No tax
      benefit was available or recognized.
(2)   The number of shares used in the  computation  of loss per share of common
      stock  was 100 for each of the four  years in the  period  ended  June 30,
      1996.  Common stock of 1,000 shares were  authorized at a $1.00 par value,
      but 100 shares were issued and outstanding.
(3)  At June 30, 1996, 1995 and 1994, $17,526, $17,118 and $33,164, respectively
     of CQC notes (net of unamortized original issue discount of $2,474,  $2,882
     and $6,836, respectively) was classified as current due to CQC's default of
     the Indenture governing the CQC Notes.
(4)  The  ability of CQC to pay dividends is restricted under the
      CQC Indenture.


                 Arizona Charlie's, Inc. Selected Financial Data

                              Years Ended June 30,
                  (amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                 1996         1995         1994
                                             --------     --------     --------
<S>                                          <C>          <C>          <C>
Income Statement Data:
  Operating revenues ....................    $ 63,301     $ 57,082     $ 46,447
  Operating income ......................       2,199        1,058        5,105
  Net income (loss) .....................      (4,559)      (4,936)       1,134
  Net income (loss) per share (1) .......      (4,559)      (4,936)       1,134

Other Data:
  Interest expense, net of amounts
   capitalized ..........................       7,095        6,574        4,763
  Capital expenditures ..................         190       24,253       11,379
  Distributions to stockholders (2) .....        --           --          5,317


Balance Sheet Data:
  Unrestricted cash and cash
   equivalents ..........................    $  4,591     $  5,404     $  4,014
  Cash in escrow account restricted
   for construction .....................          10           10        3,613
  Total assets ..........................      62,357       65,273       67,915
  Long-term obligations (3)
      Long-term debt (4) (5) ............       5,000       60,000       60,000
      Capitalized lease obligation ......          22            4            1
  Stockholder's equity (deficit) ........      (9,501)      (4,942)          (6)
</TABLE>

<TABLE>
<CAPTION>
                                                              1993          1992
                                                           -------       -------
<S>                                                        <C>           <C>
Income Statement Data:
  Operating revenues ...............................       $45,880       $42,278
  Operating income .................................         6,032         4,262
  Net income (loss) ................................         4,585         2,551
  Net income (loss) per share (1) ..................         4,585         2,551

Other Data:
  Interest expense, net of amounts
   capitalized .....................................         1,440         1,877
  Capital expenditures .............................         1,067           924
  Distributions to stockholders (2) ................         2,140         2,400



Balance Sheet Data:
  Unrestricted cash and cash equivalents ...........       $ 3,528       $ 3,225
  Cash in escrow account restricted for
   construction ....................................          --            --
  Total assets .....................................        27,184        26,896
  Long-term obligations (3)
   Long-term debt (4) (5) ..........................          --          16,976
   Capitalized lease obligation ....................           778         1,089
  Stockholder's equity (deficit) ...................         5,953         3,508

</TABLE>

----------
(1)   The number of shares used in the  computation of earnings (loss) per share
      of common  stock was 1,000 for each of the five years in the period  ended
      June 30, 1996. A total of 2,500 shares of common stock are  authorized  at
      no par value, 1,000 shares of which are issued and outstanding.
(2)   Because AC elected to be treated as an S corporation for the most of 1994,
      and all of fiscal 1993 and 1992,  a  substantial  portion of its income in
      past years was  distributed  to its  stockholders.  In December  1993,  AC
      distributed   $5,000  of  previously   taxed  retained   earnings  to  its
      stockholders.   This  amount  was  loaned  back  to  AC  in  exchange  for
      stockholder  notes.  Effective  January  1,  1994,  AC  terminated  its  S
      corporation  tax status.  The ability of AC to pay dividends is restricted
      by the Indenture  governing its 12% First  Mortgage Notes due November 15,
      2000 of (the "AC Notes").  See  "Management's  Discussion  and Analysis of
      Financial   Condition   and  Results  of   Operations_Arizona   Charlie's,
      Inc._General
(3)   Includes subordinated notes to stockholders, non-current obligations under
      capital  leases,  and  excludes  current  maturities.  At June  30,  1993,
      approximately  $16,900 of bank debt was  classified as current,  as it was
      due and payable.  See  Management's  Discussion  and Analysis of Financial
      Condition and Results of  Operations_Arizona  Charlie's,  Inc._General and
      "Notes to Financial Statements__Arizona Charlie's, Inc._ Long Term Debt."
(4)   At June 30,  1996,  $55,000 of AC Notes was  classified  as current due to
      certain technical defaults of the AC Indenture.  See Notes 2 and 6 of AC's
      Notes to Financial Statements.
(5)   At June 30, 1993,  approximately $16,900 of bank debt of AC was classified
      as  current  as it was due and  payable.  Such  amount was paid off from a
      portion of the proceeds from the sale of the AC Notes in November, 1993.


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

             Analysis of Development Stage Activities for the period January 20,
         1993 (the date of inception) through June 30, 1996

      CQC was  organized  on January  20,  1993 for the  purpose of  developing,
constructing,  owning and operating the Capitol Queen.  Since  inception,  CQC's
activities  have been  limited  to, in  addition  to the  financing  transaction
described below, the acquisition of a land site in Jefferson City,  Missouri and
the rights to develop the Capitol Queen thereon, the preparation and prosecution
of  applications  to become  licensed to own and  operate  the Capitol  Queen in
Missouri and for all other required  permits and approvals,  the  preparation of
preliminary design plans, drawings and budgets for the project,  construction of
a riverboat vessel and other pre-opening  development  activities.  As of August
1994, CQC suspended the development of the Capitol Queen,  other than completion
of the  riverboat.  As a result of a September  28, 1994 ruling by the  Missouri
Gaming Commission denying CQC's license application, CQC subsequently terminated
the Capitol Queen project and is currently  marketing its assets for sale.  Such
assets include its riverboat and the Jefferson City land site.

      As of January 1, 1995,  the CQC  Indenture  was  amended to (i)  eliminate
CQC's  obligation  to  construct  and open the  Capitol  Queen and (ii) permit a
two-step  purchase of the CQC Notes at 101% of principal plus accrued and unpaid
interest with funds remaining in the project escrow account and the net proceeds
from a sale of assets. The repurchase of $20,000,000 principal amount of the CQC
Notes (plus  accrued and unpaid  interest  thereon) was completed on January 17,
1995 with funds from the project escrow account at a total cost of  $20,200,000.
At June 30, 1996,  approximately  $30,000  remained in the escrow account and an
aggregate of $20,000,000 principal amount of the CQC Notes remained outstanding.
However,  the dates by which CQC  previously  agreed with the holders of the CQC
Notes to effect the sale of its assets and  repurchase  the  remaining CQC Notes
have passed.

      The CQC Notes outstanding  require annual interest payments of $2,400,000,
payable in equal  installments  semi-annually on May 15 and November 15. CQC was
not  able to make its  scheduled  interest  payments  of  $1,200,000  on each of
November 15, 1995 and May 15, 1996. AC does not have available  funds to advance
on behalf of CQC. The management of AC and CQC are currently in discussions with
an  informal  committee  representing  the holders of the AC Notes and CQC Notes
regarding a proposed  restructuring plan. However, an agreement has not yet been
reached.

     CQC had entered into an Asset Purchase  Agreement  dated April 10, 1995 for
the sale of its assets to Aerie Riverboat Casinos of Missouri, Inc. "Aerie" at a
purchase price of $18,000,000.  However,  the consummation of the Aerie purchase
agreement was subject to the satisfaction of several  conditions which could not
be satisfied timely, including, among others, that Jefferson City consent to the
assignment  of the  Development  Agreement,  that  Aerie be found  preliminarily
suitable to hold a Missouri Gaming license and that riverboat  gaming is legally
permitted  in  Jefferson  City.  As a  result,  the  agreement  with  Aerie  was
terminated without penalty to any party when the expiration date of December 31,
1995 passed.  CQC is actively  marketing  its  riverboat  assets to  prospective
buyers.

      During the period from  inception  through  June 30,  1996,  CQC had total
operating expenses of $13,478,000 consisting primarily of an abandonment loss of
$10,426,000  arising from the denial of the company's  license  application  and
management's subsequent decision to terminate the Capitol Queen project and sell
its assets. At June 30, 1996, CQC wrote-down the cost of the riverboat assets to
their net  realizable  value based on estimates  provided by a  shipbuilder  and
marine  brokers  which  resulted in an  abandonment  loss of  $4,392,000  in the
current  fiscal  year.  Also  included in operating  expenses  are  amortization
expense of $1,341,000 associated with debt issue costs and $1,711,000 of project
development  costs.  For the same period,  CQC incurred  $11,171,000 of interest
cost, of which $683,000 was capitalized by CQC as required by generally accepted
accounting  principles,  as  part  of the  riverboat  construction.  CQC  earned
interest income of $1,265,000 for the period from inception to June 30, 1996.

Liquidity and Capital Resources

      For the period from  inception  through  June 30,  1996,  net cash used by
development  stage  activities  was  $5,246,000.  Cash flows  used by  investing
activities for the period was $13,920,000 which included  $12,936,000 of capital
expenditures related to the construction of the riverboat and acquisition of the
Jefferson  City land  site.  At August  31,  1996,  CQC had  expended a total of
approximately  $21,400,000 on the  development  and  construction of the Capitol
Queen.

      CQC's  obligations  consist of the $20,000,000 in principal  amount of the
outstanding CQC Notes.  There can be no assurance that CQC will be successful in
its efforts to sell its assets or, that if a sale is effected, the proceeds will
be sufficient to fully or substantially repay the CQC Notes and accrued interest
thereon.  Moreover,  CQC because it has not yet effected the sale of its assets,
is in default of the CQC Indenture.  As a result,  the holders of 25% or more in
principal amount of the CQC Notes may cause the CQC Notes to be accelerated,  in
which event they would become  immediately  due and payable in full.  If the CQC
Notes were to be  accelerated,  CQC would not be able to pay the outstanding CQC
Notes without an infusion of capital, which is not expected to be available. CQC
is not  expected  to engage  in any  activities  after  the sale of its  assets,
although it may  continue  to pursue  legal  relief  with  respect to the injury
caused by the ruling of Missouri  Gaming  Commission.  The cost of pursuing such
relief is expected to be borne by BGI.

Arizona Charlie's, Inc.
-----------------------

     General

      AC's  revenues are derived  largely from gaming  activities at its Arizona
Charlie's  casino-hotel,  and,  to a lesser  extent,  from  food  and  beverage,
lodging,  entertainment  and retail  sales.  AC generally  views its  non-casino
operations  as  complementary  to its core casino  operations.  Accordingly,  it
utilizes  entertainment  primarily  as a  casino  marketing  tool.  Further,  AC
maintains  food and  beverage  pricing  structures  designed  to benefit  casino
volumes, often resulting in departmental operating losses, even in periods where
individual  restaurants or bars report operating  profits.  AC seeks to maximize
profits from its hotel operations,  however,  while maintaining  attractive room
rental rates. Gaming revenues represent the net win from gaming wins and losses.
The retail  value of  accommodations,  food and  beverage  provided to customers
without  charge is  included  in gross  revenues  and  deducted  as  promotional
allowance.  See  "Notes to  Financial  Statements  - Arizona  Charlie's,  Inc. -
Summary of Significant  Accounting  Policies." The estimated  costs of providing
such  promotional  allowances have been  classified as gaming  expenses  through
interdepartmental allocations as follows (in thousands):

<TABLE>
<CAPTION>
                                        1996      1995      1994
                                        ----      ----      ----
           <S>                         <C>       <C>       <C>
           Hotel .........             $  261    $  164    $  119
           Food & Beverage              3,824     2,260     2,005
                                        -----     -----     -----
                                       $4,085    $2,424    $2,124
                                       ======    ======    ======
</TABLE>

      On November 18, 1993, AC issued of $55,000,000 in principal  amount of 12%
First Mortgage  Notes due November 15, 2000 (the "AC Notes"),  which resulted in
net  proceeds of  approximately  $51,100,000.  A portion of the net proceeds was
used to retire  approximately  $16,900,000 in bank debt plus accrued interest of
$500,000. The balance of approximately  $33,700,000 was initially deposited into
a restricted  escrow account and subsequently was used to fund the expansion and
enhancement of Arizona Charlie's (the  "Expansion")  through the addition of new
casino  space,  hotel rooms,  specialty  restaurants  and  banquet/meeting  room
facilities,  and the expansion of existing restaurants,  entertainment and other
facilities.  See "Notes to  Financial  Statements  - Arizona  Charlie's,  Inc. -
Long-Term Debt." AC commenced construction of the Expansion in January 1994. The
Expansion  was  completed  in  February   1995  at  an   under-budget   cost  of
approximately $35,632,000.

      Concurrent  with the private  placement of the AC Notes,  Capitol  Queen &
Casino,  Inc. a sister company,  issued  $40,000,000 in principal  amount of 12%
First  Mortgage  Notes due November 15, 2000,  $20,000,000 in principal of which
currently remain outstanding (the "CQC Notes").  The Company has unconditionally
and fully  guaranteed  the payment of all  principal  of and interest on the CQC
Notes.  CQC  currently  does not have any means to pay amounts  owing on the CQC
Notes.  See  "Liquidity and Capital  Resources.  AC, which now operates as a "C"
corporation,  was operated as an "S" corporation  through December 31, 1993. See
"Notes to Financial Statements - Arizona Charlie's Inc. - Summary of Significant
Accounting  Policies - Income Taxes." In  anticipation  of the  termination of S
corporation  status,  in December 1993, AC distributed  to its  stockholders  an
aggregate  of  $5,000,000  of retained  earnings on which the  stockholders  had
previously paid federal income taxes.  This amount was loaned back to AC in full
in exchange for subordinated  stockholder  notes in the principal amount of such
distributions,  which AC stockholder  notes bear interest payable monthly at the
annual  rate of 10.0% and  mature  in  January  2001.  See  "Notes to  Financial
Statements - Arizona Charlie's, Inc. - Related Party Transactions."



                              Results of Operations

                              Years Ended June 30,
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                          1996        1995         1994
                                          ----        ----         ----
<S>                                  <C>         <C>         <C>
Revenues:
   Gaming ........................   $ 52,831    $ 47,466    $ 38,955
   Food/beverage .................     13,204      10,647       8,459
   Hotel .........................      3,208       2,614       1,219
   Bowling .......................       --          --           251
   Gift Shop .....................        590         577         535
   Management fees from Affiliates       --          --           281
   Other (1) .....................      1,145         912         399
                                        -----         ---         ---
Gross revenues ...................     70,978      62,216      50,099
Less, promotional allowances (2) .     (7,677)     (5,134)     (3,652)
                                       ------      ------      ------
   Net revenues ..................     63,301      57,082      46,447

   Total operating expenses ......     61,102      56,024      41,342
                                       ------      ------      ------
   Total operating income ........   $  2,199    $  1,058    $  5,105
                                     ========    ========    ========
</TABLE>
-----------
(1)  Includes  primarily  revenues  from   entertainment   cover  charges,   PBX
     operations (hotel switchboard and room telephone system) and commissions on
     automated teller machines located in the casino.
(2)  Amounts  represent  the retail  value of rooms,  food,  beverage  and other
     promotional allowances provided to customers without charge.


      Comparison  of fiscal  years ended June 30, 1996,  1995 and 1994.  Despite
increased  revenues for fiscal 1996 and fiscal 1995, results from operations for
both periods were lower than the prior year as the result of increased operating
expenses,  primarily due to additional slot promotion  expenses,  payments under
its  guarantee  of the CQC Notes,  management  fees,  and the  addition of staff
personnel,  equipment and related operating expenses transferred to AC from BGI.
The increased  revenues for fiscal 1996 reflect a full year of  operations  with
expanded casino-hotel  facilities,  while the increased revenues for fiscal 1995
reflect a partial year of operations with the expanded facilities. The Expansion
added new gaming  machines and table games,  an expanded race and sports book, a
new hotel tower, a remodeled  coffee shop, two new specialty  restaurants  and a
new delicatessen, an expanded buffet room, a remodeled floor-level entertainment
lounge and new second-floor showroom/banquet facility.

      AC's  net  revenues   increased  to  $63,301,000  for  fiscal  1996,  from
$57,082,000 for fiscal 1995 and $46,447,000 for fiscal 1994. Operating expenses,
including  depreciation  and  amortization,  increased to $61,102,000 for fiscal
1996, from  $56,024,000 and $41,342,000 for the two preceding fiscal years. As a
result,  operating  income for fiscal 1996 was $2,199,000,  with a corresponding
net operating  margin of 3.5%.  Operating income for fiscal 1995 and fiscal 1994
was $1,058,000 and $5,105,000,  respectively, resulting in operating margins for
such years of 1.9% and 11.0%.  The increase in operating  expenses and resulting
decline in operating margin for fiscal 1996 resulted  principally from increased
gaming department expense, amounting to $3,253,000, costs attributable to CQC in
the amount of  $601,000,  and the  addition of staff  personnel,  equipment  and
related operating expenses transferred to AC. The increase in operating expenses
and resulting  decline in operating margin for fiscal 1995 resulted  principally
from costs  attributable  to the CQC Notes guarantee  ($1,592,000  including the
write-off of advances  which were used by CQC to pay interest on the CQC Notes),
and  increased   salaries  and  wages  reflecting  higher  department   staffing
requirements,  increased  advertising  and  promotional  cost and the additional
expense of a management fee payable to BGI. Other increased  expenses for fiscal
1995 include additional depreciation and amortization expense resulting from the
addition of the new assets created in the Expansion.

