================================================================================
                       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, 1998

                                       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, 1997 was $0. The
        number of shares of the Registrant's Common Stock outstanding as
                         of September 15, 1998 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.
================================================================================
<PAGE>

  The Private  Securities  Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking  statements.  Certain  information  included in this
Form  10-K and  other  materials  filed or to be filed by the  Company  with the
Securities  and Exchange  Commission  (as well as  information  included in oral
statements  or  other  written  statements  made or to be  made by the  Company)
contains  statements that are  forward-looking,  such as statements  relating to
plans for future expansion and other business development  activities as well as
other  capital  spending,  financing  sources  and  the  effects  of  regulation
(including  gaming and tax regulation)  and  competition.  Such  forward-looking
information  involves important risks and uncertainties that could significantly
affect  anticipated  results in the future and,  accordingly,  such  results may
differ from those  expressed  in any  forward-looking  statements  made by or on
behalf of the  Company.  These  risks  and  uncertainties  include,  but are not
limited  to,  those  relating  to  development  and   construction   activities,
dependence  on existing  management,  debt  service  (including  sensitivity  to
fluctuations  in  interest  rates),  domestic  economic  conditions,  changes in
federal  or state tax laws or the  administration  of such laws and  changes  in
gaming laws or  regulations  (including  the  legalization  of gaming in certain
jurisdictions).


Item 1.      Business

         As further  discussed in Item 3, Legal  Proceedings,  Capitol Queen &
Casino,  Inc. filed for bankruptcy  protection under Chapter 11 of United States
Bankruptcy Code.

         Capitol Queen & Casino,  Inc. ("CQC" or the "Company"),  a wholly owned
subsidiary of Becker Gaming, Inc. ("BGI"), 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.  Such work was  suspended  in August and  September  1994 for the  reasons
discussed below.  CQC's riverboat,  the construction of which was completed,  is
being  stored by the  builder.  Funding for the Capitol  Queen  project had been
raised in November  1993  through  the sale of the CQC Notes and the  concurrent
sale of  common  stock  purchase  warrants  by BGI,  which  contributed  the net
proceeds therefrom to CQC.

         On  September   28,  1994,   the  Missouri   Gaming   Commission   (the
"Commission")  denied,  without  investigative  review,  CQC's application for a
gaming license and  prohibited CQC from  reapplying for a license for two years.
The  Commission's  ruling  was based on a finding  that CQC  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.

         CQC  believes  its Missouri  application  was  complete  and  accurate.
Moreover, CQC 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.  CQC 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  (both  entities are  subsidiaries  of BGI)  applications  for
licenses at Charlie's Bar Down Under,  which were  unanimously  granted in March
1995.  In  addition,  in  anticipation  of  the  pursuit  of a  possible  gaming
development,  the executive  officers of the Company  applied to the Mississippi
Gaming Commission for preliminary  findings of suitability and were subsequently
found  suitable by the Commission to engage in such  activities in  Mississippi.
CQC'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,  CQC  challenged  the ruling  through  administrative  and judicial
channels,  which challenges have been largely  successful.  See "Item 3. - Legal
Proceedings".
<PAGE>

         Notwithstanding its efforts to seek redress of the Commission's ruling,
in  December  1994,  CQC,  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 CQC, by March 31, 1995, to sell its riverboat,  land
site and other project assets and to use the net proceeds realized upon the sale
of such assets to offer to repurchase additional CQC Notes.

         CQC has actively  marketed its  riverboat and other assets for sale and
continues to do so,  although such efforts have to date been  unsuccessful  in a
market  that  is  deemed  to be  quite  limited  for  vessels  of the  size  and
configuration  of that of the  Capitol  Queen.  The failure of CQC to effect the
second  step of the  Repayment  Plan  has  resulted  in the  Trustee  under  the
Indenture  issuing  a notice  of  acceleration  of the  debt  and a  demand  for
immediate payment of the debt and accrued interest. 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  and declared to become  immediately  due and payable in
full. An aggregate of $20,000,000 principal amount of CQC Notes are outstanding.

         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  CQC'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 did not affect the validity of the  Development
Agreement.  To avoid the cost and  uncertainty of litigation,  however,  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 paid to the City pursuant to the Agreement.


Claims by Trustee

         Arizona Charlie's,  Inc ("AC") issued $55,000,000 of 12% First Mortgage
Notes due 2000 (the "AC Notes").  Sunset Coin,  Inc. ("SC") has issued a limited
guaranty  with respect to the AC Notes (the "SC Limited  Guaranty").  CQC issued
$20,000,000 of 12% First Mortgagee Notes sue 2000 (the "CQC Notes"). AC issued a
limited guaranty with respect to the CQC Notes (the "AC Limited Guaranty").

         On November  14,  1997,  AC filed for  bankruptcy  protection  with the
United States  Bankruptcy Court for the District of Nevada in Las Vegas,  Nevada
(the "Bankruptcy  Court") under Chapter 11 of the United States  Bankruptcy Code
(Case NO. 97-28781 LBR).

         On June 25,  1998, a  "Consensual  Plan of  Reorganization  Proposed by
Debtor and High River" (the  "Plan"),  dated June 24, 1998,  was approved by the
Bankruptcy  Court.  Pursuant to the Plan, AC was reorganized as of September 28,
1998 in accordance with the Debt Conversion Option of the Plan. As a part of the
Plan,  the AC Limited  Guaranty has been canceled in exchange for the payment of
$1,500,000  in cash,  which has been paid to the CQC Note  holders.  See Item 3,
Legal Proceedings.

