================================================================================
                       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 [FEE REQUIRED]

                     For the Fiscal Year ended June 30, 1997

                                       OR

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



                         Commission file number 33-76368

                               BECKER GAMING, INC.


                                NEVADA 88-0303849
                (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:
                          Common Stock, $.01 par value
                                (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, 1997 was 10,000,000.

                       DOCUMENTS INCORPORATED BY REFERENCE
             Specified exhibits listed in Part IV of this report are
                            incorporated by reference
         to the Registrant's previously filed Registration Statement on
                              Form S-1 (33-76368).
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                                     PART I

     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

Becker Gaming, Inc.
-------------------

     Becker Gaming,  Inc.  ("BGI" or the "Company")  serves as a holding company
for the Becker family gaming  interests.  BGI's operating  subsidiaries  include
Arizona  Charlie's,  Inc.  ("AC"),  Sunset Coin,  Inc.  ("SC") and Becker Gaming
Group, Inc. ("BGG"),  each of which is a Nevada corporation wholly owned by BGI.
The Company also wholly owns Capitol Queen & Casino,  Inc.  ("CQC"),  a Missouri
corporation,  the  assets of which  are being  offered  for sale  pursuant  to a
proposed debt  restructuring  plan. See "Capitol Queen & Casino,  Inc." BGI does
not  expect  to engage in any  business  other  than  providing  management  and
administrative services to its existing and future operating subsidiaries.

     AC  owns  and  operates  a  locals-oriented   casino-hotel  named  "Arizona
Charlie's  Hotel-Casino" ("Arizona Charlie's") in Las Vegas, Nevada. SC owns and
operates a gaming machine route in the Las Vegas, Nevada area. BGG, directly and
through its subsidiary, Innerout, Inc., owns and operates five restaurants under
the  "Charlie's"  name in the Las Vegas  area.  CQC was  organized  to  develop,
construct,  own and operate the Capitol  Queen  riverboat  casino (the  "Capitol
Queen") in Jefferson City, Missouri, which project has been abandoned.

     Management fees are payable to the Company by its subsidiaries at a rate of
5% (temporarily  reduced to 1% for AC, as described below) of the gross revenues
of each such subsidiary.  However,  management fees payable by AC are restricted
by the Indenture  governing the 12% First  Mortgages due November 15, 2000 of AC
(the "AC Indenture" and "AC Notes,"  respectively).  Under the AC Indenture,  no
management  fees will be payable by AC until AC has  attained a specified  fixed
charge  coverage ratio of 2.25 to 1 and any management fees which are paid by AC
may  not  exceed  $5,000,000  in any  fiscal  year.  Although  CQC is  similarly
restricted  under  the  Indenture  governing  its 12% First  Mortgage  Notes due
November 15, 2000 (the "CQC Indenture" and the "CQC Notes," respectively),  such
restrictions  are  expected  to be of no  effect  because  CQC will not open the
Capitol Queen or pay any  management  fees to the Company.  See "Capitol Queen &
Casino, Inc." As a result of the AC Indenture restrictions,  AC has not paid and
does not  anticipate  that it will be  permitted to pay  management  fees before
fiscal 1999. Any fees which become  payable under the management  agreement with
the Company but which may not be paid as a result of the restrictions  contained
in the AC Indenture,  will be accrued until paid. Due to the decision to suspend
development of CQC's riverboat casino project and sell its assets,  the majority
of BGI's management and administrative services are anticipated to benefit AC in
the future.  Accordingly,  in late March 1995, BGI transferred  approximately 40
employees involved in accounting and administrative functions from BGI to AC. In
connection with this transfer,  in October 1995, the Company temporarily reduced
the amount of AC's  management  fee to 1.0% of AC's gross  revenues  (previously
5.0% of gross  revenues) based on the reduction in services it will receive from
BGI in the future. See Note 9 of AC's Notes to Financial Statements.

     The Company had made certain commitments in connection with the acquisition
of the rights to develop the Capitol Queen in Jefferson City, which  commitments
are  subject  to CQC  becoming  licensed  by the State of  Missouri  to open and
operate the Capitol Queen,  and some of which rights have been  terminated.  See
"Capitol Queen & Casino, Inc." Because CQC's application for a gaming license in
Missouri  was  denied and later  withdrawn,  such  commitments  are no longer in
effect.


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

     General

     The Becker family opened Arizona  Charlie's in April 1988 as a full-service
casino-hotel  geared toward the Las Vegas locals  market.  Arizona  Charlie's is
situated  on  a  12.5-acre  site  located  prominently  on a  major  north-south
thoroughfare  in an  established  retail  and  residential  neighborhood  in the
western  metropolitan  area of Las Vegas.  A 60-foot  high neon sign  located in
front of the facility provides Arizona Charlie's high visibility.

     AC employs operating and marketing strategies  formulated to build a loyal,
repeat resident customer base consisting principally of Las Vegas area employees
and retirees  residing in surrounding  well-established  neighborhoods.  Arizona
Charlie's market  acceptance has resulted largely from its emphasis on providing
attractive pricing,  friendly service, quality food, and exciting entertainment,
all in a comfortable atmosphere. In addition, the casino features a selection of
games that invite personal interaction and which management  believes,  based on
data published by state gaming regulators,  are set for higher payout rates than
those at other Las Vegas casinos generally. See "Business Strategy."

     From  January  1994 to February  1995,  AC expanded  and  enhanced  Arizona
Charlie's  (the  "Expansion")  through the addition of new casino  space,  hotel
rooms,  specialty  restaurants,  and  banquet/meeting  room facilities,  and the
expansion  of existing  restaurant,  entertainment,  and other  facilities.  The
Expansion  also  involved the general  remodeling of existing  hotel rooms,  the
casino,  and other  interior  areas,  as well as the  upgrading  of the exterior
facade and addition of a porte cochere at the front entrance.

     Casino. As of August 31, 1997,  Arizona Charlie's had approximately  47,000
square feet of casino space open 24 hours a day, 365 days a year.  At that date,
the casino  included  approximately  1,435  gaming  machines  and 25 table games
(blackjack,  craps, roulette,  Caribbean Stud, Let It Ride and poker), a 92-seat
race and sports  book,  and a 400-seat  bingo  parlor,  which is operated on the
second floor.

     Over 88% of Arizona Charlie's gaming machines consist of video poker games.
Although video poker machines are typically set for a lower net win rate for the
house and have longer  playing time per bet as compared  with  traditional  slot
machine games,  Arizona  Charlie's  emphasizes video poker because it is popular
with local players and generates,  as a result,  high volumes of play and casino
revenues.  Most of Arizona  Charlie's  table games are  devoted to  double-deck,
hand-dealt  blackjack  play,  which locals  prefer due to its potential for more
frequent payouts and greater customer  interaction.  For the year ended June 30,
1997,  approximately 86.1% of gaming revenues was attributable to gaming machine
play and 9.6% of gaming  revenues was  generated  by table games.  Approximately
17.6% of its gaming machines are devoted to five dollar,  dollar and half-dollar
play  and  approximately  82.4%  to  quarter  and  nickel  play.  See  "Item  7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations - Arizona Charlie's, Inc. - Results of Operations."

     AC  maintains  stringent  controls on  receipts  and  disbursements  at the
casino.  Security  personnel,  overhead  cameras and other security  devices are
deployed throughout the facilities.  In addition, AC has established a series of
other controls, including locked cash boxes, independent auditors and observers,
and daily  tabulation and balancing of all cash  transactions  within the gaming
areas.

     Hotel.  Arizona  Charlie's  hotel is  comprised  of an eight-  story  tower
consisting  of 160  rooms  and 10  suites  opened  on  September  2,  1994 and a
three-story  tower opened in 1988  consisting  of an  additional  100 rooms that
underwent  minor upgrades in the Expansion.  Arizona  Charlie's  hotel customers
include local residents and their  out-of-town  guests,  as well as business and
leisure travelers who, because of location and cost  considerations,  choose not
to stay on the Las Vegas Strip or at other hotels in Las Vegas.  Occupancy rates
for  the  years  ended  June  30,  1997  and  1996  averaged  86.1%  and  86.9%,
respectively,   at  average   daily   rates  of  $43.00  and  $39.81  per  room,
respectively.  See "Item 7.  Management's  Discussion  and Analysis of Financial
Condition  and  Results of  Operations  - Arizona  Charlie's,  Inc. - Results of
Operations." Arizona Charlie's has generated high occupancy rates,  particularly
during weekends,  with little if any marketing of the hotel. Management believes
that its favorable  room rates,  which are indicative of the value it offers its
customers  generally,  have contributed to Arizona  Charlie's ability to achieve
such occupancy  rates. AC will continue to set aside a small percentage of rooms
and suites  (approximately  5%) for  complimentary  use by its preferred  casino
customers.

     Food and  Beverage.  AC operates  five  restaurants  at the  facility.  The
Sourdough Cafe, open 24 hours a day, is located adjacent to the casino floor and
seats 247 patrons. The all-you-can-eat Wild West Buffet is located on the second
floor and seats 238 patrons and the Food Court which was enlarged in July,  1997
is located in close  proximity  to the poker room and the race and sports  book.
Two specialty restaurants,  Charlie Chin's, which offers Chinese cuisine and the
Yukon Grille, an American-style steakhouse,  with 100 seats each, attract guests
interested in a varied dining  experience.  The restaurants are designed to help
attract more diverse  casino  patrons.  Arizona  Charlie's  also has three bars,
which  include  a  lounge  bar,  a  sports  book  bar and a bar to  service  the
restaurants.

     As with many casinos,  Arizona  Charlie's food and beverage  operations are
not directly  profitable,  but are used as marketing  tools to stimulate  casino
activity.  See "Management's  Discussion and Analysis of Financial Condition and
Results  of  Operations  -  Arizona  Charlie's,  Inc."  Nonetheless,  costs  are
minimized and operations are  streamlined by using one kitchen to serve all five
restaurants.  The Sourdough Cafe, the Wild West Buffet,  Yukon Grille,  the Food
Court and Charlie Chin's offer quality food and service at affordable prices. AC
believes that much of its casino and other business is  attributable  to traffic
created by the  restaurants,  and thus prices are set at levels designed to draw
patrons to the facility.

     Entertainment   and  Other  Facilities.   Arizona  Charlie's   emphasis  on
reasonably priced  entertainment  has been an integral  component of its overall
customer  appeal.  The Naughty Ladies Saloon,  a 108-seat  facility,  features a
variety of entertainment including celebrity acts, live bands, musician showcase
nights and jam sessions.  AC also presents  mini-concerts,  boxing  events,  and
other events in its second, much larger entertainment  facility-the Palace Grand
Theatre.  This 700-seat showroom,  located on the second floor, also serves as a
meeting and banquet  facility.  AC has focused added  marketing  emphasis on the
appeal of its  entertainment  programming.  The  larger  showroom  enables AC to
present  better-recognized  musical acts, when  attainable,  charge higher cover
prices and attract more gaming  customers.  The  availability  of two  showrooms
allows AC to present  more and varied  entertainment.  The  banquet  and meeting
space has  enabled  AC to expand its  marketing  efforts  to  visiting  business
travelers and the small meetings market segment.

     A small gift shop located  adjacent to the casino  provides a limited range
of inexpensive gift items, candy,  newspapers,  magazines and cigarettes.  Added
focus has been placed on logo merchandise  promoting the Arizona  Charlie's name
and motif.

      Parking Facility.  Arizona Charlie's offers on-site valet and self-parking
lots with combined capacity for over 650 vehicles.  Ease of access to the casino
is believed to be an  important  element in the appeal of Arizona  Charlie's  to
local customers.

     Business Strategy

      AC's  strategy  focuses on  attracting  Las Vegas  residents,  principally
retirees and  employees of local  businesses,  who visit the casino on a regular
basis.  These patrons,  in contrast to the  vacationers and  conventioneers  who
frequent the Las Vegas Strip,  prefer a friendlier,  more casual  environment to
the large crowds,  extravagance and less intimate atmosphere associated with the
Strip casinos.  Accordingly,  AC attempts to attract locals and achieve customer
loyalty by creating a more personal and relaxed,  yet  full-service,  atmosphere
with an emphasis on value pricing.  Since the  Expansion,  AC has also increased
its marketing efforts toward non-local customers.

      Management's  efforts to create a friendly  and relaxed  atmosphere  begin
with its  employees.  AC strives to instill  in each  employee a  commitment  to
service  excellence.  Employees are trained to recognize and acknowledge regular
customers on a first-name basis.  Employees are continually informed of upcoming
events  and are  trained  to be  responsive  to  customer  inquiries  about  new
promotions.  The high  level  of  personal  interaction  between  employees  and
customers leads to improved employee morale that in turn further  contributes to
the pleasant atmosphere.

      Casino  operations  are geared  toward  the tastes of the local  customer.
Arizona Charlie's emphasizes video poker machines,  which local customers prefer
to other gaming machines because video poker offers longer playing times per bet
and more interactive features. In addition, AC's video poker machines are set at
higher payout rates than other gaming machines in the casino. As a result, based
on data  compiled  and  published by state  gaming  regulators,  payout rates at
Arizona  Charlie's  are believed by  management to be higher than those at other
Las  Vegas  casinos  generally.  In  addition,  AC  purchased  and  installed  a
computerized  on-line slot reporting and player  tracking system in May, 1997 to
establish a slot club for patrons and to better evaluate casino  promotions.  By
utilizing the slot club, players are rewarded  complimentary items such as food,
beverage and  entertainment.  Also,  some player bonuses are paid in cash on the
casino  floor,  which patrons find  appealing.  Moreover,  casino  operations at
Arizona  Charlie's are continually  monitored and adjustments are made from time
to time to  accommodate  changing  customer  interests.  The casino  also offers
double-deck, hand-dealt blackjack that allows the players to handle their cards,
creating more player involvement in the game and the potential for more frequent
payouts.  A  four-table  poker room has also helped to attract  local  regulars.
Arizona Charlie's also features a bingo parlor which management believes, though
not  directly  profitable,  is an effective  marketing  tool because it attracts
locals on a regular  basis who also  engage in other  gaming  activities.  Bingo
contributes to the casino's overall informal and friendly atmosphere. Finally, a
company-owned  shuttle bus service provides free scheduled  pick-up and drop-off
service for local customers, particularly the elderly. Management believes that,
as a result of its  efforts  to gear  casino  operations  to the tastes of local
customers  and to  provide a more  personal  approach,  the  casino has become a
social gathering place for the surrounding communities.

      AC provides  complimentary food and beverages to valued casino patrons and
has expanded  this  practice  since the  Expansion.  While AC issues credit to a
small portion of its customers, it does so judiciously,  resulting in an average
provision for doubtful accounts of less than 1% of gaming revenues over the past
several years. Since the Expansion, AC has implemented,  among a number of other
new  marketing  programs,  efforts  designed to attract  more credit  customers.
However,  management  continues  to  maintain  stringent  controls on its credit
policy  and thus does not  expect  its  provision  for  doubtful  accounts  as a
percentage of gaming revenues to increase significantly.

     Marketing Strategy

      General. AC promotes the casino through special events, television, radio,
print and  billboard  advertising,  direct  mail,  video poker  specials and its
popular,  trademarked "Paycheck Poker" check-cashing  promotion.  Paycheck Poker
which many of AC's  competitors have imitated,  involves a no-fee  check-cashing
service and the distribution of free scratch-game  prize cards. Other promotions
successfully employed by AC include hand paid jackpots on video poker, which are
supplemental  to the machine payout,  and special event  promotions on holidays.
The recently installed  computerized  on-line slot reporting and player tracking
system allows management to create and evaluate casino promotions. A slot player
club was established in May, 1997 to reward patrons with  complimentaries  based
upon patron play and other criteria  established by management.  The slot player
club and player tracking  system also provides a database of patron  information
that  has  been  utilized  to  generate  a list of  qualified  patrons  for mail
promotions  based  upon  management  criteria.  The  computerized  on-line  slot
reporting  also  prepares slot  accounting  and  management  reports (slot drop,
fills,  jackpots and patron head counts) that were previously  prepared manually
by accounting  and slot  department  personnel.  Management  believes that these
marketing tools will enable AC to fill the casino consistently without employing
expensive  bus,  coupon book or  road-flier  promotions  commonly  used by other
casinos in Las Vegas.  Arizona  Charlie's  has also  marketed  the casino on the
basis of its reputation  among locals for promoting  professional  boxing events
and entertaining country music and classic rock performances.

      AC's marketing  strategy is geared  principally to attract locals who will
visit  the  casino on a repeat  basis for  entertainment  and  relaxation.  AC's
ability to continue  to draw these  players  will be  critical to its  long-term
success.  In  addition,  management  expects  that the  slot  player  club  will
generally enable it to further  increase  revenues through the broadening of its
marketing  programs which include more  invited-guest  events,  increased  house
credit  (currently  issued  on a  very  limited  basis),  a  greater  number  of
performances by better-recognized musical groups, and slot tournaments.

     Local  Residents.  AC  markets  primarily  to  the  local  resident  gaming
customer. AC relies heavily on Arizona Charlie's location,  its favorable casino
odds, its modestly  priced food and beverage  facilities  and its  entertainment
programming to attract  local-resident  patrons.  AC markets to local  residents
through  local  print  and  billboard   advertising,   television   commercials,
participation in community and other public activities, its slot player club and
in-house promotions and programs,  such as its no-fee  check-cashing  promotion.
Arizona  Charlie's  also benefits  from  word-of-mouth  endorsements  from local
residents.  AC continues to develop new in-house  promotions designed to enhance
the image of Arizona Charlie's.

      Leisure  Travelers.  The leisure  travel  segment of the Las Vegas  gaming
customer  market  consists of persons who are not affiliated with groups and who
make  their  reservations  directly  with the hotel of their  choice or  through
independent  travel  agents.  Currently,  this segment  represents  only a small
portion of Arizona Charlie's customer base.  Management believes,  nevertheless,
that its affordably priced hotel rooms and off-Strip  location are attractive to
a  portion  of the  leisure  travel  segment  and  that  Arizona  Charlie's  has
significant  development  potential in this area. The Company believes that many
repeat visitors who perceive Las Vegas  residents as discerning,  value-oriented
consumers of hotel and gaming  facilities  will be favorably  influenced  by the
hotel's popularity among locals. AC's management  believes,  further,  that once
first-time  visitors  experience  the value,  quality  and  friendly  atmosphere
offered by Arizona Charlie's, many of those visitors become repeat customers. AC
anticipates that it will periodically (as hotel occupancy  projections  dictate)
utilize print media,  billboards and radio to advertise in Southern  California,
and, to a lesser extent,  in other leisure travel markets such as Arizona,  Utah
and Idaho.

      Special Casino Customers.  The special casino customer segment is composed
of frequent gaming customers known to AC. AC monitors the profiles of its repeat
customers and offers complimentary or reduced-rate  lodging,  food and beverages
to the more  active of these  customers.  AC  identifies  and tracks the play of
these  customers  through  the  issuance  of a special  guest  card,  its player
tracking system and by means of personal management  contact.  The special guest
card is presented by the guest when participating in gaming activities or dining
at  Arizona  Charlie's,  enabling  company  employees  to  deliver  personalized
service.  Credit play is also made  available  for  qualified  customers  in the
discretion of management  based on the player's gaming and credit  history.  The
Expansion  of  Arizona  Charlie's  has  enabled  AC to market  the  casino  more
effectively to credit  customers who require  certain  amenities that AC can now
provide.

      Selected  Banquet and Meeting Groups.  With the creation of  approximately
15,000 square feet of banquet facilities and meeting rooms in the Expansion,  AC
has expanded its  marketing  efforts  within this segment with respect to groups
anticipated  to have a  generous  amount of time to  participate  in gaming  and
entertainment  activities,  such as  meeting  participants  whose  meetings  are
scheduled  for only a portion of the day. AC does not market to  conventions  or
large-scale  meetings.  AC's marketing department maintains data, makes contacts
and develops relationships with outside selected meeting planners.

     Market & Competition

      Las Vegas Market. The large and expanding Las Vegas gaming market includes
both local residents and visitors.  Arizona Charlie's draws principally from the
local resident market and to a limited,  but growing,  extent attracts  visiting
business and vacation travelers.

      Located in southern  Nevada's Clark County,  Las Vegas is the largest city
in Nevada,  with a local  population that has grown  dramatically  over the past
decade.  Further  population  increases are expected in coming  years,  based on
published  growth  projections  for  southern  Nevada.  Much of the  recent  and
anticipated  population  growth in Las Vegas may be  attributed to the growth of
the local gaming  industry,  which has drawn and is expected to draw people from
other  regions who are looking for  employment.  Arizona  Charlie's  attracts as
customers many employees of other casino properties, and expects to benefit from
the influx of people looking for employment,  many of whom will likely choose to
reside in the growing  neighborhoods to the west of and near Arizona  Charlie's.
Arizona  Charlie's  will also  benefit  from the  growth of these  neighborhoods
resulting  from the  increased  influx of retirees who move to Las Vegas for its
favorable  climate,  relatively  low  cost  of  living  and  wide  selection  of
entertainment activities.

     Within  its  principal  market,   AC  derives   substantially  all  of  its
casino-hotel  business from customers  residing in the  immediately  surrounding
neighborhoods.  The outer areas of this geographic market have experienced, more
than any other area of Las Vegas, a growing residential base, most significantly
to the west of Arizona Charlie's.

      Although AC does not emphasize the visitor market,  its marketing  efforts
toward that market have increased and the growth of the local gaming industry as
a whole contributes to the growth of Arizona Charlie's customer base. Therefore,
the level of Las Vegas  visitor  traffic has had an indirect  effect on AC. With
increased  visitor  traffic and the growth of the local  population,  gaming has
been a strong  and  growing  business  in Las  Vegas.  The Las Vegas  market has
historically   achieved   significant   growth  despite  adverse   economic  and
competitive  events  during the past  decade,  including  the  expansion  of the
Laughlin,  Nevada market 90 miles south of Las Vegas,  the  introduction  of the
California  lottery in 1985,  the growth in gaming in Atlantic  City, New Jersey
and the introduction of riverboat, dockside and Indian gaming and other forms of
legalized  gaming.  More recently,  as a result of the increased  popularity and
public acceptance of gaming,  Las Vegas has sought to increase its popularity as
a destination resort. An increasing number of casinos have developed  non-gaming
entertainment  to draw visitors and their  families to Las Vegas.  These include
major casino-hotel projects recently completed on or near the Strip, such as the
New York New York, MGM Grand, Luxor,  Treasure Island, Circus Circus' Grand Slam
Canyon,  Monte Carlo, the  Stratosphere  and others currently under  development
such as The Circus  Circus South Strip  Project,  The Venetian and The Bellagio.
These  projects are expected to expand the Las Vegas gaming  market and economy,
increase  the  local  population  and,  therefore,  increase  Arizona  Charlie's
customer base.

      Competition. AC competes for many of its local gaming customers with other
casino-hotels  located in the  western  area of Las Vegas and,  to a much lesser
extent,  with other  casino-hotel  operations  located off the Strip.  Competing
locals' casinos include  principally the Palace Station,  Gold Coast, Rio, Santa
Fe, Fiesta,  Texas Station,  Boulder  Station,  the Orleans (opened in December,
1996) and Sunset Station  (opened in June,  1997) all but one of which is larger
than and each of which  offers  similar,  if not greater,  amenities  than those
offered by Arizona  Charlie's.  The Fiesta,  Santa Fe and Texas Station and to a
lesser extent the Orleans and Sunset Station  continue to have a negative impact
on the slot revenues of Arizona Charlie's,  however, management believes this is
temporary as AC competes with these  facilities on the basis of the desirability
of its location, its high payout rates,  personalized  approach,  Paycheck Poker
check cashing and other  promotions in the casino,  the comfort and value of its
restaurants  and  hotel  rooms,  and the  excitement,  variety  and value of its
entertainment. See "Business Strategy."

      AC believes that because of restrictive  zoning laws,  water rights issues
and other factors (including the ownership of surrounding parcels of land by the
Becker family), no new competing  facilities are likely to be developed within a
two-mile  radius of Arizona  Charlie's.  As a result,  AC believes  that Arizona
Charlie's  is well  positioned  geographically  to take  advantage  of its focus
market.

     To the extent AC seeks to develop significant  leisure travel business,  it
will compete with other  casino-hotel  operations  located not only in Las Vegas
but in the Laughlin and Reno-Lake Tahoe areas of Nevada and with state-sponsored
lotteries,  off-track  wagering,  card parlors,  riverboat and dockside  gaming,
Indian gaming ventures and other forms of legalized gaming.

Sunset Coin, Inc.
-----------------

      Operations. Since 1980, SC has operated a gaming machine route business in
the Las Vegas,  Nevada area,  which at June 30, 1997 consisted of  approximately
280  coin-operated  gaming  devices in 28  locations.  The machines are owned or
leased by SC and placed in locations owned by others,  primarily  retail outlets
in shopping centers,  taverns,  restaurants and convenience stores. SC generally
shares the net win with the property  owner,  although in 2 locations SC retains
all income  generated  by its  machines and pays a fixed space rental fee to the
property owner. Approximately 221 of SC's machines are installed at 23 locations
controlled by the Becker family, and the associated contracts are expected to be
renewed  as a matter  of  general  course.  As of June  30,  1997,  the  average
remaining life of contracts with other locations was approximately 5 years.