       For fiscal 1996, AC had total gaming revenues of $52,831,000, as compared
to  $47,466,000  and  $38,955,000  for fiscal 1995 and 1994,  respectively.  The
increases (11.3% and 21.8% for fiscal 1996 and 1995, respectively) are primarily
attributable to increases in gaming machine revenues of 11.1% and 21.0% for such
years to  $44,612,000  and  $40,140,000  from  $33,173,000  for fiscal 1994. The
increase for fiscal 1996 is primarily the result of increased  levels of play by
patrons in response to  additional  slot  promotional  events.  The increase for
fiscal 1995 reflects the additional  revenue  generated from 665 gaming machines
added during that year.  Revenues from table games were  $4,872,000,  $4,829,000
and $4,070,000  for fiscal 1996,  1995 and 1994,  respectively.  The table games
revenue increase for fiscal 1995 reflect an increase of five table games in that
year.  Other gaming revenues,  consisting of revenues from bingo,  poker and the
race and sports  book,  increased  by 34.0% and 45.8% for  fiscal  1996 and 1995
respectively,  to $3,346,000 for fiscal 1996 and $2,497,000 for fiscal 1995 from
$1,713,000  for fiscal 1994.  The  increases  were largely a result of the added
pari-mutual race facilities and increased sports book revenues from the expanded
race and sports book facility.  For fiscal 1996, 1995 and 1994, 84.4%, 84.6% and
85.2%,  respectively,  of gaming  revenues were  attributable  to gaming machine
play,  compared to 9.2%,  10.2% and 10.4%,  respectively,  attributable to table
games  and 6.3%,  5.2% and  4.4%,  respectively,  attributable  to other  gaming
revenues.

      Food and beverage revenues increased 24.0% to $13,204,000 for fiscal 1996,
after increasing 25.9% to $10,647,000 for fiscal 1995 from $8,459,000 for fiscal
1994.  The fiscal 1996 increase is due to increased  complimentary  sales in the
food and  beverage  department.  Such sales are  included  in revenues at retail
value and are then deducted as a promotional allowance.  Increased complimentary
sales in food and beverage  departments  are the result of casino  promotion and
marketing efforts designed to attract,  reward and retain qualified patrons. The
fiscal 1995 increase resulted from the addition of two specialty restaurants,  a
delicatessen and a remodeled coffee shop during the second and third quarters of
fiscal 1995

     Hotel revenues increased to $3,208,000 for fiscal 1996, from $2,614,000 and
$1,219,000 for fiscal 1995 and 1994, respectively. The 22.7% increase for fiscal
1996 is the result of an increase in average  occupancy rate from 84.3% to 86.9%
and an  increase  in the  average  room rate from  $37.27 to $39.81.  The 114.4%
increase  for  fiscal  1995 is  attributable  to the  opening  of 150 new  rooms
(including eight suites) in the new hotel tower in September 1994.

      With the  elimination  of the bowling  alley in December  1993,  AC had no
bowling revenues for fiscal years 1996 and 1995, compared to $251,000 for fiscal
1994.  Gift shop revenues  increased 2.3% to $590,000 in fiscal 1996 and 7.9% to
$577,000 in fiscal 1995 due  primarily to the  remodeling  and  expansion of the
gift shop  area,  which was  reopened  in January  1995.  Also,  other  revenues
increased  $233,000 or 25.6% during  fiscal 1996 and  $513,000 or 128.6%  during
fiscal 1995 as a result of increases  in  entertainment  cover  charge  revenues
attributable to the addition of a new showroom  facility that opened in December
1994.

     Gaming  expenses  increased by 21.2% to  $18,612,000  for fiscal 1996.  The
increased expense includes higher slot promotional  expense of $638,000;  higher
gaming tax and license fees of $406,000;  increased salary and wages of $468,000
and the  additional  expense  of a newly  created  casino  marketing  department
totaling $479,000.  Gaming expenses increased by 31.5% to $15,359,000 for fiscal
1995 from  $11,681,000  for fiscal 1994.  The higher  levels of expense  reflect
additional staffing  associated with the expansion of gaming facilities.  Gaming
expenses  represented 35.2%, 32.4% and 30.0% of gaming revenues for fiscal 1996,
1995 and 1994,  respectively.  Management  anticipates  that  these  costs  will
stabilize as a percentage  of revenue in fiscal 1997 as the expanded  facilities
are  expected to generate  higher  customer  volumes and  efficiencies  from the
Expansion are expected to be realized.

     Food and beverage  expenses  increased 9.9% to $12,511,000  for fiscal 1996
from  $11,388,000  for fiscal 1995 due to salary and wage  increases  associated
with  increasing  the hours of operation at one specialty  restaurant and normal
salary  and wage  increases  for  food and  beverage  employees  which  comprise
approximately  33.0%  of AC's  total  work  force.  Food and  beverage  expenses
increased  35.7% to $11,388,000  for fiscal 1995 from $8,389,000 for fiscal 1994
due primarily to the additional  staffing  requirements  for the newly remodeled
coffee shop, new specialty  restaurants,  new delicatessen,  and expanded buffet
room.

      Hotel  expenses   increased  2.6%  to  $1,413,000  for  fiscal  1996  from
$1,377,000  for fiscal  1995 as a result of normal  salary  and wage  increases.
Hotel expenses  increased to $1,377,000 for fiscal 1995 from $714,000 for fiscal
1994 due  primarily  to  additional  staffing  required by the new hotel  tower.
However,  net  contribution by the hotel  department  (hotel revenues less hotel
operating  expenses)  improved to $1,795,000 for fiscal 1996 from $1,237,000 for
fiscal 1995 and $505,000 for fiscal 1994.

      Other departmental  expenses increased by 5.6% to $475,000 for fiscal 1996
from $450,000 for fiscal 1995 due to increased  costs of inventory  items in the
gift shop,  combined with normal salary and wage increases.  Other  departmental
expenses decreased by 46.7% to $450,000 for fiscal 1995 from $845,000 for fiscal
1994 due primarily to the scale-down and termination of bowling operations.

      General and administrative  expenses increased by 15.0% to $17,660,000 for
fiscal 1996 from  $15,358,000  for fiscal  1995.  The  increases  resulted  from
additional staffing in the accounting, payroll, personnel and technical services
departments  and the transfer of executive  personnel (and related  departmental
costs) in March 1995 to the Company from BGI.  Other expenses  transferred  from
BGI to the Company include  maintenance and other operating expenses  associated
with an  airplane  and two boats.  The  airplane  was sold in July  1996.  Other
general and  administrative  expenses included payments made on behalf of CQC in
the amount of $601,000 for fiscal 1996 compared to  $1,592,000  for fiscal 1995.
The Company accrued management fees payable to BGI of $1,396,000, $3,099,000 and
$188,000  for fiscal  1996,  1995 and 1994,  respectively.  Due to a decision to
suspend  development of CQC's riverboat casino project and sell its assets,  the
majority of BGI's  management  and  administrative  services are  anticipated to
benefit  the  Company  in the  future.  Accordingly,  in late  March  1995,  BGI
transferred approximately 40 employees involved in accounting and administrative
functions from BGI to AC. In connection with this transfer, in October 1995, the
Company temporarily  reduced the amount of the Company's  management fee to 1.0%
of the Company's gross revenues (previously 5.0% of gross revenues) based on the
reduction in services it will receive from BGI in the future.  See Note 9 of the
Company's Notes to Financial Statements.

      General and administrative  expenses increased by 10.7% to $15,358,000 for
fiscal 1995 from  $13,867,000 for fiscal 1994 due to additional  staffing in the
cage, security, data processing,  entertainment, porter, engineering, accounting
and  transportation  departments.  Personnel in these  departments were added to
support the expanded  facility.  As a percentage  of net  revenues,  general and
administrative  expenses were 27.9%,  26.9% and 29.9% for fiscal 1996,  1995 and
1994 respectively.

      Advertising  and promotion  expenses were  $4,726,000  for fiscal 1996, as
compared to $3,837,000  for fiscal 1995.  The increase of $889,000,  or 23.1% is
due to  additional  television  advertising  of  $466,000,  new  casino  related
promotions  of  $166,000,  and  salary  and  wage  increases  of  $116,000.  The
additional  advertising  and promotions  were conducted in an effort to increase
casino  patronage and compete with other "locals"  casinos opened in western Las
Vegas in fiscal 1995,  including Texas Station and Santa Fe Casino.  Advertising
and  promotion  expenses  were  $3,837,000  for  fiscal  1995,  as  compared  to
$3,093,000  for fiscal  1994.  The  increase  of  $744,000,  or 24.1%,  reflects
increased  newspaper  and  television  advertising  undertaken  to  gain  market
recognition for the newly expanded facility. Management anticipates that it will
maintain  advertising  expenditures  at the 1996  level  in  order  to  continue
attracting  customers  and to promote the  entertainment  events in its expanded
facilities.

      Depreciation and amortization  expense increased by 3.5% to $3,491,000 for
fiscal 1996 from  $3,373,000 for fiscal 1995.  This increase is  attributable to
additional  depreciation  expense  associated with the newer  expansion  assets.
Depreciation  and  amortization  expense  increased by 51.8% to  $3,373,000  for
fiscal 1995 from  $2,222,000  for fiscal 1994.  The increase is due primarily to
additional depreciation expenses associated with the new expansion assets placed
in service.

      AC had other  expenses (net of other income) of $6,758,000 for fiscal 1996
compared to $5,994,000 and $3,971,000 for fiscal years 1995 and 1994. The fiscal
1996 increase of $764,000 is due to a reduction of  capitalized  interest in the
amount of  $676,000  and a decrease of  interest  income of  $294,000  partially
offset by a  decrease  of  interest  expense  in the  amount of  $155,000  and a
decrease in other income of $51,000.  For fiscal 1995, the increased  expense of
$2,023,000 is attributable to an increase in interest expense from $5,223,000 to
$7,250,000, due primarily to the AC Notes, which were outstanding for all of the
fiscal 1995 but less than eight months for fiscal 1994.

     Income Taxes

     As a result  of the  termination  of its  election  to be  treated  as an S
corporation,  AC is liable  (as part of the BGI  consolidated  group) for income
taxes  on  income  earned  from  and  after  January  1,  1994.  Prior  to  such
termination,  AC did not incur or pay income taxes but  distributed  cash to its
stockholders in amounts  sufficient to pay their income tax liability in respect
to income of AC. See "Notes to Financial Statements - Arizona Charlie's,  Inc. -
Summary of  Significant  Accounting  Policies - Income  Taxes;  - Related  Party
Transactions."  Since  terminating its S corporation  status, AC generated a net
operating loss for income tax purposes of approximately  $9,174,000.  Due to low
operating margins and high interest cost and depreciation costs, management does
not anticipate that AC will generate taxable income in the foreseeable future.

     Liquidity and Capital Resources

<TABLE>
<CAPTION>
                                         As of or for the years ended June 30,

                                            1996        1995        1994
                                            ----        ----        ----
<S>                                     <C>         <C>         <C>   
Cash and cash equivalents ...........   $  4,591    $  5,404    $  4,014
Working capital (deficit) (1) .......    (58,530)      2,920       2,511

Cash provided by operating activities      1,639       2,772       5,876
Cash used for investing activities ..     (2,240)     (3,401)    (37,180)
Cash provided by (used for)
  financing activities ..............       (212)      2,019      31,790
</TABLE>

----------
(1)  At June 30, 1996, the AC Notes are reflected as a current  liability in the
     amount of $55,000 due to default under Covenants.


      For fiscal  1996,  cash  provided by  operating  activities  decreased  to
$1,639,000  from  $2,772,000 for fiscal 1995. The decrease is  attributable to a
reduction in operating  income,  prior to  consideration  of management fees and
other non-cash items, and changes in operating assets and operating liabilities.
For fiscal,  1995, cash provided by operating activities decreased to $2,772,000
from  $5,876,000 for fiscal 1994. The decrease is  attributable to a decrease in
net income of $6,070,000  for fiscal 1995 which was  partially  offset by (i) an
increase in operating  assets of $926,000 for fiscal 1995 compared to a decrease
in operating assets of $874,000 for fiscal 1994,  reflecting primarily increases
in pre-paid  gaming  taxes and other  receivables  for fiscal  1995,  (ii) a net
increase in operating  liabilities  of $3,671,000 for fiscal 1995 compared to an
increase of $1,669,000  for fiscal 1994,  due to the accrual of management  fees
payable  to  BGI  and  interest  on the AC  Notes,  and  (iii)  an  increase  in
depreciation and amortization expense of $1,151,000 for fiscal 1995.

     Cash flows used in  investing  activities  for fiscal 1996 were  $2,240,000
compared to $3,401,000  for fiscal 1995.  The decrease is due to (i) a reduction
in  cash  advances  to  BGI  resulting  in  decreased  receivables  from  BGI of
$4,154,000,  (ii) a reduction in notes issued to CQC of $1,200,000,  and (iii) a
reduction in capital  expenditures of $24,063,000  (reflecting the completion of
the  majority of the  construction  of the  expanded  facility in fiscal  1995),
partially  offset by a $26,102,000  net  reduction in restricted  cash which was
utilized  for the  expansion  in fiscal  1995).  Cash flows from  investing  and
financing activities for fiscal 1995 were significantly impacted by the November
1993  issuance of the AC Notes.  In fiscal 1994,  approximately  $26,112,000  in
proceeds remained in a restricted escrow account to fund Expansion construction.
Pending such use, amounts held in the restricted escrow account were invested in
interest  bearing  securities.  See  "Notes to  Financial  Statements  - Arizona
Charlie's,  Inc. - Long-Term Debt." In fiscal 1995, cash flows used in investing
activities  for  fiscal  1995  includes  $24,253,000  of  capital  expenditures,
virtually all of which relates to the Expansion.

      Cash flows  provided by financing  activities for fiscal 1996 decreased to
($212,000)  from  $2,019,000 for fiscal 1995. The decrease is due to a reduction
of proceeds  from  borrowing,  marginally  offset by an  decrease  in  principal
payments on notes and an increase in payments  under capital lease  obligations.
Financing  activities  for fiscal 1995 reflect  proceeds from loans from related
parties in the amount of $2,250,000, and principal payments of notes.

      AC is currently in technical default under the Indenture  governing the AC
Notes  because  it  has  neither   maintained  the  required  minimum  level  of
consolidated  tangible  net worth nor offered to  repurchase a portion of the AC
Notes as required if such minimum  level of  consolidated  tangible net worth is
not maintained.  In addition, AC has failed to maintain the minimum consolidated
fixed charge  coverage ratio required under the Indenture and has advanced funds
to the Company in excess of the amounts  permitted  to be so advanced  under the
Indenture. As a result of such defaults, the holders of 25% or more in principal
amount of the Notes may  cause the AC Notes to be  accelerated,  in which  event
they would become  immediately  due and payable in full. AC does not have and is
not expected to have the resources to pay the AC Notes if they are accelerated.

      The AC Notes are  reflected  as a current  liability at June 30, 1995 as a
result  of  the  above  defaults.  AC's  long-term  obligations,   approximately
$5,022,000 at June 30, 1996,  consist of the  stockholder  notes and capitalized
equipment  leases.  AC has annual interest  expense  aggregating  $6,600,000 and
$500,000 with respect to the AC Notes and the stockholder  notes,  respectively.
In addition,  AC is expected to have annual capital expenditure  requirements of
approximately $600,000.

      In addition, AC has a substantial contingent obligation resulting from its
guarantee of the CQC Notes,  an aggregate of $20,000,000 in principal  amount of
which remain outstanding. As a result of a September 1994 ruling of the Missouri
Gaming Commission  denying CQC's gaming license  application,  CQC has adopted a
plan to sell its assets for the purpose of repaying, to the extent possible, the
outstanding  CQC Notes and accrued  interest  thereon.  See  "Business - Capitol
Queen & Casino,  Inc." There can be no assurance  that CQC will be successful in
its efforts to sell its assets or, that if a sale is effected, the proceeds will
be sufficient to fully or substantially repay the CQC Notes and accrued interest
thereon. To the extent any funds CQC may realize from the sale of its assets are
not sufficient to repay the CQC Notes and accrued interest  thereon,  AC will be
obligated under its guarantee of the CQC Notes to fund the shortfall.

      Moreover,  because it has not yet effected the sale of its assets,  CQC is
in default of the Indenture governing the CQC Notes. As a result, the holders of
25% or more in  principal  amount of the CQC Notes may cause the CQC Notes to be
accelerated,  in which event they would  become  immediately  due and payable in
full. If the CQC Notes were to be accelerated,  CQC would not be able to pay the
outstanding  CQC Notes without an infusion of capital,  which is not expected to
be  available.  AC would then be  obligated  under its  guarantee to pay the CQC
Notes but is not  expected  to have the  resources  to satisfy  such  obligation
should it  materialize.  A default by AC under its guarantee would also give the
holders  of 25% or more in  principal  amount  of the AC Notes  the  ability  to
accelerate  the AC Notes.  If the AC Notes  and the CQC  Notes are  accelerated,
substantial doubt exists about AC's ability to continue as a going concern.  See
"Notes to Financial  Statements - Arizona Charlie's,  Inc. - CQC Gaming License,
Default Under Indebtedness Management's Plans, and Going Concern".