<PAGE>


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 not  presently  a party to any  lawsuits  relating  to
routine or other matters  incidental to its respective  business,  except as
described below.

         By letters  dated July 3, 1997 and July 17, 1997,  IBJ Schroder  Bank &
Trust Company,  the trustee on the CQC Indenture  dated as of November 15, 1993,
declared all of the  Securities  (as defined in the Indenture) to be immediately
due and  payable,  together  with  all  accrued  and  unpaid  interest  thereon.
Subsequent  letters from IBJ Schroder Bank & Trust Company,  dated  September 5,
1997,  provided  notices  of  defaults  by CQC  and AC  under  their  respective
Indentures  and also served  Notice of  Acceleration  on AC with  respect to its
Securities  and its Limited  Guaranty of the CQC debt.  CQC and AC have retained
counsel to assist them in dealing with the  Bondholders  and on July 16, 1997, a
proposal for the  financial  restructuring  of the CQC and AC  indebtedness  was
presented to the Bondholders through the Trustee and Counsel to one of the major
Bondholders.  The Bondholders orally responded to such offer as of September 10,
1997.

         On November 14, 1997, AC filed for bankruptcy  protection in the United
States  Bankruptcy  Court for the  District of Nevada in Las Vegas,  Nevada (the
"Bankruptcy  Court") under Chapter 11 of the United States Bankruptcy Code (Case
No. 97-28781 LBR) to pursue the financial reorganization of AC.

         On June 25,  1998, a  "Consensual  Plan of  Reorganization  Proposed by
Debtor and High River" (the  "Plan"),  dated June 24, 1998,  was approved by the
Bankruptcy  Court.  Pursuant to the Plan, AC was reorganized as of September 28,
1998 (the "Effective Date") in accordance with the Debt Conversion Option of the
Plan.  Under the Debt  Conversion  Option,  the AC Notes will be  redeemed  with
funding  provided by an  affiliate of High River in the form of a loan to AC for
$18,000,000.

         As a part of the Plan,  AC, the  Reorganized  Debtor,  will continue in
business  as  a  Nevada  closely  held  corporation.  However,  the  issued  and
outstanding shares of common stock of AC were canceled on the Effective Date and
1,000,000  shares of new  stock of AC,  out of a total of  5,000,000  authorized
shares,  were  issued to High  River,  or its  nominee.  The AC Notes  have been
canceled as provided  under the Plan,  and all security  interests that formerly
secured  the AC Notes have been  removed of record;  the AC Limited  Guaranty of
indebtedness of CQC has been canceled in exchange for a payment of $1,500,000 in
cash to the CQC Note holders;  unsecured creditors have been paid in full; other
secured gaming  equipment  contracts have been reinstated and will be honored in
full;  and  BGI has  contributed  $1,500,000 in  cash  to  AC  as  a  new  value
contribution, which contribution was made effective July 24, 1998.

         Except as may be  otherwise  expressly  provided in the Plan and in the
Confirmation  Order,  on the Effective  Date all property of the Debtor prior to
the Effective Date will revest in AC as the "Reorganized Debtor", free and clear
of all claims, liens,  encumbrances and other interests of creditors and holders
of indebtedness.
<PAGE>

         On March 17, 1998,  CQC filed for  bankruptcy  protection in the United
States  Bankruptcy  Court for the  District of Nevada in Las Vegas,  Nevada (the
"Bankruptcy  Court") under Chapter 11 of the United States Bankruptcy Code (Case
No.  98-22172LBR) to pursue financial  reorganization of CQC and to facilitate a
sale of the gaming vessel, the principal asset of CQC, to a third party. A third
party bid for the  purchase  of the  vessel  was filed  with a Motion  for Order
Authorizing Sale of Personal  Property,  and a hearing on the motion was set for
April 16, 1998. On April 16, 1998, the parties requested the hearing be deferred
to April 29,  1998.  On April 29, 1998,  the third party buyer  withdrew its bid
and,  there being no other willing buyers present to made a bid, the sale of the
boat was continued to June 5, 1998, to allow CQC to solicit  additional bids and
offers.  Since CQC does not  presently  engage in any business  operations,  the
Company did not experience any material changes in its operations as a result of
the bankruptcy filing.

         Subsequently, CQC received a conditional offer from a third party and a
new hearing  date of May 15,  1998 was  scheduled  to consider  this bid and any
others that might be  forthcoming.  The third party,  however,  then requested a
continuance to allow for additional time to complete its diligence investigation
regarding  the vessel  and,  there  being no other  bidders  prepared to offer a
competitive bid to that of the third party, a further  continuance was requested
and granted to June 15, 1998,  at which time the third party bid and that of any
competing buyers were to be considered.  Prior to that hearing date, the pending
bid was  withdrawn  and the hearing was vacated.  No  additional  bids have been
received at this time and sale of the boat has not occurred.
No further action has occurred pursuant to the bankruptcy.


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.