      In  addition  to its gaming  machine  route,  SC derives  income from fees
earned pursuant to gaming machine service contracts with locations which operate
their own gaming machines.  SC provides  24-hour  maintenance and other services
for which it  charges  a fixed  rate per month per  machine.  SC  currently  has
service contracts with six locations consisting of an aggregate of approximately
130  machines,  including  a  total  of  115  machines  located  at  BGG's  five
restaurants.

      In order to open a new route  location,  SC must be  licensed  to  operate
gaming machines at the site or, in the case of a revenue-sharing  agreement, the
location  operator  must be  licensed.  Typically,  it takes  120 to 180 days to
obtain  the  requisite   licenses  and  to  complete  the   necessary   facility
improvements  to accommodate  the gaming  machines,  resulting in a delay in the
generation  of route  revenues  following  the execution of a contract for a new
route  location.  The opening of a route  location  generally  requires  capital
improvements,  a portion of which may be funded,  typically as a loan, by SC. SC
relies  on cash  from  operations  to fund the  capital  improvements  and other
operational  costs.  See  "Item  7.  Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations -
  Sunset Coin, Inc. - Liquidity and Capital  Resources." New locations typically
experience  an initial  stabilization  period,  during which SC  determines  the
appropriate number (subject to regulatory limits) and mix of gaming machines and
implements certain of its start-up marketing programs.

      Competition.  SC's gaming machine route operation competes on the basis of
its  machines  and its service.  Unlike many other  operators,  SC uses only new
equipment with the latest  technologies.  These machines are believed to be more
attractive  to gaming  customers  than  older  machines  and,  as a result,  are
expected  by gaming  machine  route site  owners to  generate  more  income.  In
addition,  SC supports its  machines  with 24-hour  service,  providing  change,
jackpot payments and repair assistance, as needed. SC relies in part on customer
referrals  and  expansions by its customers  into  additional  locations for new
business.  SC also actively  solicits  business from other gaming  machine route
locations having  contracts with  competitors that are scheduled to expire,  and
from retail outlets in new shopping centers and restaurants. The availability of
sites held by the Becker  family-controlled  entities  also  provides  SC with a
competitive  advantage.  The terms of the contracts (and extensions and renewals
thereof)  entered into by SC with its customers  are  determined on the basis of
private  negotiation  and do not  involve  participation  in public  competitive
bidding processes.

      Notwithstanding  SC's  ability to generate  profits in recent  years,  the
operation of a gaming machine route in Nevada is a highly  competitive  business
and that  competition  continues to  intensify.  Many of SC's  competitors  have
significantly  greater financial resources and manage  substantially more gaming
machines.   Competitors  often  provide  substantial  financial  inducements  to
prospective  customers,  some of which SC is not financially able to offer. Such
inducements  include  long-term  commitments,  guarantees and leases in favor of
owners of local establishments,  substantial advance deposits, payments of lease
rentals  in  advance  and  loans for  buildings  and  tenant-improvement  costs.
Although SC has  historically  generated  sufficient new contracts to offset the
loss of old ones,  its revenues  decreased  in fiscal 1997 and 1996  compared to
fiscal  1995 as a  result  of a net  loss  of  contracts  and  due to  increased
competition and the increased  sophistication and bargaining power of customers.
There can be no  assurance  that SC will be able to obtain  new  gaming  machine
route contracts or renew or extend its existing contracts on their expiration or
termination,  or that, if renewed or extended, the terms will be as favorable to
SC. See "Item 7.  Management's  Discussion and Analysis of Financial  Conditions
and Results of Operations - Sunset Coin, Inc. - Results of Operations."

Becker Gaming Group
-------------------

     Operations.  BGG  currently  owns  and  operates  five  restaurant  and bar
facilities (including one through its subsidiary,  Innerout,  Inc.) in Las Vegas
under the "Charlie's"  name,  each of which offers limited  gaming.  BGG's first
restaurant was opened in late 1986, the next four facilities were opened between
1988 and 1991,  and the sixth was opened in April 1995.  However,  one facility,
Charlie's  Saloon & Gambling Hall, was closed due to the expiration of its lease
in April 1996. Three of the restaurants-"Charlie's Bar," "Cantina Charlie's" and
"Charlie's  Bar  Down   Under"-emphasize   lower-priced  menus  in  an  informal
environment, and two more upscale locations-"Charlie's Lakeside Bar & Grill" and
"Cariba  Charlie's,"-feature  more  formal  dining  and a greater  selection  of
dishes.

     BGG expects to continue exploring expansion  opportunities in the Las Vegas
area  and has  identified  a  suitable  location  for a new  restaurant  and bar
facility  scheduled  to open in late  1997.  BGG's  ability  to open  additional
restaurants  depends on,  among other  factors,  obtaining  financing,  locating
acceptable sites,  negotiating favorable leases, securing appropriate government
permits and approvals,  obtaining liquor  licenses,  and recruiting and training
qualified restaurant management personnel.

      BGG depends on gaming revenue for a large percentage of its revenues and a
larger  percentage  of its  profits,  particularly  at  Charlie's  Bar,  Cantina
Charlie's and Charlie's Bar Down Under, where food and beverage  operations have
not been directly profitable.  Accordingly,  the menus at Charlie's Bar, Cantina
Charlie's and  Charlie's  Bar Down Under are priced and include food  selections
designed to attract casual diners interested in gaming entertainment. Unlike the
lower-priced  facilities,  Charlie's  Lakeside and Cariba Charlie's are operated
with the  intention of generating  profit both from food and beverage  sales and
from gaming activity.  To that end, these restaurants feature a better selection
of dishes and wines to attract customers  interested  principally in a memorable
dining  experience.  Charlie's  Lakeside  and  Charlie's  Bar  Down  Under  hold
nonrestricted  gaming licenses allowing them to operate  thirty-five video poker
machines with poker promotions and large progressive  jackpots.  BGG employs the
same state-of-the-art  gaming machines and liberal pay-out approach made popular
at Arizona Charlie's.

       BGG strives to maintain  consistency in each of its  restaurants  through
the careful  training and  supervision of its  personnel.  The management of BGG
also closely monitors the tastes of the customers of each of its restaurants and
makes  menu and  other  changes  to  accommodate  these  tastes.  BGG  maintains
financial and accounting controls for each of its restaurants through the use of
centralized accounting and management information systems.

      Competition.  The  restaurant  and food service  industry in the Las Vegas
area is highly  competitive and fragmented.  There are many restaurant and other
food and beverage  service  operations that compete directly and indirectly with
BGG. BGG competes with these restaurants on the basis of its reasonable pricing,
quality food, focused menus and gaming entertainment.  In addition,  BGG employs
seasonal print and direct mail  advertising  and conducts some local  restaurant
promotions.  Many of BGG's  competitors,  however,  have  significantly  greater
financial  resources  and higher  sales  volume  than BGG does.  The  restaurant
business  is often  affected  by changes  in  consumer  taste and  discretionary
spending   priorities,   national,   regional  or  local  economic   conditions,
demographic  trends,  consumer  confidence  in the  economy,  traffic  patterns,
weather conditions,  employee availability, and the type, number and location of
competing  restaurants.  Any change in these factors could adversely affect BGG.
Factors such as inflation and increased food,  liquor,  labor and other employee
compensation  costs could also  adversely  affect BGG.  Management  believes its
ability to compete  effectively  will continue to depend on its ability to offer
quality food for moderate prices in unique dining environments.

Capitol Queen & Casino, Inc.
----------------------------

      CQC 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
the Company, 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  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".

       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

      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 has issued a limited  guaranty with respect to the
CQC Notes (the "AC Limited Guaranty"). The amount and extent of AC's guaranty of
the CQC Notes is in dispute due to certain  provisions  of the  Indenture  under
which the CQC Notes were issued,  as well as certain  provisions of State and/or
Federal  Law  that  may  be   applicable   in  or  with   respect  to  financial
restructuring. It is AC's position that, based on advice from legal counsel, its
limited  guaranty  does not  create  a  material  liability  on its part for the
payment of the obligations under the CQC Notes.

      IBJ Schroder Bank & Trust Company,  as Trustee under the Indentures  under
which such Notes are outstanding, has declared the AC Notes and the CQC Notes to
be in default and has declared all such Notes to be immediately due and payable.
The Trustee has also notified AC that the purported  obligations of AC under its
guaranty have been accelerated and has declared the obligations of AC thereunder
to be due.  Management of AC and CQC and the holders of the Notes are discussing
possible  financial  restructuring  of the AC and CQC  obligations,  but no such
restructuring has yet been agreed to. The Trustee has taken no further action to
enforce the Notes or the  purported  guaranties  thereof or to  foreclose on any
assets of AC or CQC. No assurance can be given,  however,  that the Trustee will
not do so.

Employees

      As of September 1, 1997, the Company  employed only one person,  its chief
executive officer.  Approximately 40 other Company employees were transferred to
the employ of AC in March 1995 in connection  with the suspension of activity at
CQC. As of September 1, 1997, AC employed  approximately  1,179, SC employed 26,
and  BGG  employed  approximately  172.  As of  September  1,  1997,  CQC had no
employees  (other then its sole executive  officer who is not compensated by CQC
for such  services).  None of the  foregoing  employees is employed  pursuant to
collective  bargaining  or other union  arrangements.  Management  believes  its
employee relations are good.

Government Regulation

      The  ownership  and  operation of casino  gaming  facilities in Nevada are
subject to (i) the Nevada  Gaming  Control Act and the  regulations  promulgated
thereunder (collectively,  the "Nevada Act"), and (ii) various local regulation.
The gaming operations of the Company and its Nevada  subsidiaries are subject to
the  licensing  and  regulatory  control of the Nevada  Gaming  Commission  (the
"Nevada  Commission"),  the Nevada  State  Gaming  Control  Board  (the  "Nevada
Board"),  the Clark County Liquor and Gaming  Licensing Board (the "Clark County
Board"), the City of Las Vegas and other local jurisdictions (collectively,  the
"Nevada Gaming Authorities").

      The laws,  regulations  and  supervisory  procedures  of the Nevada Gaming
Authorities  are based on declarations of public policy that are concerned with,
among other things:  (i) the  prevention of unsavory or unsuitable  persons from
having  a direct  or  indirect  involvement  with  gaming  at any time or in any
capacity;  (ii) the  establishment  and  maintenance of  responsible  accounting
practices and procedures;  (iii) the maintenance of effective  controls over the
financial  practices  of  licensees,  including  the  establishment  of  minimum
procedures  for  internal  fiscal  affairs  and the  safeguarding  of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities;  (iv) the prevention of cheating and
fraudulent  practices;  and (v)  providing a source of state and local  revenues
through  taxation and  licensing  fees.  Changes in such laws,  regulations  and
procedures  could have an adverse effect on the gaming  operations of the Nevada
subsidiaries.

      The Company and its Nevada subsidiaries are required to be licensed by the
Nevada Gaming  Authorities to engage in gaming  activities.  The gaming licenses
require  the  periodic  payment of fees and taxes and are not  transferable.  No
person may become a stockholder  of, or receive any  percentage of profits from,
the Nevada subsidiaries  without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company and its Nevada subsidiaries have obtained
from the Nevada Gaming Authorities the various registrations, approvals, permits
and licenses required to engage in gaming activities in Nevada.

     The Nevada Gaming  Authorities  may  investigate  any  individual who has a
material  relationship with the Company or its Nevada  subsidiaries to determine
whether the individual is suitable or should be licensed as a business associate
of a gaming  licensee.  Officers,  directors  and certain key  employees of such
companies must file applications  with the Nevada Gaming  Authorities and may be
required  to be licensed or found  suitable  by the Nevada  Gaming  Authorities.
Others who are actively and directly  involved in gaming  activities may also be
required to be licensed or found suitable by the Nevada Gaming Authorities.  The
Nevada Gaming  Authorities  may deny an application  for licensing for any cause
they deem reasonable.  A finding of suitability is comparable to licensing,  and
both require submission of detailed personal and financial  information followed
by a  thorough  investigation.  The  applicant  for  licensing  or a finding  of
suitability  must pay all the costs of the  investigation.  Changes in  licensed
positions must be reported to the Nevada Gaming  Authorities  and in addition to
their  authority  to  deny  an  application  for a  finding  of  suitability  or
licensure,  the Nevada  Gaming  Authorities  have  jurisdiction  to disapprove a
change in corporate position.

      The  Company and its Nevada  subsidiaries,  would be required to sever all
relationships  with any officer,  director,  or key employee who refuses to file
the appropriate  applications  or is found  unsuitable for licensing or denied a
license  by the Nevada  Gaming  Authorities,  whose  licensing  and  suitability
decisions are not subject to judicial review.

       Substantially all material loans, leases, sales of securities and similar
financing  transactions  by the  Company  and its  Nevada  subsidiaries  must be
reported to, or approved by, the Nevada Commission.

      If it were determined  that the Company or any of its Nevada  subsidiaries
had violated the Nevada Act,  that  Company's  gaming  license could be limited,
conditioned,  suspended or revoked, subject to compliance with certain statutory
and regulatory procedures. In addition, the company and the individuals involved
could be subject to substantial fines for each separate  violation of the Nevada
Act at the discretion of the Nevada  Commission.  Further, a supervisor could be
appointed by the Nevada  Commission to operate the company's  gaming  properties
and, under certain  circumstances,  earnings  generated  during the supervisor's
appointment  (except for the  reasonable  rental value of the  company's  gaming
properties) could be forfeited to the State of Nevada. Limitation,  conditioning
or suspension of any gaming  license or the  appointment  of a supervisor  could
(and revocation of any gaming license would) materially  adversely affect gaming
operations.

      The Company and AC are  registered  publicly  traded  companies  under the
Nevada Act and as such are subject to the  provisions  applicable to "registered
corporations." The Nevada Act requires any person who acquires more than 5% of a
registered  corporation's  voting  securities to report the  acquisition  to the
Nevada  Commission.  The registered  corporation is also required to report such
acquisitions. The Nevada Act requires that beneficial owners of more than 10% of
a registered  corporation's voting securities apply to the Nevada Commission for
a finding of  suitability  if, and within 30 days  after,  the  chairman  of the
Nevada  Board  mails a written  notice  requiring  such  filing.  Under  certain
circumstances,  an "institutional investor," as defined in the Nevada Act, which
acquires  more  than  10%,  but not  more  than  15%,  of the  Company's  voting
securities  may apply to the Nevada  Commission  for a waiver of such finding of
suitability  if such  institutional  investor  holds the voting  securities  for
investment purposes only. An institutional  investor shall not be deemed to hold
voting  securities for investment  purposes  unless the voting  securities  were
acquired  and are held in the  ordinary  course of business as an  institutional
investor  and not for the  purpose  of  causing,  directly  or  indirectly,  the
election of a majority of the members of the board of  directors of the Company,
any change in the Company's corporate charter, bylaws,  management,  policies or
operations of the Company, or any of its gaming affiliates,  or any other action
which the Nevada  Commission finds to be inconsistent with holding the Company's
voting securities for investment purposes only.  Activities which are not deemed
to be inconsistent with holding voting  securities for investment  purposes only
include:  (i)  voting  on all  matters  voted on by  stockholders;  (ii)  making
financial  and  other  inquiries  of  management  of the type  normally  made by
securities analysts for informational  purposes and not to cause a change in its
management,  policies  or  operations;  and (iii) such other  activities  as the
Nevada Commission may determine to be consistent with such investment intent. If
the  beneficial  holder of voting  securities  who must be found  suitable  is a
corporation,  partnership  or  trust,  it  must  submit  detailed  business  and
financial  information  including a list of beneficial  owners. The applicant is
required to pay all costs of investigation.

      The Company has issued common stock purchase  warrants (the "Warrants") to
certain  institutional   investors.   The  Warrants  do  not  constitute  voting
securities for purposes of the Nevada Act.  Nonetheless,  the Company may redeem
the  Warrants  at  their  then  fair  market  value in the  event  that (i) such
redemption is required by the Nevada Gaming Authorities,  (ii) the Nevada Gaming
Authorities require the termination of any Warrant or (iii) the ownership of the
Warrants by a Warrantholder would materially impair the issuance of or result in
the  imposition  of a material  burden on any  gaming,  liquor or other  license
required for the  operations  of the Company or any of its Nevada  subsidiaries.
Further,  the Common Stock issuable on exercise of the Warrants will  constitute
voting  securities and,  accordingly,  Warrantholders  that become owners of the
outstanding  Common Stock on exercise of their  Warrants  will be subject to the
suitability requirements.

      Each beneficial  holder of the voting securities of a Nevada licensee that
is not a registered  publicly traded company under the Nevada Act, regardless of
the number of shares owned, must file an application, be investigated,  and have
his suitability as a beneficial holder of such voting securities determined. The
applicant  must pay all costs of  investigation  incurred  by the Nevada  Gaming
Authorities in conducting any such investigation.

      The Company has been registered or found suitable,  as the case may be, to
own the common stock of each of the Nevada subsidiaries.

      Any person who fails or refuses to apply for a finding of suitability or a
license  within  thirty  days  after  being  ordered  to  do so  by  the  Nevada
Commission,  may be found unsuitable.  The same  restrictions  apply to a record
owner if the record  owner,  after  request,  fails to identify  the  beneficial
owner. Any stockholder  found unsuitable and who holds,  directly or indirectly,
any  beneficial  ownership  of  the  common  stock  of a  gaming  licensee  or a
registered  corporation  beyond such period of time as may be  prescribed by the
Nevada  Commission may be guilty of a criminal  offense.  The gaming licensee or
registered  corporation  will be subject  to  disciplinary  action if,  after it
receives  notice that a person is unsuitable to be a stockholder  or to have any
other  relationship  with it, the company  (i) pays that person any  dividend or
interest  on voting  securities  of the  company,  (ii)  allows  that  person to
exercise,  directly or indirectly, any voting right conferred through securities
held by that  person,  (iii) pays  remuneration  in any form to that  person for
services  rendered or otherwise,  or (iv) fails to pursue all lawful  efforts to
require such unsuitable  person to relinquish his voting  securities for cash at
fair market value.  Additionally,  the Nevada regulatory  authorities have taken
the  position  that it has the  authority  to  approve  all  persons  owning  or
controlling the stock of any corporation controlling a gaming licensee.

      The Nevada  Commission may, in its  discretion,  require the holder of any
debt  security  of  a  gaming  licensee  or a  registered  corporation  to  file
applications,  be investigated and be found suitable to own the debt security of
a  gaming  licensee  or a  registered  corporation.  If  the  Nevada  Commission
determines  that a person is unsuitable to own such  security,  then pursuant to
the Nevada Act, the gaming licensee or registered corporation can be sanctioned,
including the loss of its licenses and approvals,  if without the prior approval
of the Nevada  Commission,  it: (i) pays to the unsuitable  person any dividend,
interest,  or  other  distribution  (ii)  recognizes  any  voting  right  by the
unsuitable  person in connection the such securities;  (iii) pays the unsuitable
person  remuneration  in any form;  or (iv) makes any payment to the  unsuitable
person by way of principal,  redemption,  conversion,  exchange, liquidation, or
similar transaction.

      The Company and its Nevada  subsidiaries  are required to maintain current
stock ledgers in Nevada which the Nevada Gaming  Authorities  may examine at any
time.  If any  securities  are held in trust  by an agent or by a  nominee,  the
record holder may be required to disclose the identity of the  beneficial  owner
to the Nevada Gaming Authorities. Failure to make such disclosure may be grounds
for finding the record  holder  unsuitable.  Each  company is required to render
maximum  assistance in  determining  the identity of any beneficial  owner.  The
Nevada  Commission  has the power to and has required  the Nevada  subsidiaries'
stock certificates to bear legends indicating that the securities are subject to
the Nevada Act.

      The Company is not permitted to make a public  offering of its  securities
without  the prior  approval  of the  Nevada  Commission  if the  securities  or
proceeds  therefrom  are  intended to be used to  construct,  acquire or finance
gaming  facilities in Nevada,  or to retire or extend  obligations  incurred for
such  purposes.  Any such approval,  if granted,  does not constitute a finding,
recommendation  or approval by the Nevada  Commission  or the Nevada Board as to
the  accuracy or  adequacy of the  prospectus  or the  investment  merits of the
securities offered. Any representation to the contrary is unlawful.

     A change in  control  of a  registered  publicly  traded  company,  whether
through  merger,  consolidation,  stock or  asset  acquisitions,  management  or
consulting  agreements,  or any act or conduct by a person  whereby  such person
obtains  control,  may not  occur  without  the  prior  approval  of the  Nevada
Commission.  Entities seeking to acquire control of a corporation subject to the
Nevada Act must first  satisfy a variety of stringent  standards  imposed by the
Nevada  Board and Nevada  Commission.  The Nevada  Commission  may also  require
controlling stockholders,  officers and directors of the entity seeking control,
and any other persons having  material  relationships  or involvement  with such
entity, to be investigated and licensed as part of the approval process relating
to the transaction.

      The Nevada  legislature  has  declared  that some  corporate  acquisitions
opposed by management,  repurchases of voting  securities and corporate  defense
tactics  affecting Nevada gaming licensees and registered  corporations that are
affiliated  with those  operations  may be  injurious  to stable and  productive
corporate  gaming.  The Nevada Commission has established a regulatory scheme to
ameliorate  the  potentially  adverse  effects of these  business  practices  on
Nevada's  gaming  industry  and to  advance  Nevada's  policy to: (i) assure the
financial  stability of corporate  gaming operators and their  affiliates;  (ii)
preserve the beneficial  aspects of conducting  business in the corporate  form;
and  (iii)  promote  a  neutral  environmental  for the  orderly  governance  of
corporate  affairs.  In certain  circumstances,  approvals are required from the
Nevada Commission before a regulated company can make exceptional repurchases of
voting  securities  above  the  current  market  price  and  before a  corporate
acquisition  opposed  by  management  can be  consummated.  The  Nevada Act also
requires  prior approval of a plan of  recapitalization  proposed by a regulated
company's  board of directors in response to a tender offer made directly to the
corporation's   stockholders  for  the  purpose  of  acquiring  control  of  the
corporation.

      License fees and taxes,  computed in various ways depending on the type of
gaming or  activity  involved,  are  payable  to the State of Nevada  and to the
counties and cities in which the Nevada  licensees'  operations  are  conducted.
Depending  on the  particular  fee or tax  involved,  these  fees and  taxes are
payable  either  monthly,  quarterly or annually and are based on either:  (i) a
percentage of the gross  revenues  received;  (ii) the number of gaming  devices
operated;  or (iii) the number of table games operated.  A casino  entertainment
tax is also  paid by  casino  operators  where  entertainment  is  furnished  in
connection with the selling of food or refreshments.

      Any person who is licensed, required to be licensed, registered,  required
to be registered, or is under common control with such persons, and who proposes
to become involved in a gaming venture outside of Nevada ("foreign gaming") must
deposit and maintain with the Nevada Board,  a revolving  fund of $10,000 to pay
the Board's expenses of investigating the  participation in foreign gaming.  The
revolving  fund is subject to  increase or  decrease  at the  discretion  of the
Nevada Commission.  Thereafter, such persons are required to comply with certain
reporting   requirements   imposed  by  the  Nevada  Act,  and  are  subject  to
disciplinary  action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation,  fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity  required of Nevada gaming  operations,  engage in activities that
are  harmful to the State of Nevada or its ability to collect  gaming  taxes and
fees, or employ a person in the foreign  operation who has been denied a license
or finding of suitability in Nevada on the grounds of unsuitability.

Item 2.    Properties

     Arizona  Charlie's is located at 740 South  Decatur  Boulevard,  Las Vegas,
Nevada and comprises  approximately  170,000 square feet on  approximately  12.5
acres owned by AC. In  addition,  AC leases  office,  storage and laundry  space
located in an adjacent  shopping  center owned by  Charleston  Heights  Shopping
Center,  a  partnership  owned by the  Becker  family,  pursuant  to two  leases
expiring in 1998. The current annual rent payable (including insurance,  tax and
common area maintenance  payments) under these leases  aggregates  approximately
$222,000.

     SC currently owns all 255 of the gaming machines included in its route. The
machines  are  located   primarily  in  retail  outlets  in  shopping   centers,
restaurants, taverns and convenience stores owned by others.

      All of BGG's five restaurants are held pursuant to long-term leases.  Four
of the leases are with lessors owned in whole or part by Becker family  members.
The  newest  restaurant,   Charlie's  Bar  Down  Under,  was  constructed  by  a
partnership  including  several Becker family members and their relatives,  with
interior  improvements  constructed by SC. BGG's subsidiary  leases the building
and land from the  partnership and the furniture,  fixtures,  and equipment from
SC.  Although BGG believes that its  obligations  with respect to leases entered
into with Becker family entities  reflect market terms and rates,  Becker family
members may have  potential  conflicts  of interests  in  connection  with these
leases. See "Item 13. Certain Relationships and Related Transactions."

      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.