     AC's management  believes that, assuming the AC Notes and CQC Notes are not
accelerated,  it has sufficient  funds to meet its projected needs for financing
of  existing  operations  and to service  its debt  obligations.  However,  AC's
ability to obtain capital,  should it be required,  is significantly  restricted
under the Indentures governing the AC Notes and the CQC Notes. The ability of AC
to service its debt obligations  (and to comply with the  consolidated  tangible
net  worth  covenant)  will be  dependent  upon its  future  performance,  which
performance will be influenced by prevailing  economic conditions and financial,
business and competitive factors, many of which are beyond AC's control.

     Competitive Environment

      Various forms of  casino-style  gaming have been legalized in numerous new
jurisdictions   within  the  past  few  years,   including  casino   riverboats,
limited-stakes   frontier   town   gambling,   full-scale   casinos   on  Indian
reservations, card rooms and video lottery terminals, which resemble AC's gaming
machines. In addition,  several major casino-hotels were completed and opened in
Las Vegas in the past year,  continuing the  transformation of Las Vegas into an
entertainment destination offering much more than gaming. Management expects the
legalization of gaming to continue to spread and that Las Vegas will continue to
experience  at least  limited  expansion.  See "Item 1.  Business  - Market  and
Competition."

      To  date,  casino  revenues  at  Arizona  Charlie's  (and  for  Las  Vegas
generally)  have  continued  to grow  despite  the spread of  legalized  gaming.
Moreover,  management believes that AC has and will continue to benefit from the
expansion of the Las Vegas market, which has resulted in continued growth in the
residential  population,  from which AC generates  the majority of its revenues.
There can be no assurance,  however, that the spread of legalized gaming, or the
construction of new  casino-hotels in Las Vegas, will not have an adverse impact
on future revenues.

     Inflation

     AC believes  that its results of  operations  are not  dependent  upon,  or
materially affected by, the rate of inflation.



Item 8.   Financial Statements and Supplementary Data

      The  Index to  Financial  Statements  and  Schedules  appears  at page F-1
hereof,  the Report of  Registrant's  Independent  Auditors  appears at page F-2
hereof,  and the Financial  Statements and Notes to Financial  Statements of the
Registrant  and AC appear at page F-3 through  F-17 hereof and page F-18 through
F-36 hereof, respectively.

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

     Not applicable.


                            PART III

Item 10.   Director and Executive Officers of the Registrant

      The  following  table sets forth certain  information  with respect to the
directors and executive officers of the Company and each of its subsidiaries.


      Bruce  F.  Becker  has  served  as  President,  Chief  Executive  Officer,
Treasurer,  Sole Director of the Company since its inception. He has served each
of the Nevada  subsidiaries as President and Chief Executive  Officer since July
1989. Mr. Becker has also served as President, Chief Executive Officer, director
and Chairman of CQC since its  inception in January  1993 and  President,  Chief
Executive  Officer and  Chairman of the Board of  Directors  of SC and BGG since
their inceptions in 1984, 1980 and 1986,  respectively.  Mr. Becker also sits on
the Board of Directors of the Nevada Resort Owners Association.

     Barry W. Becker has served as Secretary of the Company since its inception.
He has served  each  Nevada  subsidiary  as a Director  since  their  respective
inceptions  and as  Secretary  since  July  1989.  Mr.  Becker is also the Sales
Manager for Becker Enterprises,  a Becker family-owned  company which purchases,
sells and leases residential and commercial property.  He is a past president of
the Southern Nevada Builders Association and serves the community as a member on
the Board of Directors of the Rotary Club,  Las Vegas Chamber of Commerce,  Boys
Club of Clark County and the Boy Scouts of America.  Mr. Becker was appointed by
the then Governor of the State of Nevada to the State Environment Commission and
was an  Environmental  Commissions  Representative  on the  State  Multiple  Use
Advisory Land Committee.


Item 11.   Executive Compensation

      The Company was incorporated on January 20, 1993. No compensation was paid
by the Company for  services  rendered  to the Company  during the fiscal  years
ended June 30, 1994, 1995 or 1996.

Compensation of Directors

     The directors of the Company do not receive any compensation for serving in
such capacities.

<TABLE>
<CAPTION>
   Name              Age                Position(s) Held
   ----              ---                ----------------
<S>                     <C>       <C>
Bruce F. Becker         45        President, Chief Executive
                                  Officer, Treasurer and Sole
                                    Director
Barry W. Becker         51        Secretary
</TABLE>



Item 12.    Security Ownership of Certain Beneficial  Owners  and
      Management

      The  Company  is  a  wholly  owned  subsidiary  of  Becker  Gaming,   Inc.
Accordingly, there are no sole beneficial owners of the company's common stock.


Item 13.   Certain Relationships and Related Transactions

      AC has  unconditionally  and fully  guaranteed the payment of principal of
and  interest  on the CQC Notes  until such time as CQC is  licensed to open and
operate its riverboat casino in Jefferson City, Missouri. Absent the elimination
of such  requirements upon the consent of the holders of a majority in principal
amount of the outstanding CQC Notes,  the holders of 25% in principal  amount of
the  outstanding CQC Notes will be entitled to accelerate the payment of the CQC
Notes. If payment of the CQC Notes were to be accelerated, CQC would be required
to pay the  principal of and interest on the CQC Notes out of its cash funds and
any funds it may realize from the sale of its assets,  including but not limited
to,  the  riverboat,  the land site and,  possibly,  its  development  rights in
Jefferson  City,  the value of which  likely will be  adversely  affected by the
acceleration of the CQC Notes. No assurance can be given that such funds will be
sufficient to repay the CQC Notes and accrued  interest  thereon.  To the extent
not  sufficient,  AC will be obligated  under its  guarantee of the CQC Notes to
fund the shortfall,  which may require it to borrow funds or sell assets, to the
extent permitted under the AC Indenture. See "Item 1. Business - Capitol Queen &
Casino, Inc." Similarly, SC has fully and unconditionally guaranteed the payment
of principal of and interest on the AC Notes until such time as the Expansion is
completed and AC has achieved a specified fixed charge coverage ratio.



                             PART IV

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

     The following are filed as part of this Report:

     (a)1.     Financial Statements
          An Index to Financial Statements appears at page F-1
          hereof

     (b)2.     Financial Statement Schedules
          An Index to Financial Statement Schedules appears at
page F-1 hereof

     (a)3.     Exhibits

 2.1    Agreement of Reorganization dated November 16, 1993,
           by and among Becker Gaming, Inc. ("BGI"), Arizona
           Charlie's, Inc. ("Arizona Charlie's"), Sunset
           Coin, Inc. ("Sunset Coin"), Becker Gaming Group, Inc.
           ("Becker Gaming Group"), Capitol Queen & Casino, Inc.
           ("Capitol Queen"), Charlie's Land Company ("CLC") ,
           and each of Ernest A. Becker, III, Ernest A. Becker,
           IV, Barry W. Becker and Bruce F. Becker
           (collectively, the "Beckers").*

    3.1    Articles of Incorporation of Capitol Queen.*

    3.2    First Amended By-Laws of Capitol Queen.*

    3.3    Articles of Incorporation of Arizona Charlie's.*

    3.4    Amended and Restated By-Laws of Arizona Charlie's.*

    10.1   Purchase  Agreement  dated  November  15,  1993  among  BGI,  Arizona
           Charlie's,  Capitol  Queen,  Sunset  Coin  and the  purchasers  named
           therein (the "Purchasers).*

    10.2   Indenture  dated  November 15, 1993 among Capitol  Queen,  as issuer,
           Arizona  Charlie's,  as  guarantor,  and  IBJ  Schroder  Bank & Trust
           Company ("IBJ"), as trustee.*

    10.3   Deed of Trust,  Assignment of Leases,  Security Agreement and Fixture
           Filing  dated  November  15, 1993 by Capitol  Queen,  as grantor,  to
           Charles W. Riley, as trustee,  for the benefit of IBJ , as collateral
           agent.*

    10.4   Vessel Construction Agreement dated October 23, 1993
           between Leevac Shipyards, Inc. and Capitol Queen, as
           amended by Amendment No. 1 to Vessel Construction
           Agreement dated November 15 and 17, 1993.*

    10.5   Form of First Preferred Ship Mortgage Securing an
           Indenture between Capitol Queen and IBJ.*

    10.6   Security Agreement dated November 15, 1993 between
           Capitol Queen and IBJ, as collateral agent.*

    10.7   Stock Pledge  Agreement dated November 15, 1993 between Capitol Queen
           and IBJ, as collateral agent.*

    10.8   Collateral  Agency  Agreement  dated  November 15, 1993 among Capitol
           Queen and IBJ, as trustee and collateral agent.*

    10.9   Disbursement  and Escrow  Agreement  dated  November  15,  1993 among
           Capitol  Queen  and IBJ,  as escrow  agent,  trustee  and  collateral
           agent.*

    10.10  Registration Rights Agreement dated November 15, 1993
           among Capitol Queen, Arizona Charlie's and the
           Purchasers.*

    10.11  Form of Management  Agreement to be entered into between BGI and each
           of Arizona  Charlie's,  Capitol Queen,  Sunset Coin and Becker Gaming
           Group. Included at Exhibit I to Exhibit 2-1 hereof.*

    10.12  Form of Tax Allocation Agreement to be entered into
           between BGI and each of Arizona Charlie's, Sunset
           Coin, Becker Gaming Group and Capitol Queen. Included
           at Exhibit J to Exhibit 2-1 hereof.*

    10.13  Letter   Agreement  dated  September  10,  1993  among  BGI,  Arizona
           Charlie's,  Capitol  Queen and  Ladenburg,  Thalmann & Co.,  Inc., as
           placement agent.*

    10.14  Land Purchase Option Contract dated January 4, 1993
           between Linda Ann and Harvey L. McCray and Vernon M.
           and Joyce G. Burkhalter, as seller, and R.Q.
           Enterprises, as buyer; and Wire Transfer Order and
           Closing Document dated July 26, 1993 between Arizona
           Charlie's and First Interstate Bank of Nevada.*

    10.15  Letter of Understanding dated January 26, 1993
           between Jefftel, Inc. and JCR Hotel, Inc. and River
           Queen Enterprises, Inc. and Capitol Queen.*

    10.16  Purchase Agreement dated September 20, 1993 among BGI
           and Cathryn Simmons, Public Issue Management, Inc.,
           Byron Neal Fox and Cynthia L. Pegner, Richard Moore,
           Byron Neal Fox, P.C., David Chernoff, Oscar B.
           Goodman, Eckley M. Keach, Ronald E. Partee and Carol
           Partee, and Fox & Partee.*

    10.17  Riverfront Development Agreement dated as of
           September 1, 1993 between Capitol Queen, the Company
           and Jefferson City, Missouri.*

    10.18  First  Supplemental  Indenture  dated  January 1, 1995 among  Capitol
           Queen,  as issurer,  Arizona  Charlie's,  as  guarantor,  and IBJ, as
           trustee.

    10.19  Assets  Purchase   agreement  dated  April  10,  1995  between  Aerie
           Riverboat  Casino of Missouri,  Inc., as buyer, and Capitol Queen, as
           seller.

    10.20  Letter agreement dated December 5, 1994 among  BGI
           and Cathryn Simmons, Public Issue Management, Inc.,
           Byron Neal Fox and Cynthia L. Pegner, Richard Moore,
           Byron Neal Fox, P.C., David Chernoff, Oscar B.
           Goodman, Eckley M. Keach, Ronald E. Partee and Carol
           Partee, and Fox & Partee.*

-----------

* All Exhibits are  incorporated  by  reference  to the  Company's  Registration
Statement  on Form S-4  (33-75806)  declared  effective  by the  Securities  and
Exchange Commission on May 20, 1994.

     (b)  Reports on Form 8-K
          None.
                           SIGNATURES


      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                   CAPITOL QUEEN & CASINO, INC.


Dated: September 27, 1996          By: /s/ Bruce F. Becker
                                      --------------------------
                                      Bruce F. Becker, President
                                      and Chief Executive Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant in the capacities indicated on the 27th day of September, 1996.


        Signature                  Title
        ---------                  -----


/s/ Bruce F. Becker
-------------------
Bruce F. Becker                    President, Chief Executive Officer
                                   (Principal Executive Officer) and Sole
                                    Director


/s/ Jerry Griffis
-----------------                  Controller (Principal Financial and
Jerry Griffis                      Accounting Officer)


Supplemental  Information  to  be Furnished  With  Reports  Filed
Pursuant  to Section 15(d) of the Act by Registrants  Which  Have
Not Registered Securities Pursuant to Section 12 of the Act

      The  Company has not and does not intend to send to its  security  holders
any annual  report with respect to the  Registrant's  most recent fiscal year or
any proxy  statement,  form of proxy or other  proxy  soliciting  material  with
respect to a meeting of security holders.


                          CAPITOL QUEEN & CASINO, INC.
                          (A wholly owned subsidiary of
                              Becker Gaming, Inc.)
                                    FORM 10-Q
                                      INDEX

PART I, FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)
                                                                  

CAPITOL QUEEN & CASINO, INC

Balance Sheets as of March  31, 1996 and June  30, 1995 ........    

Statements of Loss Incurred During the Development Stage for the
Three-Month Periods Ended March 31, 1996 and 1995 and for the
Nine-Month Periods Ended March 31, 1996 and 1995 and for the
period from January 20, 1993 (the date of inception) through
March 31, 1996 .................................................   

Statements of Cash Flows for the Nine-Month Periods Ended
March 31, 1996 and 1995 and for the period from January 20,
1993 (the date of inception) through March 31, 1996 ............    

Notes to Financial Statements ..................................    


ARIZONA CHARLIE'S, INC

Balance Sheets as of March 31, 1996and  June 30, 1995 ..........   

Statements of Income and Retained Earnings (Deficit) for the
Three-Month Periods Ended March 31, 1996 and 1995
and for Nine-Month Periods Ended March 31, 1996 and 1995 .......   

Statements of Cash Flows for the Nine-Month Periods Ended
March 31, 1996 and 1995 ........................................   

Notes to Financial Statements ..................................   



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

Capitol Queen & Casino, Inc. ...................................   
Arizona Charlie's, Inc. ........................................   


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings .....................................   
Item 6.  Exhibits and Reports on Form 8-K ......................   

SIGNATURES .....................................................   


                        REPORT OF INDEPENDENT ACCOUNTANTS
                                   ----------

To the Board of Directors
Capitol Queen & Casino, Inc.


We have audited the financial statements and the financial statement schedule of
Capitol  Queen & Casino,  Inc. (a  development  stage company and a wholly owned
subsidiary of Becker Gaming, Inc.) listed in Item 14(a) of this Form 10-K. These
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 financial  statements  referred to above present fairly, in
all material respects, the financial position of Capitol Queen & Casino, Inc. as
of June 30, 1996 and 1995, and its loss incurred  during the  development  stage
and its cash  flows for each of the three  years in the  period  ended  June 30,
1996,  and for the period from January 20, 1993 (the date of inception)  through
June 30, 1996, in conformity with generally accepted accounting  principles.  In
addition,  in our opinion,  the financial  statement schedule referred to above,
when considered in relation to the basic financial  statements taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.

The accompanying  financial  statements have been prepared assuming that Capitol
Queen & Casino,  Inc. will continue as a going concern.  As more fully described
in  Note  2,  the  Company  is  in  default  of  debt  covenants,  resulting  in
classification  of such debt as  currently  payable.  The Company  does not have
sufficient  resources to repay its indebtedness and management's  plans are also
described in Note 2. These matters raise  substantial  doubt about the Company's
ability to continue as a going  concern.  The final  outcome of these matters is
not presently  determinable  and the June 30, 1996  financial  statements of the
Company do not include any adjustment that might result from the outcome of this
uncertainty.




Las Vegas, Nevada
August 9, 1996

================================================================================
                          CAPITOL QUEEN & CASINO, INC.

                (A Development Stage Company And A Wholly Owned
                       Subsidiary Of Becker Gaming, Inc.)

                                 BALANCE SHEETS

                          As Of June 30, 1996 And 1995
                             (Dollars In Thousands)
================================================================================


                                     ASSETS

                                                              1996          1995
                                                           -------       -------
Current assets:

   Cash and cash equivalents .......................       $  --         $    45

   Restricted cash, in escrow account ..............            30            30
                                                           -------       -------

      Total current assets .........................            30            75
                                                           -------       -------


Other assets:
  Assets held for sale .............................         7,754        12,146

  Financing costs, net of accumulated
    amortization of $312 (1996) and
    and $212 (1995), respectively ..................           605           705
  Deposits and other assets ........................            60            60
                                                           -------       -------

      Total other assets ...........................         8,419        12,911
                                                           -------       -------


       Total assets ................................       $ 8,449       $12,986
                                                           =======       =======



                  LIABILITIES & STOCKHOLDER'S EQUITY(DEFICIT)


                                                               1996         1995
                                                          --------     --------
Current liabilities:
Accounts payable .....................................    $   --       $    142
Accrued interest .....................................       2,775          395
Advances from related parties ........................       1,006          404
Notes payable to related parties .....................       1,200        1,200
Long-term debt classified as current due to
    default under covenants, net of unamortized
    original issue discount of $2,474 (1996)
    and $2,882 (1995) ................................      17,526       17,118
                                                          --------     --------
        Total current liabilities ....................      22,507       19,259
                                                          --------     --------
        Total liabilities ............................      22,507       19,259
                                                          --------     --------

Commitments and contingencies


Stockholder's equity (deficit):
  Common stock, $1.00 par value, 1,000 shares
   authorized, 100 shares issued and outstanding .....        --           --
  Additional paid-in capital .........................      12,732       12,732
  Deficit accumulated during development stage .......     (26,790)     (19,005)
                                                          --------     --------
        Total stockholder's equity (deficit) .........     (14,058)      (6,273)
                                                          --------     --------

       Total liabilities and stockholder's
        equity(deficit) ..............................    $  8,449     $ 12,986
                                                          ========     ========

 The accompanying notes are an integral part of these financial statements.