<PAGE>

Item 6.      Selected Financial Data


     <TABLE>
================================================================================
                          Capitol Queen & Casino, Inc.
                              Years Ended June 30,
                  (amounts in thousands, except per share data)

================================================================================
<CAPTION>
                                                              1998         1997
                                                          --------     --------

<S> ..................................................         <C>          <C>
Income Statement Data:
     Operating revenues ..............................    $   --       $   --   
     Operating loss ..................................      (1,841)        (413)
     Net loss before reorganization items and
          extraordinary item .........................      (4,594)      (3,807)
     Reorganization items (4) ........................         (20)        --
     Net loss before extraordinary item ..............      (4,614)      (3,807)
     Extraordinary item-loss early retirement
         of debt (1) .................................        --           --   
     Net loss ........................................      (4,614)      (3,807)
     Net loss per share before extraordinary item ....     (46,140)     (38,070)
     Extraordinary item-loss on early
         retirement of debt ..........................        --           --   
     Net loss per share (2) ..........................     (46,140)     (38,070)

Other Data:
     Interest expenses, net of amounts capitalized
     (contractual interest for the year ended June
     30, 1998 in the amount of $3,141) ...............       2,754        3,395
     Capital expenditures ............................        --           --   



Balances Sheet Data:
     Unrestricted cash and cash equivalents ..........    $   --       $   --   
     Cash in restricted escrow account ...............          33           31
     Total assets ....................................       6,624        8,257
     Long-term obligations (3) .......................        --           --   
     Stockholders' equity (deficit) (5) ..............     (22,479)     (17,865)


                                                   1996        1995        1994 
                                               --------    --------    --------

Income Statement Data:
     Operating revenues ....................   $   --      $   --      $   --   
     Operating loss ........................     (4,996)     (1,388)     (7,094)
     Net loss before reorganization items
         and extraordinary item ............     (7,785)     (5,386)     (9,530)
     Reorganization items (4) ..............       --          --          --
     Net loss before extraordinary item ....     (7,785)     (5,386)     (9,530)
     Extraordinary item-loss early
         retirement of debt (1) ............       --        (4,089)       --   
     Net loss ..............................     (7,785)     (9,475)     (9,530)
     Net loss per share before
         extraordinary item ................    (77,850)    (53,860)    (95,300)
     Extraordinary item-loss on early
         retirement of debt ................       --       (40,890)       --   
     Net loss per share (2) ................    (77,850)    (94,750)    (95,300)

Other Data:
     Interest expenses, net of amounts
         capitalized (contractual interest
         for the year ended June 30, 1998
         in the amount of $3,141) ..........      2,789       4,608       3,091
     Capital expenditures ..................       --         1,724      11,212

Balances Sheet Data:
     Unrestricted cash and cash
         equivalents .......................   $   --      $     45    $     33
     Cash in restricted escrow account .....         30          30      24,929
     Total assets ..........................      8,449      12,986      37,412
     Long-term obligations (3) .............       --          --          --   
     Stockholders' equity (deficit) (5) ....    (14,058)     (6,273)      3,202

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

<FN>
(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,
      1998.  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, 1998, 1997, 1996 and 1995 and 1994, $18,407, $17,908, $17,526,
     $17,118 and $33,164  respectively  of CQC  notes  (net of unamortized 
     original  issue discount of $1,593, $2,092, $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)  Reorganization items in fiscal year ended June 30, 1998 are associated with 
     CQC's Chapter 11 Bankruptcy filing on March 17, 1998.
(5)  The ability of CQC to pay dividends is restricted under the CQC Indenture.

</FN>
</TABLE>


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, 1998

         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.
CQC  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. At June 30, 1998, approximately $33,000 remained in the
escrow  account held by the  Indenture  Trustee 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,  May 15,  1996,  November  15,  1996,  May 15, 1997,
November 15, 1997 and May 15, 1998. Further, AC does not have available funds to
advance on behalf of CQC. See "Liquidity and Capital Resources - Capitol Queen &
Casino, Inc. - Claims by Trustee".

         During the period from  inception  through June 30, 1998, CQC had total
operating expenses of $15,732,000 consisting primarily of an abandonment loss of
$6,034,000  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.  Also,  at March,  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 1996  fiscal  year.  The cost of the  riverboat  was  further
written down at June 30, 1998 to $6,000,000  based on recent offers received for
the riverboat,  which resulted in an additional  abandonment loss of $1,500,000.
Also  included in operating  expenses  are  amortization  expense of  $1,609,000
associated  with debt issue costs and $2,197,000 of project  development  costs.
For the same  period,  CQC  incurred  $17,320,000  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
$1,267,000 for the period from inception to June 30, 1998.

<PAGE>

Liquidity and Capital Resources

         For the period from  inception  through June 30, 1998, net cash used in
development  stage  activities  was  $5,244,000.  Cash flows  used in  investing
activities for the period was $13,922,000 which included  $12,936,000 of capital
expenditures related to the construction of the riverboat and acquisition of the
Jefferson  City  land  site.  At June  30,  1998,  CQC had  expended  a total of
approximately  $21,850,000 on the  development  and  construction of the Capitol
Queen project including on-going maintenance and insurance costs.