      The Company  has,  over the past  several  years been  assessing  possible
gaming   opportunities  in  Mississippi,   and  in  particular  in  Long  Beach,
Mississippi  where it had secured  options and certain lease rights with respect
to  a  possible  gaming  location.  In  anticipation  of  the  pursuit  of  such
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.
The Company has,  however,  chosen not to actively pursue the Long Beach project
at this time  pending  an  evaluation  of the  prospect  of the Long  Beach City
Council approval of a gaming project in Long Beach and the impact of significant
new gaming properties under construction in the Gulfport and Biloxi, Mississippi
areas  which are  scheduled  to open in the next  year.  Long  Beach is  located
several  miles west of these new resorts and other  Gulfport/Biloxi  area gaming
operations.  No  assurance  can be given at this time  that even if the  Company
chose to proceed with a Long Beach  development  that necessary  governmental or
other  approvals  could be obtained or that the  required  real estate  could be
secured  through  leases,  options  or  outright  purchase.  Due to  the  market
uncertainties  created by the  pending new resort  development,  the Company has
been unable to find a buyer for the rights it had acquired in Long Beach and has
allowed its principal option and lease rights to expire.

Item 3.    Legal Proceedings

      BGI,  CQC,  and the  Nevada  Operating  Companies  are  parties to various
lawsuits relating to routine matters incidental to their respective  businesses,
in addition to the litigation  discussed below.  Based on the amounts and issues
believed to be in controversy and  management's  evaluation of the merits of the
claims after  consultation  with counsel,  management  does not believe that the
outcome of such  litigation,  in the  aggregate,  will have a  material  adverse
effect on the results of operations,  cash flows, or financial condition of BGI,
CQC, or the Nevada Operating Companies.

     On October 31,  1994,  CQC and BGI  petitioned  the Cole  County,  Missouri
Circuit  Court in  Jefferson  City for a writ of  mandamus  with  respect to the
ruling of the Missouri Gaming Commission (the "Commission").  In response to the
petition,  the Circuit  Court issued an order  declaring  that by denying  CQC's
application  for  a  riverboat   gaming  license  without  first  conducting  an
investigation  and by  deliberating  in a closed  session,  the  Commission  had
violated  Missouri  gaming and open  meeting  laws.  The Circuit  Court issued a
preliminary  writ of  mandamus  declaring  the  Commission's  decision  void and
ordering  the  Commission  to  immediately  commence  a full  investigation  and
thereafter to act on CQC's application. The Circuit Court ordered the Commission
to show  cause  within  30 days  why the  preliminary  writ  should  not be made
permanent.

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

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


      On  November  1, 1994,  concurrent  with its  efforts  to obtain  judicial
relief,  CQC  (with  BGI as a  co-party)  requested  an  administrative  hearing
pursuant to the Missouri  gaming  statutes,  under which a denied  applicant may
request an evidentiary  hearing before a Commission  appointed  hearing officer.
The hearing officer's  decision is subject to review by the Commission,  and the
Commission's  decision is in turn  subject to judicial  review.  The  Commission
filed an answer on November 29, 1994 alleging,  among other things, that CQC was
not entitled to an administrative hearing because CQC had not been investigated.
On December 22, 1994 because the Commission had not appointed a hearing  officer
or otherwise responded to CQC's request for a hearing,  CQC moved the Commission
to appoint a hearing officer and establish a procedural schedule. The Commission
did not  respond to this  motion.  However,  in March  1995,  CQC's  counsel was
notified  by a member  of the  Commission's  staff  that he had  been  appointed
hearing officer in the case. Because this person appears to have participated in
the staff's  recommendation that CQC's license be denied, CQC moved on March 31,
1995 for the  appointment  of an impartial,  independent  hearing  officer.  The
Commission's attorney filed a response in opposition to this motion on April 12,
1995 but the Commission  failed to respond to it.  Instead,  on August 10, 1995,
the  hearing  officer  issued  an  order  proclaiming  his  ability  to  proceed
impartially  and  purporting to deny the motion.  On April 30, 1996, the hearing
officer reversed himself,  recused himself,  and asked the Commission to appoint
another hearing  officer.  The Commission  never acted on this request.  Hearing
dates were vacated by stipulation, and, after the Circuit Court's orders voiding
the  Commission's  decision  appeared  to  make  the  administrative  proceeding
premature,  the hearing was  postponed  indefinitely.  The  withdrawal  of CQC's
application rendered the administrative hearing moot.

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

      On March 23, 1995, the Missouri Attorney General filed misdemeanor charges
against CQC and Bruce Becker  alleging they knowingly  made false  statements on
CQC's gaming  license  application.  CQC and Mr.  Becker  vehemently  denied the
charges and launched a vigorous defense. On July 25, 1995, the Circuit Court for
St. Louis  County,  Missouri,  dismissed  the charges,  ruling that they did not
state an offense,  that the Attorney General lacked authority to bring them, and
that they were filed after the statute of limitations  had expired.  On July 28,
1995, the Attorney  General filed an appeal in the Missouri Court of Appeals for
the Eastern District. CQC's and Bruce Becker's motions to dismiss the appeals as
untimely filed were summarily denied on August 14, 1995. On April 16, 1996, in a
2-1  decision,  a panel of the  Missouri  Court of Appeals  reversed the Circuit
Court's dismissal.

      The Missouri  Supreme Court then  exercised  its  discretion to review the
case,  and on January 27, 1997 the Missouri  Supreme  Court issued its ruling in
favor of CQC and  Bruce  Becker,  holding  that the  prosecutions  sought by the
Attorney  General  were  barred  by  the  applicable   statute  of  limitations.
Accordingly,  the  Attorney  General,  or  any  other  Missouri  prosecutor,  is
precluded from any further pursuit of the misdemeanor charges levied against CQC
and Bruce Becker in this matter.

      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.  AC has 30 days from the
date of the Notice within which to correct such defaults cited in the notice. No
assurance  is given that AC will be able to correct  such  defaults.  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  have orally  responded to such
offer as of  September  10, 1997 and the company is  currently  evaluating  such
responses and the possible actions to be taken by AC and CQC as a result of that
response.  No further  action by the Trustee has been taken to  foreclose on the
assets of CQC or to collect on any claims  against any  purported  guarantees of
the CQC debt issued by AC.


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.  There are five  holders  of the  Common  Stock.  See "Item 12.  Security
Ownership  of Certain  Beneficial  Owners and  Management."  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.  The Company's ability
to pay cash  dividends  in the future will  depend on the receipt of  management
fees from its subsidiaries,  the payment of which by AC and CQC is restricted by
the AC Indenture and CQC Indenture, respectively.

<TABLE>

Item 6.    Selected Financial Data
================================================================================
          Becker Gaming, Inc. and Subsidiaries Selected Financial Data

                              Years Ended June 30,
                  (amounts in thousands, except per share data)
================================================================================
<CAPTION>
                                                      1997       1996
                                                    --------    -------
<S>                                                 <C>            <C>
Income Statement Data:
  Operating revenues ............................   $ 69,525       $ 76,037
  Operating income ..............................        904          4,742
  Income (loss) before extraordinary item .......    (11,166)       (11,227)
  Extraordinary item-loss on early retirement
    of debt (8) .................................       --             --
  Net income (loss) .............................    (11,166)       (11,227)
  Income (loss) per share before extraordinary
    item ........................................      (1.12)         (1.12)
  Extraordinary item-loss on early retirement
    of debt (8) .................................       --             --
  Net income (loss) per share (1)(2).............      (1.12)         (1.12)
  Pro forma data (reflecting change in tax status
    of subsidiaries) (7)
    Net income (loss) ...........................       --             --
    Net income (loss) per share of common
      stock .....................................       --             --

Other Data:
 Interest expense, net of amounts capitalized ...   $ 11,148       $ 10,584
 Capital expenditures ...........................        696            544
 Distributions to stockholders (3) ..............       --             --
</TABLE>
<TABLE>

<CAPTION>
                                                     1995      1994       1993
                                                     ----      ----       ----
<S>                                              <C>       <C>         <C>
Income Statement Data:
  Operating revenues ........................... $ 69,079  $ 57,085    $ 55,776
  Operating income .............................    4,467     6,334       7,745
  Income (loss) before extraordinary item ......   (7,640)   (1,566)      6,152
  Extraordinary item- loss on early retirement
    of debt (8) ................................   (4,089)     --          --
  Net income (loss) ............................  (11,729)   (1,566)      6,152
  Income (loss) per share before extraordinary
    item .......................................    (0.76)    (0.17)       0.65
  Extraordinary item- loss on early retirement
    of debt (8) ................................    (0.41)     --          --
  Net income (loss) per share (1)(2)............    (1.17)    (0.17)       0.65
  Pro forma data (reflecting change in tax
    status of subsidiaries) (7)
    Net income (loss) ..........................     --        (803)      4,030
    Net income (loss) per share of common
      stock ....................................     --       (0.08)       0.43


Other Data:
  Interest expense, net of amounts capitalized . $ 12,022  $  8,530    $  1,621
  Capital expenditures .........................   27,382    22,945       1,437
  Distributions to stockholders (3) ............     --       9,533       3,220
</TABLE>
<TABLE>
<CAPTION>

                                                  1997        1996
                                                  ----        ----
<S>                                           <C>         <C>
Balance Sheet Data:
     Unrestricted cash and cash equivalents   $  7,394    $  6,745
     Cash in escrow account restricted for
         construction .....................         41          40
     Total assets .........................     71,009      75,477
     Long-term obligations (4)
         Long-term debt (5)(6) ............     10,314       9,330
         Capitalized lease obligations (9)          98         197
     Stockholders' equity (deficit) .......    (29,163)    (17,997)
</TABLE>
<TABLE>
<CAPTION>

                                                 1995       1994       1993
                                                 ----       ----       ----
<S>                                           <C>       <C>        <C>
Balance Sheet Data:
     Unrestricted cash and cash equivalents   $  6,657  $  6,455   $  4,747
     Cash in escrow account restricted for
         construction .....................         40    51,041       --
     Total assets .........................     84,786   116,860     32,893
     Long-term obligations (4)
         Long-term debt (5)(6) ............     64,593    64,251      1,496
         Capitalized lease obligations (9)       2,001     3,174        899
     Stockholders' equity (deficit) .......     (6,770)    4,959      9,574

----------
<FN>
(1)  The number of shares used in the  computation of earnings  (loss) per share
     of  common  stock  for the  year  ended  June 30,  1997,  1996 and 1995 was
     10,000,000 and 9,509,956 for the year ended June 30, 1994. Such amount does
     not include  2,500,000  shares issuable upon exercise of the Warrants since
     the inclusion of such shares would be anti-dilutive  (decrease the loss per
     share).
(2)  The number of shares used in the  computation of earnings  (loss) per share
     of common stock for the period ended June 30, 1993 was 9,466,071.
(3)  Because  AC, SC and BGG  elected to be treated as S  corporations  prior to
     January 1, 1994,  a  substantial  portion of their net income in past years
     was  distributed  to their  stockholders.  In December 1993, AC, SC and BGG
     distributed  $5,000,  $3,000 and $800,  respectively,  of previously  taxed
     retained earnings to their stockholders.  These amounts were loaned back to
     AC, SC and BGG in exchange for stockholder notes. Effective January 1, 1994
     AC, SC and BGG terminated their S corporation elections.  The ability of AC
     and SC to pay dividends is restricted under the AC Indenture.
(4) Excludes current maturities.
(5)  At June 30, 1993,  approximately  $16,900 of bank debt of AC was classified
     as  current,  as it was due and  payable.  Such  amount was paid off from a
     portion of the proceeds from the sale of the AC Notes in November, 1993.
(6)  At June 30, 1995 and 1994,  long-term debt includes the $55,000 of AC Notes
     and $8,000 of subordinated  stockholder notes. At June 30, 1997, 1996, 1995
     and 1994, $17,908, $17,526, $17,118 and $33,164,  respectively of CQC Notes
     (net of unamortized original issue discount of $2,092,  $2,474,  $2,882 and
     $6,836, respectively) was classified as current due to default. At June 30,
     1997 and 1996,  $55,000 of the AC Notes was  classified  as current  due to
     certain  defaults  of the AC  Indenture.  See  Notes  2 and 9 of  Notes  to
     Consolidated Financial Statements.
(7)  Pro forma net income  and pro forma net  income  per share of common  stock
     reflect  adjustments  to income taxes  assuming that the  termination  of S
     corporation  elections  of the  Company's  subsidiaries  (AC,  SC and  BGG)
     occurred as of the  beginning of the  earliest  period  presented.  The pro
     forma  adjustments  reflect income taxes at an effective rate of 34 percent
     through  December  31, 1992 and a 34 percent  effective  rate  beginning on
     January  1, 1993.  The pro forma net loss for the year ended June 30,  1994
     assumes the utilization of a carryback  operating loss to prior years,  and
     the  ability  to offset  taxable  losses of  certain  subsidiaries  against
     taxable income of others in the consolidated group.
(8)  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.
(9)  At June 30, 1996 approximately $1,900 of capitalized lease obligations were
     classified  as current  and the related  obligations  were paid off in July
     1996 with proceeds from the sale of the related assets.
</FN>
</TABLE>
<TABLE>
================================================================================
                 Arizona Charlie's, Inc. Selected Financial Data
                              Years Ended June 30,
                  (amounts in thousands, except per share data)
================================================================================
<CAPTION>
                                                 1997         1996         1995
                                             --------     --------     --------

<S>                                          <C>          <C>         <C>
Income Statement Data:
  Operating revenues ....................    $ 58,084     $ 63,301    $ 57,082
  Operating income (loss)................        (341)       2,199       1,058
  Net income (loss) .....................      (7,145)      (4,559)     (4,936)
  Net income (loss) per share (1) .......      (7,145)      (4,559)     (4,936)

Other Data:
  Interest expense, net of amounts
   capitalized ..........................       7,275        7,095       6,574
  Capital expenditures ..................         501          190      24,253
  Distributions to stockholders (2) .....        --           --          --


Balance Sheet Data:
  Unrestricted cash and cash
   equivalents ..........................    $  5,481     $  4,591    $  5,404
  Cash in escrow account restricted
   for construction .....................          10           10          10
  Total assets ..........................      61,957       62,357      65,273
  Long-term obligations (3)
      Long-term debt (4) (5) ............       6,284        5,000      60,000
      Capitalized lease obligation ......          29           22           4
  Stockholder's equity (deficit) ........     (16,646)      (9,501)     (4,942)
</TABLE>
<TABLE>
<CAPTION>
                                                             1994          1993
                                                           -------       -------
<S>                                                        <C>          <C>
Income Statement Data:
  Operating revenues ...............................       $ 46,447     $45,880
  Operating income (loss)...........................          5,105       6,032
  Net income (loss) ................................          1,134       4,585
  Net income (loss) per share (1) ..................          1,134       4,585

Other Data:
  Interest expense, net of amounts
   capitalized .....................................          4,763       1,440
  Capital expenditures .............................         11,379       1,067
  Distributions to stockholders (2) ................          5,317       2,140



Balance Sheet Data:
  Unrestricted cash and cash equivalents ...........       $  4,014     $ 3,528
  Cash in escrow account restricted for
   construction ....................................          3,613        --
  Total assets .....................................         67,915      27,184
  Long-term obligations (3)
   Long-term debt (4) (5) ..........................         60,000        --
   Capitalized lease obligation ....................              1         778
  Stockholder's equity (deficit) ...................             (6)      5,953

----------
<FN>
(1)   The number of shares used in the  computation of earnings (loss) per share
      of common  stock was 1,000 for each of the five years in the period  ended
      June 30, 1997. A total of 2,500 shares of common stock are  authorized  at
      no par value, 1,000 shares of which are issued and outstanding.
(2)   Because AC elected to be treated as an S corporation for the most of 1994,
      and all of fiscal 1993, a substantial  portion of its income in past years
      was  distributed  to its  stockholders.  In December  1993, AC distributed
      $5,000 of previously  taxed retained  earnings to its  stockholders.  This
      amount was loaned back to AC in exchange for stockholder notes.  Effective
      January 1, 1994, AC terminated its S corporation  tax status.  The ability
      of AC to pay dividends is  restricted  by the Indenture  governing its 12%
      First  Mortgage  Notes  due  November  15,  2000  (the  "AC  Notes").  See
      "Management's  Discussion and Analysis of Financial  Condition and Results
      of Operations_Arizona Charlie's, Inc._General
(3)   Includes subordinated notes to stockholders, non-current obligations under
      capital  leases,  and  excludes  current  maturities.  At June  30,  1993,
      approximately  $16,900 of bank debt was  classified as current,  as it was
      due and payable.  See  Management's  Discussion  and Analysis of Financial
      Condition and Results of  Operations_Arizona  Charlie's,  Inc._General and
      "Notes to Financial Statements__Arizona Charlie's, Inc._ Long Term Debt."
(4)   At June 30, 1996 and June 30, 1997 $55,000 of AC Notes was  classified  as
      current due to certain defaults of the AC Indenture.  See Notes 2 and 6 of
      AC's Notes to Financial Statements.
(5)   At June 30, 1993,  approximately $16,900 of bank debt of AC was classified
      as  current  as it was due and  payable.  Such  amount was paid off from a
      portion of the proceeds from the sale of the AC Notes in November, 1993.
</FN>
</TABLE>
<TABLE>
================================================================================
                    Sunset Coin, Inc. Selected Financial Data
                        As Of Or For Years Ended June 30, (amounts in thousands,
                  except per share data)
================================================================================
<CAPTION>
                                                    1997        1996      1995
                                                    ----        ----      ----
<S>                                               <C>         <C>       <C>
Income Statement Data:
  Operating revenues .......................      $2,667      $2,649    $2,742
  Operating income .........................         838         817     1,128
  Net income ...............................         591         381       688
  Net income per share (1) .................       1,477         952     1,720

Other Data:
  Interest expense, net of amounts
   capitalized .............................         366         398       352
  Capital expenditures .....................          63         208     1,142
  Distribution to stockholders (2) .........        --          --        --



Balance Sheet Data:
  Unrestricted cash and cash
   equivalents .............................      $  707      $1,122    $  506
  Total assets (3) .........................       6,507       5,891     5,349
  Long-term obligations (4)
      Long-term debt (5) ...................       3,305       3,502     3,664
      Capitalized lease obligations ........        --          --          28
  Stockholders' equity .....................       2,049       1,458     1,077
</TABLE>
<TABLE>
<CAPTION>
                                                                  1994      1993
                                                               ------    ------

<S>                                                            <C>       <C>
Income Statement Data:
     Operating revenues ..................................     $2,859    $2,959
     Operating income ....................................      1,333     1,382
     Net income ..........................................      1,010     1,408
     Net income per share (1) ............................      2,525     3,520

Other Data:
     Interest expense, net of amounts capitalized ........        190        67
     Capital expenditures ................................        232       297
     Distribution to stockholders (2) ....................      3,280       940



Balance Sheet Data:
     Unrestricted cash and cash equivalents ..............     $1,940    $  854
     Total assets (3) ....................................      3,845     3,270
     Long-term obligations (4)
         Long-term debt (5) ..............................      3,220       364
         Capitalized lease obligations ...................         85       205
     Stockholders' equity ................................        389     2,659

----------
<FN>
(1)   The number of shares used in the  computation of earnings (loss) per share
      of common  stock was 400 for each of the five  years in the  period  ended
      June 30, 1997. A total of 25,000 shares of common stock are  authorized at
      no par value, 400 shares of which are issued and outstanding.
(2)   Because SC elected to be treated as an S corporation during these periods,
      a substantial  portion of its net income in past years was  distributed to
      its stockholders.  In December,  1993, SC distributed $3,000 of previously
      taxed retained earnings to its  stockholders.  This amount was loaned back
      to SC in exchange for  stockholder  notes.  Effective  January 1, 1994, SC
      terminated its S corporation status. The ability of SC to pay dividends is
      restricted  under the  Indenture  governing  the AC Notes.  See  "Dividend
      Policy," "Management's  Discussion and Analysis of Financial Condition and
      Results   of   Operations_Sunset   Coin,    Inc._General"   and   "Certain
      Relationships and Related Transactions."
(3)   Includes $3,150 in notes  receivable from AC, resulting from advances made
      by SC to AC. Due to the financial  condition of AC, management believes it
      is  reasonably  possible  that a portion of the notes  receivable  will be
      uncollectible.  However,  an  estimate  of the loss  cannot  presently  be
      determined. See Note 3 of SC's Notes to Financial Statements.
(4)  Excludes   current  maturities.   See  "Notes  to  Financial
      Statements_Sunset Coin, Inc._Long-Term Debt."
(5)  At June 30, 1997, $322 of SC debt was classified as Current
     Notes Payable.
</FN>
</TABLE>
<TABLE>
================================================================================
                          Capitol Queen & Casino, Inc.
                              Years Ended June 30,
                  (amounts in thousands, except per share data)

================================================================================
<CAPTION>
                                                               1997         1996
                                                              ----         ----

<S>                                                       <C>          <C>
Income Statement Data:
     Operating revenues ..............................    $   --       $   --

     Operating loss ..................................        (413)      (4,996)
     Net loss before extraordinary item ..............      (3,807)      (7,785)
     Extraordinary item-loss early retirement
         of debt (1) .................................        --           --
     Net loss ........................................      (3,807)      (7,785)
     Net loss per share before extraordinary item ....     (38,070)     (77,850)
     Extraordinary item-loss on early
         retirement of debt ..........................        --           --
     Net loss per share (2) ..........................     (38,070)     (77,850)

Other Data:
     Interest expenses, net of amounts capitalized ...       3,395        2,789
     Capital expenditures ............................        --           --



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

     Cash in restricted escrow account ...............          31           30
     Total assets ....................................       8,257        8,449
     Long-term obligations (3) .......................        --           --
     Stockholders' equity (deficit) (4) ..............     (17,865)     (14,058)


                                                               1995         1994
                                                              ----         ----

Income Statement Data:
     Operating revenues ..............................    $   --       $   --

     Operating loss ..................................      (1,388)      (7,094)
     Net loss before extraordinary item ..............      (5,386)      (9,530)
     Extraordinary item-loss early retirement
         of debt (1) .................................      (4,089)        --
     Net loss ........................................      (9,475)      (9,530)
     Net loss per share before extraordinary item ....     (53,860)     (95,300)
     Extraordinary item-loss on early
         retirement of debt ..........................     (40,890)        --
     Net loss per share (2) ..........................     (94,750)     (95,300)

Other Data:
     Interest expenses, net of amounts capitalized ...       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       24,929
     Total assets ....................................      12,986       37,412
     Long-term obligations (3) .......................        --           --
     Stockholders' equity (deficit) (4) ..............      (6,273)       3,202

----------
<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,
      1997.  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, 1997,  1996 and 1995 and 1994,  $17,908,  $17,526,  $17,118 
      and $33,164  respectively  of CQC  notes  (net of  unamortized  original  
      issue discount of $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)   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

     BGI  serves  as  a  holding  company  for,  and  provides   management  and
administrative  services to, the Becker  family  gaming  interests.  BGI has not
engaged in any business other than providing such management and  administrative
services to its subsidiaries.

      BGI is currently  receiving  payment for management  fees from SC and BGG,
and is accruing management fees from AC until such time as such fees may be paid
under the  Indenture  governing  the AC Notes.  BGI does not  expect to  receive
management  fee income from CQC as a result of the events in Missouri  adversely
affecting CQC's efforts to become licensed to conduct  riverboat  gaming in that
State.  As a result of these  developments,  CQC has  adopted a plan to sell its
assets and business.  See "Item 1. Business - Capitol Queen & Casino,  Inc." and
"Notes to Financial Statements - Capitol Queen & Casino, Inc."

      BGI is  continually  evaluating  future  domestic and foreign  development
opportunities  including  opportunities  in jurisdictions in which gaming is not
currently permitted.  BGI incurred development costs of $1,301,000 during fiscal
1997,  compared  to  $504,000  in fiscal  1996 and  $1,186,000  in fiscal  1995.
Development costs include professional fees, travel expenses,  payments to third
parties for business  development  options and other  expenses  associated  with
supporting this long term growth strategy.

      As a result of the events  adversely  impacting  CQC's ability to complete
and open the Capitol  Queen (See "Item 1.  Business - Capitol  Queen and Casino,
Inc."), significant doubt exists about the ability of CQC to continue as a going
concern.  Similar  doubt  exists  with  respect to AC as a result of its default
under the AC Notes and possibly as a result of its guaranty of the CQC Notes, to
the  extent  its  guaranty  is valid and  enforceable.  See "Item 1.  Business -
Capitol Queen and Casino, Inc. - Claims by Trustee".  Additionally, doubt exists
with  respect to SC as a result of its  limited  guaranty  of the AC Notes.  See
"Sunset  Coin,  Inc. - General".  AC, SC, BGG and CQC  represent  the  Company's
subsidiaries,  from which it  anticipated  receiving  management fee income and,
accordingly,  substantial doubt also exists about BGI's ability to continue as a
going  concern.  See "Notes to  Financial  Statements  - Becker  Gaming,  Inc. -
Missouri Gaming License,  Default Under  Indebtedness,  Management's  Plans, and
Going Concern.

     The Company has never  declared or paid cash dividends on its Common Stock.
The Company  intends to retain all future earnings for use in the development of
its  business  and  does  not  anticipate  paying  any  cash  dividends  in  the
foreseeable  future.  The payment of all dividends  will be at the discretion of
the  Company's  Board of  Directors  and will depend upon,  among other  things,
future  earnings,   operations,  capital  requirements,  the  general  financial
condition of the Company and general business conditions. The ability of CQC, AC
and  SC to pay  dividends  to the  Company  is  restricted  by  the  CQC  and AC
Indentures.