================================================================================
                          CAPITOL QUEEN & CASINO, INC.

           (A Development Stage Company And A Wholly Owned Subsidiary
                            Of Becker Gaming, Inc.)

            STATEMENTS OF LOSS INCURRED DURING THE DEVELOPMENT STAGE
                             (Dollars In Thousands)
================================================================================
                                                                  For The Period
                                                                January 20, 1993
                                                                    (The Date Of
                                                                      Inception)
                                                                         Through
                                           Year Ended June 30,          June 30,
                                       1996        1995        1994        1996
                                   --------    --------    --------    --------


Revenues .......................   $   --      $   --      $   --      $   --

Operating expenses:
 Amortization of financing
  and other costs ..............        100         202       1,039       1,341
 Abandonment losses and
 write-downs of assets held
 for sale ......................      4,392        --         6,034      10,426
 Development costs .............        504       1,186          21       1,711
                                   --------    --------    --------    --------
     Total operating expenses ..      4,996       1,388       7,094      13,478
                                   --------    --------    --------    --------

Operating loss .................     (4,996)     (1,388)     (7,094)    (13,478)

Other income (expenses):
 Interest income ...............       --           610         655       1,265
 Interest expense ..............     (2,789)     (4,608)     (3,774)    (11,171)
 Interest capitalized ..........       --          --           683         683
                                   --------    --------    --------    --------
Total other expenses ...........     (2,789)     (3,998)     (2,436)     (9,223)
                                   --------    --------    --------    --------

Net loss before
 extraordinary item ............     (7,785)     (5,386)     (9,530)    (22,701)

Extraordinary item:
 Loss on early retirement
  of debt (no income tax
  benefit available) ...........       --        (4,089)       --        (4,089)
                                   --------    --------    --------    --------

Net loss .......................   $ (7,785)   $ (9,475)   $ (9,530)   $(26,790)
                                   ========    ========    ========    ========

 The accompanying notes are an integral part of these financial statements.

================================================================================
                          CAPITOL QUEEN & CASINO, INC.

                (A Development Stage Company And A Wholly Owned
                            Subsidiary Of Becker Gaming, Inc.)

                  STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)

                      For The Period From January 20, 1993
                  (The Date Of Inception) Through June 30, 1996
              And For The Years Ended June 30, 1996, 1995 And 1994

                             (Dollars In Thousands)
                                 -------------
================================================================================

                                                   Common Stock
                                         --------------------------------

                                      Shares      Amount         Subscribed
                                    -----------   -----------    -----------

Balances, January 20,
  1993 (the date of inception) ...         --     $-             $-
Issuance of common stock .........          100          --             --
                                    -----------   -----------    -----------

Balances, June 30, 1993 ..........          100          --             --

Cash contribution from Becker
  Gaming, Inc. relating to sale
  of warrants ....................         --            --             --
Common stock subscribed ..........         --            --              788
Contribution by Becker Gaming,
  Inc. relating to liability
  incurred under development
  agreement ......................         --            --             --
Write-off of common stock
  subscribed due to abandonment
  of development project .........         --                           --

Net loss .........................         --
                                    -----------   -----------    -----------

Balances, June 30, 1994 ..........          100          --             --

Net loss .........................         --            --             --
                                    -----------   -----------    -----------

Balances, June 30, 1995 ..........          100          --             --
                                    -----------   -----------    -----------

Net loss .........................         --            --             --
                                    -----------   -----------    -----------

Balances, June 30, 1996 ..........          100   $-             $-
                                    ===========   ===========    ===========


                                                                         Deficit
                                                                     Accumulated
                                              Additional             During The
                                               Paid-In              Development
                                               Capital      Stage       Total
                                               --------    --------    --------

Balances, January 20,
  1993 (the date of inception) .............       $-          $-          $-
Issuance of common stock ...................       --          --          --
                                               --------    --------    --------

Balances, June 30, 1993 ....................       --          --          --

Cash contribution from Becker
  Gaming, Inc. relating to sale
  of warrants ..............................      7,500        --         7,500
Common stock subscribed ....................       --          --           788
Contribution by Becker Gaming,
  Inc. relating to liability
  incurred under development
  agreement ................................      5,232        --         5,232
Write-off of common stock
  subscribed due to abandonment
  of development project ...................       (788)       --          (788)

Net loss ...................................       --        (9,530)     (9,530)
                                               --------    --------    --------

Balances, June 30, 1994 ....................     12,732      (9,530)      3,202

Net loss ...................................       --        (9,475)     (9,475)
                                               --------    --------    --------

Balances, June 30, 1995 ....................     12,732     (19,005)     (6,273)
                                               --------    --------    --------

Net loss ...................................       --        (7,785)     (7,785)
                                               --------    --------    --------

Balances, June 30, 1996 ....................   $ 12,732    $(26,790)   $(14,058)
                                               ========    ========    ========

The accompanying notes are an integral part of these financial statements.
================================================================================

                          CAPITOL QUEEN & CASINO, INC.

          ( A Development Stage Company And A Wholly Owned Subsidiary
                            Of Becker Gaming, Inc.)


                            STATEMENTS OF CASH FLOWS

                      (Dollars In For The Period Thousands)
                                January 20, 1993
                               ------------------
================================================================================

                                                       Year Ended June 30,
                                              ---------------------------------

                                                  1996        1995        1994
                                              --------    --------    --------
Cash flows from development stage activities:
  Net loss ................................   $ (7,785)   $ (9,475)   $ (9,530)
                                              --------    --------    --------
  Adjustments to reconcile net loss
   to net cash used in development
   stage activities:
  Amortization of financing and other costs        100         202       1,039
  Amortization of original issue discount .        408         834         665
  Abandonment losses and write-downs of
   assets held for sale ...................      4,392        --         6,034
  Extraordinary loss on retirement of debt        --         4,089        --
  Increase(decrease) in accounts payable
   and accruals, net of amounts for
   capital expenditures ...................      2,238        (216)        765
  Increase in advances from related
    party payable .........................        602         392        --
                                              --------    --------    --------
        Total adjustments .................      7,740       5,301       8,503
                                              --------    --------    --------
        Net cash used in development
         stage activities .................        (45)     (4,174)     (1,027)
                                              --------    --------    --------

Cash flows from investing activities:
  Capital expenditures, net of
   construction accounts payable ..........       --        (1,724)    (11,212)
  Deposits and other assets ...............       --            12         (72)
  Capitalization of preopening costs ......       --          --          (340)
  Development costs .......................       --          --          (553)
  Net (additions to) reductions in
   restricted cash equivalents ............       --        24,898     (24,929)
                                              --------    --------    --------
       Net cash provided by (used in)
        investing activities ..............       --        23,186     (37,106)
                                              --------    --------    --------

Cash flows from financing activities:
  Principal payments on First Mortgage
   Notes ..................................       --       (20,200)       --
  Proceeds from issuance of First
   Mortgage Notes, net of financing costs .       --          --        30,666
  Proceeds from borrowings under
   notes payable to related parties .......       --         1,200        --
  Equity contribution from Becker
   Gaming, Inc.relating to sale of
   warrants ...............................       --          --         7,500
                                              --------    --------    --------
       Net cash (used in) provided by
        financing activities ..............       --       (19,000)     38,166
                                              --------    --------    --------

       Net increase (decrease) in cash
        and cash equivalents ..............        (45)         12          33

Cash and cash equivalents, beginning
  of period ...............................         45          33        --
                                              --------    --------    --------

Cash and cash equivalents, end of period ..   $   --      $     45    $     33
                                              ========    ========    ========
Supplemental cash flow disclosures:
  Interest paid, net of amounts capitalized   $   --      $  4,020    $  1,787
                                              ========    ========    ========
  Original issue discount that did not
   affect cash ............................   $   --      $   --      $  7,500
                                              ========    ========    ========
  Equity contribution by Becker Gaming that
   did not affect cash ....................   $   --      $   --      $  5,232
                                              ========    ========    ========



                                     (The Date Of Inception)Through June 30,
                                     ---------------------------------------

                                                      1996
                                                  --------
Cash flows from development stage activities:
  Net loss ....................................   $(26,790)
                                                  --------
  Adjustments to reconcile net loss
   to net cash used in development
   stage activities:
  Amortization of financing and other costs ...      1,341
  Amortization of original issue discount .....      1,907
  Abandonment losses and write-downs of
   assets held for sale .......................     10,426
  Extraordinary loss on retirement of debt ....      4,089
  Increase(decrease) in accounts payable
   and accruals, net of amounts for
   capital expenditures .......................      2,787
  Increase in advances from related
    party payable .............................        994
                                                  --------
        Total adjustments .....................     21,544
                                                  --------
        Net cash used in development
         stage activities .....................     (5,246)
                                                  --------

Cash flows from investing activities:
  Capital expenditures, net of
   construction accounts payable ..............    (12,936)
  Deposits and other assets ...................        (60)
  Capitalization of preopening costs ..........       (340)
  Development costs ...........................       (553)
  Net (additions to) reductions in
   restricted cash equivalents ................        (31)
                                                  --------
       Net cash provided by (used in)
        investing activities ..................    (13,920)
                                                  --------

Cash flows from financing activities:
  Principal payments on First Mortgage
   Notes ......................................    (20,200)
  Proceeds from issuance of First
   Mortgage Notes, net of financing costs .....     30,666
  Proceeds from borrowings under
   notes payable to related parties ...........      1,200
  Equity contribution from Becker
   Gaming, Inc.relating to sale of
   warrants ...................................      7,500
                                                  --------
       Net cash (used in) provided by
        financing activities ..................     19,166
                                                  --------

       Net increase (decrease) in cash
        and cash equivalents ..................       --

Cash and cash equivalents, beginning of period        --
                                                  --------

Cash and cash equivalents, end of period ......   $   --
                                                  ========
Supplemental cash flow disclosures:
  Interest paid, net of amounts capitalized ...   $  5,807
                                                  ========
  Original issue discount that did not
   affect cash ................................   $  7,500
                                                  ========
  Equity contribution by Becker Gaming that did
       not affect cash ........................   $  5,232
                                                  ========

The accompanying notes are an integral part of these financial statements.
--------------------------------------------------------------------------------


                          CAPITOL QUEEN & CASINO, INC.
           (A Development Stage Company And A Wholly Owned Subsidiary
                             Of Becker Gaming, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                                   ----------


1.   Summary Of Significant Accounting Policies:

     Basis Of Presentation
     ---------------------

     Capitol Queen & Casino, Inc. ("CQC" or the "Company"),  a development stage
     company, was incorporated in Missouri on January 20, 1993, and had acquired
     a  franchise  from  the  City  of  Jefferson  City,  Missouri  to  develop,
     construct,  own and  operate a  riverboat  casino  (the  "Capitol  Queen"),
     subject to state  licensure.  the Company has  abandoned  the Capitol Queen
     project,  as more fully described in Note 2.  Subsequent to  incorporation,
     the stockholders of the Company  exchanged all of the outstanding  stock of
     the Company for common stock of a Nevada  holding  company,  Becker Gaming,
     Inc.  ("BGI"),  in a tax-free  exchange.  BGI is wholly owned by the Becker
     family  and  serves as a  holding  company  for the  Becker  family  gaming
     interests, which include CQC and the following wholly owned subsidiaries:

     o     Sunset  Coin, Inc. ("SC"), a Nevada corporation  which
       operates a Las Vegas gaming machine route and service business.

     o Becker Gaming Group ("BGG"),  a Nevada  corporation  which (together with
       its wholly owned subsidiary Innerout, Inc.) owns and operates restaurants
       and bars in Las Vegas under the  "Charlie's"  name,  each of which offers
       gaming machines.

     o    Arizona Charlie's, Inc. ("AC"), a Nevada corporation which
       operates a Las Vegas hotel and casino.

     Cash Equivalents And Concentration Of Credit Risk

     The  Company  considers  all highly  liquid  investments  with an  original
     maturity of three  months or less to be cash  equivalents.  The Company has
     cash on deposit with financial  institutions in excess of federally insured
     amounts.

     Property And Equipment
     ----------------------

     Property  and  equipment   are  recorded  at  cost  and  include   interest
     capitalized  during the  construction  period.  The Company's  policy is to
     compute  depreciation  using the straight-line  method. No depreciation has
     been recorded while the Company is in the development stage.


     Debt Issue Costs
     ----------------

     Costs  associated with the issuance of debt are deferred and amortized over
     the life of the related indebtedness using the effective interest method.

     Federal Income Taxes
     --------------------

     The Company  accounts  for income  taxes in  accordance  with  Statement of
     Financial  Accounting  Standards  No. 109,  "Accounting  for Income  Taxes"
     ("SFAS  109").  Under SFAS 109,  deferred  tax assets and  liabilities  are
     recognized  for  the  expected  future  tax  consequences  attributable  to
     differences  between the financial  statement  carrying amounts of existing
     assets and liabilities and their respective tax bases.  Deferred tax assets
     and  liabilities  are measured using enacted tax rates expected to apply to
     taxable  income  in the  years in which  those  temporary  differences  are
     expected to be recovered or settled. Under SFAS 109, the effect on deferred
     tax assets and liabilities of a change in tax rates is recognized in income
     in the period that includes the enactment  date.  The Company  adopted SFAS
     109 at inception (January 20, 1993).

     The  Company is  included in the  consolidated  federal  income tax returns
     filed by BGI.  CQC's tax  allocation is based on the amount of tax it would
     incur if it filed a separate return except the Company does not receive any
     benefits from carry-backs to prior years.

     Use of Estimates in the Preparation of Financial Statements

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the amounts  reported in the financial  statements
     and accompanying  notes.  Actual results could differ from those estimates,
     particularly with respect to the matters described in Notes 2 and 3.

2.   Missouri   Gaming   License,  Default  Under   Indebtedness,
     Management's Plans, and Going Concern:

     CQC was formed to develop,  own and operate the "Capitol  Queen"  riverboat
     casino and related land-based  facilities in Jefferson City,  Missouri.  On
     September  28, 1994,  CQC was notified  that its  application  for a gaming
     license was rejected by the Missouri Gaming Commission (the  "Commission").
     At the time CQC was notified of the Commission's

     decision,  construction  of the riverboat under contract with a shipbuilder
     was almost  completed.  CQC had also obtained the necessary permits for the
     land-based  development  portion  of  the  project  and  performed  certain
     dredging  and  other  site  preparation  work.  Immediately  following  the
     Commission's decision, Management temporarily suspended further development
     of the Capitol Queen  project,  pending an appeal of the decision and legal
     remedies  potentially  available to the Company.  Costs associated with the
     development of the project which had been deferred  during the  development
     stage were  written-off in the fourth quarter of the fiscal year ended June
     30, 1994.

     On  November  7, 1995,  voters in  Jefferson  City  rejected  an  ordinance
     permitting riverboat gambling, reversing the vote of an earlier election in
     which  Jefferson  City  voters  approved  riverboat  gambling.   Management
     ultimately  determined to abandon the project, and is currently looking for
     alternative  uses for the  riverboat,  including  opportunities  to sell or
     lease it to another operator.

     CQC financed the Capitol Queen project  through the issuance of $40,000,000
     in principal  amount of 12% First Mortgage Notes due November 15, 2000 (the
     "CQC Notes").  As of January 1, 1995, the indenture governing the CQC Notes
     was amended to (i)  eliminate  CQC's  obligation  to construct and open the
     Capitol Queen and (ii) permit a two-step  purchase of the CQC Notes at 101%
     of principal  plus accrued and unpaid  interest from a sale of assets.  The
     first step  repurchase  of  $20,000,000  principal  amount of the CQC Notes
     (plus accrued and unpaid  interest) was completed on January 17, 1995, with
     unexpended  funds from the project  escrow  account,  and an  aggregate  of
     $20,000,000  principal  amount  of  the  CQC  Notes  remained  outstanding.
     However,  the dates by which CQC previously  agreed with the holders of the
     CQC Notes to effect the sale of its assets and repurchase the remaining CQC
     Notes have passed, and CQC is thus in default of the amended covenants.