         CQC's obligations consist of the $20,000,000 in principal amount of the
outstanding  CQC Notes and past due interest  thereon of  $7,853,500 at June 30,
1998, which includes  amounts accrued on unpaid interest.  On March 17, 1998 CQC
filed a petition for reorganization  under Chapter 11 of the Bankruptcy Code. As
such, CQC has ceased accruing interest on the CQC Notes as of March 17, 1998, as
it is not  probable  that  post-petition  interest  for these  notes  will be an
allowed claim in CQC's  bankruptcy  proceedings.  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.  Additionally,  on July 3, 1997 CQC
received a notice of acceleration  from the trustee of the CQC Notes.  Moreover,
CQC,  because it has not paid certain  interest due on its Notes and has not yet
effected the sale of its assets, is in default of the CQC Indenture. As a result
of the above items the CQC Notes have been classified as a current  liability as
of June 30, 1998 and June 30, 1997.

         On November  14,  1997,  AC filed for  bankruptcy  protection  with the
United States  Bankruptcy Court for the District of Nevada in Las Vegas,  Nevada
(the "Bankruptcy  Court") under Chapter 11 of the United States  Bankruptcy Code
(Case NO. 97-28781 LBR).

         On June 25,  1998, a  "Consensual  Plan of  Reorganization  Proposed by
Debtor and High River" (the  "Plan"),  dated June 24, 1998,  was approved by the
Bankruptcy  Court.  Pursuant to the Plan, AC was reorganized as of September 28,
1998 in accordance with the Debt Conversion Option of the Plan. As a part of the
Plan,  the AC Limited  Guaranty has been canceled in exchange for the payment of
$1,500,000  in cash,  which has been paid to the CQC Note  holders.  See Item 3,
Legal Proceedings.


Impact of the Year 2000 Issue

         The Year 2000 Issue is the result of computer  programs  being  written
using two digits  rather  than four to define the  applicable  year.  Any of the
Company's  computer programs that have  date-sensitive  software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a  system  failure  or  miscalculations   causing   disruptions  of  operations,
including,  among other things, a temporary  inability to process  transactions,
send invoices, or engage in similar normal business activities.

         The  Company has  completed  certain  modifications  to portions of its
software  so that its  computer  systems  will  properly  utilize  dates  beyond
December 31, 1999. According,  management believes that with these modifications
the Year 2000 Issue will not have a material  impact on the financial  position,
operations or cash flows of the Company.

<PAGE>

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 at page F-3 through F-18 hereof.


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.

<TABLE>
<CAPTION>
     Name              Age                Position(s) Held
     ----              ---                ----------------
<S>                     <C>       <C>
Bruce F. Becker         47        President, Chief Executive
                                  Officer, Treasurer and Sole
                                    Director
Barry W. Becker         53        Secretary
</TABLE>



                                    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.

      Name                 Age                Position(s) Held

Bruce F. Becker            47              President, Chief Executive Officer, 
                                           Treasurer and Sole Director
Barry W. Becker            53              Secretary


         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.

<PAGE>

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, 1996, 1997 or 1998.

Compensation of Directors

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



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 currently has  outstanding  $55,000,000 of 12% First Mortgages Notes
due 2000. SC has issued a limited guaranty with respect to the AC Notes (the "SC
Limited  Guaranty").  CQC currently  has  outstanding  $20,000,000  of 12% First
Mortgage  Notes due 2000.  AC issued a limited  guaranty with respect to the CQC
Notes (the "AC Limited Guaranty"). The AC Limited Guaranty has been extinguished
as of September 28, 1998 as a result of the  consummation of the Debt Conversion
Option of the Plan. See Item 3, Legal Proceedings.

         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%.  In addition,  AC has advanced CQC the amounts of $301,000
(1995), $692,000 (1996), $220,000 (1997) and $94,000 (1998).
<PAGE>
  


                             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.*
<PAGE>

    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

                  On April 15, 1998,  the Company filed a current report on Form
8-K stating that on March 17, 1998, CQC filed for  bankruptcy  protection in the
United  States  Bankruptcy  Court for the  District  of Nevada in Las Vegas (the
"Bankruptcy  Court") under Chapter 11 of the United States Bankruptcy Code (Case
NO. 98-22172 LBR) to purse financial  reorganization  of CQC and to facilitate a
sale of the gaming vessel,  the principal asset of CQC, to a third party.  Since
CQC does not presently  engage in any business  operations,  the Company did not
experience any material  changes in its operations as a result of the bankruptcy
filing. No financial statements were filed as a part of such report.

<PAGE>

--------------------------------------------------------------------------------
                           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: October 13, 1998               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 13th day of October 1998.


        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.

================================================================================
<PAGE>

           INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


CAPITOL QUEEN & CASINO, INC.
     Report of Independent Accountants ..............................
     Balance Sheets as of June 30, 1998 and 1997 ....................
     Statements of Loss Incurred During the Development Stage
     for the Years Ended June 30, 1998, 1997  and 1996 and
     for the period from January 20, 1993 (the date of
     inception) through June 30, 1998 ...............................
     Statements of Stockholder's Equity (Deficit) for the years
     ended June 30, 1998, 1997 and 1996 and for period from
     January 20, 1993 (the date of inception) through June 30, 1998 .
     Statements of Cash Flows for the Years Ended June 30, 1998,
     1997 and 1996 and for the period from January 20, 1996
     (the date of inception) through June 30, 1998 ..................
     Notes to Financial Statements ..................................


CAPITOL QUEEN & CASINO, INC.

     Schedule II    Valuation and Qualifying Accounts as of and
                     for the Years Ended June 30, 1998, 1997
                and 1996 ........................................