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

     General

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

<TABLE>
<CAPTION>
                                            Years Ended June 30,
                                         1997      1996      1995
                                         ----      ----      ----
           <S>                         <C>       <C>       <C>

           Hotel .........             $  349    $  261    $  164
           Food & Beverage              4,094     3,824     2,260
                                        -----     -----     -----
                                       $4,443    $4,085    $2,424
                                       ======    ======    ======
</TABLE>


      On November 18, 1993,  AC issued  $55,000,000  in principal  amount of 12%
First Mortgage  Notes due November 15, 2000 (the "AC Notes"),  which resulted in
net  proceeds  of  approximately  $51,100,000.  The AC Notes  are  currently  in
default.  See "Item 1.  Business  - Capitol  Queen &  Casino,  Inc.  - Claims by
Trustee".  A  portion  of the net  proceeds  was  used to  retire  approximately
$16,900,000  in bank debt plus  accrued  interest  of  $500,000.  The balance of
approximately  $33,700,000  was  initially  deposited  into a restricted  escrow
account and  subsequently  was used to fund the  expansion  and  enhancement  of
Arizona  Charlie's (the  "Expansion")  through the addition of new casino space,
hotel rooms, specialty restaurants and banquet/meeting room facilities,  and the
expansion  of existing  restaurants,  entertainment  and other  facilities.  See
"Notes to Financial  Statements - Arizona Charlie's,  Inc. - Long-Term Debt." AC
commenced  construction  of the  Expansion in January  1994.  The  Expansion was
completed in February 1995 at an under-budget cost of approximately $35,632,000.

      Concurrent  with the private  placement of the AC Notes,  Capitol  Queen &
Casino,  Inc., a sister company,  issued  $40,000,000 in principal amount of 12%
First  Mortgage  Notes due November 15, 2000,  $20,000,000 in principal of which
currently remain outstanding (the "CQC Notes"). AC has issued a limited guaranty
in respect to the payment of all principal of and interest on the CQC Notes, the
amount and extent of which are  currently  in dispute.  See "Item 1.  Business -
Capitol Queen & Casino,  Inc. - Claims by Trustee".  CQC currently does not have
any means to pay  amounts  owing on the CQC  Notes  which  are in  default.  See
"Liquidity and Capital Resources".  AC, which now operates as a "C" corporation,
was operated as an "S"  corporation  through  December  31, 1993.  See "Notes to
Financial Statements -
  Arizona Charlie's Inc. - Summary of Significant  Accounting  Policies - Income
Taxes." In anticipation of the termination of S corporation  status, in December
1993, AC distributed to its  stockholders an aggregate of $5,000,000 of retained
earnings on which the  stockholders  had  previously  paid federal income taxes.
This  amount  was  loaned  back  to AC in  full  in  exchange  for  subordinated
stockholder  notes  in the  principal  amount  of such  distributions,  which AC
stockholder  notes bear interest payable monthly at the annual rate of 10.0% and
mature in January 2001. See "Notes to Financial  Statements - Arizona Charlie's,
Inc. Related Party Transactions."

<TABLE>
     Results of Operations
<CAPTION>
                                             Years Ended June 30,
                                            (dollars in thousands)

                                        1997        1996         1995
                                        ----        ----         ----

<S> ..............................   <C>         <C>         <C>
Revenues:
   Gaming ........................   $ 47,857    $ 52,831    $ 47,466
   Food/beverage .................     13,583      13,401      10,877
   Hotel .........................      3,352       3,208       2,614
   Gift Shop .....................        553         590         577
   Other (1) .....................        923         948         682

Gross revenues ...................     66,268      70,978      62,216
Less, promotional allowances (2) .     (8,184)     (7,677)     (5,134)

   Net revenues ..................     58,084      63,301      57,082

   Total operating expenses ......     58,425      61,102      56,024

   Total operating income (loss)..   $   (341)   $  2,199    $  1,058

----------
<FN>
(1)  Includes  primarily  revenues  from   entertainment   cover  charges,   PBX
     operations (hotel switchboard and room telephone system) and commissions on
     automated teller machines located in the casino.
(2)  Amounts  represent  the retail  value of rooms,  food,  beverage  and other
     promotional allowances provided to customers without charge.
</FN>
</TABLE>


      Comparison of fiscal years ended June 30, 1997,  1996 and 1995.  Despite a
reduction in operating  expenses,  results from  operations for fiscal 1997 were
lower  than the  prior  year as a result of  decreased  gaming  revenues  caused
primarily by lesser patron play at the gaming machines.  Results from operations
for  fiscal  1996  were  higher  than  fiscal  1995  due to  increased  revenues
reflecting a full year of operations with the expanded casino-hotel  facilities.
The Expansion  added new gaming  machines and table games,  an expanded race and
sports book,  a new hotel tower,  a remodeled  coffee  shop,  two new  specialty
restaurants and a new delicatessen,  an expanded buffet room, a remodeled floor-
level entertainment lounge and new second-floor showroom/banquet facility.

     Net revenues at AC for fiscal years 1997,  1996 and 1995 were  $58,084,000,
$63,301,000  and  $57,082,000  respectively.  Operating  expenses for these same
fiscal  periods were  $58,425,000,  $61,102,000  and  $56,024,000.  As such, the
operating loss for fiscal 1997 was $341,000,  with a corresponding  negative net
operating  margin of 0.6%.  Operating income for fiscal 1996 and fiscal 1995 was
$2,199,000 and $1,058,000, respectively, resulting in operating margins for such
years of 3.5% and 1.9%.  For fiscal 1997, the decrease in revenues and resulting
decline in operating margin,  despite decreases in operating expenses, is due to
decreased  gaming  revenues  reflecting  lesser  patron  play.  The  increase in
operating  expenses and  resulting  decline in operating  margin for fiscal 1996
resulted  principally from increased  gaming  department  expense,  amounting to
$3,253,000,  costs  attributable  to CQC in the  amount  of  $601,000,  and  the
addition  of  staff  personnel,   equipment  and  related   operating   expenses
transferred to AC.

       For fiscal 1997, AC had total gaming revenues of $47,857,000, as compared
to  $52,831,000  and  $47,466,000  for fiscal 1996 and 1995,  respectively.  The
decrease  of 9.4% in fiscal  1997 is  primarily  attributed  to  gaming  machine
revenues which decreased $3,426,000, or 7.7% from $44,612,000 for fiscal 1996 to
$41,186,000 for fiscal 1997,  reflecting lesser play from patrons.  In addition,
table  game  revenues   decreased  $281,000  or  5.8%.  Other  gaming  revenues,
consisting  of  revenues  from  bingo,  poker and race and sports  decreased  by
$1,267,000  for fiscal 1997 largely due to race and sports book  revenues  which
decreased  $548,000 or 18.6% from  $2,957,000  to $2,408,000  reflecting  lesser
pari-mutuel  horse race play from  patrons.  Such  decrease is a result of fewer
televised  races  arising  from a dispute  over  increased  fees  that  began in
November  1996,  between  the  Nevada  Pari-Mutuel   Association  and  both  the
Thoroughbred  Owners of  California  and the  California  Horse Racing Board who
provide and authorize televised  disseminator services to Race & Sports books in
Nevada.  Such  dispute  was  eventually  resolved  and AC  was  able  to  resume
pari-mutuel horse race wagering beginning in August 1997. The increase in gaming
revenues of 11.3% for fiscal 1996 is  primarily  attributable  to  increases  in
gaming machine  revenues of 11.1% to  $44,612,000  from  $40,140,000  for fiscal
1995. The increase in gaming revenues for fiscal 1996 is primarily the result of
increased  levels of play by patrons in response to additional slot  promotional
events.  Other gaming  revenues for fiscal 1996 increased by 34.0% to $3,346,000
primarily as a result of the added  pari-mutuel  race  facilities  and increased
sports book revenues from the expanded  race and sports  facilities.  For fiscal
1997, 1996 and 1995, 86.1%,  84.4% and 84.6%,  respectively,  of gaming revenues
were  attributable  to gaming  machine play,  compared to 9.6%,  9.2% and 10.2%,
respectively, attributable to table games and 4.3%, 6.4% and 5.2%, respectively,
attributable to other gaming revenues.

     Food and beverage  revenues  increased 1.4% to $13,583,000 for fiscal 1997,
after  increasing  23.2% to  $13,401,000  for fiscal 1996 from  $10,877,000  for
fiscal  1995.  The fiscal 1997 and fiscal 1996  increases  are due to  increased
complimentary sales in the food and beverage department. Such sales are included
in revenues at retail value and are then  deducted as a  promotional  allowance.
Increased complimentary sales in food and beverage departments are the result of
casino promotion and marketing  efforts  designed to attract,  reward and retain
qualified patrons.

     Hotel revenues increased to $3,352,000 for fiscal 1997, from $3,208,000 and
$2,614,000 for fiscal 1996 and 1995, respectively.  The 4.5% and 22.7% increases
for  fiscal  1997 and  fiscal  1996,  respectively,  are the  result of a slight
decrease  in average  occupancy  rate from 86.9 % to 86.1% in fiscal 1997 and an
increase from 84.3% to 86.9% in fiscal 1996  combined with a larger  increase in
the average  room rate from $39.81 to $43.00 in fiscal 1997 and $37.27 to $39.81
in fiscal 1996.

     Gift shop  revenues  decreased  6.3% to  $553,000  in fiscal  1997 due to a
lesser  number of  patrons  in the  hotel/casino  facility.  Gift shop  revenues
increased  2.3% to $590,000 in fiscal 1996 due primarily to the  remodeling  and
expansion  of the gift shop area,  which was  re-opened in January  1995.  Other
revenues  decreased  $25,000  or 2.6%  during  fiscal  1997 as a result of fewer
banquets and entertainment  events including musical concerts and boxing events.
Other  revenues  increased  $266,000 or 39.0% during  fiscal 1996 as a result of
increases in entertainment cover charge revenues attributable to the addition of
a new showroom facility that opened in December 1994.

      Gaming  expenses  decreased  $1,383,000 or 7.4% to $17,229,000  for fiscal
1997  primarily  due to  management  and staff  reductions in the slot and table
games  departments  and  fewer  slot  department  promotions.   Gaming  expenses
increased  by 21.2% to  $18,612,000  for  fiscal  1996.  The  increased  expense
includes  higher slot  promotional  expense of $638,000;  higher  gaming tax and
license  fees of  $406,000;  increased  salary  and  wages of  $468,000  and the
additional  expense of a newly  created  casino  marketing  department  totaling
$479,000, all associated with the expansion of gaming facilities in 1995. Gaming
expenses  represented 36.0%, 35.2% and 32.4% of gaming revenues for fiscal 1997,
1996 and 1995, respectively.

     Food and beverage  expenses  decreased 1.4% to $12,337,000  for fiscal 1997
due to staff  reductions  in both the food and  beverage  departments.  Food and
beverage expenses increased 9.9% to $12,511,000 for fiscal 1996 from $11,388,000
for fiscal 1995 due to salary and wage increases  associated with increasing the
hours of  operation  at one  specialty  restaurant  and  normal  salary and wage
increases for food and beverage employees.

      Hotel expenses decreased 1.6% to $1,390,000 for fiscal 1997 as a result of
the staff  reductions of room and laundry  attendants,  front desk personnel and
reservation clerks.  Hotel expenses increased 2.6% to $1,413,000 for fiscal 1996
from $1,377,000 for fiscal 1995 as a result of normal salary and wage increases.
Net  contribution by the hotel  department  (hotel revenues less hotel operating
expenses) improved to $1,962,000 for fiscal 1997 from $1,795,000 for fiscal 1996
and $1,237,000 for fiscal 1995.

      Gift shop expenses  increased by 9.3% to $519,000 for fiscal 1997 and 5.6%
to $475,000  for fiscal 1996 due to increased  costs of  inventory  items in the
gift shop, combined with normal salary and wage increases.

      General  and  administrative   expenses  decreased  $197,000  or  1.1%  to
$17,463,000  for fiscal 1997  resulting  from staff  reductions in the security,
entertainment and internal  maintenance  departments  during the last quarter of
the fiscal year and a reduction in expense  associated  with the  operation of a
jet airplane which was sold in July, 1996. General and  administrative  expenses
increased by 15.0% to $17,660,000  for fiscal 1996 from  $15,358,000  for fiscal
1995.  The  increases  resulted  from  additional  staffing  in the  accounting,
payroll,  personnel  and  technical  services  departments  and the  transfer of
executive  personnel (and related  departmental  costs) in March 1995 to AC from
BGI. Other expenses  transferred  from BGI to AC include  maintenance  and other
operating expenses  associated with an airplane and two boats. Other general and
administrative expenses included payments made on behalf of CQC in the amount of
$220,000 for fiscal 1997 and $601,000 for fiscal 1996 and  $1,592,000 for fiscal
1995 for insurance,  maintenance and interest payments made on the CQC bonds. AC
accrued  management  fees payable to BGI of $664,000,  $1,396,000 and $3,099,000
for fiscal  1997,  1996 and 1995,  respectively.  Due to a  decision  to suspend
development of CQC's riverboat casino project and sell its assets,  the majority
of BGI's management and administrative services are anticipated to benefit AC in
the future.  Accordingly,  in late March 1995, BGI transferred  approximately 40
employees involved in accounting and administrative functions from BGI to AC. In
connection  with this  transfer,  in October 1995, BGI  temporarily  reduced the
amount of AC's management fee to 1.0% of AC's gross revenues (previously 5.0% of
gross  revenues)  based on the reduction in services it will receive from BGI in
the future. (See Note 9 of AC's Notes to Financial Statements).  As a percentage
of net revenues, general and administrative expenses were 30.1%, 27.9% and 26.9%
for fiscal 1997, 1996 and 1995, respectively.

     Advertising and promotion  expenses increased $87,000 or 1.8% to $4,813,000
due to additional  newspaper  advertising  associated with the computerized slot
club  and  player  tracking  system   purchased  and  installed  in  May,  1997.
Advertising and promotion  expenses were $4,726,000 for fiscal 1996, as compared
to  $3,837,000  for fiscal 1995.  The  increase of $889,000,  or 23.1% is due to
additional television  advertising of $466,000, new casino related promotions of
$166,000,  and salary and wage increases of $116,000. The additional advertising
and  promotions  were  conducted in an effort to increase  casino  patronage and
compete with other "local"  casinos  opened in western Las Vegas in fiscal 1995,
including Texas Station and the Fiesta. Management anticipates that it will need
to  maintain  advertising  expenditures  at the 1997 level in order to  continue
attracting  customers  and to promote  entertainment  events and the  restaurant
facilities in its expanded facilities.

      Depreciation and amortization  expense increased by 2.2% to $3,568,000 for
fiscal 1997. Also,  depreciation and amortization  expense  increased by 3.5% to
$3,491,000 for fiscal 1996 from $3,373,000 for fiscal 1995.  These increases are
attributable  to  additional  depreciation  expense  associated  with the  newer
expansion assets.

      AC had other  expenses (net of other income) of $6,804,000 for fiscal 1997
compared to $6,758,000 and $5,994,000 for fiscal years 1996 and 1995. The fiscal
1997 increase is due to additional  interest expense of $180,000 on the SC notes
and the financing of the computerized slot club and player tracking system and a
decrease in interest  income of $14,000  offset by an increase in other  income,
primarily  a gain on sale of assets of  $129,000.  The fiscal  1996  increase of
$764,000  is due to a  reduction  of  capitalized  interest  in  the  amount  of
$676,000,  a decrease  of  interest  income of  $294,000  partially  offset by a
decrease of interest  expense in the amount of $155,000  and a increase in other
income of $51,000.

     Income Taxes

     As a result  of the  termination  of its  election  to be  treated  as an S
corporation,  AC is liable  (as part of the BGI  consolidated  group) for income
taxes  on  income  earned  from  and  after  January  1,  1994.  Prior  to  such
termination,  AC did not incur or pay income taxes but  distributed  cash to its
stockholders in amounts  sufficient to pay their income tax liability in respect
to income of AC. See "Notes to Financial Statements - Arizona Charlie's,  Inc. -
Summary of  Significant  Accounting  Policies - Income  Taxes;  - Related  Party
Transactions."  Since  terminating its S corporation  status, AC generated a net
operating loss for income tax purposes of approximately $17,165,000.  Due to low
operating margins and high interest and depreciation costs,  management does not
anticipate that AC will generate taxable income in the foreseeable future.

<TABLE>
     Liquidity and Capital Resources
<CAPTION>
                                        As of or for the years ended June 30,
                                            1997        1996        1995
                                            ----        ----        ----

<S>                                     <C>         <C>         <C>
Cash and cash equivalents ...........   $  5,481    $  4,591    $  5,404
Working capital (deficit) (1) .......    (62,380)    (58,530)      2,920


Cash provided by operating activities      1,200       1,639       2,772
Cash used for investing activities ..     (1,003)     (2,240)     (3,401)
Cash provided by (used for)
  financing activities ..............        693        (212)      2,019

----------
<FN>
(1)  At June 30,  1997  and  1996,  the AC  Notes  are  reflected  as a  current
     liability in the amount of $55,000 due to default under Covenants.
</FN>
</TABLE>



      For fiscal 1997, cash provided by operating  activities decreased $439,000
to $1,200,000  from  $1,639,000 in fiscal 1996. The 26.8% decrease is the result
of a higher  net loss,  a  decrease  in  accounts  payable  and an  increase  in
management fees, partially offset by a significant increase in accrued expenses,
which consists primarily of $3,300,000 in accrued interest on the AC Notes, that
was due on May 15, 1997. For fiscal 1996, cash provided by operating  activities
decreased  to  $1,639,000  from  $2,772,000  for fiscal  1995.  The  decrease is
attributable to a reduction in net income,  prior to consideration of management
fees and other  non-cash  items,  and changes in operating  assets and operating
liabilities.

     For fiscal 1997,  cash flows used in investing  activities was  $1,003,000,
down from  $2,240,000 in 1996.  The decrease was due to a small  increase in BGI
receivables  compared  to the prior  year,  partially  offset by an  increase in
capital  expenditures.  Cash flows used in investing  activities for fiscal 1996
were  $2,240,000  compared to $3,401,000 for fiscal 1995. The decrease is due to
(i) a reduction in cash advances to BGI resulting in decreased  receivables from
BGI of $4,154,000,  (ii) a reduction in notes issued to CQC of  $1,200,000,  and
(iii) a  reduction  in  capital  expenditures  of  $24,063,000  (reflecting  the
completion  of the  majority of the  construction  of the  expanded  facility in
fiscal 1995), partially offset by a $26,102,000 net reduction in restricted cash
which was utilized for the expansion in fiscal 1995).  Cash flows from investing
and  financing  activities  for fiscal 1995 were  significantly  impacted by the
November 1993 issuance of the AC Notes.

      Cash flows  provided by financing  activities  increased in fiscal 1997 to
$693,000 from ($212,000) in fiscal 1996, as a direct result of additional  loans
from related parties in the amount of $900,000. Cash flows provided by financing
activities  for fiscal 1996 decreased to ($212,000)  from  $2,019,000 for fiscal
1995. The decrease is due to a reduction of proceeds from borrowing,  marginally
offset by a decrease in principal  payments on notes and an increase in payments
under capital lease obligations.

     AC is  currently  in default  under the  Indenture  governing  the AC Notes
because it has not made its required  semi-annual interest payment in the amount
of  $3,300,000  due on May 15,  1997 and has  neither  maintained  the  required
minimum  level of  consolidated  tangible net worth nor offered to  repurchase a
portion  of the AC Notes  as  required  if such  minimum  level of  consolidated
tangible net worth is not maintained. In addition, AC has failed to maintain the
minimum  consolidated  fixed charge  coverage ratio required under the Indenture
and has  advanced  funds to BGI in  excess  of the  amounts  permitted  to be so
advanced under the Indenture. Also, AC incurred new notes payable (in the amount
of approximately $1,748,000) for the purchase of an on-line reporting and player
club system in excess of the $1,000,000 allowed. See "Item 1. Business - Capitol
Queen & Casino, Inc. Claims by Trustee".

      The AC Notes are  reflected  as a current  liability  at June 30, 1997 and
1996 as a result of the above default. AC's long-term obligations, approximately
$6,313,000 at June 30, 1997,  consist of the  stockholder  notes and capitalized
equipment  notes  and  leases.  AC  has  annual  interest  expense   aggregating
$6,600,000 and $500,000 with respect to the AC Notes and the stockholder  notes,
respectively.  Beginning May 1, 1997 the stockholders have voluntarily postponed
the receipt of interest  payments on the AC Notes.  As of June 30, 1997,  unpaid
interest on the AC Notes and the  stockholder  notes  amount to  $3,300,000  and
$85,000, respectively. In addition, AC is expected to have future annual capital
expenditure requirements of approximately $1,000,000.

      AC has a contingent obligation resulting from a limited guaranty issued by
it on the CQC Notes,  an aggregate of $20,000,000  in principal  amount of which
remain outstanding.  The amount and extent of such guaranty are in dispute.  See
"Item 1.  Business  - Capitol  Queen & Casino,  Inc. - Claims by  Trustee"  As a
result of a September  1994 ruling of the  Missouri  Gaming  Commission  denying
CQC's gaming license application,  CQC has adopted a plan to sell its assets for
the purpose of repaying,  to the extent possible,  the outstanding CQC Notes and
accrued interest  thereon.  See "Business - Capitol Queen & Casino,  Inc." There
can be no  assurance  that CQC will be  successful  in its  efforts  to sell its
assets or, that if a sale is effected,  the proceeds will be sufficient to fully
or substantially repay the CQC Notes and accrued interest thereon. To the extent
any funds CQC may  realize  from the sale of its  assets are not  sufficient  to
repay the CQC Notes and accrued interest thereon,  AC may be obligated under the
AC Limited Guaranty of the CQC Notes to fund the a portion of shortfall.

      Moreover,  because it has failed to pay  interest  due on the Notes and it
has not yet effected the sale of its assets, CQC is in default of the CQC Notes.
CQC is not able to pay the outstanding CQC Notes without an infusion of capital,
which is not expected to be available.  If AC is obligated  under the AC Limited
Guaranty  to pay a  portion  of the CQC  Notes  it is not  expected  to have the
resources to satisfy such obligation should it materialize.  If the AC Notes and
the CQC Notes are  accelerated,  substantial  doubt exists about AC's ability to
continue  as a going  concern.  See  "Notes to  Financial  Statements  - Arizona
Charlie's,  Inc. - CQC Gaming License,  Default Under Indebtedness  Management's
Plans, and Going Concern".

      AC's ability to obtain  capital,  is  significantly  restricted  under the
Indentures  governing  the AC Notes  and the CQC  Notes.  The  ability  of AC to
service its debt obligations  (and to comply with the consolidated  tangible net
worth covenant) will be dependent upon its future performance, which performance
will be influenced by prevailing economic conditions and financial, business and
competitive factors, many of which are beyond AC's control.

     Competitive Environment

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

      In fiscal 1997,  casino  revenues at Arizona  Charlie's (and for Las Vegas
generally)  have  declined.  Lesser  play from  patrons  at AC are the result of
increased  competition  from  surrounding  hotels/casinos  that  appeal  to AC's
"local" patron.  However,  management  believes that AC has and will continue to
benefit  from the  expansion  of the Las Vegas  market,  which has  resulted  in
continued  growth in the  residential  population  from which AC  generates  the
majority of its revenues. There can be no assurance, however, that the spread of
legalized  gaming,  or the construction of new  casino-hotels in Las Vegas, will
not have an adverse impact on future revenues.

     Inflation

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


Sunset Coin, Inc.
-----------------

     General

      SC derives its revenues and profits  largely from its gaming machine route
pursuant to participation  contracts and, to a lesser extent,  space leases. See
"Notes to  Financial  Statements  Sunset  Coin,  Inc. - Summary  of  Significant
Accounting  Policies  Revenue."  Under its  participation  contracts,  SC pays a
percentage of the net win (amounts  wagered less winnings  paid) from its gaming
machines  to the site owner.  The  balance is  retained  by SC.  Under its space
leases,  SC pays the site owner a fixed space  rental fee and retains all of the
net win. SC's gaming revenues under participation contracts represent SC's share
of the net win after payments to the location,  and under space leases represent
all revenues before lease payments, which are treated as expenses. A majority of
SC's gaming machines are installed at locations  controlled by the Becker family
and the contracts  with such locations are expected to be renewed as a matter of
general course. See "Item 1. Business - Sunset Coin, Inc."

     In addition  to the  operation  of its gaming  machine  route,  SC services
gaming machines owned by other operators for fixed service fees.  Included among
its service agreement are contracts with each of the five BGG restaurants, which
are expected to be renewed in general course, and one additional  location owned
by unrelated  parties.  See "Item 1. Business - Sunset Coin, Inc." and "Notes to
Financial Statements - Sunset Coin, Inc. - Related Party 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 has issued a limited  guaranty with respect to the
CQC Notes (the "AC Limited  Guaranty").  IBJ Schroder Bank & Trust  Company,  as
Trustee under the Indenture  under which such notes are outstanding has declared
the AC Notes and the CQC Notes to be immediately due and payable. The amount and
extent of SC's guaranty of the AC Notes is in dispute due to certain  provisions
of the  Indenture  under  which the AC Notes  were  issued,  as well as  certain
provisions of State and/or Federal Law that may be applicable in or with respect
to financial restructuring.