     The remaining CQC Notes require  annual  interest  payments of  $2,400,000,
     payable in equal installments  semi-annually on May 15 and November 15. CQC
     was not able to make its  scheduled  interest  payments  of  $1,200,000  on
     November  15,  1995  and  $1,200,000  on May 15,  1996  and AC  (which  has
     guaranteed  the CQC Notes as more fully  described  in Note 4) did not have
     available funds to advance on behalf of CQC. Further,  Management  believes
     that AC does  not  have  sufficient  financial  resources  to  satisfy  its
     guarantee obligation with respect to the CQC Notes, particularly because AC
     is in default of  covenants  under  indebtedness  AC (the "AC  Notes").  In
     connection  with the decision to abandon the project,  CQC had entered into
     an Asset  Purchase  Agreement  dated  April 10,  1995,  for the sale of its
     assets to Aerie Riverboat Casinos of Missouri,  Inc. at a purchase price of
     $18,000,000,  which price  exceeded the  carrying  value of the CQC assets.
     However,  the  consummation of the Aerie purchase  agreement was subject to
     the satisfaction of several conditions which could not be satisfied timely,
     including,  among others,  that Jefferson City consent to the assignment of
     its  Development  Agreement  with CQC,  that  Aerie be found  preliminarily
     suitable to hold a Missouri  gaming license,  and that riverboat  gaming is
     legally permitted in Jefferson City. As a result,  the agreement with Aerie
     was terminated  without  penalty when the December 31, 1995 expiration date
     passed.  As more fully  described  in Note 3, a further  write-down  in the
     carrying  value of the  riverboat was  recognized in the fourth  quarter of
     1996,  after the election in Jefferson  City,  the  expiration of the Aerie
     contract, and due to deteriorating market conditions.

     CQC  continues to market its  riverboat  assets to  prospective  buyers and
     Management is currently  undergoing  discussions with an informal committee
     representing  the  holders of the AC Notes and CQC notes  (the  "Bondholder
     Committee")  regarding  a  proposed  restructuring  plan.  Based on current
     market  conditions,  management  does not  expect  that  CQC will  generate
     sufficient  funds through the sale of its assets to  repurchase  all of the
     outstanding   CQC  Notes.   The  proposed   restructuring   plan  therefore
     contemplates  the issuance of additional AC Notes to fulfill AC's guarantee
     obligation  for remaining  principal and accrued  interest of the CQC Notes
     after  applying sale  proceeds.  However,  no  satisfactory  offers for the
     riverboat are currently  available,  and no agreement has been reached with
     the  Bondholder  Committee  regarding  the  proposed   restructuring  plan.
     Accordingly, these matters raise substantial doubt about the ability of CQC
     to continue as a going  concern.  The final outcome of these matters is not
     presently  determinable  and the June 30, 1996 financial  statements of the
     Company do not include any adjustment that might result from the outcome of
     this uncertainty.


3.   Construction Project And Related Contingencies:

     Capitol Queen Project
     ---------------------

     The Capitol Queen project, as originally  contemplated by the Company,  was
     to include the  riverboat,  dockside  facilities,  restaurants  and related
     ancillary  facilities  to be built on land  acquired by the Company in July
     1993.  As a result of the decision to  discontinue  the project,  all costs
     associated  with the design and  development of the facilities were written
     off in the fourth  quarter of the  Company's  1994  fiscal  year,  with the
     exception of the  historical  cost of the land and the riverboat  which was
     reclassified to assets held for sale.

     The Company had  contracted  with a  shipbuilder  to construct  the Capitol
     Queen riverboat. The total cost of the riverboat was $11,892,000, including
     construction period interest and other assets. During the fourth quarter of
     the year ended June 30,  1996,  based on  deteriorating  market  conditions
     after the expiration of the Aerie contract,  the Company  recognized a loss
     of $  $4,392,000  and  wrote-down  the carrying  value of the  riverboat to
     $7,500,000.  Such  revised  carrying  value  represents  management's  best
     estimate of the  riverboat's  current net realizable  value in a cash sale,
     based on  information  obtained  from  shipbuilders,  marine  brokers,  and
     purchase offers made to the Company from third parties.


     Jefferson City Development Agreement
     ------------------------------------

     The Company  acquired  the  franchise  rights to operate the Capitol  Queen
     under a development  agreement  with the City of Jefferson  City,  Missouri
     (the "Development Agreement"),  beginning September 1, 1993 for a period of
     seven years.  The Company's  rights and  obligations  under the Development
     Agreement were contingent upon receiving a gaming license which,  until the
     occurrence  of the events  described  in Note 2,  management  believed  was
     probable.

     On  November  7, 1995,  voters in  Jefferson  City  rejected  an  ordinance
     permitting  riverboat  gambling,  reversing the vote an earlier election in
     which  Jefferson City voters  approved  riverboat  gambling.  Because CQC's
     Development  Agreement with Jefferson City was entered into pursuant to the
     earlier ordinance permitting riverboat gambling,  the Company believes that
     as matter of law the 1995  election  does not  affect the  validity  of the
     Development  Agreement.  However,  to avoid  the cost  and  uncertainty  of
     litigation,  CQC and Jefferson  City in June 1996 entered into an agreement
     pursuant to which the  Development  Agreement  was  rescinded and Jefferson
     City refunded  $300,000 of the $400,000 CQC had originally paid to the City
     under the Development Agreement.

     Other Development Agreement
     ---------------------------

     As discussed  below,  the Company and BGI have each entered into additional
     agreements in connection with the development of the Capitol Queen project,
     which have been  terminated  as a result of the  decision  by the  Missouri
     Gaming Commission.

     In January 1993,  prior to  incorporation,  the stockholders of the Company
     agreed that, upon being licensed in Missouri to own and operate the Capitol
     Queen,  the  Company  would  issue  shares  of its  common  stock  to three
     individuals  who assisted the then existing  stockholders of the Company in
     obtaining  the  rights  to  develop  the  Capitol  Queen  (the  "CQC  Stock
     Agreement").  The  aggregate  amount  of  stock  subject  to the CQC  Stock
     Agreement  represents 5.25% of the outstanding common stock of the Company,
     and was  subject to  increase to 8.25% if the  convention  center  required
     under the  Development  Agreement was not constructed on land controlled by
     the  parties  to the CQC Stock  Agreement.  The  Company  has the option to
     repurchase any or all of such stock, except for 25% held by one individual,
     for a period of three years from issuance at an aggregate purchase price of
     $750,000  ($1,200,000 if the additional shares were issued). In addition to
     the above requirements of the CQC Stock Agreement,  the Company also agreed
     to pay a lump-sum  fee of  $350,000 to two of the above  individuals  after
     receiving  a license  and the  commencement  of  operations  of the Capitol
     Queen.

     At the time CQC was  awarded  the  Development  Agreement,  and  until  the
     occurrence of the events  described in Note 2, the Company  believed it was
     probable it would  receive a gaming  license in Missouri.  Accordingly,  to
     reflect the CQC Stock Agreement,  CQC recorded subscribed stock of $788,000
     (using  the  $750,000  value  described  above  for  5.0% of the  stock  to
     determine  the  value of the  remaining  25%  interest),  recorded  amounts
     payable under the agreement for $350,000 and recorded a corresponding total
     charge of $1,138,000 to development costs, to be amortized over the life of
     the  Development  Agreement.  As a result of the  decision by the  Missouri
     Gaming  Commission  and  the  abandonment  of the  Capitol  Queen  project,
     management  believes  that  it has  been  relieved  of  these  obligations.
     Accordingly,  the subscribed stock, the $350,000  liability and the related
     deferred  costs (net of  amortization  from  September  1, 1993 to June 30,
     1994) were written-off in the fourth quarter of fiscal 1994.

     In  September  1993,  the  Company's  parent,  BGI,  agreed  that it  would
     repurchase  certain  rights  to  acquire  equity  in CQC  (the  "Repurchase
     Agreement")  which  it had  previously  granted  to  various  parties  (the
     "Sellers").  The  Sellers  assisted  BGI and the  Company,  through the BGI
     stockholders,  in obtaining  the  approval to develop,  own and operate the
     Capitol  Queen  in  Jefferson  City.  Under  the  terms  of the  Repurchase
     Agreement, BGI agreed to pay the Sellers an aggregate amount of $5,925,000,
     payable in  installments  through July 1, 1997 and bearing  interest at 10%
     per annum from the date the  Capitol  Queen  opens for  business.  BGI also
     agreed that if prior to  maturity,  BGI  proposed to sell any of its common
     stock in an underwritten public offering, the Sellers may accept registered
     shares in lieu of the payments  required based on the public offering price
     of  such  shares  (less  any  underwriters  discount)  subject  to  certain
     underwriter limitations.

     The  Repurchase  Agreement  provided  that in the  event  the  development,
     ownership  or operation of a riverboat  gaming  business in Jefferson  City
     becomes  unlawful  or CQC is  declined  a gaming  license,  the  Repurchase
     Agreement  becomes  null and void.  At the time BGI entered the  Repurchase
     Agreement,  and until the occurrence of the events described in Note 2, the
     Company  believed  it was  probable  it would  receive a gaming  license in
     Missouri. Accordingly, the assumption of the liability under the Repurchase
     Agreement  was treated as an  additional  investment in CQC by BGI, and the
     related  present  value  of the  costs to the  Sellers  of  $5,232,000  was
     recorded as deferred development costs to be amortized over the life of the
     Development Agreement.

     As a result of the  decision  by the  Missouri  Gaming  Commission  and the
     abandonment  of the Capitol  Queen  project,  BGI believes that it has been
     relieved of its obligations  under the Repurchase  Agreement.  Accordingly,
     the deferred costs under the Repurchase Agreement (net of amortization from
     September 1, 1993 to June 30, 1994) were  written-off in the fourth quarter
     of fiscal 1994.

     In  addition  to the above,  in the  fourth  quarter  of fiscal  1994,  CQC
     wrote-off previously capitalized expenditures of $1,375,000 and capitalized
     pre-opening  expenses of $340,000  associated  with the  development of the
     Capitol Queen project.


4.   Long-Term Debt:

     On November  18,  1993,  the Company  completed  a private  placement  debt
     financing of $40,000,000  principal  amount of 12% First Mortgage Notes Due
     November 15, 2000 (the " CQC Notes").  The offering  generated net proceeds
     of approximately  $30,666,000  (after deducting  original issue discount of
     $7,500,000  and  debt  issue  costs).  Interest  on the  Notes  is  payable
     semi-annually.  The Notes are guaranteed by AC (which  guarantee is subject
     to release only upon licensing of the Capitol Queen, which is not expected)
     and are  collateralized  by a first  mortgage on  substantially  all of the
     assets of the  Company.  The CQC Notes have been  classified  as  currently
     payable at June 30, 1996 due to anticipated  acceleration  upon default and
     management's plans to negotiate a payoff of the indebtedness, as more fully
     described in Note 2.

     As also  described  in Note 2, the Company was unable to make the  interest
     payments  due under the CQC Notes on November  15,  1995 and May 15,  1996.
     Such past due interest in the amount of $2,400,000  has been accrued in the
     accompanying financial statements.

     As of January 1, 1995, CQC's obligations under the Indenture  governing the
     CQC Notes were  amended  with the  requisite  consent of the holders of the
     holders of the CQC Notes.  CQC's previous  obligations to complete and open
     the  Capitol  Queen have been  eliminated  and CQC has agreed to a two-step
     plan to repay the CQC  Notes.  The first  step,  which was  consummated  on
     January 17, 1995,  involved the repurchase of $20,000,000  principal amount
     of the CQC Notes at 101% of such  principal  amount plus accrued and unpaid
     interest with funds held in the  restricted  project  escrow  account.  The
     Company incurred an extraordinary loss of approximately $4,089,000 in 1995,
     reflecting  the  premium  paid  to  retire  the  debt of  $200,000  and the
     write-off  of  related,  unamortized  debt issue costs and  original  issue
     discount in the aggregate of $3,889,000.

     Concurrent  with the placement of the Notes,  BGI sold  2,500,000  warrants
     (the  "Warrants")  exercisable  for BGI common stock for gross  proceeds of
     $7,500,000.  The  gross  proceeds  from  the  sale  of  the  Warrants  were
     contributed to the Company.

     The Indenture  governing the CQC Notes (the "Indenture")  limits the use of
     the net proceeds from the offering and the sale of the Warrants to fund the
     cost of the development and construction of the Capitol Queen project,  the
     development of a convention center in Jefferson City,  Missouri and initial
     interest  payments.  The  proceeds  were  placed in  escrow  with a trustee
     pending  drawdowns  for  qualifying  project  expenditures.  As more  fully
     explained in Note 2,  certain of the proceeds  were used in January 1995 in
     connection with the first step of the plan to repay the CQC Notes.  The CQC
     Notes are not  subject to  mandatory  redemption,  except  upon a change of
     control,  or other  circumstances as defined in the Indenture.  The Company
     has the  option to  redeem  the Notes at a  premium  of 106%  beginning  on
     November 15, 1997, declining to par value on November 15, 1999. If prior to
     November 15, 1997, BGI consummates an initial public offering of its common
     stock, the Company may also redeem the CQC Notes, at a premium of 108%.

     The  Indenture  contains  covenants  that,  among other  things,  limit the
     ability of the  Company  and, in certain  cases,  AC, to pay  dividends  or
     management fees, or incur additional indebtedness.

5.   Related-Party Transactions:

     Prior to the inception of CQC and through  November 18, 1993, AC advanced a
     total of approximately  $1,090,000 to fund  development  costs of CQC which
     was fully  repaid on  November  18,  1993 with  proceeds  from the  private
     placement financing transaction.  As of June 30, 1996 and 1995, the amounts
     payable to AC by the Company for  additional  advances  were  $993,000  and
     $392,000, respectively. The advances are non-interest bearing.

     In May,  1995,  CQC borrowed $1.2 million from AC in order to have funds to
     make the semi-annual  interest  payment due on the CQC Notes. The borrowing
     was executed as an  uncollateralized  note payable to AC due June 30, 1997,
     with interest at an annual rate of 5.56%.

6.   Income Taxes:

     The components  included in determining  the provision for income taxes for
     the years ended June 30, 1996, 1995, and 1994, net of extraordinary  items,
     are shown below:

<TABLE>
<CAPTION>
                                            1996           1995           1994
                                            ----           ----           ----
<S>                                  <C>            <C>            <C>    
Tax provision (benefit) at federal
 income tax statutory rate .......   $(2,647,000)   $(1,831,000)   $(3,240,000)
Unrecognized tax benefit from net
 operating losses ................     2,574,000      1,831,000      3,240,000
Other ............................        73,000           --             --
                                     -----------    -----------    -----------

         Income tax provision ....   $      --      $      --      $      --
                                     -----------    -----------    -----------
</TABLE>


     Deferred income taxes reflect the net tax effects of temporary  differences
     between  the  carrying  amounts of assets  and  liabilities  for  financial
     reporting purposes, and the amounts used for income tax purposes. The major
     components of deferred taxes as of June 30, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                                  1996           1995
                                                  ----           ----
<S>                                        <C>            <C>   
Liabilities ............................   $      --      $      --
                                             ---------      ---------
Assets:

Federal net operating loss carryforwards     4,582,000      4,420,000
  Accrued interest expense .............       918,000           --
  Valuation allowance for assets held
    for sale ...........................     1,494,000           --
  Total deferred tax assets ............     6,994,000      4,420,000
                                             ---------      ---------
  Valuation allowance ..................    (6,994,000)    (4,420,000)
                                            ----------     ----------
  Net deferred taxes ...................   $       --      $      --
                                             ---------      ---------
</TABLE>

     As of  June  30,  1996,  the  Company  had a  federal  net  operating  loss
     carryforward of  approximately  $13,478,000  which expires between 2009 and
     2011.

7.   Fair Value of Financial Instruments:

     The estimated fair value of the Company's  financial  instruments have been
     determined  by  the  Company  using   available   market   information  and
     appropriate valuation methodologies.  The carrying amounts of cash and cash
     equivalents,   accounts   receivable,   accounts  payable,   capital  lease
     obligations  and  notes  approximate  fair  values  due to  the  short-term
     maturities and approximate market interest rates of these instruments.

     Management  is  unable  to  determine  a fair  value  for  the  outstanding
     $20,000,000 principal amount ($17,526,000 carrying amount at June 30, 1996)
     of 12% First  Mortgage  Notes due  November  15, 2000 of Capitol  Queen and
     Casino, Inc. (the "CQC Notes"). It is not practicable to determine the fair
     value of these financial  instruments  due to the debt covenant  violations
     and related uncertainties  involved in negotiations with the holders of the
     AC Notes and CQC Notes, as more fully discussed in Note 2.


                       REPORT OF INDEPENDENT ACCOUNTANTS
                                  ------------

To the Board of Directors
Arizona Charlie's, Inc.


We have audited the financial statements and the financial statement schedule of
Arizona  Charlie's,  Inc. (a wholly owned  subsidiary  of Becker  Gaming,  Inc.)
listed in Item 14(a) of this Form 10-K. These financial statements and financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial statement schedule 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 financial  statements  referred to above present fairly, in
all material respects,  the financial position of Arizona Charlie's,  Inc. as of
June 30, 1996 and 1995, and the results of its operations and its cash flows for
each of the three  years in the period  ended June 30, 1996 in  conformity  with
generally  accepted  accounting  principles.  In addition,  in our opinion,  the
financial  statement  schedule referred to above, when considered in relation to
the  basic  financial  statements  taken as a  whole,  presents  fairly,  in all
material respects, the information required to be included therein.