Schedules  other  than  those  listed  above are  omitted  because  they are not
required or are not applicable,  or because the required information is shown in
the financial statements or notes to the financial  statements.  Columns omitted
from  schedules   filed  have  been  omitted  because  the  information  is  not
applicable.

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

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


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

In our opinion,  the financial  statements and the financial  statement schedule
listed in item 14(a) of this Form 10-K present fairly,  in all material respects
the  financial  position  of  Capitol  Queen &  Casino,  Inc.  (a  wholly  owned
subsidiary  of Becker  Gaming,  Inc.) at June 30, 1998 and 1997,  and their loss
incurred during the development stage and their cash flows for each of the three
years in the period  ended June 30,  1998,  and for the period from  January 20,
1993 (the date of inception)  through June 30, 1998 in conformity with generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards, which 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,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

The accompanying financial statements and financial statement schedule have
been  prepared  assuming  that Capitol  Queen & Casino,  Inc. will continue as a
going  concern.  As more  fully  described  in Notes 2 and 4, the  Company is in
default of certain debt covenants and has received a notice of acceleration from
the trustee for this debt resulting in  classification of such debt as currently
payable.   The  Company  does  not  have  sufficient   resources  to  repay  its
indebtedness  and on March 17,  1998 filed for  bankruptcy  protection  with the
United States  Bankruptcy Court Under Chapter 11 of the United States Bankruptcy
Code.  Management's  plans with respect to these  matters 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, 1998  financial  statements of the Company do not
include any adjustment that might result from the outcome of this uncertainty.


/s/ PricewaterhouseCoopers LLP
---------------------------------

PricewaterhouseCoopers LLP

Las Vegas, Nevada
August 28, 1998, except for Note 8,
as to which the date is
September 28, 1998
<PAGE>

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

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

                                 BALANCE SHEETS
                          As Of June 30, 1998 And 1997
                             (Dollars In Thousands)
================================================================================


                                     ASSETS

                                                              1998          1997
                                                            ------        ------
Current assets:

   Restricted cash, in escrow account ..............        $   33        $   31
                                                            ------        ------
      Total current assets .........................            33            31
                                                            ------        ------


Other assets:
  Assets held for sale .............................         6,254         7,754

  Financing costs, net of accumulated
    amortization of $580 (1998) and
    and $445 (1997), respectively ..................           337           472
                                                            ------        ------

      Total other assets ...........................         6,591         8,226
                                                            ------        ------
      Total assets .................................        $6,624        $8,257
                                                            ======        ======



                  LIABILITIES & STOCKHOLDER'S EQUITY(DEFICIT)


                                                               1998        1997
                                                           --------    --------
Current liabilities:
Advances from related parties ..........................   $     14    $  1,226
Accrued interest .......................................       --         5,788

Notes payable to related parties .......................       --         1,200
Long-term debt classified as current due to
    default under covenants, net of unamortized
    original issue discount of $2,092 ..................       --        17,908
                                                           --------    --------
        Total current liabilities ......................         14      26,122
                                                           --------    --------
Prepetition liabilities not subject to compromise:
Advances from related parties ..........................      1,440
Accrued interest .......................................      8,042
Notes payable to related parties .......................      1,200        --   
Long-term debt classified as current due to default
    under covenants, net of unamortized original
    issue discount of $1,593 ...........................     18,407        --   
                                                           --------    --------
     Total prepetition liabilities
       subject to compromise ...........................     29,089        --   
                                                           --------    --------

     Total liabilities .................................     29,103      26,122
                                                           --------    --------
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 .........    (35,211)    (30,597)
                                                           --------    --------
        Total stockholder's equity (deficit) ...........    (22,479)    (17,865)
                                                           --------    --------

       Total liabilities and stockholder's
        equity(deficit) ................................   $  6,624    $  8,257
                                                           ========    ========

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

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

                          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,
                                       1998        1997        1996        1998
                                   --------    --------    --------    --------


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

Operating expenses:
 Amortization of financing
  and other costs ..............        135         133         100       1,609
 Abandonment losses and
 write-downs of assets held
 for sale ......................      1,500        --         4,392      11,926
 Development costs .............        206         280         504       2,197
                                   --------    --------    --------    --------
     Total operating expenses ..      1,841         413       4,996      15,732
                                   --------    --------    --------    --------

Operating loss .................     (1,841)       (413)     (4,996)    (15,732)

Other income (expenses):
 Interest income ...............          1           1        --         1,267
 Interest expense (contractual
  interest for the year ended
  June 30, 1998 in the amount
  of $3,141) ...................     (2,754)     (3,395)     (2,789)    (17,320)
 Interest capitalized ..........       --          --          --           683
                                   --------    --------    --------    --------
Total other expenses ...........     (2,753)     (3,394)     (2,789)    (15,370)
                                   --------    --------    --------    --------

Net loss before reorganization
 items and extraordinary item ..     (4,594)     (3,807)     (7,785)    (31,102)
                                   --------    --------    --------    --------
Reorganization items ...........        (20)       --          --          --   
                                   --------    --------    --------    --------
Loss before extraordinary item .     (4,614)     (3,807)     (7,785)    (31,122)

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

Net loss .......................   $ (4,614)   $ (3,807)   $ (7,785)   $(35,211)
                                   ========    ========    ========    ========


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

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

                          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, 1998
              And For The Years Ended June 30, 1998, 1997 And 1996
                             (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 .........         --            --             (788)