      As in the case of AC, SC operated as an S corporation through December 31,
1993. In connection with the termination of S corporation status, SC distributed
$3,000,000 of  previously  taxed  retained  earnings to its  stockholders.  This
amount was loaned back to SC in full in exchange for  stockholder  notes bearing
interest at the annual rate of 10.0% and maturing in January  2001.  The payment
of the SC stockholder  notes is subordinated to any payments required to be made
by SC under the SC Limited Guaranty of the AC Notes.

<TABLE>
     Results of Operations
<CAPTION>
                                                          Years ended June 30,
                                                         (dollar in thousands)
                                                         ---------------------
                                                    1997        1996        1995
                                                    ----        ----        ----
<S>                                               <C>         <C>         <C>
Revenues:

Gaming machine route:
   Participation contracts .................      $2,481      $2,294      $2,535
   Spaces leases ...........................          69         229          75
                                                     ---         ---          --
Total gaming machine revenues ..............       2,550       2,523       2,610
Gaming machine services fees ...............         117         126         132
                                                     ---         ---         ---
Total revenues .............................      $2,667      $2,649      $2,742
                                                  ======      ======      ======

Operating income:

Gaming machine route:
   Slot route and service ..................      $1,350      $1,311      $1,112
   General and administration...............          51          86         103
   Management fees to related parties ......         140         137         150
   Depreciation and amortization............         288         298         249
                                                     ---         ---         ---
Total operating expenses ...................       1,829       1,832       1,614
                                                     ---         ---       -----
Total operating income .....................      $  838      $  817      $1,128
                                                  ======      ======      ======
</TABLE>


      During  fiscal  1997,  two  participation  locations  were  added  and one
participation contract was terminated.

      Comparison  of Fiscal  Years  Ended  June 30,  1997,  1996 and 1995.  SC's
results of operations  increased  for 1997  compared to 1996.  Net income before
income taxes  increased by 41.2% to $817,000 from $577,000 in fiscal 1996.  Such
increase is  attributable  to four factors:  the absence of the $101,000 loss on
sale of Charlie's  Saloon  assets in fiscal  1996,  additional  interest  income
associated  with the new $900,000 note to AC,  recoveries of bad debt previously
written-off of $57,000 and lower interest  expense from the payoff of four notes
payable in late fiscal 1996. For 1996 compared to 1995, net income  declined due
to Charlie's  Saloon loss noted above,  increased  depreciation  costs resulting
from  additional  gaming  machine  purchases and  increased  payroll and related
staffing costs needed for additional security personnel.

      SC's total  revenues  increased  during fiscal 1997 by 0.7% to $2,667,000.
This slight increase was a result of two  participating  locations added in 1997
and the conversion of some coin only gaming  machines to coin and bill validator
gaming machines. For 1996, the primary reason revenues declined compared to 1995
was the reduction in slot route  revenues at locations not controlled by related
parties.  Gaming  machine  service fee revenue  decreased  7.1% to $117,000  for
fiscal 1997 from  $126,000 in 1996 and 4.5% from  $132,000 in 1995 to 1996.  The
declines are mainly the resulting loss of 15 gaming  machines from the Charlie's
Saloon closing in April, 1996.

     The total number of gaming  machines  operated by SC including BGG machines
in fiscal 1997 were 385 compared to 395 in 1996 and 397 in 1995,  the reductions
were due to the closing of participating  locations.  The total number of gaming
machines  from BGG  locations  that are  serviced by SC was 115 for the past two
fiscal years compared to 130 for 1995,  reduction due to aforementioned  closing
of  Charlie's  Saloon (BGG Bar).  Correspondingly,  slot  service  fees from BGG
decreased to $85,000 from  $93,000 for the last fiscal year.  Revenues  from the
locations  controlled by the Becker family  increased from $2,370,000 in 1996 to
$2,424,000  in 1997,  primarily  due to two  additional  locations and increased
gaming play at other locations.

       Gaming machine route  expenses  increased by 3.0% to $1,350,000 in fiscal
1997 compared to 1996 primarily due to added security  personnel plus repair and
maintenance costs, payroll and related staffing costs. For 1996 compared to 1995
the  increase  of  $199,000  (17.9%)  was due to the  significant  increases  in
security  personnel  to offset the added crime  rates in Las Vegas.  General and
administrative  expenses for fiscal 1997 were  significantly  lower  compared to
1996 and 1995 due to the  write-off of bad debts in the prior years.  Also,  the
write-off  recoveries  in the amount of $57,000  in 1997 was  recorded  to other
income,  resulting in an increase when compared to prior years.  Management fees
due to Becker Gaming, Inc. remained relatively  unchanged from 1997 to both 1996
and 1995  fiscal  years.  Depreciation  and  amortization  decreased  by 3.4% to
$288,000 for 1997,  reflecting decreased  depreciation costs associated with the
April, 1996 closing of Charlie's Saloon.  SC abandoned  furniture,  fixtures and
equipment contained in this bar at the time of the closing. In 1996 depreciation
was  higher  than 1995 due to  additional  depreciation  on new  gaming  machine
purchases in 1996.

      Interest  income  and  other  income  increased  during  1997  due  to the
additional $900,000 note to AC and the $57,000 write-off recovery.  The $115,000
loss on sale of  assets  in 1996 was  mainly  due to the  closing  of  Charlie's
Saloon.  Interest  expense  declined  by 8.0% in 1997  attributable  to  reduced
interest  expense  resulting  from four notes  paid-off in the fourth quarter of
fiscal 1996.


     Income Taxes

     As a result  of the  termination  of its  election  to be  treated  as an S
corporation,  SC is liable  (as part of the BGI  consolidated  group) for income
taxes  on  income  earned  from  and  after  January  1,  1994.  Prior  to  such
termination,  SC did not incur or pay income taxes but  distributed  cash to its
stockholders in amounts  sufficient to pay their income tax liability in respect
of income of SC. See "Item 13. Certain  Relationships and Related  Transactions"
and "Notes to Financial  Statements - Sunset Coin, Inc. - Summary of Significant
Accounting  Policies - Income Taxes;  - Related Party  Transactions."  In fiscal
1997 and 1996,  no estimated  income tax payments  were paid. In fiscal 1995, SC
made an estimated  income tax payment of $102,000 This payment was based upon an
anticipated  effective federal income tax rate  approximating the statutory rate
of 34%.


     Liquidity and Capital Resources

      Cash  provided by operating  activities  remained  virtually  unchanged at
$1,003,000 in fiscal 1996 to $992,000 in fiscal 1997. For 1996, cash provided by
operating  activities  declined from  $1,138,000 in 1995 to $1,003,000  due to a
lower net income partially offset by a loss on sale of equipment relating to the
abandonment of Charlie's Saloon in April, 1996.

      Cash used in investing  activities for fiscal 1997 increased from $180,000
in 1996 to  $1,074,000  in 1997 due to the  increase in related  party notes and
advances  partially  offset by a  reduction  on capital  expenditures.  For 1996
compared to 1995 a significant  reduction of $2,954,000 or 94% resulted from the
absence of  additional  related  party  notes and  advances  in 1996 and reduced
capital expenditures for gaming machines.

      Cash provided by financing activities decreased each year from $562,000 in
fiscal  1995 and  $(207,000)  in 1996 to  $(333,000)  in fiscal  1997 due to the
reduction of proceeds of additional notes and recurring payments toward existing
notes in the 1997 and 1996 fiscal years.

      SC's indebtedness  includes the stockholder notes and notes collateralized
by its gaming equipment and other assets. The collateralized notes bear interest
at annual rates of approximately  10.89%, in the case of fixed rate loans, or at
prime plus 1.5% in the case of a collateralized  line of credit, the outstanding
aggregate balance of which was converted to a note at July 1, 1994, with monthly
payments  through June 1998. SC requested  advances through October 28, 1995, at
which time the  Company's  right to receive  advances  under the  agreement  was
terminated.   The  $1.5  million   non-revolving  line  of  credit  includes  an
acceleration  clause  which  would cause the full  amount of the  obligation  to
become  due on demand if a  material  adverse  change  occurs in the  borrower's
financial condition, business operations or ownership or management.

     In July 1994,  SC entered  into an  agreement  with a bank for a $1,200,000
non-revolving line of credit.  Each advance under the line shall be evidenced by
a separate promissory note with a maturity date not exceeding 66 months from the
date of the respective  advance giving rise to the note.  During fiscal 1995, SC
drew down an aggregate of $738,000 and in fiscal 1996,  an aggregate of $109,000
of the non-revolving  line of credit with various monthly payments through April
2001.  Advances  under the agreement bear interest at the bank's prime rate plus
1.5% to 2.0%. SC's management believes that it has sufficient funds through cash
generated by operations to meet its projected needs for existing  operations and
limited  expansion of its gaming machine route business.  Should SC determine to
expand on more than a limited basis,  it is likely that further capital would be
necessary.  SC's access to additional  capital will be significantly  restricted
under  the AC  Indenture  so long as SC is a  guarantor  of the AC  Notes.  Such
guaranty,  although  limited,  will be released upon AC's achievement of a fixed
charge coverage ratio of 2.25 to 1, which is not currently anticipated to occur.

      Because AC is in default under the Indenture  governing the AC Notes,  the
AC Notes have been  accelerated.  See  "Arizona  Charlie's,  Inc._Liquidity  and
Capital  Resources."  AC does not have the  resources  to pay the AC  Notes.  In
addition, AC may have limited liability under the AC Limited Guaranty of the CQC
Notes which may exceed the amount which it could  immediately  support or repay.
In either case, SC, as guarantor of the AC Notes,  may have liability  under the
SC Limited  Guaranty,  and such liability could exceed the amount which it could
immediately support. Accordingly, substantial doubt exists about SC's ability to
continue  as a going  concern if the  Trustee  for the AC Notes and CQC Notes is
able to enforce its acceleration  thereof.  See "Notes to Financial Statements -
Sunset Coin, Inc. - Guarantee Obligation, Management's Plans and Going Concern."

     Competitive Environment

     As SC's gaming machine route contracts  reach  maturity,  SC is required to
compete for renewals with numerous route  operators in the Las Vegas area,  some
of  which  are   significantly   larger  and  better   capitalized   and  manage
substantially  more gaming machines than SC.  Although SC's management  believes
that the  continuing  expansion of the Las Vegas  gaming  market has resulted in
substantial growth of the local residential  population,  the market in which SC
generates  the majority of its route  business,  there can be no assurance  that
increased  competition  for  gaming  machine  route  locations  will not have an
adverse  impact on the future  revenues.  In  addition,  the spread of legalized
gaming into new  jurisdictions  may also impact the competitive  position of SC.
See "Item 1. Business - Sunset Coin, Inc."

     Inflation

      Management  believes  that SC's results of  operations  are not  dependent
upon, or materially affected by, the rate of inflation.


Capitol Queen & Casino, Inc.
----------------------------

     Analysis of  Development  Stage  Activities for the period January 20, 1993
(the date of inception) through June 30, 1997

      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, 1997, approximately $31,000 remained in the
escrow account and an aggregate of $20,000,000 principal amount of the CQC Notes
remained outstanding. However, the dates by which CQC previously agreed with the
holders of the CQC Notes to effect the sale of its  assets  and  repurchase  the
remaining CQC Notes have passed.

      The CQC Notes outstanding  require annual interest payments of $2,400,000,
payable in equal  installments  semi-annually on May 15 and November 15. CQC was
not  able to make its  scheduled  interest  payments  of  $1,200,000  on each of
November 15, 1995, May 15, 1996, November 15, 1996 and May 15, 1997. Further, AC
does not have available funds to advance on behalf of CQC. See "Item 1. Business
- Capitol Queen & Casino, Inc. - Claims by Trustee".

      During the period from  inception  through  June 30,  1997,  CQC had total
operating expenses of $13,891,000 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 additional  abandonment loss
of $4,392,000 in the 1996 fiscal year.  Also included in operating  expenses are
amortization  expense  of  $1,474,000  associated  with  debt  issue  costs  and
$1,991,000  of project  development  costs.  For the same  period,  CQC incurred
$14,566,000  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  $1,266,000  for the period  from
inception to June 30, 1997.


Liquidity and Capital Resources

      For the period from  inception  through  June 30,  1997,  net cash used in
development  stage  activities  was  $5,245,000.  Cash flows  used in  investing
activities for the period was $13,921,000 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,  1997,  CQC had  expended  a total of
approximately  $21,680,000 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  $5,646,000 at June 30,
1997,  which  includes  amounts  accrued  on  unpaid  interest.  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,  1997 and 1996.  See  "Item 1.  Business  -
Capitol Queen & Casino, Inc. Claims by Trustee".



Item 8.   Financial Statements and Supplementary Data

      The Index to Financial  Statements  and Schedules  appear at pages F-1 and
F-2 hereof, the Report of Registrant's  Independent  Accountants appears at page
F-3 hereof, and the Consolidated  Financial Statements and Notes to Consolidated
Financial  Statements of the Registrant  appear at page F-4 through F-33 hereof.
The Financial  Statements  and Notes to Financial  Statements for AC, SC and CQC
appear at page F-35 through F-93 hereof.

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

     Not Applicable


                            PART III

Item 10.   Directors and Executive Officers of the Registrant

      The  following  table sets forth certain  information  with
respect  to the directors and executive officers of BGI and  each
of its subsidiaries.
<TABLE>
<CAPTION>
      Name                    Age              Position(s) Held
      ----                    ---              ----------------
<S>                           <C>
Bruce F. Becker               46     Chairman, President, Chief Executive
                                     Officer of BGI and each subsidiary,
                                     Treasurer and Secretary of BGI,
                                     Treasurer and Vice-President of CQC
                                     and Sole Officer and Director of
                                     Innerout, Inc.
Barry W. Becker               52     Assistant Secretary and Director of
                                     BGI,  Secretary and Director of each
                                     Nevada subsidiary, other than
                                     Innerout, Inc. and Secretary of CQC
Ron Lurie                     56     Director of Corporate Development of
                                     BGI, General Manager of SC and
                                     Director of Marketing of AC
Jerry Griffis                 41     Chief Financial Officer of BGI and
                                     Controller of each subsidiary
Gerald Heetland               57     General Counsel of BGI and each
                                     subsidiary
Ernest A. Becker III          78     Director of BGI and each Nevada
                                     subsidiary and Treasurer  of  each  Nevada
                                     subsidiary, other than Innerout, Inc.
Ernest A. Becker IV           54     Director of BGI and Vice President
                                     and Director of each Nevada
                                     subsidiary, other than Innerout, Inc.
W. Bucky Howard               59     General Manager of Arizona Charlie's,
                                     Inc. and Becker Gaming Group and
                                     Director of International Operations
                                     of Becker Gaming, Inc.
Paul Tomba                    49     Food and Beverage Director of AC and
                                       BGG
Debra Pingul                  39     Director of Personnel of each Nevada
                                     subsidiary
Doug Hardesty                 45     Director of Technical Services of
                                     each Nevada subsidiary
</TABLE>



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

      Barry W. Becker has served as Assistant  Secretary  of BGI since  November
1993,  and as Secretary of BGI from its inception  until  November  1993. He has
served each Nevada  subsidiary  (other than Innerout,  Inc.) as a Director since
its  respective  inception and as Secretary  since July 1989. Mr. Becker is also
the Sales Manager for Becker  Enterprises,  a Becker  family-owned  company that
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 boards 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.

      Ron Lurie has served as the General  Manager of Sunset  Coin,  Inc.  since
November 1990. He has also served as Director of Marketing of Arizona Charlie's,
Inc. since  February of 1995 and Director of Corporate  Development of BGI since
inception.  He has been involved with the gaming industry since 1978, serving in
several capacities prior to being employed by Sunset Coin, Inc., including Sales
Manager for International  Game Technology and regional Sales Director for Sigma
Games. In addition to Mr. Lurie's fourteen years in the gaming industry, he also
served fourteen years as a Las Vegas City Councilman and four years as the Mayor
of Las Vegas.

      Jerry Griffis has served as Chief Financial  Officer of BGI and Controller
of CQC since their  respective  dates of  inception,  and as  Controller  of the
Nevada   subsidiaries   since  February  1989.   Prior  to  joining  the  Nevada
subsidiaries,  Mr. Griffis was employed as a Certified Public Accountant.  Prior
thereto, Mr. Griffis acted as Assistant Controller for the Silver Slipper Casino
from 1981 to 1983 and the Frontier Hotel & Casino from 1979 to 1981. Mr. Griffis
is a CPA and a member of the Nevada Society of CPA's and the American  Institute
of Certified Public Accountants.

     Gerald  Heetland has 30 years of corporate  legal and business  experience,
with over 15 years in the gaming  industry.  He has served as General Counsel of
Becker Gaming, Inc. and subsidiaries since January 1997. Prior to joining Becker
Gaming,  Inc.,  he served as Vice  President,  General  Counsel and Secretary of
Fitzgeralds Gaming Corporation and its subsidiaries for over 5 years and as Vice
President,  General Counsel and Secretary Counsel of Del Webb Hotels and Casinos
for 8  years,  starting  at the  positions  of  Associate  General  Counsel  and
Assistant  Secretary  of Del Webb  Corporation  in Phoenix,  Arizona in 1981 and
relocating to Las Vegas, Nevada in May 1986.

      Ernest A.  Becker  III is a  director  of BGI and has  served  each of the
Nevada  subsidiaries  (other  than  Innerout,  Inc.)  as a  Director  since  its
respective  inception and as Treasurer  since July 1989.  Mr. Becker has been an
active developer of residential,  recreational and commercial properties in both
Southern  California and Southern  Nevada since 1952.  Mr. Becker  organized the
Charleston  Heights Water Company in 1954, which paved the way for the growth of
the northwestern  area of Las Vegas. He is a past president and Life Director of
the National Association of Home Builders.

     Ernest A.  Becker IV is a director of BGI and has served each of the Nevada
subsidiaries  (other than  Innerout,  Inc.) as a Director  since its  respective
inception and as Vice President  since July 1989. He currently  operates  Becker
Built, a construction  company owned by the Becker family. Mr. Becker has served
as a Director of the  Southern  Nevada Home  Builders  Association  for the past
fourteen  years  and has  held  positions  with  the Fair  Housing  Task  Force,
Development  Permit  Committee,  Community  Housing  Resource Board and Plumbers
Examining Board for the City of Las Vegas and the Citizens  Advisory Council for
Liquor and Gaming Control.

      W. Bucky Howard was appointed General manager of Arizona  Charlie's,  Inc.
and  Becker  Gaming  Group  in  January,  1997 and has  served  as  Director  of
International  Operations of Becker Gaming,  Inc. since October 1996. Mr. Howard
has been in Resort Gaming over thirty years, and has operational, marketing, and
pre-opening experience in Nevada, New Jersey and Mississippi.  Mr. Howard served
the  Hilton  Corporation  for  eleven  years in  various  capacities  up to Vice
President of Casino  Operations  in Atlantic  City.  Mr. Howard also served five
years with the Trump Organization as Vice President Casino Operations, Executive
Vice President of Operations and as President of Trump Taj Mahal. Mr. Howard was
involved in  planning,  developing,  designing,  training and  implementing  all
phases of operations.

      Paul Tomba has served AC and BGG as Food and Beverage  Director since June
1995.  Prior to his  employment  at  Arizona  Charlie's,  he served as  Beverage
Manager for Caesar's Palace and the Golden Nugget Hotel and Casino in Las Vegas.
Mr. Tomba also managed private  country clubs in the greater  Cleveland area and
has over twenty-six years experience in the food and beverage industry.

      Debra Pingul was appointed  Director of Personnel of AC in February  1991.
Prior thereto, Ms. Pingul held supervisory positions in human resources with the
Marina  Hotel and Casino  from 1985 to 1990 and  Vacation  Village  from 1990 to
1991.

      Doug Hardesty was appointed  Director of Technical Services of each of the
Nevada  subsidiaries  in April 1991. From March 1988 to April 1991, Mr. Hardesty
served as Operations Officer of AC. Prior thereto, he held managerial  positions
with firms engaged in the sale and servicing of systems hardware.



Item 11.   Executive Compensation

      The following table sets forth the compensation paid by BGI (including its
subsidiaries)   for  services  rendered  in  all  capacities  to  BGI  (and  its
subsidiaries)  during the fiscal year ended June 30,  1997,  with respect to the
Chief  Executive  Officer of BGI and all other  persons who served as  executive
officers of BGI during the year ended June 30, 1997 and whose  aggregate  annual
compensation exceeded $100,000 for such period. No compensation has been paid to
executives by CQC for services rendered during the year ended June 30, 1997.

<TABLE>
                   Summary Compensation Table
                   --------------------------
<CAPTION>
                                        Annual Compensation
                                        -------------------
                                                                    All Other
Name and Position                     Salary          Bonus       Compensation
-----------------                     ------          -----       ------------
<S>                                 <C>            <C>            <C>
Bruce F. Becker, Chief
  Executive Officer
  and President of
  BGI and each subsidiary ....      $500,000(1)    $      0       $ 51,520(2)(3)
Ron Lurie, Director-Corporate
  Development of BGI, General
  Manager of SC and Director
  of Marketing of AC .........      $140,539(4)    $      0       $  1,587(4)
W. Bucky Howard, General
  Manager of AC, BGG and
  Director of International
  Operations at BGI ..........      $118,077       $      0       $     -
Bart Masi, General Manager
  of AC and BGG (terminated
  January 5, 1997)............      $108,000       $      0       $  2,700(3)
Duke Pettit, Director of Slot
  Operations (terminated July
  17, 1997)                         $104,030       $      0       $  3,641(3)

----------
<FN>
(1) Does not include amounts entitled to under employment agreement.  Mr. Becker
has voluntarily  postponed  scheduled  salary increases of $100,000 for calendar
year 1995,  $200,000 for calendar year 1996 and $300,000 for calendar year 1997.
These salary amounts have been accrued by BGI, but have not yet been paid to Mr.
Becker. All of Mr.Becker's compensation is paid by BGI.

(2)  Includes  $49,338 paid by BGI during the fiscal year ended June 30, 1997 in
premiums on life  insurance  held by Bruce F. Becker for the benefit of a family
trust  administered by Mr. Becker.  Such life insurance,  which has an aggregate
death benefit of $5,076,376,  has been collateral assigned to BGI such that upon
the death of Mr. Becker,  BGI shall be refunded all premiums  previously paid by
it  under  the  policy  before  the   distribution  of  benefits  to  the  named
beneficiary.

(3) BGI and each Nevada  Subsidiary  has adopted a 401(k)  defined  contribution
plan  covering  substantially  all  of its  employees.  Eligible  employees  may
contributed  up to 6% of their annual  compensation  to the plan,  up to certain
limits prescribed by the Internal Revenue Service. BGI and the Nevada subsidiary
have  each  agreed  to  contribute  an  amount  equal to 25% of each  employee's
contribution,  up to an  amount  equal  to 2% of each  employee's  compensation.
Employees  may  contribute  an additional 4% to the Plan which is not matched by
BGI or Nevada subsidiary.

(4) Mr. Lurie's compensation is paid by SC. However, 50% of such compensation is
reimbursed to SC from AC.
</FN>
</TABLE>


Compensation of Directors

      The  directors of BGI may receive  $2,000 for each meeting of the Board of
Directors attended.  The directors of the Operating Companies do not receive any
compensation for serving in such capacities.

Employment Agreement

      In May 1994, BGI entered into a seven-year employment agreement with Bruce
F. Becker in his capacities as Chief Executive Officer and President.  Under the
employment agreement,  Mr. Becker is required to devote all of his business time
to the affairs of BGI and its affiliated  companies.  The agreement provides for
an annual base salary of $800,000 per year during calendar year 1997, increasing
by $100,000 each calendar year thereafter  through  December 31, 2001.  However,
for the third consecutive year, Mr. Becker has elected to postpone his scheduled
annual salary  increase.  These deferred  salary amounts,  aggregating  $450,000
through June 30, 1997,  and have been accrued by BGI, but have not yet been paid
to Mr. Becker.  Mr. Becker is also entitled to the use of an automobile and such
bonuses and other benefits as the Board of Directors may award from time to time
in its discretion.  In addition,  BGI maintains certain life insurance  coverage
referred to under Executive Compensation above.

      The  employment  agreement  provides  that if Mr.  Becker's  employment is
terminated  either (i) by BGI other than for cause or by reason of  physical  or
mental  disability,  or (ii) by Mr.  Becker for good reason,  Mr. Becker will be
entitled to a severance  payment equal to four times his then annual base salary
if such termination occurs during the first year of the agreement or three times
his then annual base salary if such  termination  occurs after the first year of
the  agreement.  Such  severance  payment  will be  payable in a lump sum within
thirty (30) days of  termination.  Under the agreement,  BGI shall have cause to
terminate Mr. Becker if he consistently  refuses to  substantially  perform,  or
engages in willful  misconduct in the substantial  performance of his duties and
obligations  under the  employment  agreement or if he  materially  breaches the
agreement.  Mr.  Becker may terminate  his  employment  for good reason if he is
assigned  by BGI to a position  of lesser or  inconsistent  authority  than that
described in the  employment  agreement  or is required to relocate  outside Las
Vegas, or if BGI fails to substantially comply with the employment agreement.