The accompanying  financial  statements have been prepared assuming that Arizona
Charlie's, Inc. ("AC") will continue as a going concern. As more fully described
in Note 2, AC is in default of debt covenants,  resulting in the  classification
of such debt as currently  payable.  AC is also  obligated as a guarantor  under
indebtedness of an affiliated company, and such indebtedness is also in default.
AC does not have  sufficient  resources to repay the  indebtedness  or honor its
guarantee on a current basis and  management's  plans are also described in Note
2. These matters raise substantial doubt about the ability of Arizona Charlie's,
Inc. to continue as a going  concern.  The final outcome of these matters is not
presently determinable and the June 30, 1996 financial statements of the Arizona
Charlie's, Inc. do not include any adjustment that might result from the outcome
of this uncertainty.





Las Vegas, Nevada
August 9, 1996

================================================================================
                             ARIZONA CHARLIE'S, INC.

               (A Wholly Owned Subsidiary Of Becker Gaming, Inc.)

                                  BALANCE SHEET
                          As Of June 30, 1996 and 1995
                             (Dollars In Thousands)
                                   ----------
================================================================================


                                     ASSETS

                                                           1996            1995
                                                       --------        --------
Current assets:

   Cash and cash equivalents....................       $  4,591        $  5,404
   Restricted cash, in escrow account...........             10              10
   Trade and other accounts receivable..........            473             658
   Receivable from related parties..............          1,539             820
   Notes receivable from related party..........             --           4,416
   Inventories .................................            575             661
   Prepaid expenses ............................          1,118           1,162
                                                       --------        --------
      Total current assets......................          8,306          13,131
                                                       --------        --------
Property and equipment:
   Building and improvements ...................         37,488          37,485
   Furniture and equipment......................         22,575          22,609
   Land improvements ...........................          1,628           1,628
                                                       --------        --------
                                                         61,691          61,722
   Less, accumulated depreciation ..............        (16,218)        (13,572)
                                                       --------        --------
                                                         45,473          48,150
   Land ........................................            208             208
                                                       --------        --------
        Net property and equipment..............         45,681          48,358
                                                       --------        --------
Other assets:
   Receivable from related party, noncurrent....            987             240
   Deposits and other ..........................            460             551
   Notes receivable from related party .........           --             4,416
   Financing costs, less accumulated
     amortization of $1,366 (1996)
     and $880 (1995)                                      2,507           2,993
                                                       --------        --------

        Total other assets......................          8,370           3,784
                                                       --------        --------

        Total assets ...........................       $ 62,357        $ 65,273
                                                       ========        ========



            LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

                                                          1996             1995
                                                      --------         --------
Current
liabilities:
  Trade accounts payable......................        $  1,452         $  1,449
  Construction accounts payable ..............            --
  Accounts payable to related parties.........               4                3
  Accrued expenses ...........................           3,323            3,097
  Management fees due Becker Gaming, Inc......           4,682            3,287
  Notes payable...............................             110              121
  Notes payable to related party..............           2,250            2,250
  Current portion of
     obligations under capital leases.........              15                4
  Long-term debt classified as
     current due to default
     under covenants .........................          55,000             --
                                                      --------         --------

         Total current liabilities............          66,836           10,211

Long-term debt, less current portion..........           --              55,000
Subordinated notes payable to prior
  stockholders ...............................           5,000            5,000
Obligations under capital leases,
  less current portion .........                            22                4
                                                      --------         --------

         Total liabilities....................          71,858           70,215
                                                      --------         --------

Commitments and contingencies

Stockholder's equity (deficit):
  Common stock, no par value, 2,500
     shares authorized, 1,000 shares
     issued and outstanding...................             469              469
  Retained earnings (deficit).................          (9,970)          (5,411)
                                                      --------         --------
         Total stockholder's equity
          (deficit).................                    (9,501)          (4,942)
                                                      --------         --------

         Total liabilities and
         stockholder's equity (deficit).......        $ 62,357         $ 65,273
                                                      ========         ========

The accompanying notes are an integral part of these financial statements.
================================================================================
                             ARIZONA CHARLIE'S, INC.
               (A Wholly Owned Subsidiary Of Becker Gaming, Inc.)

                            STATEMENTS OF OPERATIONS
                             (Dollars In Thousands)

================================================================================
                                                   Year Ended June 30,
                               ------------------------------------------------
                                             1996        1995        1994
Revenues:
  Gaming .............................   $ 52,831    $ 47,466    $ 38,955
  Food and beverage ..................     13,204      10,647       8,459
  Hotel ..............................      3,208       2,614       1,219
  Bowling ............................       -            -           251
  Gift shop ..........................        590         577         535
  Management fee from affiliates .....       -            -           281
  Other ..............................      1,145         912         399
                                         --------    --------    --------

      Gross revenues .................     70,978      62,216      50,099

Less, promotional allowances .........     (7,677)     (5,134)     (3,652)
                                         --------    --------    --------

      Net revenues ...................     63,301      57,082      46,447
                                         --------    --------    --------

Operating expenses:
  Gaming .............................     18,612      15,359      11,681
  Food and beverage ..................     12,511      11,388       8,389
  Hotel ..............................      1,413       1,377         714
  Bowling ............................        -           -           387
  Gift shop ..........................        475         450         458
  Advertising and promotion ..........      4,726       3,837       3,093
  General and administrative .........     17,660      15,358      13,867
  Payments under guarantee obligation         601       1,592         -
  Management fee - Becker Gaming, Inc.      1,396       3,099         188
  Rent expense paid to related party .        217         191         343
  Depreciation and amortization ......      3,491       3,373       2,222
                                         --------    --------    --------

      Total operating expenses .......     61,102      56,024      41,342
                                         --------    --------    --------
      Operating income ...............      2,199       1,058       5,105
                                         --------    --------    --------

Other income (expenses):
  Interest income ....................        286         580         769
  Interest expense ...................     (7,095)     (7,250)     (5,223)
  Interest capitalized ...............                    676         460
  Other, net .........................         51         -            23

      Total other expenses ...........     (6,758)     (5,994)     (3,971)
                                         --------    --------    --------

    Net (loss)income before income tax     (4,559)     (4,936)      1,134

    Provision for income taxes                -           -           -
                                         --------    --------    --------

    Net (loss) income ................   $ (4,559)   $ (4,936)   $  1,134
                                         ========    ========    ========


The accompanying notes are an integral part of these financial statements.

================================================================================

                             ARIZONA CHARLIE'S, INC.

               (A Wholly Owned Subsidiary Of Becker Gaming, Inc. )

           STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) For The Years
                       Ended June 30, 1996, 1995 And 1994
                             (Dollars In Thousands)
================================================================================

                                                           Additional
                                         Common Stock      Paid-in
                                      Shares     Amount    Capital
                                      ------    -------    ------

Balances, June 30, 1993 ............   1,000    $ 1,513        $-

 Distributions to stockholders .....
 Reclassification of undistributed
     earnings to additional paid-in
     capital upon termination of S
     corporation election ..........    --         --         732
 Contribution of land from
     Becker Gaming, Inc. ...........    --         --         208
 Forgiveness of receivable from
     Charlie's Land Company in
     connection with the
     Reorganization ................    --         --        (729)
 Net transfer of certain assets
     and liabilities to Becker
     Gaming, Inc. as part of
     the Reorganization ............    --       (1,044)     (211)
 Net income ........................    --         --        --
                                      ------    -------    ------

Balances, June 30, 1994 ............   1,000        469      --


 Net loss ..........................    --         --        --
                                      ------    -------    ------

Balances, June 30, 1995 ............   1,000        469      --

 Net loss ..........................    --         --        --
                                      ------    -------    ------

Balances, June 30, 1996 ............   1,000    $   469      $-
                                      ======    =======    ======


                                      Retained
                                      Earnings
                                      (Deficit)    Total
                                      -------    -------

Balances, June 30, 1993 ............  $ 4,440    $ 5,953

 Distributions to stockholders .....   (5,317)    (5,317)
 Reclassification of undistributed
     earnings to additional paid-in
     capital upon termination of S
     corporation election ..........     (732)      --
 Contribution of land from
     Becker Gaming, Inc. ...........     --          208
 Forgiveness of receivable from
     Charlie's Land Company in
     connection with the
     Reorganization ................     --         (729)
 Net transfer of certain assets
     and liabilities to Becker
     Gaming, Inc. as part of
     the Reorganization ............     --       (1,255)
 Net income ........................    1,134      1,134
                                      -------    -------

Balances, June 30, 1994 ............     (475)        (6)


 Net loss ..........................   (4,936)    (4,936)
                                      -------    -------

Balances, June 30, 1995 ............   (5,411)    (4,942)

 Net loss ..........................   (4,559)    (4,559)
                                      -------    -------

Balances, June 30, 1996 ............  $(9,970)   $(9,501)
                                      =======    =======

The accompanying notes are an integral part of these financial statements.

================================================================================
                             ARIZONA CHARLIE'S, INC.
               (A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
                            STATEMENTS OF CASH FLOWS
                             (Dollars In Thousands)
================================================================================

                                                       Year Ended June 30,
                                                            --------
                                                    1996       1995       1994
                                                 --------   --------   --------
Cash flows from operating activities:
 Net income (loss) ............................  $ (4,559)  $ (4,936)  $  1,134
                                                 --------   --------   --------
 Adjustments  to  reconcile  net  income
   (loss) to net  provided  by (used by)
   operating activities:
  Provision for losses on related
   party receivables ..........................       601      1,592       --

  Depreciation and amortization ...............     3,491      3,373      2,222
  (Gain) loss on sale of equipment ............        11         (2)       (23)
(Increase) decrease in operating assets:
  Receivables .................................       185       (387)       408
  Inventories .................................        86       (108)        33
  Prepaid expenses ............................       241       (339)       433
  Deposits and other ..........................       (41)       (92)      --

Increase (decrease) in operating liabilities:
  Accounts payable, net of amounts
   for capital ................................         3       (144)       633
   expenditures
  Accrued expenses ............................       226        716        848
  Management fees due to Becker Gaming, Inc. ..     1,395      3,099        188
                                                 --------   --------   --------

    Total adjustments .........................     6,198      7,708      4,742
                                                 --------   --------   --------

    Net cash provided by operating activities .     1,639      2,772      5,876
                                                 --------   --------   --------

Cash flows from investing activities:
  Note receivable issued to CQC ...............      --       (1,200)      --

  Capital expenditures, net of amounts in
   accounts payable ...........................      (190)   (24,253)   (11,379)
  Increase in receivable from Becker Gaming,
   Inc ........................................    (2,065)    (4,154)      (300)

  Net (additions to) reductions in restricted
    cash equivalents ..........................      --       26,102    (26,112)

  Proceeds from assets sales ..................        15        104        269
  Deposits and other ..........................      --         --          342
                                                 --------   --------   --------

    Net cash used in investing activities .....    (2,240)    (3,401)   (37,180)
                                                 --------   --------   --------

Cash flows from financing activities:
  Proceeds from notes payable, net of
   financing costs ............................      --         --       51,105

  Proceeds from subordinated notes payable to .      --         --        5,000
   stockholders
  Proceeds from borrowing under notes payable .      --        2,250       --
  Principal payments on notes payable .........      (208)      (199)   (17,421)

Payments under capital lease obligations ......        (4)       (32)      (848)
  Distributions to former stockholders ........      --         --       (5,317)
  Payment of liability for Charlie's Land
   Company ....................................      --         --         (729)
                                                 --------   --------   --------

    Net cash provided by  (used in) financing
   activities .................................      (212)     2,019     31,790
                                                 --------   --------   --------
    Net increase (decrease) in cash and cash
   equivalents ................................      (813)     1,390        486

Cash and cash equivalents, beginning of
  the year ....................................     5,404      4,014      3,528
                                                 --------   --------   --------

Cash and cash equivalents, end of the year ....  $  4,591   $  5,404   $  4,014
                                                 ========   ========   ========

The accompanying notes are an integral part of these financial statements.

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

                            ARIZONA CHARLIE'S, INC.
               (A Wholly Owned Subsidiary Of Becker Gaming, Inc.)

                         NOTES TO FINANCIAL STATEMENTS
                                   ----------

1. Summary Of Significant Accounting Policies:

Nature Of Operations
--------------------

Arizona Charlie's, Inc. ("AC" or the "Company") owns and operates
a casino and related hotel in Las Vegas, Nevada.

In connection with the financing transaction more fully discussed in Note 6, the
stockholders  of AC  exchanged  all of their  stock in the  Company for stock of
Becker Gaming, Inc. ("BGI") (the  "Reorganization") and, effective June 1, 1994,
AC became a wholly owned  subsidiary of BGI. BGI has no  independent  activities
other than providing  management and  administrative  services to, and exploring
and developing  business  opportunities  for its  subsidiaries,  and serves as a
holding company for AC and the following entities:

     o    Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
       in the development stage of construction of a riverboat casino in
       Jefferson City, Missouri (the "Capitol Queen").

     o     Sunset  Coin, Inc. ("SC"), a Nevada corporation  which
       operates a Las Vegas gaming machine route and service business.

     o Becker Gaming Group ("BGG"), a Nevada  corporation  which,  together with
       its wholly owned subsidiary Innerout, Inc., owns and operates restaurants
       and bars in Las Vegas under the  "Charlie's"  name,  each of which offers
       gaming machines.

As a part of the  Reorganization  described  above,  the following  transactions
occurred:

     o The  stockholders  of BGI caused the ownership of the land underlying and
       adjacent to Arizona  Charlie's  to be  transferred  to the  Company  from
       Charlie's  Land  Company  ("CLC"),  an entity  also then owned by the BGI
       stockholders.  The land was first  conveyed to BGI by CLC in exchange for
       BGI stock and then  contributed by BGI to AC at its historical cost basis
       of  approximately  $208,000.  Concurrent  with the  transfer of land,  AC
       forgave  $729,000 due the Company  from CLC which arose in November  1993
       when the Company  paid-off CLC's mortgage on the land in contemplation of
       the Reorganization.

    o    Certain property and equipment, consisting of aircraft and
       boats with a net book value of approximately $5,254,000, accounts
       payable relating to such property and equipment of  approximately
       $252,000, and related encumbrances in the form of capital lease
       obligations totaling approximately $3,900,000, were transferred
       from AC to BGI.  In addition, certain prepaid expenses totaling
       approximately $153,000 were transferred from AC to BGI.  Such
       prepaid expenses consisted primarily of insurance related to
       certain personnel who were transferred from the Company to BGI in
       connection with the Reorganization.  The net effect of the above
       transactions was to transfer net assets with a historical book
       value of approximately $1,255,000.

The forgiveness of  indebtedness  from CLC and the transfer of net assets to BGI
are reflected as  distributions  to  stockholders in the Company's June 30, 1994
Statement of Stockholder's Equity
(Deficit).

Subsequent  to the  Reorganization,  certain  overhead  expenses  of the Company
(primarily related to executive  compensation),  have been eliminated.  However,
effective  June 1, 1994,  the Company is required to pay a management fee to BGI
in connection  with  executive  services  equal to a percentage of the Company's
gross  operating  revenues.  Under the AC Indenture,  no management fees will be
payable by AC until completion of AC's ongoing  expansion  project and such time
as AC has  attained  a  specified  fixed  charge  coverage  ratio  of 2.25 to 1.
However,  such fees  accrue  until paid.  See Note 9 of AC's Notes to  Financial
Statements.

Gaming Revenue
--------------

In accordance with industry  practice,  the Company recognizes as gaming revenue
the net win from gaming activities,  which is the difference between gaming wins
and losses.

Promotional Allowances
----------------------

The retail  value of hotel  accommodations,  food,  beverage and gift shop items
provided to  customers  without  charge is included in gross  revenues  and then
deducted as  promotional  allowances  to arrive at net  revenues.  The estimated
costs of providing such  promotional  allowances  have been classified as gaming
expenses through interdepartmental allocations, as follows:

<TABLE>
<CAPTION>
                                             Years Ended June 30,
                                             --------------------
                                         1996      1995      1994
                                         ----      ----      ----
           <S>                         <C>        <C>      <C>
           Hotel .........             $  261    $  164    $  119
           Food & Beverage              3,824     2,260     2,005
                                        -----     -----     -----

                                       $4,085    $2,424    $2,124
                                       ======    ======    ======
</TABLE>


Cash Equivalents And Concentration Of Credit Risk
-------------------------------------------------

The Company considers all highly liquid investments with an original maturity of
three  months or less to be cash  equivalents.  The  Company has cash on deposit
with financial institutions in excess of federally insured amounts.

Inventories
-----------

Inventories are valued at the lower of cost (first-in, first-out) or market.

Property And Equipment
----------------------

Property and equipment are stated at cost.  Maintenance  and repairs are charged
to expense when incurred.  Upon  retirement or disposal of assets,  the cost and
accumulated depreciation are eliminated from the accounts and the resulting gain
or loss is credited or charged to income, as appropriate.

Building,  building improvements and land improvements are depreciated using the
straight-line method over estimated useful lives of 5 to 40 years. Furniture and
equipment are  depreciated  using  straight-in  declining  balance  methods over
estimated useful lives of 5 to 10 years.

Financing Costs
---------------

Costs  associated  with the issuance of debt are deferred and amortized over the
life of the related indebtedness using the effective interest method.

Preopening Expense
------------------

Certain preopening costs, consisting principally of personnel cost, training and
other  costs  directly  associated  with  the  opening  of new  hotel-casino  or
significant  expansions of the existing hotel-casino are capitalized and charged
to expense over a period not to exceed one year  following the  commencement  of
related operations. During the year ended June 30, 1994, the Company capitalized
$27,000 of preopening  costs which were amortized during the year ended June 30,
1995 after the expansion was completed. During the years ended June 30, 1996 and
1995, the Company did not capitalize any preopening costs.