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

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

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

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

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

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

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

Balances, June 30, 1997 ..........   $      100    $     --       $     --
                                    -----------   -----------    -----------

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

Balances, June 30, 1998 ..........   $      100    $     --       $     --
                                    ===========   ===========    ===========
<PAGE>

                                                            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)

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)

Net loss ...................................       --        (3,807)     (3,807)
                                               --------    --------    --------

Balances, June 30, 1997 ....................   $ 12,732    $(30,597)   $(17,865)
                                               --------    --------    --------

Net loss ...................................       --        (4,614)     (4,614)
                                               --------    --------    --------

Balances, June 30, 1998 ....................   $ 12,732    $(35,211)   $(22,479)
                                               ========    ========    ========

The accompanying notes are an integral  part of  these  consolidated  financial
statements.
<PAGE>

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

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

                            STATEMENTS OF CASH FLOWS
                             (Dollars In Thousands)

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



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

                                                 1998        1997        1996  
                                              --------    --------    -------- 
Cash flows from development stage activities:                                  
  Net loss ................................   $ (4,614)   $ (3,807)   $ (7,785)
                                              --------    --------    -------- 
  Adjustments to reconcile net loss                                            
   to net cash (used in) development                                           
   stage activities:                                                           
  Amortization of financing and other costs        135         133         100 
  Amortization of original issue discount .        499         382         408 
  Abandonment losses and write-downs of                                        
   assets held for sale ...................      1,500          60       4,392 
  Extraordinary loss on retirement of debt        --          --          --   
  Increase(decrease) in accounts payable                                       
   and accruals, net of amounts for                                            
   capital expenditures ...................      2,254       3,013       2,238 
  Increase in advances from related                                            
    party payable .........................        228         220         602 
                                              --------    --------    -------- 
        Total adjustments .................      4,616       3,808       7,740 
                                              --------    --------    -------- 
        Net cash provided by (used in)                                         
         development stage activities .....          2           1         (45)
                                              --------    --------    -------- 
                                                                               
Cash flows from investing activities:                                          
  Capital expenditures, net of                                                 
   construction accounts payable ..........       --          --          --   
  Deposits and other assets ...............       --          --          --   
  Capitalization of preopening costs ......       --          --          --   
  Development costs .......................       --          --          --   
  Net (additions to) reductions in                                             
   restricted cash equivalents ............        (2)         (1)        --   
                                              --------    --------    -------- 
       Net cash provided by (used in)                                          
        investing activities ..............        (2)         (1)        --   
                                              --------    --------    -------- 
                                                                               
Cash flows from financing activities:                                          
  Principal payments on First Mortgage                                         
   Notes ..................................       --          --          --   
  Proceeds from issuance of First                                              
   Mortgage Notes, net of financing costs .       --          --          --   
  Proceeds from borrowings under                                               
   notes payable to related parties .......       --          --          --   
  Equity contribution from Becker                                              
   Gaming, Inc.relating to sale of                                             
   warrants ...............................       --          --          --   
                                              --------    --------    -------- 
       Net cash (used in) provided by                                          
        financing activities ..............       --          --          --   
                                              --------    --------    -------- 
                                                                               
       Net increase (decrease) in cash                                         
        and cash equivalents ..............       --          --           (45)
                                                                               
Cash and cash equivalents, beginning                                           
  of period ...............................       --          --            45 
                                              --------    --------    -------- 
                                                                               
Cash and cash equivalents, end of period ..   $   --      $   --      $   --   
                                              ========    ========    ======== 
Supplemental cash flow disclosures:                                            
  Interest paid, net of amounts capitalized   $   --      $   --      $   --   
                                              ========    ========    ======== 
  Original issue discount that did not                                         
   affect cash ............................   $   --      $   --      $   --   
                                              ========    ========    ======== 
  Equity contribution by Becker Gaming that                                    
   did not affect cash ....................   $   --      $   --      $   --   
                                              ========    ========    ======== 
<PAGE>
                                                                      


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

                                                      1998
                                                  --------
Cash flows from development stage activities:
  Net loss ....................................   $(35,211)
                                                  --------
  Adjustments to reconcile net loss
   to net cash used in development
   stage activities:
  Amortization of financing and other costs ...      1,609
  Amortization of original issue discount .....      2,788
  Abandonment losses and write-downs of
   assets held for sale .......................     11,986
  Extraordinary loss on retirement of debt ....      4,089
  Increase(decrease) in accounts payable
   and accruals, net of amounts for
   capital expenditures .......................      8,054
  Increase in advances from related
    party payable .............................      1,442
                                                  --------
        Total adjustments .....................     29,968
                                                  --------
        Net cash provided by (used in)
         development stage activities .........     (5,243)
                                                  --------

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 ................        (34)
                                                  --------
       Net cash provided by (used in)
        investing activities ..................    (13,923)
                                                  --------

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 ........................   $  5,233
                                                  ========

The accompanying notes are an integral part of these consolidated financial
statements.
================================================================================
<PAGE>

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:

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

               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.

               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.
<PAGE>


         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 4.

         Accounting Pronouncements
         -------------------------

         In June 1997, the Financial Accounting Standards Board issued Statement
         of Financial  Accounting  Standards No. 130,  "Reporting  Comprehensive
         Income"  ("SFAS 130"),  which  establishes  standards for reporting and
         display of comprehensive income and its components. SFAS 130 requires a
         separate  statement to report  components of  comprehensive  income for
         each period  presented.  The  provisions  of SFAS 130 are effective for
         fiscal years  beginning  after December 15, 1997.  Management  believes
         that the  Company  currently  does not have items  that  would  require
         presentation in a separate statement of comprehensive income.