Consulting Agreements

     BGI entered into consulting agreements with Ernest A. Becker III, Ernest A.
Becker  IV  and  Barry  W.  Becker  (the  "Consultants").  The  agreements  have
three-year  terms which  expired on May 31, 1997.  The  agreements  provided for
monthly  consulting  fees of  $12,500,  $8,334 and $8,334,  respectively.  These
agreements were renewed for additional three-year terms, however, beginning June
1, 1997 the  Consultants  have  voluntarily  postponed  receipt  of the  monthly
consulting fees. At June 30, 1997, such fees in the total amount of $29,168 have
been accrued by BGI but have not been paid to the  Consultants.  The  agreements
provide for  indemnification  of the Consultants for claims arising out of their
services  to BGI,  other than  claims  arising  from gross  negligence,  willful
malfeasance or fraud.  The Consultants are prohibited from competing with BGI or
its  affiliates or soliciting  for  employment  any person  employed or recently
employed  by BGI or its  affiliates.  Such  obligations  also  apply  beyond the
consulting period.

Compensation Committee Interlocks and Insider Participation

      None of the  board  of  directors  of BGI or its  subsidiaries  has had or
currently has a compensation  committee or other committee performing equivalent
functions. During the fiscal year ended June 30, 1997, Ernest A. Becker, III and
Bruce  F.  Becker  in  their  capacities  as  directors  of each  of the  Nevada
subsidiaries  participated  in  deliberations  concerning  compensation  of  the
executive officers of such companies.




Item 12.  Security Ownership of Certain Beneficial  Owners  and
          Management

      The following table sets forth as of September 1, 1997 certain information
with respect to beneficial ownership of shares of BGI's Common Stock by (i) each
person  known by BGI to be a  beneficial  owner of more  than 5  percent  of the
outstanding  shares of Common Stock,  (ii) each of BGI's  directors,  (iii) each
executive  officer  named in the  summary  compensation  Table under the caption
"Executive Compensation" and (iv) all directors and officers as a group.



<TABLE>
<CAPTION>
Name and Address (1)               Amount and Nature(2)    Percentage of
of Beneficial Owner             of Beneficial Ownership    Shares Outstanding
-------------------             -----------------------    ------------------
<S>                                           <C>              <C>
 Ernest A. Becker, III ....                   3,611,134        36.11%
 Bruce F. Becker ..........                   2,761,275        27.61%
 Ernest A. Becker, IV .....                   1,546,831        15.47%
 Barry W. Becker ..........                   1,546,831        15.47%
 Bart Masi ................                           0         0.00%
 Bucky Howard .............                           0         0.00%
 Duke Pettit ..............                           0         0.00%
 Ron Lurie ................                           0         0.00%
 Charlie's Land Company (3)                     533,929         5.34%
 All officers and directors
  as a group (4) ..........                  10,000,000       100.00%

----------
<FN>
(1)  The address of each of the Becker family  members,  Charlie's  Land Company
     and Messrs. Masi, Howard,  Pettit and Lurie is 740 South Decatur Boulevard,
     Las Vegas, Nevada 89107.
(2)  1BGI  believes  that the  persons  named in the table have sole  voting and
     investment  power with respect to all shares of Common  Stock  beneficially
     owned by them.
(3)  Charlie's Land Company is a Nevada general partnership owned, by the Becker
     family  members  in the  following  percentages:  Ernest A.  Becker,  III -
     50.11%;  Bruce F. Becker - 16.63%;  Ernest A. Becker, IV - 16.63% and Barry
     W. Becker - 16.63%.
(4)  Includes shares owned  beneficially  by (a) Bruce F. Becker,  (b) the other
     Becker family  members  identified  above,  and (c) Charlie's Land Company,
     which is owned by the Becker family as set forth in footnote 3 above.
</FN>
</TABLE>



Item 13.   Certain Relationships and Related Transactions

      Since June 1, 1994,  the  Company  has  provided  managerial  and  related
services  to its  subsidiaries.  The  Company  has  entered  into  a  management
agreement  with each of the AC, SC and BGG (and CQC,  which is not  expected  to
have any  operations)  to  provide  executive  and  administrative  services  in
exchange for a management fee equal to 5% of each such company's gross operating
revenues (before deduction of promotional allowances). However, the AC Indenture
will prohibit the payment of management fees by AC until certain conditions have
been  satisfied  and  thereafter  in excess of specified  amounts.  See "Item 1.
Business  - Becker  Gaming,  Inc." The rate at which  management  fees are to be
payable was determined  based on the level of management  support to be provided
by the Company to the operating  companies,  the level of expense anticipated to
be  incurred  by  the  Company  in  connection   with  such  support,   and  the
gaming-related  experience  of the persons  expected to provide  such support on
behalf of Becker Gaming and their  familiarity with the operating  companies and
their businesses.  Accordingly, such fee does not necessarily reflect that which
could be obtained  from an  unaffiliated  party,  which could not be expected to
provide the same  support or to possess the same  gaming-related  experience  or
familiarity  with the operating  companies.  However,  based on its knowledge of
similar  management  service  arrangements  entered  into  by  other  Las  Vegas
casino-hotels,  such rate is  believed  to be at or near the top of the range of
fees customarily  paid for such services in such market.  Due to the decision to
suspend  development of CQC's riverboat casino project and sell its assets,  the
majority of BGI's  management  and  administrative  services are  anticipated to
benefit AC in the  future.  Accordingly,  in late March  1995,  BGI  transferred
approximately 40 employees involved in accounting and  administrative  functions
from  BGI to AC.  These  employees  were  originally  employees  of AC and  were
transferred to the Company in June 1994. In connection  with this  transfer,  in
October 1995, the Company  temporarily reduced the amount of AC's management fee
to a net 1.0% of AC's gross revenues  (previously  5.0% of gross revenues) based
on the  reduction  in services  it will  receive  from BGI in the  future.  Such
temporary  reduction  remained  in place  through  fiscal  1997 and is not to be
further modified during fiscal 1998. AC, SC and BGG incurred  management fees of
$664,000, $140,000 and $518,000, respectively, to the Company in fiscal 1997.

     AC has  issued a  limited  guaranty  of the  payment  of  principal  of and
interest on the CQC Notes. See "Item 1. Business - Capitol Queen & Casino,  Inc.
- Claims by Trustee"  Similarly,  SC has issued a limited guaranty in connection
with the payment of principal of and interest on the AC Notes.

      During  fiscal  1997,  AC leased  office,  storage and laundry  space from
Charleston  Heights Shopping Center ("CHSC"),  a partnership owned by the Becker
family.  Total lease rental payments (including  insurance,  tax and common area
maintenance  payments)  of  approximately  $222,000  were  paid by AC to CHSC in
fiscal 1997.  Based on rental rates offered for  properties  which are similarly
situated and offer comparable features,  AC believes that such rental rates were
below comparable market rates.

      Each of the Nevada  subsidiaries  previously  operated as a  subchapter  S
corporation  under  the  federal  tax  laws.  As of  December  31,  1993,  the S
corporation status of each of the Nevada  subsidiaries was terminated.  Prior to
the  termination  of S  corporation  status,  each  of the  Nevada  subsidiaries
distributed   to  their   stockholders   undistributed   income  on  which  such
stockholders  had previously  paid federal income taxes equal to $5,000,000,  in
the case of AC, $3,000,000, in the case of SC, and $800,000, in the case of BGG.
The  amounts  distributed  were  loaned  back to such  companies  in full by the
stockholders.  The  AC and SC  loans  are  repayable  pursuant  to  subordinated
stockholder  notes  maturing  in 2001 and  bearing  interest  at the rate of 10%
annually,  payable monthly. However, beginning May 1, 1997 the stockholders have
voluntary  postponed the receipt of interest  associated with the AC Notes.  The
BGG loans are repayable  pursuant to notes maturing in December 1997 and bearing
interest at the rate of 10% annually,  payable monthly. In addition,  the Nevada
subsidiaries have agreed to distribute to their  stockholders cash sufficient to
satisfy the federal income tax obligations of such  stockholders  resulting from
their  ownership  interests  therein  (including  taxes  payable with respect to
income  earned  previously)  through the date of  termination  of S  corporation
status,  subject to limitations  imposed under the Indentures.  The stockholders
have filed all tax returns for the periods during which the Nevada  subsidiaries
operated as S corporations. Accordingly, the exposure of the Nevada subsidiaries
under the tax  indemnities  will be limited to taxes which may become payable in
the future with  respect to periods  through  1993 as a result of any audit of a
stockholder  return by tax authorities.  Such amounts may be material,  although
the  AC  Indenture  limits  such  payments  by AC  and  SC to  an  aggregate  of
$2,250,000.

      SC has executed  gaming machine  service  agreements  with BGG pursuant to
which SC provides gaming machine  maintenance and other services to each BGG bar
and restaurant for a fixed fee. Fees paid by BGG to SC for such services totaled
approximately  $85,000 in fiscal  1997.  The  gaming  machine  maintenance  fees
payable by BGG to SC reflect rates which  management  believes  (based on market
research  conducted on an informal basis,  from time to time, by SC) are charged
for similar services by other gaming machine service companies  operating in the
Las Vegas area.

      During 1991,  SC  purchased  the assets of a  restaurant/bar  facility for
approximately  $525,000 for use by BGG. The Company entered into an agreement to
lease (as lessor) the  facility to BGG under an agreement  which was  terminated
when the  facility was closed on April 21, 1996 and the  worthless  improvements
and equipment  were  abandoned.  The liquor license will be transferred to a new
BGG  location  currently  under  construction  which is expected to open in late
1997.

      BGG leases several of its properties from  partnerships  controlled by the
Becker  family  members.  Cantina  Charlie's  is leased at current  annual  rent
(including property taxes) of approximately $121,000,  subject to cost of living
increases,  pursuant to an agreement scheduled to expire in 1998, unless renewed
by BGG for up to an additional 25 years, however, pending required licensing and
operator  approval  from  Nevada  Gaming  and  Regulating  Authorities,  Cantina
Charlie's has entered into an agreement to be sold to a prospective  non-related
party buyer, subject to the aforementioned  requirements and satisfactory escrow
procedures.  The  Charlie's  Lakeside site is held pursuant to a ground lease at
current annual rent (including property taxes) of approximately $39,000, subject
to cost of living increases. The ground lease is scheduled to expire in 2006 but
may be extended by BGG for up to an additional 20 years. BGG operates  Charlie's
Bar pursuant to a lease requiring  current rental payments  (including  property
taxes) of approximately  $37,000 per year,  subject to cost of living increases.
The lease  expired in October  1995,  and was  renewed by BGG for an  additional
three years.  Charlie's Bar Down Under, a 4,400  square-foot  building is leased
for an annual rent of $145,320 payable in equal monthly installments.  The lease
term commenced on February 1, 1995 and expires on January 31, 2005, with options
to extend for three  additional terms of five years each.  Management  believes,
based on its experience  and knowledge of the  commercial  leasing market in and
around Las Vegas, that the foregoing leases reflect market terms and rates.

     SC  purchased  and leased to BGG's  wholly  owned  subsidiary  the personal
property used at Charlie's  Bar Down Under.  This lease calls for annual rent of
$94,392 to be paid in equal monthly installments in advance,  beginning on April
1, 1995.

      The Becker family  members have  guaranteed the payment of a $126,000 note
payable  of SC,  various  term  loans  held by SC and a term  loan  to BGG.  The
outstanding  principal  balances of the SC and BGG term loans were  $499,000 and
$828,000, respectively, as of June 30, 1997.

      Bruce F.  Becker  resides in one of Arizona  Charlie's  suites at a rental
rate of $1,520 per month payable in advance,  pursuant to a one-year lease which
commenced January 1, 1995. This lease automatically  renews for successive terms
of one-year each unless terminated.

      Bruce F.  Becker  operates a sole  proprietorship  under the name  "Becker
Vending" which places  arcade,  cigarette,  music and other vending  machines at
Arizona Charlie's, BGG's restaurants,  and several of SC's slot route locations.
AC provides  nominal  collection  and  accounting  services to Becker Vending in
connection with these machines.  None of the Nevada subsidiaries  receives or is
expected  to receive  any rental fee or other  payment  from  Becker  Vending in
connection with these arrangements. Becker Vending retains all amounts deposited
in its vending machines.  Becker Vending also sells to AC cigarettes,  candy and
similar items at wholesale prices for resale in the Arizona Charlie's gift shop.

                             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.

     (a)2.     Financial Statement Schedules
          An index to Financial Statement Schedules appears at
page F-2 hereof:

     (a)3.     Exhibits

<TABLE>
                          EXHIBIT INDEX
    <S>    <C>
    3.1    Articles of  Incorporation of the Company.*

    3.2    By-Laws of the Company.*

    4.1    Indenture dated November 15, 1993 among Arizona Charlie's, as issuer,
           Sunset Coin,  as  guarantor,  and IBJ Schroder  Bank & Trust  Company
           ("IBJ"), as trustee, as amended by First Supplemental Indenture dated
           January 1, 1995.*

    4.2    Indenture  dated  November 15, 1993 among Capitol  Queen,  as issuer,
           Arizona Charlie's,  as guarantor,  and IBJ, as trustee, as amended by
           First Supplemental Indenture dated January 1, 1995.*

    10.1   Form  of  amended  Warrant   Agreement  among  the  Company  and  the
           purchasers named therein (the "Purchasers").*

    10.2   Fee and Leasehold Deed of Trust,  Assignment of Leases and Subleases,
           Security  Agreement  and Fixture  Filing  dated  November 15, 1993 by
           Arizona  Charlie's  and CLC,  as  grantors,  to Land Title of Nevada,
           Inc., as trustee, for the benefit of IBJ, as collateral agent.*

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

    10.5   Form of Security  Agreements  dated November 15, 1993 between each of
           Arizona Charlie's and Capitol Queen and IBJ, as collateral agent.*

    10.6   Form of Stock Pledge  Agreements dated November 15, 1993 between each
           of Arizona Charlie's and Capitol Queen and IBJ, as collateral agent.*

    10.7   Form of Collateral  Agency  Agreement  dated  November 15, 1993 among
           Arizona  Charlie's,  CLC and IBJ, as trustee and collateral agent and
           between Capitol Queen and IBJ, as trustee and collateral agent.*

    10.8   Promissory  Notes dated December 24, 1993 made by each of the Beckers
           in favor of Arizona Charlie's.*

    10.9   Promissory  Notes dated December 24, 1993 made by each of the Beckers
           in favor of Sunset Coin.*

    10.10  Tax Indemnity Agreement dated December 24, 1993 among
           Arizona Charlie's, Sunset Coin, Becker Gaming Group
           and each of the Beckers.*

    10.11  Registration  Rights  Agreements  dated as of May 31,  1994 among the
           Company and each of the Beckers.*

    10.12  Form of  Management  Agreements  dated as of May 31, 1994 between the
           Company and each of Arizona Charlie's, Capitol Queen, Sunset Coin and
           Becker
           Gaming Group.*

    10.13  Form of Tax  Allocation  Agreements  dated as of May 31, 1994 between
           the Company and each of Arizona Charlie's, Sunset Coin, Becker Gaming
           Group and
           Capitol Queen.*

    10.14  Form of  Consulting  Agreements  dated as of May 31, 1994 between the
           Company and each of Ernest A. Becker,  III, Ernest A. Becker,  IV and
           Barry W.
           Becker.*

    10.15  Employment Agreement dated as of May 31, 1994 between
           the Company and Bruce F. Becker.*

    10.16  Stockholders  Agreements  dated as of May 31,  1994 among each of the
           Beckers.*

    10.17  Leases  dated May 1, 1988 and  August  21,  1990  between  Charleston
           Heights Shopping Center and Arizona Charlie's.*

    10.18  Ground Lease dated December 1, 1986 between Becker Investment Company
           and Becker  Family Trust No. 2 and Becker  Gaming  Group;  Assignment
           dated September 16, 1987 assigning the interest of Becker  Investment
           Company and Becker Family Trust No. 2 to Lakeside
           Partners.*

    10.19  Lease dated August 12, 1986 between Fremont West
           Shopping Center and Becker Gaming Group.*

    10.20  Lease dated July 27, 1988 between Becker Investment
           Co. and Becker Gaming Group.*

    10.21  Lease  dated  September  19,  1994  between   Weddington   Investment
           Partnership and Innerout, Inc.*

    10.22  Lease dated March 24, 1995 between Sunset Coin, Inc.
           and Innerout, Inc.*

    10.23  Lease agreement between Arizona Charlie's, Inc. and
           Bruce F. Becker.*

    10.24  Aircraft  Purchase  Agreement  dated  July 1,  1996  between  Arizona
           Charlie's and Limerick Holdings, LLC.

    21.1   Subsidiaries of the Company.

    27.1   Financial Data Schedule

----------
<FN>
* Incorporated by reference to the Company's  Registration Statement on Form S-1
(33-76368)  declared effective by the Securities and Exchange  Commission on May
20, 1994.

     (b)  Reports on Form 8-K
          None.
</FN>
</TABLE>
================================================================================
                                   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.


                                   BECKER GAMING, INC.


Dated: September 26, 1997          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 26th day of September, 1997.

<TABLE>
<CAPTION>
        Signature                  Title
        ---------                  -----
<S>                                <C>
/s/Bruce F. Becker                 President, Chief Executive
--------------------------         Officer (Principal
Bruce F. Becker                    Executive Officer) and Director


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

/s/ Barry W. Becker                Director
--------------------------
Barry W. Becker


/s/ Ernest A. Becker, III          Director
-------------------------
Ernest A. Becker, III


/s/ Ernest A. Becker, IV           Director
-------------------------
Ernest A. Becker, IV
</TABLE>




     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.

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

                          INDEX TO FINANCIAL STATEMENTS

BECKER GAMING, INC. AND SUBSIDIARIES
     Report of Independent Accountants ..............................
     Consolidated Balance Sheets as of June 30, 1997 and 1996 .......
     Consolidated Statements of Operations for the Years Ended
     June 30, 1997, 1996 and 1995 ...................................
     Consolidated Statements of Stockholders' Equity (Deficit)
     for the Years Ended June 30, 1997, 1996 and 1995 ...............
     Consolidated Statements of Cash Flows for the Years Ended
     June 30, 1997, 1996 and 1995 ...................................
     Notes to Consolidated Financial Statements .....................

ARIZONA CHARLIE'S, INC.
     Report of Independent Accountants ..............................
     Balance Sheets as of June 30, 1997 and 1996 ....................
     Statements of Operations for the Years Ended June 30, 1997,
     1996 and  1995 .................................................
     Statements of Stockholder's Equity (Deficit) for the Years
     Ended 1997, 1996 and 1995 ......................................
     Statements of Cash Flows for the Years Ended June 30, 1997,
     1996 and  1995 .................................................
     Notes to Financial Statements ..................................

SUNSET COIN, INC.
     Report of Independent Accountants ..............................
     Balance Sheets as of June 30, 1997 and 1996 ....................
     Statements of Income for the Years Ended June 30, 1997, 1996
     and 1995 .......................................................
     Statements of Stockholder's Equity for the Years Ended June
     30, 1997, 1996 and 1995 ........................................
     Statements of Cash Flows for the Years Ended June 30, 1997,
     1996 and 1995 ..................................................
     Notes to Financial Statements ..................................

CAPITOL QUEEN & CASINO, INC.
     Report of Independent Accountants ..............................
     Balance Sheets as of June 30, 1997 and 1996 ....................
     Statements of Loss Incurred During the Development Stage
     for the Years Ended June 30, 1997, 1996 and 1995 and for
     the period from January 20, 1993 (the date of inception)
     through June 30, 1997 ..........................................
     Statements of Stockholder's Equity (Deficit) for the Years
     Ended June 30, 1997, 1996 and 1995 and for period from
     January 20, 1993 (the date of inception) through June 30,
     1997 ...........................................................
     Statements of Cash Flows for the Years Ended June 30, 1997
     1996 and 1995 and for the period from January 20, 1993
     (the date of inception) through June 30, 1997 ..................
     Notes to Financial Statements ..................................




                     INDEX TO FINANCIAL STATEMENT SCHEDULES


BECKER GAMING, INC. AND SUBSIDIARIES:

Schedule I          Condensed Financial Information of the
                    Company as of and for the Years Ended
                    June 30, 1997, 1996 and 1995 ....................

Schedule II         Valuation and Qualifying Accounts as of and
                    for the Years Ended June 30, 1997, 1996
                    and 1995 ........................................


ARIZONA CHARLIE'S, INC.:

Schedule II         Valuation and Qualifying Accounts as of and
                    for the Years Ended June 30, 1997, 1996
                    and 1995 ........................................

SUNSET COIN, INC.:

Schedule II         Valuation and Qualifying Accounts as of and
                    for the Years Ended June 30, 1997, 1996
                    and 1995 .........................................


CAPITOL QUEEN & CASINO, INC.:

Schedule II         Valuation and Qualifying Accounts as of and
                    for the Years Ended June 30, 1997, 1996
                    and 1995 ........................................


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.
--------------------------------------------------------------------------------

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



To the Board of Directors
Becker Gaming, Inc. and Subsidiaries


We  have  audited  the  consolidated  financial  statements  and  the  financial
statement schedules of Becker Gaming, Inc. and Subsidiaries listed in Item 14(a)
of this Form 10-K. These financial  statements and financial statement schedules
are the  responsibility of the Company's  management.  Our  responsibility is to
express  an  opinion  on these  financial  statements  and  financial  statement
schedules based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of Becker Gaming,
Inc. and Subsidiaries as of June 30, 1997 and 1996, and the consolidated results
of their  operations  and their  cash  flows for each of the three  years in the
period ended June 30, 1997 in  conformity  with  generally  accepted  accounting
principles.  In addition,  in our opinion,  the  financial  statement  schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole,  present  fairly,  in all material  respects,  the information
required to be included therein.

The accompanying  financial  statements have been prepared  assuming that Becker
Gaming,  Inc. will continue as a going concern.  As more fully described in Note
2,  certain  of the  Company's  principal  subsidiaries  are in  default of debt
covenants,  resulting  in a  demand  for  immediate  payment  of  the  debt  and
classification  of  such  debt  as  currently  payable.   The  Company  and  its
subsidiaries  do not have  sufficient  resources to repay the  indebtedness on a
current  basis.  Management's  plans  with  respect  to these  matters  are also
described in Note 2. These matters raise  substantial doubt about the ability of
the Company's  principal  subsidiaries  (and thus, the Company) to continue as a
going concern. The final outcome of these matters is not presently  determinable
and the June 30,  1997  financial  statements  of the Company do not include any
adjustment that might result from the outcome of this uncertainty.


/(s)/ Coopers & Lybrand L.L.P.
------------------------------
Coopers & Lybrand L.L.P.