Federal Income Taxes
--------------------

Prior to January 1, 1994,  the Company was taxed under Section 1362  (Subchapter
S) of the Internal  Revenue  Code,  which  provides  that,  in lieu of corporate
income taxes,  the stockholders  are taxed on their  proportionate  share of the
Company's taxable income or loss.  Therefore,  these financial statements do not
include any provision or liability  for  corporate  income taxes for the periods
prior to December 31, 1993.

Effective January 1, 1994, the Company terminated its S corporation election and
adopted  Statement of Financial  Accounting  Standards No. 109,  "Accounting for
Income Taxes" ("SFAS 109").  Under SFAS 109 deferred tax assets and  liabilities
are  recognized  for  the  expected  future  tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and  liabilities  and their  respective  tax  bases.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  Under SFAS 109,  the effect on  deferred  tax assets and
liabilities  of a change in tax rates is recognized in income in the period that
included the enactment position or results of operations.

In connection  with the  Reorganization,  beginning June 1, 1994, the Company is
included in the  consolidated  federal income tax returns filed by BGI. AC's tax
allocation  is based on the amount of tax it would  incur if it filed a separate
return, except the Company does not receive any benefit from carrybacks to prior
years.

Reclassifications
-----------------

Certain amounts in the 1994 and 1995 financial statements have been reclassified
to conform with the 1996 presentation.

Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates,  particularly  with respect to
the matters discussed in Note 2.


2.CQC Gaming License, Default Under Indebtedness, Management's Plans, 
and Going Concern:

AC has  guaranteed  the payment of principal and interest of 12% First  Mortgage
Notes due November 15, 2000 issued by CQC, of which $20,000,000 principal amount
and $2,400,000 in past-due  accrued  interest are  outstanding at June 30, 1996.
CQC was formed to develop,  own and operate the "Capitol Queen" riverboat casino
and related land-based  facilities in Jefferson City, Missouri. On September 28,
1994, CQC was notified that its application for a gaming license was rejected by
the Missouri Gaming Commission (the "Commission").  At the time CQC was notified
of the Commission's decision,  construction of the riverboat under contract with
a shipbuilder was almost completed.  CQC had also obtained the necessary permits
for the  land-based  development  portion of the project and  performed  certain
dredging and other site preparation work. Immediately following the Commission's
decision,  Management  temporarily  suspended further development of the Capitol
Queen project,  pending an appeal of the decision and legal remedies potentially
available to the Company.

On November 7, 1995,  voters in Jefferson City rejected an ordinance  permitting
riverboat gambling, reversing the vote of an earlier election in which Jefferson
City voters approved riverboat  gambling.  Management  ultimately  determined to
abandon the  project  and is  currently  looking  for  alternative  uses for the
riverboat, including opportunities to sell or lease it to another operator.

CQC financed the Capitol Queen project  through the issuance of  $40,000,000  in
principal  amount of 12% First  Mortgage  Notes due  November 15, 2000 (the "CQC
Notes").  As of January  1,  1995,  the  indenture  governing  the CQC Notes was
amended to (i)  eliminate  CQC's  obligation  to construct  and open the Capitol
Queen and (ii) permit a two-step  purchase of the CQC Notes at 101% of principal
plus  accrued  and  unpaid  interest  from a sale  of  assets.  The  first  step
repurchase of  $20,000,000  principal  amount of the CQC Notes (plus accrued and
unpaid  interest) was completed on January 17, 1995, with unexpended  funds from
the project escrow account, and an aggregate of $20,000,000  principal amount of
the CQC Notes remained  outstanding.  However, the dates by which CQC previously
agreed  with the  holders  of the CQC Notes to effect the sale of its assets and
repurchase  the remaining  CQC Notes have passed,  and CQC is thus in default of
the amended covenants.

The remaining CQC Notes require annual interest payments of $2,400,000,  payable
in equal installments  semi-annually on May 15 and November 15. CQC was not able
to make its scheduled  interest  payments of $1,200,000 on November 15, 1995 and
$1,200,000  on May 15,  1996 and AC did not have  available  funds to advance on
behalf of CQC. AC is also in default of certain covenants under its indebtedness
(the "AC  Notes",  as more fully  described  in Note 6). AC is  restricted  from
selling  assets  under  the  covenants  governing  the AC Notes  and  management
believes that access to additional capital from other sources is restricted as a
result  of the  above-described  circumstances.  AC  does  not  have  sufficient
financial resources  (including a guarantee of the AC Notes by SC, as more fully
described  in Note 6) to repay the AC Notes on a current  basis and  satisfy its
guarantee  obligation  with  respect to the CQC Notes.  In  connection  with the
decision  to  abandon  the  project,  CQC had  entered  into an  Asset  Purchase
Agreement  dated April 10, 1995,  for the sale of its assets to Aerie  Riverboat
Casinos of  Missouri,  Inc.  at a purchase  price of  $18,000,000,  which  price
exceeded the carrying value of the CQC assets.  However, the consummation of the
Aerie purchase  agreement was subject to the satisfaction of several  conditions
which could not be satisfied  timely,  including,  among others,  that Jefferson
City consent to the assignment of its Development Agreement with CQC, that Aerie
be found  preliminarily  suitable to hold a Missouri  Gaming  license,  and that
riverboat  gaming is legally  permitted  in  Jefferson  City.  As a result,  the
agreement with Aerie was terminated  without  penalty when the December 31, 1995
expiration date passed.

CQC  continues  to  market  its  riverboat  assets  to  prospective  buyers  and
Management of the Company, AC and CQC are currently undergoing  discussions with
an  informal  committee  representing  the holders of the AC Notes and CQC notes
(the "Bondholder  Committee") regarding a proposed  restructuring plan. Based on
current  market  conditions,  management  does not expect that CQC will generate
sufficient  funds  through  the  sale of its  assets  to  repurchase  all of the
outstanding CQC Notes. The proposed  restructuring  plan therefore  contemplates
the issuance of additional  AC Notes to fulfill AC's  guarantee  obligation  for
remaining  principal and accrued  interest of the CQC Notes after  applying sale
proceeds.  However,  no  satisfactory  offers for the  riverboat  are  currently
available,  and no  agreement  has been reached  with the  Bondholder  Committee
regarding  the proposed  restructuring  plan.  Accordingly,  these matters raise
substantial  doubt about the ability of AC to continue as a going  concern.  The
final outcome of these matters is not  presently  determinable  and the June 30,
1996 financial  statements of AC do not include any adjustment that might result
from the outcome of this uncertainty.



3.Supplemental Cash Flow Information:

The following are  supplemental  disclosures  of cash flow  information  for the
years ended June 30, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                               1996         1995         1994
                                               ----         ----         ----
<S>                                      <C>          <C>          <C>
Interest paid, net of amounts
  capitalized ........................   $7,116,000   $7,115,000   $3,883,000
                                         ==========   ==========   ==========

Capitalized lease obligations
  incurred ...........................   $   34,000   $    9,000   $3,650,000
                                         ==========   ==========   ==========

Net transfer of assets and
  liabilities to Becker Gaming, Inc. .   $     --     $     --     $1,255,000
                                         ==========   ==========   ==========
Contribution of land to AC from
  Becker Gaming, Inc. ................   $     --     $     --     $  208,000
                                         ==========   ==========   ==========
Net transfer of assets and related
  liabilities from Becker Gaming, Inc.   $     --     $   25,000   $     --
                                         ==========   ==========   ==========
</TABLE>


4.Accrued Expenses:

Major classes of accrued  expenses  consist of the following as of June 30, 1996
  and 1995:

<TABLE>
<CAPTION>
                                             1996         1995
                                             ----         ----
     <S>                                  <C>          <C>
     Wages payable and accrued salaries   $  811,000   $  703,000
     Accrued vacation .................      306,000      251,000
     Group insurance ..................      352,000      300,000
     Gaming taxes .....................      239,000      260,000
     Payroll and other taxes ..........      405,000      381,000
     Progressive slot liability .......       88,000       94,000
     Other accrued expenses ...........      128,000       93,000
     Accrued interest .................      994,000    1,015,000
                                             -------    ---------

                                          $3,323,000   $3,097,000
                                          ==========   ==========
</TABLE>


5.Notes Payable:

Notes payable consist of the following as of June 30, 1996 and 1995:

<TABLE>
<CAPTION>
                                                           1996         1995
                                                           ----         ----
<S>                                                  <C>          <C>
 Related parties:
      Notes payable to SC with interest at 5.56%
      uncollaterized and due May 1997 ............   $2,250,000   $2,250,000

 Nonrelated parties:
      5.96% note payable in monthly
      installments of $22,352, including interest,
      through January, 1997, uncollateralized ....   $  110,000   $  121,000
                       -----                         ----------   ----------

                   Total notes payable ...........   $2,360,000   $2,371,000
                                                     ==========   ==========
</TABLE>




6.Long-Term Debt:

Long-term debt consists of the following as of June 30, 1996 and 1995:

<TABLE>
<CAPTION>
                                                      1996          1995
                                                      ----          ----
<S>                                            <C>           <C>
12%  First  Mortgage  Notes Due November 
 15, 2000 (the "AC Notes") with interest
 payable semiannually classified as 
 currently payable due to defaults under
 covenants (see below) .................       $55,000,000   $55,000,000
                                               ===========   ===========
</TABLE>


On November 18, 1993, the Company completed a private placement of the AC Notes.
The  offering  generated  net  proceeds  of  approximately   $33,684,000  (after
deducting  debt issue costs of  approximately  $16,294,000  and $497,000 used to
repay principal and accrued interest,  respectively, to a bank which was due and
payable  on  November  18,  1993).  The AC Notes  are  guaranteed  by SC  (which
guarantee  is  subject  to  release  upon  completion  of  the  Expansion  which
management  believes has been satisfied,  and the attainment of a fixed coverage
ratio by the Company of 2.25 to 1,  following the  completion of the  Expansion,
which has not been  satisfied)  and are  collateralized  by a first  mortgage on
substantially all of assets of the Company, including the Expansion.

As of June 30,  1996,  AC is in  default  of certain  debt  covenants  under the
Indenture  governing  the AC Notes.  These  covenant  violations  include  (i) a
failure  to meet a minimum  Fixed  Charge  Coverage  ratio,  as  defined  in the
Indenture,  and (ii) advances by AC to Becker Gaming,  Inc. which exceed amounts
allowed for under the Indenture.  Such advances  remain  outstanding at June 30,
1996. In addition,  beginning with the quarter ending  December 31, 1995, AC has
not met the Minimum Tangible Net Worth requirement, defined in the AC Indenture.
Under the terms of the  Indenture,  AC is  technically  required to offer to buy
back $11,000,000 of the outstanding AC Notes at June 30, 1996 due to the failure
to meet this covenant,  increasing by $5,500,000 each fiscal quarter. AC has not
made such  offer and does not  intend  to do so while the  discussions  with the
Bondholder  Committee  are in  process.  As a  result  of these  defaults  under
covenants,  the AC Notes  have  been  classified  as  currently  payable  in the
accompanying  financial statements.  Management's plans are more fully described
in Note 2.

The Indenture governing the AC Notes (the "Indenture") limits the use of the net
proceeds from the offering to fund the cost of the Expansion.  The proceeds were
placed in escrow  with a  trustee  pending  draw-downs  for  qualifying  project
expenditures  and are classified as restricted  cash, in escrow account,  in the
accompanying  financial  statements.  The AC Notes are not subject to  mandatory
redemption,  except upon a change of control,  decline in tangible net worth, or
certain  assets  sales,  all as defined in the  Indenture.  The  Company has the
option to redeem the AC Notes at a premium of 106%  beginning  on  November  15,
1997, declining to par value on November 15, 1999.

The Indenture contains covenants that, among other things,  limit the ability of
the Company and, in certain cases,  SC, to pay dividends or management  fees, or
incur additional  indebtedness.  The Indenture also requires the Expansion to be
completed in a specified manner and time frame,  which  management  believes has
been achieved.

In connection with AC's guarantee of the CQC Notes, the Indenture  governing the
CQC Notes  imposes  certain  restrictive  covenants  on the  Company,  including
minimum cash flow and net worth  requirements  and  restrictions  on  additional
borrowings and distributions of earnings.


7.Income Taxes:

During the period from January 1, 1994 (the  effective  termination  date of the
Company's S  corporation  election)  to June 30,  1994 and for the fiscal  years
ended June 30, 1996 and 1995,  the Company  incurred  net  operating  losses for
federal income tax purposes, and accordingly,  these financial statements do not
include a provision for federal income taxes.

The components  included in determining the provision for income taxes are shown
below for the years ended June 30, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                             1996           1995           1994
                                             ----           ----           ----
<S>                                   <C>            <C>            <C>
Tax provision at federal income tax
     statutory rate ...............   $(1,550,000)   $(1,678,000)   $   386,000
Income tax liability borne by
     stockholders during period of
     S corporation status .........          --             --         (538,000)
Increase (decrease) in taxes
     resulting from:
     Unrecognized tax benefit from
     net operating losses .........     1,489,000      1,633,000        122,000
     Other ........................        61,000         45,000         30,000
                                           ------         ------         ------

              Income tax provision    $      --      $      --      $      --
                                         =======        =======        =======
</TABLE>


Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes,  and the amounts used for income tax purposes. The major components of
deferred  tax  liabilities  and  assets  as of June 30,  1996  and 1995  were as
follows:

<TABLE>
<CAPTION>
                                                  1996           1995
                                                  ----           ----

<S>                                        <C>            <C>
Liabilities
Depreciation ...........................   $   542,000    $      --
                                           -----------    -----------

Assets

Allowances for bad debts ...............       745,000        541,000
Federal net operating loss carryforwards     3,119,000      1,292,000
Other ..................................          --            7,000
                                           -----------    -----------

         Total deferred tax assets .....     3,864,000      1,840,000

Valuation allowance ....................    (3,322,000)    (1,840,000)
                                            ----------     ----------

         Net deferred taxes ............   $      --      $      --
                                           ===========   ===========
</TABLE>

As of June 30, 1996, the Company had a federal net operating  loss  carryforward
of approximately $9,174,000 which expires between 2009 and 2011.

8.Leases And Commitments:

The Company has entered into capital lease agreements whereby the Company leases
various equipment under three-and five-year leases which expire at various dates
through 2000.

Property and  equipment  includes the  following  property  leased under capital
leases as of June 30, 1996 and 1995:

<TABLE>
<CAPTION>
                                    1996        1995
<S>                               <C>         <C>
Equipment ...................   $ 43,000    $ 67,000
Less accumulated depreciation     (3,000)    (23,000)
                                  ------     -------

                                $ 40,000    $ 44,000
                                ========    ========
</TABLE>

The Company leases office space under a 10-year  operating lease,  which expires
in 1998, from Charleston  Heights  Shopping Center  ("CHSC"),  a company related
through common ownership, as more fully described in Note 9.

Future  minimum  lease  payments,  by year and in the  aggregate,  under capital
leases and  noncancellable  operating  leases with initial or remaining terms of
one year or more consist of the following at June 30, 1996:

<TABLE>
<CAPTION>
                                                 Capital Lease  Operating Leases
                                                 -------------  ----------------
<S>                                                  <C>            <C>
1997                                                   15,000        242,000
1998                                                   11,000        226,000
1999                                                   11,000           --
2000                                                   10,000           --
                                                       ------        ------

       Total minimum lease payments ..........       $ 47,000       $468,000
                                                                    ========

Less amount representing interest ............         10,000
                                                       ------
       Present value of net minimum
        lease payments .                               37,000

Less current portion .........................         15,000
                                                       ------
       Obligations under capital leases,
        noncurrent                                   $ 22,000
                                                     ========
</TABLE>



The total  rental  expense  under  operating  leases is as follows for the years
ended June 30, 1996, 1995 and 1994:

<TABLE>
<CAPTION>
                                    1996       1995       1994
                                    ----       ----       ----
<S>                              <C>        <C>        <C>
Noncancellable airplane hangar
     and equipment leases ....   $   --     $   --     $110,000
Land and office leases .......    217,000    191,000    344,000
                                  -------    -------    -------
                                 $217,000   $191,000   $454,000
                                 ========   ========   ========
</TABLE>



9.Related-Party Transactions:

<TABLE>
<CAPTION>

The  following  balances due to or from related  parties  existed as of June 30,
1996 and 1995. The identified realted parties are stockholders of the Company or
affiliated companies related through common ownership.