         In June 1997, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 131,  "Disclosures about Segments
         of an Enterprise and Related Information" (SFAS 131"), which supersedes
         FASB Statement No. 14, "Financial  Reporting for Segments of a Business
         Enterprise."  SFAS 131  establishes  standards  for the way that public
         business  enterprises  report  information about operating  segments in
         annual financial  statements and requires that those enterprises report
         selected  information  about  operating  segments in interim  financial
         reports issued to shareholders.  SFAS 131 is effective for fiscal years
         beginning  after December 15, 1997 and requires  restatement of earlier
         periods  presented.  SFAS 131 will not have a  material  effect  on the
         Company's  financial  statements as the required  information is either
         currently being presented by the Company or it is not applicable to the
         Company.


2.       Capitol Queen & Casino, Inc. Bankruptcy Filing:

         On March 17, 1998,  CQC filed for  bankruptcy  protection in the United
         States Bankruptcy Court for the District of Nevada in Las Vegas, Nevada
         (the  "Bankruptcy  Court")  under  Chapter  11  of  the  United  States
         Bankruptcy   Code   (Case  NO.   98-22172   LBR)  to  purse   financial
         reorganization  of CQC and to  facilitate a sale of the gaming  vessel,
         the  principal  asset  of CQC,  to a third  party.  Since  CQC does not
         presently  engage  in any  business  operations,  the  Company  did not
         experience  any material  changes in its  operations as a result of the
         bankruptcy filing.

         Interest  expense on the CQC Notes (as  defined in Note 4) has not been
         recognized since CQC's March 17, 1998 bankruptcy petition date as it is
         not probable  that  postpetition  interest for the CQC Notes will be an
         allowed claim in these proceedings.

         Reorganization  items  presented  in the  statements  of loss  incurred
         during the development  stage are comprised of expenses incurred by CQC
         as a result of CQC's  reorganization under Chapter 11 of the Bankruptcy
         Code. Such expenses  consisted  entirely of  professional  fees for the
         year ended June 30, 1998.
<PAGE>


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
         third 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.  Additionally,  the cost of the
         riverboat was further  written down during the fiscal year ended,  June
         30,  1998  to  $6,000,000  based  on  recent  offers  received  for the
         riverboat,   which  resulted  in  an  additional  abandonment  loss  of
         $1,5000,000.  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  below,
         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  had 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.
<PAGE>

         At the time CQC was awarded the  Development  Agreement,  and until the
         occurrence of the events  described  above, 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 above, 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.  AC  provided a limited  guarantee  for the CQC
         Notes (which  guarantee  was subject to release only upon  licensing of
         the  Capitol  Queen,  which  is not  expected)  and the CQC  Notes  are
         collateralized  by a first mortgage on substantially  all of the assets
         of the Company. See Note 8.

         As  described  in Note 2, the Company  was unable to make the  interest
         payments due under the CQC Notes on November  15,  1995,  May 15, 1996,
         November  15, 1996,  May 15, 1997,  November 15, 1997 and May 15, 1998.
         Such past due interest,  including accrued interest on unpaid interest,
         in the  amount  of  $7,853,000  has been  accrued  in the  accompanying
         financial  statements.  On March  17,  1998 CQC  filed a  petition  for
         reorganization  under Chapter 11 of the  Bankruptcy  Code. As such, CQC
         has ceased accruing  interest on the CQC Notes as of March 17, 1998, as
         it is not probable that post-petition  interest for these notes will be
         an allowed claim in CQC's bankruptcy proceedings.
<PAGE>

         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 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. The second step
         permitted a purchase of the CQC Notes at 101% of principal plus accrued
         and unpaid interest from a sale of assets.  However, the dates by which
         CQC  previously  agreed with the holders of the CQC Notes to effect the
         sale of assets and repurchase the remaining CQC Notes have passed,  and
         CQC is thus in default of the amended covenants.

         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 above and 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.  Prior to the  receipt of the
         Notice on July 3,  1997,  the CQC Notes were not  subject to  mandatory
         redemption, except upon a change of control, or other circumstances as
         defined  in the  Indenture.  The  Company  had 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
         consummated an initial public offering of its common stock, the Company
         may also have redeemed 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.

<PAGE>

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, 1998 and
         1997, the amounts payable to AC by the Company for additional  advances
         were  $1,308,000  and  $1,213,000,   respectively.   The  advances  are
         non-interest bearing. See Note 8.

         In May,  1995,  CQC borrowed  $1.2 million from AC in order 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, 1998,
         with interest at an annual rate of 5.56%.  Interest expense incurred in
         relation  to the note  payable to AC was  $47,000,  $67,000 and $67,000
         during the years ended June 30, 1998, 1997 and 1996, respectively.  The
         Company has not paid any interest to AC for this  obligation.  See Note
         8.

         Subsequent  to AC's  November  14, 1997  bankruptcy  filing,  AC was no
         longer able to make advances to CQC.  Accordingly,  SC made advances to
         CQC for the year ended June 30, 1998 totaling $82,000.  The Company has
         not made repayments to SC for these advances.