Las Vegas,  Nevada  August 22, 1997,  
except for Note 2, 
as to which the date is
September 5, 1997

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

                      BECKER GAMING, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                          As Of June 30, 1997 And 1996
                             (Dollars In Thousands)

================================================================================
                                     ASSETS
                                                            1997          1996
                                                         -------       -------
Current assets:
   Cash and cash equivalents .....................       $ 7,394        $ 6,745
   Restricted cash, in escrow account.............            41             40
   Trade and other accounts receivable............           374            626
   Current portion of receivables from
   related parties................................            22             33
   Inventories ...................................           665            729
   Prepaid expenses ..............................         1,119          1,244
   Current portion of notes receivable............           256            153
   Assets held for sale...........................           382          3,233
                                                         -------        -------
     Total current assets.........................        10,253         12,803
                                                         -------        -------
Property and equipment:
   Land improvements..............................         1,628          1,628
   Building and improvements......................        38,284         38,282
   Leasehold improvements.........................           663            983
   Furniture and equipment........................        29,013         27,773
                                                         -------        -------
                                                          69,588         68,666
   Less, accumulated depreciation.................       (21,266)       (19,078)
                                                         -------        -------
                                                          48,322         49,588


   Land ..........................................           208            208
   Construction in progress.......................           443           --
                                                         -------        -------
       Net property and equipment.................        48,973         49,796
                                                         -------        -------
Other assets:

   Assets held for sale...........................         7,754          7,754
   Notes receivable, less
   current portion, net...........................           268            472
   Receivables from related parties,
   less current portion...........................           165            165
   Deposits and other.............................         1,187          1,375
   Financing costs, net...........................         2,409          3,112
                                                         -------        -------
       Total other assets.........................        11,783         12,878
                                                         -------        -------

       Total assets                                     $ 71,009       $ 75,477
                                                         =======        =======


                  LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)

                                                           1997            1996
                                                   ------------    ------------

Current liabilities:
  Trade accounts payable .......................        $ 1,355         $ 1,761
  Construction accounts payable ................            443            --
  Accrued interest .............................          9,998           3,354
  Accrued expenses .............................          3,125           3,055
  Notes payable ................................            106             110
  Current portion of
   subordinated notes payable to
   stockholders ................................            800             800
  Current portion of long term debt ............            887             381
  Long-term debt classified as
   current due to default under
   covenants, net of unamortized
   original issue discount of
   $2,092 (1997)and $2,474 (1996) ..............         72,908          72,526
  Current portion of obligations under
  capital leases ...............................            138           1,960
                                                   ------------    ------------
        Total current liabilities ..............         89,760          83,947

Long-term debt, less current portion ...........          2,314           1,330
Subordinated notes payable to
  stockholders, less current portion ...........          8,000           8,000
Obligations under capital leases, less
current portion ................................             98             197
                                                   ------------    ------------
        Total liabilities ......................        100,172          93,474
                                                   ------------    ------------
Commitments and  contingencies

Stockholders'
equity (deficit):
  Common stock, $.01 par value, 20,000,000
    shares authorized, 10,000,000 shares
    issued outstanding .........................           100             100
  Preferred stock, $1 par value, 5,000,000
    shares authorized, none issued and
    outstanding ................................           --              --
  Additional paid-in capital ...................          9,006           9,006
  Retained earnings (deficit) ..................        (38,269)        (27,103)
                                                   ------------    ------------

        Total stockholders' equity (deficit) ...        (29,163)        (17,997)
                                                   ------------    ------------

        Total liabilities and
        stockholders' equity (deficit) .........       $ 71,009       $  75,477
                                                   ============    ============

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


                      BECKER GAMING, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars In Thousands, Except Per Share Data)
================================================================================


                                                        Year Ended June 30,
                                          --------------------------------------
                                                 1997         1996         1995
                                          -----------  -----------  -----------
Revenues:
   Gaming ..............................    $  56,515     $  62,377 $   56,773
   Food and beverage ...................       17,829        18,207     14,900
   Hotel ...............................        3,352         3,208      2,614
   Gift shop ...........................          553           590        577
   Other ...............................          975         1,013        742
                                          -----------  ------------ ----------
       Gross revenues ..................       79,224        85,395     75,606
Less, promotional allowances ...........       (9,699)       (9,358)    (6,527)
                                          -----------  ------------ ----------
       Net revenues ....................       69,525        76,037     69,079
Operating expenses:
   Gaming ..............................       19,978        21,923     19,039
   Food and beverage ...................       16,197        16,787     14,318
   Hotel ...............................        1,390         1,413      1,377
   Gift shop ...........................          519           475        450
   Advertising and promotion ...........        4,833         4,831      3,948
   General and administrative ..........       20,905        21,053     20,571
   Rent expense paid to related party ..          567           411        470
   Depreciation and amortization .......        4,232         4,402      4,439
                                          -----------  ------------ ----------
       Total operating expenses ........       68,621        71,295     64,612
                                          -----------  ------------ ----------
       Operating income ................          904         4,742      4,467
                                          -----------  ------------ ----------
Other income(expenses):
   Loss on disposal of assets ..........         --            (438)      --
   Abandonment losses and write-downs
     of assets  held for sale ..........         --          (4,503)      --
   Development costs ...................       (1,301)         (504)    (1,186)
   Interest income .....................          125           101      1,171
   Interest expense ....................      (11,148)      (10,584)   (12,698)
   Interest capitalized ................         --            --          676
   Other, net ..........................          254           (41)       (70)
                                          -----------  ------------ ----------
       Total other income (expense) ....      (12,070)      (15,969)   (12,107)
                                          -----------  ------------ ----------
       Income (loss) before income taxes
        and extraordinary item .........      (11,166)      (11,227)    (7,640)
Provision for income taxes .............         --            --         --
                                          -----------  ------------ ----------
       Income (loss) before
        extraordinary item .............      (11,166)      (11,227)    (7,640)
                                          -----------  ------------ ----------

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

Net income (loss)
                                           $  (11,166)   $  (11,227)$  (11,729)
                                          ===========  ============ ==========

Net income (loss) per common share:
   Income (loss) before
    extraordinary item .................   $    (1.12)   $    (1.12)$    (0.76)

   Extraordinary item-loss on
    early retirement of debt ...........         --            --        (0.41)
                                          -----------  ------------ ----------

Net income (loss) per share of
 common stock ..........................   $    (1.12)   $    (1.12)$    (1.17)
                                          ===========  ============ ==========

Weighted average common shares
 outstanding ...........................   10,000,000    10,000,000 10,000,000
                                          ===========  ============ ==========



The  accompanying  notes  are  integral  part of  these  consolidated  financial
statements.
================================================================================
                      BECKER GAMING, INC. AND SUBSIDIARIES

            CONSOLIDATED  STATEMENT OF  STOCKHOLDER'S  EQUITY  (DEFICIT) For The
                Years Ended June 30, 1997, 1996 And 1995
                             (Dollars In Thousands)
================================================================================


                                                    Common Stock
                                             -------------------------
                                              Shares           Amount
                                              ----------   ----------

Balances, June 30, 1994 ...................   10,000,000   $      100

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

Balances, June 30, 1995 ...................   10,000,000          100

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

Balances, June 30, 1996 ...................   10,000,000          100

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

Balances, June 30, 1997 ...................   10,000,000   $      100
                                              ==========   ==========



                                                            Preferred Stock
                                                 -------------------------------
                                                               Shares   Amount
                                                              ------   -----

Balances, June 30, 1994 ...................................     --     $--

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

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

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

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

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

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




                                                 Additional   Retained
                                                   Paid-In    Earnings
                                                   Capital    (Deficit)   Total
                                                 ----------  ---------- --------



Balances, June 30, 1994 .....................  $  9,006    $  (4,147)  $  4,959

Net loss ....................................      --        (11,729)   (11,729)
                                                           ---------   --------

Balances, June 30, 1995 .....................     9,006      (15,876)    (6,770)

Net loss ....................................      --        (11,227)   (11,227)
                                                           ---------   --------

Balances, June 30, 1996 .....................     9,006      (27,103)   (17,997)

Net loss ....................................      --        (11,166)   (11,166)
                                                           ---------   --------

Balances, June 30, 1997 .....................  $  9,006    $ (38,269)  $(29,163)
                                             ==========    ==========   ========

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

                      BECKER GAMING, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars In Thousands)

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

                                                        Year Ended June 30,
                                              ----------------------------------
                                                      1997      1996      1995
                                                     -----     -----     -----
Cash flows from operating activities:
   Net (loss) income ..........................   $(11,166)  $(11,227)$(11,729)
                                                  --------   -------- --------
Adjustments  to reconcile  net (loss)  income to net cash  provided by (used in)
 operating activities:
    Depreciation and amortization .............      4,232      4,402    4,439
    Amortization of original issue
     discount  ................................        382        408      834
    Provision for losses on receivables .......       --           44       44
    Write-downs of assets held for sale .......         60      4,942     --
    Net (gain) loss on sale of equipment ......       (130)       119       87
    Loss on early retirement of debt ..........       --         --      4,089

(Increase) decrease in operating assets:
    Receivables ...............................        252        159     (646)
    Receivables from related parties ..........         11       --        135
    Inventories ...............................         64        123     (158)
    Prepaid expenses ..........................        125        333     (363)
    Deposits and other assets .................        246       (199)    (182)

Increase (decrease) in operating liabilities:
    Accounts payable, net of amounts for
     capital expenditures .....................       (406)       (54)     169
    Accrued interest ..........................      6,644      1,980     (151)
    Accrued expenses ..........................         70        786      558
                                                  --------   -------- --------
        Total adjustments .....................     11,550     13,043    8,855
                                                  --------   -------- --------
        Net cash provided by (used in)
        operating activities ..................        384      1,816   (2,874)
                                                  --------   -------- --------

Cash flows from investing activities:
  Capital expenditures, net of
   accounts payable ...........................       (696)      (544) (27,382)
  Proceeds from sale of fixed assets...........      3,319         37      792
  Net (additions to) reductions in
   restricted cash equivalents ................         (1)      --     51,001
  Issuance of note receivable .................       --         --        (33)
  Payments of notes receivable ................        101        104      243
                                                   --------   -------- --------
      Net cash provided by (used in)
      investing activities ....................      2,723)      (403)  24,621
                                                   --------   -------- --------

Cash flows from financing activities:
  Proceeds from borrowing under note payable ..         --        109      738
  Payments under notes payable and long term debt     (442)      (625) (20,676)
  Payments under capital lease obligations ....     (2,016)      (809)  (1,607)
                                                   --------   -------- --------
      Net cash (used in) provided by
      financing activities ....................     (2,458)    (1,325) (21,545)
                                                   --------   -------- --------
      Net increase in cash and cash
      equivalents .............................        649         88      202
  Cash and cash equivalents, beginning
   of year ....................................      6,745      6,657    6,455
                                                   --------   -------- --------
 Cash and cash equivalents, end of year
                                                  $  7,394   $  6,745 $  6,657
                                                   ========   ======== ========


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

                      BECKER GAMING, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   ----------


     1.   Summary Of Significant Accounting Policies:

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

     Becker   Gaming,  Inc.  ("Becker  Gaming",  "BGI"   or   the
     "Company") was incorporated on June 24, 1993 for the purpose
     of serving as a holding company for the following entities:

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

     *    Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
          formed to develop a riverboat casino in Jefferson City, Missouri
          (the  "Capitol Queen").  CQC currently has no  significant
          operations other than to market and sell its riverboat and other
          assets.

     *    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.

     In November 1993, the Company issued  2,989,537  shares of common stock for
     all of the outstanding common stock of CQC. At the time of the transaction,
     CQC was wholly owned and controlled by the stockholders of the Company.

     On June 1, 1994,  the  stockholders  of AC, SC and BGG  (collectively,  the
     "Nevada Gaming Entities") exchanged all of their stock for 6,476,534 shares
     of  Becker  Gaming  stock.  This  transaction  was a  part  of a  corporate
     reorganization  (the  "Reorganization")  which  had  been  contemplated  in
     connection  with the private  placement  debt  financing,  which is further
     discussed in Note 9.

     Each of the above  transactions  was accounted for at historical  cost in a
     manner  similar  to  a  pooling  of  interests   since  they  involved  the
     combination of entities under common  control.  Accordingly,  the Company's
     consolidated  financial statements have been restated for all periods prior
     to  the  combination  to  include  the  financial  positions,   results  of
     operations  and  cash  flows  of  CQC  and  the  Nevada  Gaming   Entities.
     Adjustments  have  been  made  to  the  Company's   consolidated  financial
     statements  to  eliminate  the impact of  intercompany  transactions  which
     occurred prior to the combination.


     Principles Of Consolidation
     ---------------------------

     The consolidated  financial  statements include the accounts of the Company
     and its subsidiaries.  All intercompany balances and transactions have been
     eliminated in consolidation.

     Revenue
     -------

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

     The  primary   source  of  gaming   revenue  for  SC  is  from  slot  route
     participation agreements with unaffiliated locations in which SC recognizes
     as slot revenue a predetermined  percentage  (operator's  share) of the net
     win from  SC-owned  machines  at the slot  locations.  In  accordance  with
     industry practice,  net win from slot activities  consists of the slot drop
     less jackpots and fills. The percentage of the net win that SC and the slot
     locations  receive is  determined by  individual  participation  agreements
     between the parties.

     In  addition,   SC  also  generates   gaming  revenue  under  slot  service
     agreements.  Under the agreements, SC receives a fixed fee and certain cost
     reimbursements in exchange for maintaining proprietor-owned slot machines.

     SC's  participation  agreements and slot service agreements range between 1
     and 9 years in length and  expire,  subject to  renewal,  at various  dates
     through  2003.  At June 30, 1997,  approximately  221 (85%) of the machines
     operated  or  serviced  by SC  were  installed  at  unaffiliated  locations
     controlled  by the  stockholders  of BGI (as lessor),  through  restrictive
     lease provisions.

     Gaming  revenues  from  slot  route and  service  agreements  at  locations
     controlled by the  stockholders  of BGI amounted to $2,424,000,  $2,370,000
     and  $2,331,000  in  the  years  ended  June  30,  1997,   1996  and  1995,
     respectively.


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

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

<TABLE>
                                                  Years Ended June 30,
<CAPTION>
                                          1997             1996             1995
                                          ----             ----             ----
<S>                                 <C>              <C>              <C>
Hotel .......................       $  349,000       $  261,000       $  164,000
Food and Beverage ...........        5,003,000        4,833,000        3,813,000
                                     ---------        ---------        ---------

                                    $5,352,000       $5,094,000       $3,977,000
                                    ==========       ==========       ==========
</TABLE>



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

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

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

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

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

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

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

     Preopening Costs
     ----------------

     Certain  preopening  costs,  consisting  principally  of  personnel  costs,
     training  and other  costs  directly  associated  with the opening of a new
     hotel-casino  or significant  expansions of the existing  hotel-casino  are
     capitalized  and  charged to  expense  over a period not to exceed one year
     following the  commencement of related  operations.  During the years ended
     June 30,  1997,  1996 and 1995,  the  Company  capitalized  $-0-,  $-0- and
     $31,000 respectively, of preopening costs.

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

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

     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.

     In connection with the  Reorganization  described above,  beginning June 1,
     1994,  AC, SC and BGG are included in the  consolidated  federal income tax
     returns filed by BGI. Their tax  allocations are based on the amount of tax
     they would incur if they filed separate returns.


     Earnings Per Share
     ------------------

     Net  income  (loss)  per share of  common  stock is  computed  based on the
     weighted average number of shares of common stock and dilutive common stock
     equivalents  outstanding  during the period.  Common stock equivalents were
     not  included  in the  computation  of loss per common  share for the years
     ended  June  30,  1997,  1996  and 1995 as their  effect  would  have  been
     antidilutive.

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

     Certain  amounts  in the 1995  and  1996  financial  statements  have  been
     reclassified to conform with the 1997 presentation.

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

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

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

     CQC was formed to develop,  own and operate the "Capitol  Queen"  riverboat
     casino and related land-based  facilities in Jefferson City,  Missouri.  On
     September  28, 1994,  CQC was notified  that its  application  for a gaming
     license was rejected by the Missouri Gaming Commission (the  "Commission").
     At the time CQC was notified of the Commission's decision,  construction of
     the riverboat under contract with a shipbuilder was almost  completed.  CQC
     had also  obtained the  necessary  permits for the  land-based  development
     portion  of the  project  and  performed  certain  dredging  and other site
     preparation  work.   Immediately   following  the  Commission's   decision,
     management  temporarily  suspended further development of the Capitol Queen
     project,  pending an appeal of the decision and legal remedies  potentially
     available to the Company.  Costs  associated  with the  development  of the
     project  which  had  been  deferred  during  the  development   stage  were
     written-off  in the fourth  quarter of the fiscal year ended June 30, 1994.
     On  November  7, 1995,  voters in  Jefferson  City  rejected  an  ordinance
     permitting riverboat gambling, reversing the vote of an earlier election in
     which  Jefferson  City  voters  approved  riverboat  gambling.   Management
     ultimately  determined to abandon the project, and is currently looking for
     alternative  uses for the  riverboat,  including  opportunities  to sell or
     lease it to another operator.

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

     The remaining CQC Notes require  annual  interest  payments of  $2,400,000,
     payable in equal installments  semi-annually on May 15 and November 15. CQC
     was not able to make its  scheduled  interest  payments  of  $1,200,000  on
     November 15, 1995, May 15, 1996,  November 15, 1996 and May 15, 1997 and AC
     (which has guaranteed the CQC Notes as more fully described  below) did not
     have available funds to advance on behalf of CQC.

     Concurrent  with the  issuance  of the CQC Notes,  AC  completed  a private
     placement debt  financing of  $55,000,000 in principal  amount of 12% First
     Mortgage Notes due November 15, 2000 (the "AC Notes"). The AC Notes require
     annual  interest  payments  of  $6,600,000,  payable in equal  installments
     semi-annually  on May 15 and  November  15.  AC was not  able  to make  its
     scheduled  interest payment of $3,300,000 on May 15, 1997 and SC (which has
     guaranteed  the AC  Notes  as more  fully  described  below)  did not  have
     available  funds to  advance  on  behalf of AC.  AC is also in  default  of
     certain covenants under the AC Notes, as more fully described in Note 9. AC
     is  restricted  from selling  assets under the  covenants  governing the AC
     Notes and management  believes that access to additional capital from other
     sources is restricted as a result of the above described circumstances.  AC
     does not have sufficient  financial resources  (including a guaranty of the
     AC Notes by SC, as more fully  described  below) to repay the AC Notes on a
     current basis and satisfy its guaranty  obligation (as more fully described
     below) with respect to the CQC Notes.

     The CQC Notes are  guaranteed  by AC (which  guaranty is subject to release
     only upon  licensing of the Capitol Queen,  which is not expected).  The AC
     Notes are  guaranteed  by SC (which  guaranty  is subject  to release  upon
     completion of the Expansion,  which management believes has been satisfied,
     and the attainment of a  fixed-coverage  ratio by AC of 2.25 to 1 following
     the completion of the Expansion,  which has not been satisfied). The amount
     and extent of AC's  guaranty of the CQC Notes is in dispute.  Legal counsel
     has advised management that, under the terms of the CQC indenture regarding
     fraudulent conveyance and limitation of guarantor's liability, the guaranty
     liability of AC is not expected to be material.

     On July 3, 1997, CQC received a notice of acceleration  (the "Notice") from
     the trustee  and  collateral  agent for the CQC Notes.  Pursuant to section
     6.02 of the indenture governing the CQC Notes, due to certain violations of
     the indenture (as more fully  described in Note 9), all of the  outstanding
     CQC Notes are  immediately  due and payable  together  with all accrued and
     unpaid interest thereon.

     On September 5, 1997, AC received a notice of acceleration from the trustee
     and  collateral  agent for the AC Notes.  Pursuant  to section  6.02 of the
     indenture  governing  the  AC  Notes,  due  to  certain  violations  of the
     indenture (as more fully  described in Note 9), all of the  outstanding  AC
     Notes are immediately due and payable  together with all accrued and unpaid
     interest thereon.

     In  connection  with the decision to abandon the  project,  CQC had entered
     into an Asset Purchase  Agreement dated April 10, 1995, for the sale of its
     assets to Aerie Riverboat Casinos of Missouri,  Inc. at a purchase price of
     $18,000,000,  which price  exceeded the  carrying  value of the CQC assets.
     However,  the  consummation of the Aerie purchase  agreement was subject to
     the satisfaction of several conditions which could not be satisfied timely,
     including,  among others,  that Jefferson City consent to the assignment of
     its  Development  Agreement  with CQC,  that  Aerie be found  preliminarily
     suitable to hold a Missouri  Gaming license,  and that riverboat  gaming is
     legally permitted in Jefferson City. As a result,  the agreement with Aerie
     was terminated  without  penalty when the December 31, 1995 expiration date
     passed.  As more fully  described  in Note 3, a further  write-down  in the
     carrying  value of the  riverboat  was  recognized  in the third quarter of
     1996,  after the election in Jefferson  City,  the  expiration of the Aerie
     contract, and due to deteriorating market conditions.

     CQC  continues  to  market  its  riverboat  assets to  prospective  buyers.
     Management of the Company, AC and CQC are currently undergoing  discussions
     with an informal committee representing the holders of the AC Notes and CQC
     notes (the "Bondholder Committee") regarding a proposed restructuring plan.
     Based on current  market  conditions,  management  does not expect that CQC
     will generate sufficient funds through the sale of its assets to repurchase
     all of the outstanding CQC Notes. The proposed restructuring plan therefore
     contemplates,  amongst other terms and conditions, (i) liquidation of CQC's
     remaining  assets for the  benefit of the CQC  bondholders,  (ii) a limited
     cash payment by AC as full and complete  satisfaction  of AC's  guaranty of
     the CQC Notes,  and (iii) AC's issuance of a reduced amount of new notes as
     full and  complete  satisfaction  of the  existing  AC Notes.  However,  no
     satisfactory  offers for the  riverboat  are  currently  available,  and no
     agreement  has been reached with the  Bondholder  Committee  regarding  the
     proposed restructuring plan.  Accordingly,  these matters raise substantial
     doubt about the ability of the Company's principal  subsidiaries (and, thus
     the  Company) to continue as a going  concern.  The final  outcome of these
     matters  is not  presently  determinable  and the June 30,  1997  financial
     statements of the Company do not include any  adjustment  that might result
     from the outcome of this uncertainty.


3.   Construction Project And Related Contingencies:

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

     The Capitol  Queen  project,  as  originally  contemplated  by CQC,  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  abandon  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 related dredging.

     The Company had contracted with  shipbuilder to construct the Capitol Queen
     riverboat.  The total  cost of the  riverboat  was  $11,892,000,  including
     construction  period interest and other costs.  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.  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
     ------------------------------------

     CQC  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.  CQC's rights and obligations  under the Development  Agreement were
     contingent  upon receiving a gaming license which,  until the occurrence of
     the events described in Note 2, management believed was probable.

     On  November  7, 1995,  voters in  Jefferson  City  rejected  an  ordinance
     permitting riverboat gambling, reversing the vote 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 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 Agreements
     ----------------------------

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

     At the time CQC was  awarded  the  Development  Agreement,  and  until  the
     occurrence of the events  described in Note 2,  management  believed it was
     probable it would  receive a gaming  license in Missouri.  Accordingly,  to
     reflect the CQC Stock Agreement,  the Company recorded a minority  interest
     in subsidiary  subscribed 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,  Becker Gaming 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
     Becker Gaming and CQC, through the Becker Gaming stockholders, in obtaining
     the  approval to develop,  own and operate the Capitol  Queen in  Jefferson
     City. Under the terms of the Repurchase Agreement,  Becker Gaming 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.  Becker  Gaming also agreed that if
     prior to maturity,  the Company 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 Becker  Gaming  entered the
     Repurchase  Agreement,  and until the occurrence of the events described in
     Note 2, the  Company  believed it was  probable  it would  receive a gaming
     license in Missouri.  Accordingly,  the Company  recorded a liability under
     the Repurchase  Agreement 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,  Becker Gaming  believes that it
     has been  relieved  of its  obligations  under  the  Repurchase  Agreement.
     Accordingly,  the liability to the Sellers 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  addition  to the above,  in the  fourth  quarter  of fiscal  1994,  CQC
     wrote-off  other  previously  capitalized  expenditures  of $1,375,000  and
     wrote-off  capitalized  preopening expenses of $340,000 associated with the
     development of the Capitol Queen project.


4.   Related-Party Transactions:

     In  anticipation  of the January 1, 1994  termination  of the S corporation
     elections  by AC,  BGG  and  SC,  on  December  24,  1993  AC,  BGG  and SC
     distributed  $5,000,000,  $800,000 and $3,000,000,  respectively,  to their
     stockholders,  representing  previously taxed,  undistributed  income. This
     distribution  was  immediately  loaned  back  to  AC,  BGG  and  SC by  the
     stockholders in the form of subordinated notes payable. The AC and SC notes
     bear interest at an annual rate of 10%,  payable  monthly,  with the entire
     principal amount due on January 1, 2001. However, beginning May 1, 1997 the
     stockholders  have voluntarily  postponed the receipt of interest on the AC
     stockholder  notes.  The BGG notes bear  interest at an annual rate of 10%,
     payable  monthly  with the entire  principal  amount due in December  1997.
     Prior to the transaction,  the Company borrowed funds from its stockholders
     as described in Note 9. Interest expense incurred under  stockholder  notes
     was  $892,000,  $898,000,  and  $887,000 for the years ended June 30, 1997,
     1996 and 1995, respectively.  The Company also has various receivables from
     its stockholders, totaling $187,000 and $198,000 at June 30, 1997 and 1996,
     respectively.  The receivables are unsecured and bear interest at a rate of
     4.5% per annum.

     The  Company's  subsidiary  BGG has a  number  of  leases  of land on which
     certain of its  operations  are located.  These  leases are with  companies
     related to Becker Gaming  through  common  ownership.  Total rental expense
     under these  leases  amounted to  $345,000,  $437,000  and $314,000 for the
     years ended June 30, 1997, 1996 and 1995, respectively.

     Charleston  Heights  Shopping  Center  ("CHSC") an entity also owned by the
     Becker Gaming stockholders, owns the land on which certain of the Company's
     administrative  offices  are  located  and,  prior  to the  Reorganization,
     Charlie's Land Company ("CLC") an entity also owned by the BGI stockholders
     owned the land on which AC's  operations are located.  Rent expense paid to
     CHSC and CLC and  included  in results of  operations  of the  Company  was
     $222,000, $217,000 and $191,000 for the years ended June 30, 1997, 1996 and
     1995,  respectively.  The rental fees include the cost of insurance,  taxes
     and common area maintenance on the land.

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

5.   Supplemental Cash Flow Information:

     The following are supplemental disclosures of cash flow information for the
     years ended June 30, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                         1997             1996             1995
                                   -----------      -----------      -----------
<S>                                <C>              <C>              <C>
Interest paid, net of
  amounts capitalized .......      $ 4,504,000      $ 7,922,000      $12,005,000
                                   ===========      ===========      ===========

Income taxes paid ...........      $     -           $    -          $   338,000
                                   ===========      ===========      ===========

Capitalize lease
  obligations incurred ......      $    95,000      $   166,000      $   222,000
                                   ===========      ===========      ===========
Assets acquired through
  issuance of long-term debt.      $ 1,928,000      $     -          $      -
                                   ===========      ===========      ===========
</TABLE>


6.   Notes Receivable:

     Notes receivable  consist of loans to various  proprietors who have entered
     into slot  route  agreements  with SC.  Such  loans are  primarily  used to
     finance  long-term  facility  improvements  to  the  slot  locations,   are
     collateralized  by  related  assets of the  proprietors'  facilities,  bear
     interest at rates up to prime plus 2.5%,  and are due in varying  weekly or
     monthly installments through 2003.