                                             June 30, 1996
                                             -------------
                                   Current     Noncurrent      Notes
                               Receivables    Receivables    Receivable
                               -----------    -----------   -----------
<S>                            <C>            <C>           <C>
Former Stockholders of the
Company .....................  $    14,000    $   165,000          --
BGI .........................    1,400,000        747,000   $ 4,416,000
Sunset Coin .................       47,000           --            --
Becker Vending ..............         --             --            --
Becker Enterprises ..........        1,000           --            --
CQC .........................      993,000           --       1,200,000
BGG:
    Charlie's Lakeside ......       (7,000)          --            --
    Charlie's Bar ...........       10,000           --            --
    Cantina Charlie's .......       11,000           --            --
    Cariba Charlie's ........       13,000         75,000          --
    Charlie's Saloon ........        6,000           --            --
    Charlie's Down Under ....       44,000           --            --

                               -----------    -----------   -----------
Total .......................    2,532,000        987,000     5,616,000

Less:  Allowance for doubful
        collection of amounts
        due from CQC ........     (993,000)          --      (1,200,000)
                               -----------    -----------   -----------


                               $ 1,539,000    $   987,000   $ 4,416,000
                               ===========    ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                   Management
                                    Fee and                  Subordinated
                                    Accounts      Notes        Notes
                                    Payable      Payable      Payable
                                    ----------   ----------   ----------
<S>                                 <C>          <C>          <C>
Former Stockholders of the
Company .........................   $    4,000         --     $5,000,000
BGI .............................    4,682,000         --           --
Sunset Coin .....................         --     $2,250,000         --
Becker Vending ..................         --           --           --
Becker Enterprises ..............         --           --           --
CQC .............................         --           --           --
BGG:
    Charlie's Lakeside ..........         --           --           --
    Charlie's Bar ...............         --           --           --
    Cantina Charlie's ...........         --           --           --
    Cariba Charlie's ............         --           --           --
    Charlie's Saloon ............         --           --           --
    Charlie's Down Under ........         --           --           --

                                    ----------   ----------   ----------
Total ...........................    4,686,000    2,250,000    5,000,000

Less:  Allowance for doubful
        collection of amounts
        due from CQC ............         --           --           --

                                    ----------   ----------   ----------
                                    $4,686,000   $2,250,000   $5,000,000
                                    ==========   ==========   ==========
</TABLE>



<TABLE>
<CAPTION>
                                  June 30, 1995
 -------------------------------------------------------------------------------


                                     Current        Noncurrent       Notes
                                    Receivables     Receivables    Receivable
                                    -----------    -----------   -----------
<S>                                 <C>            <C>           <C>
Former Stockholders of the
Company ..........................  $    25,000    $   165,000          --
BGI ..............................      608,000           --     $ 4,416,000
Sunset Coin ......................      103,000           --            --
Becker Vending ...................       10,000           --            --
Becker Enterprises ...............        1,000           --            --
CQC ..............................      392,000           --       1,200,000
BGG:
    Charlie's Lakeside ...........       (7,000)          --            --
    Charlie's Bar ................        6,000           --            --
    Cantina Charlie's ............        9,000           --            --
    Cariba Charlie's .............       11,000         75,000          --
    Charlie's Saloon .............       12,000           --            --
    Charlie's Down Under .........       42,000           --            --
                                    -----------    -----------   -----------
Total ............................    1,212,000        240,000     5,616,000
Less:  Allowance for doubful
        collection of amounts
        due from CQC .............     (392,000)          --      (1,200,000)
                                    -----------    -----------   -----------
                                    $   820,000    $   240,000   $ 4,416,000
                                    ===========    ===========   ===========
</TABLE>


<TABLE>
<CAPTION>
                                     Management Fee             Subordinated
                                      and Accounts    Notes        Notes
                                         Payable     Payable      Payable
                                      ----------   ----------   ----------
<S>                                   <C>          <C>          <C>
Former Stockholders of the
Company ...........................   $    3,000         --     $5,000,000
BGI ...............................    3,287,000         --           --
Sunset Coin .......................         --     $2,250,000         --
Becker Vending ....................         --           --           --
Becker Enterprises ................         --           --           --
CQC ...............................         --           --           --
BGG:
    Charlie's Lakeside ............         --           --           --
    Charlie's Bar .................         --           --           --
    Cantina Charlie's .............         --           --           --
    Cariba Charlie's ..............         --           --           --
    Charlie's Saloon ..............         --           --           --
    Charlie's Down Under ..........         --           --           --

                                      ----------   ----------   ----------
Total .............................    3,290,000    2,250,000    5,000,000

Less:  Allowance for doubful
        collection of amounts
        due from CQC ..............         --           --           --
                                      ----------   ----------   ----------


                                      $3,290,000   $2,250,000   $5,000,000
                                      ==========   ==========   ==========
</TABLE>

CHSC owns the land on which the  Company's  administrative  offices  are located
and,  prior to the  Reorganization,  CLC owned  the land on which the  Company's
operations  are  located.  Rent  expense  paid to CHSC and CLC and  included  in
results of operations of the Company was  $217,000,  $191,000 and $343,000,  for
the years  ended June 30,  1996,  1995 and 1994,  respectively.  The rental fees
include the cost of insurance, taxes and common area maintenance on the land.

Receivables from BGG, stockholders of the Company and BGI bear interest at 8.0%,
4.5% and 6.0%, respectively.  Interest income from related parties was $245,000,
$168,000  and  $64,000  for the  years  ended  June 30,  1996,  1995  and  1994,
respectively.

In  anticipation  of  the  January  1,  1994  termination  of  the  Company's  S
corporation election,  on December 24, 1993, the Company distributed  $5,000,000
to its stockholders,  representing previously taxed,  undistributed income. This
distribution  was immediately  loaned back to the Company by the stockholders in
the form of subordinated notes payable, which bear interest at an annual rate of
10%, payable monthly, with the entire principal amount due on January 1, 2001.

Interest expense incurred under related-party  notes was $508,000,  $507,000 and
$266,000 for the years ended June 30, 1996, 1995 and 1994, respectively.

In May, 1995, CQC borrowed $1,200,000 from AC in order to have funds to make the
semi-annual interest payment due on the CQC Notes. The borrowing was executed as
an  uncollateralized  note payable to AC due May, 1996 with interest at the rate
of  5.56%.  Due to the  current  financial  condition  of  CQC,  management  has
determined  that  collectibility  of the note, and of other advances of $301,000
(1995) and  $692,000  (1996) made to CQC, is doubtful.  Accordingly,  provisions
were made to fully  reserve the  advances  and note payable and losses have been
recorded in the  accompanying  financial  statements as payments under guarantee
obligations.

The Company has loaned to BGI an aggregate of  approximately  $4,416,000 to fund
BGI's  operating  expenses from June 1994 through  March 1995.  The advances are
interest  bearing and have been classified as non-current  based on Management's
expectation for the timing of repayments from BGI. At June 30, 1996, the Company
owed BGI approximately $4,682,000 in accrued management fees. Under the terms of
the Indenture  governing the AC Notes,  these fees cannot be paid to BGI until a
specified fixed charge coverage ratio is achieved.

Due to the decision to suspend development of CQC's riverboat casino project and
sell its assets,  the majority of BGI's management and  administrative  services
are  anticipated to benefit AC in the future.  Accordingly,  in late March 1995,
BGI  transferred   approximately   40  employees   involved  in  accounting  and
administrative  functions  from  BGI  to AC.  These  employees  were  originally
employees  of  AC  and  were   transferred  to  BGI  in  June  1994,   when  the
Reorganization  became effective.  In connection with this transfer,  in October
1995, the Company  temporarily reduced the amount of the BGI management fee to a
net 1.0% of AC's gross revenues (previously 5.0% of gross revenues) based on the
reduction in services it will receive from BGI in the future.

Included in other revenues is income from  management  and  accounting  services
performed  by the Company for SC and BGG of $281,000 for the year ended June 30,
1994.

The Company's  president operates a sole  proprietorship  under the name "Becker
Vending" which places  arcade,  cigarette,  music and other vending  machines at
Arizona  Charlie's.  The Company  provides  nominal  collection  and  accounting
services to Becker Vending in connection with these  machines.  The Company does
not receive any rental fee or other  payment from Becker  Vending in  connection
with these  agreements.  Becker  Vending  retains all amounts  deposited  in its
vending machines. Becker Vending also sells to the Company cigarettes, candy and
similar items for resale in the Arizona Charlie's gift shop.

10.Contingencies:

The  Company  is subject to various  litigation  and claims  which  arise in the
ordinary  course  of  its  business.   In  the  opinion  of  management,   after
consultation with legal counsel,  the disposition of all such pending litigation
and  claims  will  not  have a  material  effect  on the  Company's  results  of
operations, cash flows, or financial position.


11.    Defined Contributions Plan:

The Company has adopted a 401(k) Defined Contribution Plan (the "Plan") covering
substantially all of its employees.  Eligible employees may contribute up to 10%
of their annual compensation to the Plan, up to certain limits prescribed by the
Internal  Revenue Service.  The Company matches 25% of each eligible  employee's
contributions up to a maximum of 6% of their individual  earnings.  In addition,
the Company  contributes an amount equal to 2% of each  participant's  earnings.
The Plan went into effect July 1, 1990.

The Company  recorded  charges  for  contributions  of  $495,000,  $395,000  and
$350,000 for the years ended June 30, 1996, 1995 and 1994, respectively.


12.  Fair Value of Financial Instruments:

The  estimated  fair  value of the  Company's  financial  instruments  have been
determined by the Company using  available  market  information  and appropriate
valuation  methodologies.  The  carrying  amounts of cash and cash  equivalents,
accounts  receivable,  accounts  payable,  capital lease  obligations  and notes
payable   approximate  their  respective  fair  values  due  to  the  short-term
maturities and approximate market interest rates of these instruments.

Management is unable to determine a fair value for the  outstanding  $55,000,000
principal  amount of 12% First  Mortgage  Notes due November 15, 2000 of Arizona
Charlie's, Inc. (the "AC Notes") or the outstanding $20,000,000 principal amount
($17,526,000  carrying  amount at June 30, 1996) of 12% First Mortgage Notes due
November 15, 2000 of Capitol Queen and Casino, Inc. (the "CQC Notes"), which are
guaranteed  by AC. It is not  practicable  to determine  the fair value of these
financial   instruments  due  to  the  debt  covenant   violations  and  related
uncertainties  involved  in  negotiations  with the  holders of AC Notes and CQC
Notes, as more fully discussed in Note 2.


                                   SCHEDULE II

                          CAPITOL QUEEN & CASINO, INC.

              VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
                          June 30, 1996, 1995 And 1994
<TABLE>
<CAPTION>

                                                               Additions
                                                     ------------------------

                                        Balance at    Charged to    Charged to
                                        Beginning     Costs and     Other
                 Description            of Year       Expenses      Accounts
--------------------------------------  -----------   -----------   -----------

Allowance for doubtful accounts
<S>                                     <C>           <C>           <C>
 Year ended June 30, 1996 ............  $ 4,420,000   $      --     $ 2,574,000
                                        ===========   ===========   ===========

 Year ended June 30, 1995 ............  $ 1,181,000   $      --     $ 3,239,000
                                        ===========   ===========   ===========

 Year ended June 30, 1994 ............  $      --     $      --     $ 1,181,000
                                        ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                      Balance at
                                                      End of
                 Description            Deductions    Year
--------------------------------------  -----------   --------
<S>                                     <C>           <C>
Allowance for doubtful accounts

 Year ended June 30, 1996 ............  $      --     $ 6,994,000
                                        ===========   ===========

 Year ended June 30, 1995 ............  $      --     $ 4,420,000
                                        ===========   ===========

 Year ended June 30, 1994 ............  $      --     $ 1,181,000
                                        ===========   ===========
</TABLE>


                                   SCHEDULE II

                             ARIZONA CHARLIE'S, INC.

              VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
                          June 30, 1996, 1995 And 1994

<TABLE>
<CAPTION>
                                                                Additions
                                                          ----------------------
                                             Balance at  Charged to   Charged to
                                             Beginning   Costs and    Other
               Description                   of Year     Expenses     Accounts
               -----------                   -------     --------     --------
<S>                                        <C>          <C>          <C>    
Allowance for doubtful accounts:
  Year ended June 30, 1996 ..............  $1,592,000   $  601,000   $     --
                                            ==========   ==========   ==========
  Year ended June 30, 1995 ..............  $     --     $1,592,000   $     --
                                            ==========   ==========   ==========

  Year ended June 30, 1994 ..............  $     --     $     --     $     --
                                            ==========   ==========   ==========



Deferred Tax Asset Valuation Allowance:
  Year ended June 30, 1996 ..............  $1,840,000   $     --     $1,482,000
                                            ==========   ==========   ==========

  Year ended June 30, 1995 ..............  $  213,000   $     --     $1,627,000
                                            ==========   ==========   ==========

  Year ended June 30, 1994 ..............  $     --     $     --     $  213,000
                                            ==========   ==========   ==========
</TABLE>


                                    EXHIBIT

 2.1    Agreement of Reorganization dated November 16, 1993,
           by and among Becker Gaming, Inc. ("BGI"), Arizona
           Charlie's, Inc. ("Arizona Charlie's"), Sunset
           Coin, Inc. ("Sunset Coin"), Becker Gaming Group, Inc.
           ("Becker Gaming Group"), Capitol Queen & Casino, Inc.
           ("Capitol Queen"), Charlie's Land Company ("CLC") ,
           and each of Ernest A. Becker, III, Ernest A. Becker,
           IV, Barry W. Becker and Bruce F. Becker
           (collectively, the "Beckers").*

    3.1    Articles of Incorporation of Capitol Queen.*

    3.2    First Amended By-Laws of Capitol Queen.*

    3.3    Articles of Incorporation of Arizona Charlie's.*

    3.4    Amended and Restated By-Laws of Arizona Charlie's.*

    10.1   Purchase  Agreement  dated  November  15,  1993  among  BGI,  Arizona
           Charlie's,  Capitol  Queen,  Sunset  Coin  and the  purchasers  named
           therein (the "Purchasers).*

    10.2   Indenture  dated  November 15, 1993 among Capitol  Queen,  as issuer,
           Arizona  Charlie's,  as  guarantor,  and  IBJ  Schroder  Bank & Trust
           Company ("IBJ"), as trustee.*

    10.3   Deed of Trust,  Assignment of Leases,  Security Agreement and Fixture
           Filing  dated  November  15, 1993 by Capitol  Queen,  as grantor,  to
           Charles W. Riley, as trustee,  for the benefit of IBJ , as collateral
           agent.*

    10.4   Vessel Construction Agreement dated October 23, 1993
           between Leevac Shipyards, Inc. and Capitol Queen, as
           amended by Amendment No. 1 to Vessel Construction
           Agreement dated November 15 and 17, 1993.*

    10.5   Form of First Preferred Ship Mortgage Securing an
           Indenture between Capitol Queen and IBJ.*

    10.6   Security Agreement dated November 15, 1993 between
           Capitol Queen and IBJ, as collateral agent.*

    10.7   Stock Pledge  Agreement dated November 15, 1993 between Capitol Queen
           and IBJ, as collateral agent.*

    10.8   Collateral  Agency  Agreement  dated  November 15, 1993 among Capitol
           Queen and IBJ, as trustee and collateral agent.*

    10.9   Disbursement  and Escrow  Agreement  dated  November  15,  1993 among
           Capitol  Queen  and IBJ,  as escrow  agent,  trustee  and  collateral
           agent.*

    10.10  Registration Rights Agreement dated November 15, 1993
           among Capitol Queen, Arizona Charlie's and the
           Purchasers.*

    10.11  Form of Management  Agreement to be entered into between BGI and each
           of Arizona  Charlie's,  Capitol Queen,  Sunset Coin and Becker Gaming
           Group. Included at Exhibit I to Exhibit 2-1 hereof.*

    10.12  Form of Tax Allocation Agreement to be entered into
           between BGI and each of Arizona Charlie's, Sunset
           Coin, Becker Gaming Group and Capitol Queen. Included
           at Exhibit J to Exhibit 2-1 hereof.*

    10.13  Letter   Agreement  dated  September  10,  1993  among  BGI,  Arizona
           Charlie's,  Capitol  Queen and  Ladenburg,  Thalmann & Co.,  Inc., as
           placement agent.*

    10.14  Land Purchase Option Contract dated January 4, 1993
           between Linda Ann and Harvey L. McCray and Vernon M.
           and Joyce G. Burkhalter, as seller, and R.Q.
           Enterprises, as buyer; and Wire Transfer Order and
           Closing Document dated July 26, 1993 between Arizona
           Charlie's and First Interstate Bank of Nevada.*

    10.15  Letter of Understanding dated January 26, 1993
           between Jefftel, Inc. and JCR Hotel, Inc. and River
           Queen Enterprises, Inc. and Capitol Queen.*

    10.16  Purchase Agreement dated September 20, 1993 among BGI
           and Cathryn Simmons, Public Issue Management, Inc.,
           Byron Neal Fox and Cynthia L. Pegner, Richard Moore,
           Byron Neal Fox, P.C., David Chernoff, Oscar B.
           Goodman, Eckley M. Keach, Ronald E. Partee and Carol
           Partee, and Fox & Partee.*

    10.17  Riverfront Development Agreement dated as of
           September 1, 1993 between Capitol Queen, the Company
           and Jefferson City, Missouri.*

    10.18  First  Supplemental  Indenture  dated  January 1, 1995 among  Capitol
           Queen,  as issurer,  Arizona  Charlie's,  as  guarantor,  and IBJ, as
           trustee.

    10.19  Assets  Purchase   agreement  dated  April  10,  1995  between  Aerie
           Riverboat  Casino of Missouri,  Inc., as buyer, and Capitol Queen, as
           seller.

    10.20  Letter agreement dated December 5, 1994 among  BGI
           and Cathryn Simmons, Public Issue Management, Inc.,
           Byron Neal Fox and Cynthia L. Pegner, Richard Moore,
           Byron Neal Fox, P.C., David Chernoff, Oscar B.
           Goodman, Eckley M. Keach, Ronald E. Partee and Carol
           Partee, and Fox & Partee.*