6.       Income Taxes:

         For the fiscal years June 30, 1998, 1997 and 1996, the Company incurred
         net operating losses for federal income tax purposes,  and accordingly,
         these financial  statements do not include provision for federal income
         tax purposes.

         The components  included in determining  the provision for income taxes
         for the years ended June 30, 1998, 1997 and 1996, net of  extraordinary
         items, are shown below:


<TABLE>
<CAPTION>
                                            1998           1997           1996
                                            ----           ----           ----
<S>                                  <C>            <C>            <C>
Tax provision (benefit) at federal
 income tax statutory rate .......   $(1,569,000)   $(1,294,000)   $(2,647,000)
Unrecognized tax benefit from net
 operating losses ................     1,569,000      1,294,000      2,574,000
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, 1998
      and 1997 were as follows:

<TABLE>
<CAPTION>

                                                  1998           1997
                                                  ----           ----
<S>                                        <C>            <C>
Liabilities:                               $      --      $      --
                                           -----------    -----------
Assets:

Federal net operating loss carryforwards     6,936,000      5,877,000
  Valuation allowance for assets held
    for sale ...........................     2,004,000      1,494,000
                                             ---------      ---------
  Total deferred tax assets ............     8,940,000      7,371,000
                                             ---------      ---------
  Valuation allowance ..................    (8,940,000)    (7,371,000)
                                            ----------     ----------
  Net deferred taxes ...................   $      --      $      --
                                           -----------    -----------
</TABLE>
<PAGE>


     As of  June  30,  1998,  the  Company  had a  federal  net  operating  loss
     carryforward of  approximately  $20,399,000  which expires between 2009 and
     2013.

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 ($18,407,000  carrying amount at June 30,
         1998) 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 the matters
         described at Note 2.


8.       Subsequent Event:

         On November 14, 1997, AC filed a voluntary petition under Chapter 11 of
         the US Bankruptcy Code with the United States  Bankruptcy  Court of the
         District of Nevada  (the  "Bankruptcy  Court") in Las Vegas,  Nevada in
         order to provide it  protection  from  creditors  while it attempted to
         negotiate a settlement  with the holders of certain  debt.  On June 25,
         1998, the Bankruptcy Court approved a Plan of  Reorganization  (the "AC
         Plan").  All  significant  terms  and  conditions  of the AC Plan  were
         satisfied as of September  28, 1998,  (the  "Effective  Date" of the AC
         Plan).  Upon  the  Effective  Date,  the AC Plan  has  resulted  in the
         transfer of sole ownership of AC to High River Limited Partnership,  or
         its designee,  an entity owned and controlled by Carl Icahn, a majority
         owner of certain then outstanding debt of AC.

         Prior  to the  Effective  Date  of  the AC  Plan,  AC was  the  limited
         guarantor  of  certain  debt of  CQC,  as  described  in Note 4. On the
         Effective Date of the AC Plan, or as soon thereafter as possible, AC is
         required  to make a cash  payment  in the amount of  $1,500,000  to the
         existing CQC bondholders, which, in conjunction with other requirements
         of  the  AC  Plan,  will  result  in the  discharge,  cancellation  and
         extinguishment of AC's limited guarantee of the CQC debt.

         As described in Note 5, as of June 30, 1998,  CQC had certain  advances
         to AC in the amount of  $1,308,000  and certain  notes payable to AC in
         the amount of $1,200,000  plus accrued and unpaid interest of $190,000.
         Upon the effective date of the AC Plan, all such  obligations to AC are
         immediately terminated.





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


                                                                     SCHEDULE II

                          CAPITOL QUEEN & CASINO, INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                For The Years Ended June 30, 1998, 1997 And 1996

<TABLE>
<CAPTION>

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

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

Deferred tax asset valuation allowance
<S>                                     <C>           <C>           <C>
Year ended June 30, 1998 ............  $ 7,371,000   $      --     $ 1,569,000
                                        ===========   ===========   =========== 

Year ended June 30, 1997 ............  $ 6,994,000   $      --     $   377,000
                                        ===========   ===========   ===========

Year ended June 30, 1996 ............  $ 4,420,000   $      --     $ 2,574,000
                                        ===========   ===========   ===========

</TABLE>

<TABLE>
<CAPTION>
                                                      Balance at
                                                      End of
                 Description            Deductions    Year
--------------------------------------  -----------   --------
<S>                                     <C>           <C>
Deferred tax asset valuation allowance

 Year ended June 30, 1998 ............  $      --     $ 8,940,000
                                        ===========   ===========
 
 Year ended June 30, 1997 ............  $      --     $ 7,371,000
                                        ===========   ===========

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

 </TABLE>
<PAGE>

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

                                    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.*
<PAGE>

    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

                  On April 15, 1998,  the Company filed a current report on Form
8-K stating that on March 17, 1998, CQC filed for  bankruptcy  protection in the
United  States  Bankruptcy  Court for the  District  of Nevada in Las Vegas (the
"Bankruptcy  Court") under Chapter 11 of the United States Bankruptcy Code (Case
NO. 98-22172 LBR) to purse financial  reorganization  of CQC and to facilitate a
sale of the gaming vessel,  the principal asset of CQC, to a third party.  Since
CQC does not presently  engage in any business  operations,  the Company did not
experience any material  changes in its operations as a result of the bankruptcy
filing. No financial statements were filed as a part of such report.

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