7.   Accrued Expenses:

     Major classes of accrued  expenses  consist of the following as of June 30,
     1997 and 1996:
<TABLE>
<CAPTION>
                                                          1997              1996
                                                    ----------        ----------
<S>                                                 <C>               <C>
Wages payable and accrued salaries .........        $1,429,000        $1,100,000
Accrued vacation ...........................           336,000           306,000
Group insurance ............................           447,000           352,000
Gaming taxes ...............................           225,000           250,000
Payroll and other taxes ....................           392,000           405,000
Progressive slot liability .................           124,000           100,000
Other accrued expenses .....................           172,000           542,000
                                                    ----------        ----------

                                                    $3,125,000        $3,055,000
                                                    ==========        ==========
</TABLE>


8.   Notes Payable:

Notes payable consist of the following as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                                       1997         1996
                                                       ----         ----
<S>                                                <C>          <C>
Nonrelated parties:
 5.96% note payable in monthly installments
 of $21,616, including interest, through
 Decemeber, 1997, uncollateralized ..............  $ 106,000    $ 110,000
                                                   ---------    ---------
                                                     106,000      110,000

                    Less, current portion           (106,000)    (110,000)

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


9.   Long-Term Debt:

     Long-term debt consists of the following as of June 30, 1997 and 1996 :
<TABLE>
<CAPTION>
                                                         1997            1996
                                                 ------------    ------------
<S>                                              <C>             <C>
12% First  Mortgage  Notes Due November 15, 
 2000 (the "AC Notes") with  interest
 payable semi-annually, collateralized by the 
 assets of AC and guaranteed by SC (A) .......   $ 55,000,000    $ 55,000,000

12% First  Mortgage Notes Due November 15, 
 2000 (the "CQC  Notes")with  interest
 payable  semi-annually,  collateralized  
 by the assets of CQC and guaranteed by
 AC, less unamortized original issue discount 
 of $2,092,000 (1997)and $2,474,000 (1996)(A)      17,908,000      17,526,000

Prime plus 1.5%, $1.5 million  revolving 
 line of credit  available  through June
 1994,  (line expired and not renewed);  
 amounts  outstanding  under the line of
 credit at June 30, 1994 were converted to 
 a term note payable with interest and
 principal due monthly through June 1998,  
 collaterlized by substantially all of
 the assets of SC and personal
 guarantees of the Company's stockholders ....         33,000         113,000

Prime plus 1.5%,  term note payable  with  
 interest  and  principal  due monthly
 through  January 1, 2001  collateralized  
 by Security  agreement dated July 15,
 1994 and a right to lien without notice all 
 property and deposit accounts of SC
 Borrowings were made under a $1.2 million 
 non-revolving line of
 credit agreement of SC (B) ..................        115,000         162,000

Prime plus 2.0%,  term note payable  with  
 interest  and  principal  due monthly
 through April 23, 2000  collaterlized  by a 
 security  agreement  dated July 15,
 1994 and right to lien without notice all 
 property and deposits accounts of SC.
 Borrowings were made under a $1.2 million 
 non-revolving line credit
 agreement of SC (B) .........................        192,000         262,000

Prime plus 2.0%,  term note payable  with  
 interest  and  principal  due monthly
 through May 9, 2000  collaterlized by a 
 security  agreement dated July 15, 1994
 and right to lien without  notice all  
 property  and  deposits  accounts of SC.
 Borrowings were made under a $1.2 million 
 non-revolving line credit
 agreement of SC (B) .........................         86,000         119,000

Prime plus 1.5%,  term note payable  with  
 interest  and  principal  due monthly
 through April 10, 2001,  collateralized by 
 security  agreement dated October 2,
 1995 and a right to lien without  notice all  
 property and deposit  accounts of
 SC. Borrowings made under a $1.2 million 
 non-revolving line of
 credit agreement of SC (B) ..................         73,000         102,000

Prime  plus  1.6% note  payable,  due in  
 monthly  installments  of $7,450  plus
 interest through April 2004,  collateralized  
 by the assets of the stockholders
 of the Company and
 substantially all assets owned by BGG .......        828,000         930,000

12.75% note payable  with  interest and  principal  
 due in monthly  installments
 through May, 2002  collateralized  by various 
 slot equipment of AC and personal
 guarantees of the
 stockholders of BGI .........................      1,540,000             -

Other notes payable due in monthly  principal  
 only  installments  through June,
 1998 collateralized by slot machine equipment  
 of the Company ..............................        208,000             -

Other notes payable ..........................        126,000          23,000
                                                 ------------    ------------

                                                   76,109,000      74,237,000
  Less current portion (including
   the CQC and AC Notes which have
   been classified as current) ...............    (73,795,000)    (72,907,000)
                                                 ------------    ------------

                                                 $  2,314,000    $  1,330,000
                                                 ============    ============
</TABLE>


(A)  On November 18, 1993,  CQC completed a private  placement debt financing of
     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 CQC Notes is payable semiannually and the CQC
     Notes mature on November 15, 2000.

     The CQC Notes are  guaranteed by AC (which  guarantee is subject to release
     only upon  licensing of the Capitol  Queen,  which is not expected) and are
     collateralized  by a first mortgage on  substantially  all of the assets of
     the Capitol Queen project.  The CQC Notes have been classified as currently
     payable at June 30, 1997 and 1996 due to the acceleration  upon default and
     management's plans to restructure the indebtedness, as more fully described
     in Note 2. The Company incurred an extraordinary loss of $4,089,000 in 1995
     reflecting a $200,000 premium paid to retire  $20,000,000  principal amount
     of the  debt and the  write-off  of  related,  unamortized  original  issue
     discount and financing costs in the aggregate of $3,889,000.

     Also on November 18, 1993, AC completed a private  placement debt financing
     of the AC Notes.  The  offering  generated  net  proceeds of  approximately
     $33,684,000   (after  deducting  debt  financing  costs  and  approximately
     $16,791,000  used to repay principal and interest,  to a bank which was due
     and  payable on  November  18,  1993).  Interest on the AC Notes is payable
     semiannually and the AC Notes mature on November 15, 2000. The AC Notes are
     guaranteed by SC (which  guaranty is subject to release upon  completion of
     the  Expansion,  which  management  believes  has been  satisfied,  and the
     attainment  of a  fixed-coverage  ratio by AC of 2.25 to 1,  following  the
     completion  of the  expansion,  which  has  not  been  satisfied)  and  are
     collateralized  by a first mortgage on  substantially  all of the assets of
     AC, including the Expansion.

     As of June 30, 1997, AC is in default of certain debt  covenants  under the
     Indenture  governing the AC Notes. These covenant  violations include (i) a
     failure to meet a minimum Fixed Charge  Coverage  ratio,  as defined in the
     Indenture;  (ii) advances by AC to Becker Gaming, Inc. which exceed amounts
     allowed for under the Indenture (which advances remain  outstanding at June
     30, 1997); (iii) beginning in the fourth quarter of fiscal 1997,  exceeding
     the  amount of new  indebtedness  allowed  for under  the  Indenture;  (iv)
     beginning  with the quarter  ending  December 31, 1995,  AC has not met the
     Minimum  Tangible  Net  Worth  Ratio  of  1.5 to  1.0,  as  defined  in the
     Indenture;  and (v) AC did  not  make  its  required  semi-annual  interest
     payment of  $3,300,000  on May 15, 1997.  In addition,  beginning  with the
     quarter ending  December 31, 1995, AC has not met the Minimum  Tangible Net
     Worth  requirement  defined  in  the  Indenture.  Under  the  terms  of the
     Indenture,  AC is technically  required to offer to buy back $33,000,000 of
     the  outstanding  AC Notes at June 30, 1997 due to the failure to meet this
     covenant,  increasing by $5,500,000  each fiscal  quarter.  AC has not made
     such  offer and does not  intend to do so while  the  discussions  with the
     Bondholder  Committee are in process.  As a result of these  defaults under
     covenants  and demand for payment  made by the  Trustee,  the AC Notes have
     been  classified  as  currently  payable  in  the  accompanying   financial
     statements. Management's plans are more fully described in Note 2.

     Concurrent  with the placement of the CQC and AC Notes,  Becker Gaming sold
     warrants (the "Warrants") exercisable for 2,500,000 shares of Becker Gaming
     common  stock for net  proceeds of  $7,005,000  (after  deducting  issuance
     costs). The gross proceeds from the sale of the Warrants of $7,500,000 were
     contributed  to CQC.  The  Warrants  are  exercisable  at June 30, 1994 and
     continue to be  exercisable  up to and  including  November 15,  2000.  The
     exercise price of $.01 per warrant and the number of shares of common stock
     issuable upon exercise of the Warrants are subject to adjustment in certain
     circumstances.

     The Indenture  governing the CQC Notes (the "CQC 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  proceeds  were  placed in  escrow  with a  trustee  pending  draws for
     qualifying project expenditures. As more fully explained in Note 2, certain
     of the proceeds were used in January 1995 in connection with the first step
     of the plan to repay  the CQC  Notes.  The CQC  Notes  are not  subject  to
     mandatory   redemption,   except  upon  a  change  of  control,   or  other
     circumstances as defined in the Indenture. CQC has the option to redeem the
     CQC 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,  Becker
     Gaming  consummates an initial public offering of its common stock, CQC may
     also redeem the CQC Notes, at a premium of 108%.

     The CQC Indenture  contains  covenants that, among other things,  limit the
     ability of CQC and, in certain  cases,  AC, to pay  dividends or management
     fees, or incur  additional  indebtedness.  At June 30, 1997,  CQC had a net
     deficit of approximately $18,000,000.

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

     The AC Indenture  contains  covenants that,  among other things,  limit the
     ability of AC and, in certain  cases,  SC, to pay  dividends or  management
     fees,  or incur  additional  indebtedness.  At June 30, 1997  approximately
     $2,000,000 of SC's net assets were restricted by such Indenture  covenants;
     while AC had a net deficit of approximately  $16,600,000.  The AC Indenture
     also requires the Expansion to be completed in a specified  manner and time
     frame, which management believes has been achieved.

(B)  In July 1994 SC entered into an agreement with a bank for  a
     $1.2 million non-revolving line of credit.  Each advance was
     evidenced by a separate promissory note with a maturity date
     not  exceeding  66  months from the date of  the  respective
     advance. SC was able to request advances through October 28,
     1995 at which time SC's right to receive advances  under the
     agreement  was  terminated until the  defaults  under  other
     indebtedness  are cured. Advances under the  agreement  bear
     interest  at  rates ranging              from 1.5%  to  2.0%
     plus  the  bank's prime rate. The $1.2 million non-revolving
     line  of credit includes an acceleration clause which  would
     cause  the  full amount of the obligation to become  due  on
     demand if a material adverse change occurs in SC's financial
     condition, business operations or ownership or management.


     Maturities of long-term debt at June 30, 1997  (including the CQC Notes and
     AC Notes which have been classified as current) are as follows:

<TABLE>
<S>                     <C>
      1998              $73,795,000
      1999                  552,000
      2000                  525,000
      2001                  455,000
      2002                  461,000
Thereafter                  321,000
                        -----------

                        $76,109,000
                        ===========
</TABLE>




10.  Income Taxes:

     For the  fiscal  years  ended June 30,  1997,  1996 and 1995,  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, 1997, 1996 and 1995, net of  extraordinary  items,
     are shown below:
<TABLE>
<CAPTION>
                                              1997           1996         1995
                                              ----           ----         ----
<S>                                     <C>            <C>          <C>
Tax provision (benefit) at federal
 income tax statutory rate ...........  $(3,796,000)   $(3,817,000) $(2,598,000)

Increase (decrease) in taxes resulting from:

 Unrecognized tax benefit from net
  operating losses ...................    3,736,000      3,677,000    2,525,000
 Other ...............................       60,000        140,000       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 tax  liabilities  and assets as of June 30, 1997 and
     1996 were as follows:


<TABLE>
<CAPTION>
                                                      1997           1996
                                                      ----           ----
Liabilities:
------------
<S>                                             <C>            <C>
Depreciation ................................   $   960,000    $   863,000
                                                -----------    -----------

Assets:
-------

Federal net operating loss carryforwards ....    12,240,000      7,320,000
Valuation allowances for assets held for sale     1,494,000      1,643,000
Bad debt expense ............................          --           30,000
                                                  ---------      ---------
    Total deferred tax assets ...............    13,734,000      8,993,000
                                                  ---------      ---------

Valuation allowance .........................   (12,774,000)    (8,130,000)
                                                 ----------     ----------

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

     As  of  June  30,  1997  the  Company  had a  federal  net  operating  loss
     carryforward of  approximately  $35,999,000  which expires between 2009 and
     2012.


11.  Leases And Commitments:

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

     Property and equipment includes the following property leased under capital
     leases as of June 30, 1997 and 1996 :

<TABLE>
<CAPTION>
                                              1997                1996
                                       -----------         -----------

<S>                                    <C>                 <C>
Equipment ...................          $   442,000         $ 4,201,000
Less accumulated depreciation             ( 76,000)           (672,000)
                                       -----------         -----------

                                       $   366,000         $ 3,529,000
                                       ===========         ===========
</TABLE>



     The Company also leases  various other  equipment  under  operating  leases
     which expire in varying years through 2001.

     The Company  leases  office space under a 10-year  operating  lease,  which
     expires in 1998, from CHSC, as more fully described in Note 4.

     Future minimum lease payments, by year and in the aggregate,  under capital
     leases and noncancellable  operating leases with initial or remaining terms
     of one year or more consist of the following at June 30, 1997:

<TABLE>
<CAPTION>
                                         Capital Leases    Operating Leases
                                         --------------    ----------------


<S>                            <C>       <C>               <C>
                               1998      $  158,000        $  749,000
                               1999          72,000           372,000
                               2000          37,000           295,000
                               2001           8,000           294,000
                               2002            --             288,000
Thereafter ........................            --             905,000
                                          ---------         ---------

Total minimum lease payments ......      $  275,000        $2,903,000
                                         ==========        ==========


  Less amount representing interest         (39,000)
                                             ------
   Present value of net
    minimum lease payments ........         236,000

  Less current portion ............        (138,000)
                                           --------

  Obligations under capital lease .      $   98,000
                                         ==========
</TABLE>


     The total rental expense included in operations for operating leases during
     the years ended June 30,  1997,  1996 and 1995 was  $613,000,  $694,000 and
     $617,000, respectively.


12.  Contingencies:

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

13.  Defined Contribution Plan:

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

     The Company  recorded charges for  contributions of $622,000,  $560,000 and
     $449,000 for the years ended June 30, 1997, 1996 and 1995, respectively.

14.  Fair Value of Financial Instruments:

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

     Management  is  unable  to  determine  a fair  value  for  the  outstanding
     $55,000,000  principal  amount of 12% First Mortgage Notes due November 15,
     2000 of  Arizona  Charlie's,  Inc.  (the  "AC  Notes")  or the  outstanding
     $20,000,000 principal amount ($17,908,000 carrying amount at June 30, 1997)
     of 12% First  Mortgage  Notes due  November  15, 2000 of Capitol  Queen and
     Casino, Inc. (the "CQC Notes"). As of June 30, 1997, the effective interest
     rates of the AC Notes and CQC Notes were 12% and 16%,  respectively.  It is
     not practicable to determine the fair value of these financial  instruments
     due to the debt covenant violations and related  uncertainties  involved in
     negotiations  with the holders of the AC Notes and CQC Notes, as more fully
     discussed in Note 2.

15.  BGG Property Transactions:

     BGG entered into an agreement to sell one of its bars ("Cantina Charlie's")
     to a  prospective,  unrelated  buyer,  subject to approval by Nevada Gaming
     Authorities, for which licensing and operator approval is pending. The sale
     is subject  to the  aforementioned  requirements  and  satisfactory  escrow
     procedures.  Accordingly, the fixed assets of Cantina Charlie's which total
     $382,000 have been  classified as assets held for sale in the  accompanying
     financial statements.

     A new BGG bar is currently under  construction and is expected to be opened
     in late calendar year 1997. At June 30, 1997, $443,000 has been expended on
     the  project  and  is  classified  as   Construction   in  process  on  the
     accompanying financial statements.

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




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

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


We have audited the financial statements and the financial statement schedule of
Arizona  Charlie's,  Inc. (a wholly owned  subsidiary  of Becker  Gaming,  Inc.)
listed in Item 14(a) of this Form 10-K. These financial statements and financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial statement schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Arizona Charlie's,  Inc. as of
June 30, 1997 and 1996, and the results of its operations and its cash flows for
each of the three  years in the period  ended June 30, 1997 in  conformity  with
generally  accepted  accounting  principles.  In addition,  in our opinion,  the
financial  statement  schedule referred to above, when considered in relation to
the  basic  financial  statements  taken as a  whole,  presents  fairly,  in all
material respects, the information required to be included therein.

The accompanying  financial  statements have been prepared assuming that Arizona
Charlie's, Inc. ("AC") will continue as a going concern. As more fully described
in  Note 2, AC is in  default  of debt  covenants,  resulting  in a  demand  for
immediate  payment  of the debt and  classification  of such  debt as  currently
payable. AC is also obligated as a guarantor under indebtedness of an affiliated
company,  and such indebtedness is also in default.  AC does not have sufficient
resources to repay the  indebtedness  or honor its guarantee on a current basis.
Management's  plans with respect to these matters are also  described in Note 2.
These matters raise  substantial  doubt about the ability of Arizona  Charlie's,
Inc. to continue as a going  concern.  The final outcome of these matters is not
presently determinable and the June 30, 1997 financial statements of the Arizona
Charlie's, Inc. do not include any adjustment that might result from the outcome
of this uncertainty.


/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.


Las Vegas, Nevada
August 22, 1997, except for Note 2,
as to which the date is
September 5, 1997
================================================================================
                             ARIZONA CHARLIE'S, INC.
               (A Wholly Owned Subsidiary Of Becker Gaming, Inc.)

                                 BALANCE SHEETS
                          As Of June 30, 1997 and 1996
                             (Dollars In Thousands)
                                   ----------
================================================================================

                                     ASSETS

                                                           1997            1996
                                                       --------        --------
Current assets:

   Cash and cash equivalents....................       $  5,481        $  4,591
   Restricted cash, in escrow account...........             10              10
   Trade and other accounts receivable..........            240             473
   Receivable from related parties..............          2,665           1,539
   Inventories .................................            529             575
   Prepaid expenses ............................            985           1,118
                                                       --------        --------
      Total current assets......................          9,910           8,306
                                                       --------        --------
Property and equipment:
   Building and improvements ...................         37,490          37,488
   Furniture and equipment......................         23,916          22,575
   Land improvements ...........................          1,629           1,628
                                                       --------        --------
                                                         63,035          61,691
   Less, accumulated depreciation ..............        (18,303)        (16,218)
                                                       --------        --------
                                                         44,732          45,473
   Land ........................................            208             208
                                                       --------        --------
        Net property and equipment..............         44,940          45,681
                                                       --------        --------
Other assets:
   Receivable from related party, noncurrent....            210             987
   Deposits and other ..........................            544             460
   Notes receivable from related party .........          4,416           4,416
   Financing costs, less accumulated
     amortization of $1,923 (1997)
     and $1,366 (1996)                                    1,937           2,507
                                                       --------        --------

        Total other assets......................          7,107           8,370
                                                       --------        --------

        Total assets ...........................       $ 61,957        $ 62,357
                                                       ========        ========

<PAGE>


            LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

                                                          1997             1996
                                                      --------         --------

Current liabilities:
  Trade accounts payable......................        $  1,047         $  1,452
  Accounts payable to related parties.........            --                  4
  Accrued expenses ...........................           2,642            2,329
  Accrued interest ...........................           4,522              994
  Management fees due Becker Gaming, Inc......           5,347            4,682
  Notes payable, current portion..............             106              110
  Notes payable to related party..............           3,150            2,250
  Current portion of
     obligations under capital leases.........              12               15
  Current portion of long-term debt ..........             464             --
  Long-term debt classified as
     current due to default
     under covenants .........................          55,000           55,000
                                                      --------         --------

         Total current liabilities............          72,290           66,836

Long-term debt, less current portion..........           1,284             --
Subordinated notes payable to prior
  stockholders ...............................           5,000            5,000
Obligations under capital leases,
  less current portion .........                            29               22
                                                      --------         --------

         Total liabilities....................          78,603           71,858
                                                      --------         --------

Commitments and contingencies

Stockholder's equity (deficit):
  Common stock, no par value, 2,500
     shares authorized, 1,000 shares
     issued and outstanding...................             469              469
  Retained earnings (deficit).................         (17,115)          (9,970)
                                                      --------         --------
         Total stockholder's equity
          (deficit).................                   (16,646)          (9,501)
                                                      --------         --------

         Total liabilities and
         stockholder's equity (deficit).......        $ 61,957         $ 62,357
                                                      ========         ========

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

                            STATEMENTS OF OPERATIONS
                             (Dollars In Thousands)
================================================================================

                                                   Year Ended June 30,
                               ------------------------------------------------
                                             1997        1996        1995
                                             ----        ----        ----
Revenues:
  Gaming .............................   $ 47,857    $ 52,831    $ 47,466
  Food and beverage ..................     13,583      13,401      10,877
  Hotel ..............................      3,352       3,208       2,614
  Gift shop ..........................        553         590         577
  Other ..............................        923         948         682
                                         --------    --------    --------

      Gross revenues .................     66,268      70,978      62,216

Less, promotional allowances .........     (8,184)     (7,677)     (5,134)
                                         --------    --------     --------

      Net revenues ...................     58,084      63,301      57,082
                                         --------    --------    --------

Operating expenses:
  Gaming .............................     17,229      18,612      15,359
  Food and beverage ..................     12,337      12,511      11,388
  Hotel ..............................      1,390       1,413       1,377
  Gift shop ..........................        519         475         450
  Advertising and promotion ..........      4,813       4,726       3,837
  General and administrative .........     17,463      17,660      15,358
  Provision for losses on related
   party receivlables ................        220         601       1,592
  Management fees - Becker Gaming,
   Inc., net                                  664       1,396       3,099
  Rent expense paid to related party .        222         217         191
  Depreciation and amortization ......      3,568       3,491       3,373
                                         --------    --------    --------

      Total operating expenses .......     58,425      61,102      56,024
                                         --------    --------    --------
      Operating income (loss).........       (341)      2,199       1,058
                                         --------    --------    --------

Other income (expenses):
  Interest income ....................        272         286         580
  Interest expense ...................     (7,275)     (7,095)     (7,250)
  Interest capitalized ...............        -           -           676
  Other, net .........................        199          51         -
                                         --------    --------    --------
      Total other expenses ...........     (6,804)     (6,758)     (5,994)
                                         --------    --------    --------

    Net (loss)income before income tax     (7,145)     (4,559)     (4,936)

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

    Net (loss) income ................   $ (7,145)   $ (4,559)   $ (4,936)
                                         ========    ========    ========


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

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

                             ARIZONA CHARLIE'S, INC.
               (A Wholly Owned Subsidiary Of Becker Gaming, Inc.)
                  STATEMENTS  OF  STOCKHOLDER'S  EQUITY  (DEFICIT) For The Years
                Ended June 30, 1997, 1996 And 1995
                             (Dollars In Thousands)
================================================================================

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

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

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

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


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

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

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

Balances, June 30, 1997 ............   1,000    $   469      $-
                                      ======    =======    ======


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

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

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

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

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

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

 Net loss ..........................   (7,145)    (7,145)
                                      -------    -------

Balances, June 30, 1997 ............ $(17,115)  $(16,646)
                                      =======    =======

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

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

                                                       Year Ended June 30,
                                                            --------
                                                    1997       1996       1995
                                                 --------   --------   --------
Cash flows from operating activities:
 Net income (loss) ............................  $ (7,145)  $ (4,559)  $ (4,936)
                                                 --------   --------   --------
 Adjustments  to  reconcile  net  income
   (loss) to net  provided  by (used by)
   operating activities:
  Provision for losses on related
   party receivables ..........................       220        601      1,592

  Depreciation and amortization ...............     3,568      3,491      3,373
  (Gain) loss on sale of equipment ............      (129)        11         (2)
(Increase) decrease in operating assets:
  Receivables .................................       233        185       (387)
  Inventories .................................        46         86       (108)
  Prepaid expenses ............................       322        241       (339)
  Deposits and other ..........................       (12)       (41)       (92)

Increase (decrease) in operating liabilities:
  Accounts payable, net of amounts
   for capital expenditures....................      (409)         3       (144)
  Accrued interest ............................     3,528        (21)       135
  Accrued expenses ............................       313        247        581
  Management fees due to Becker Gaming, Inc. ..       665      1,395      3,099
                                                 --------   --------   --------

    Total adjustments .........................     8,345      6,198      7,708
                                                 --------   --------   --------

    Net cash provided by operating activities .     1,200      1,639      2,772
                                                 --------   --------   --------

Cash flows from investing activities:
  Note receivable issued to CQC ...............      --         --       (1,200)
  Capital expenditures, net of amounts in
   accounts payable ...........................      (501)      (190)   (24,253)
  Increase in receivable from Becker Gaming,
   Inc. ........................................     (569)    (2,065)    (4,154)
  Net (additions to) reductions in restricted
    cash equivalents ..........................      --         --       26,102
  Proceeds from assets sales ..................        67         15        104
                                                 --------   --------   --------

    Net cash used in investing activities .....    (1,003)    (2,240)    (3,401)
                                                 --------   --------   --------

Cash flows from financing activities:
  Proceeds from borrowing under notes payable .       900        --       2,250
  Principal payments on notes payable .........      (193)      (208)      (199)
  Payments under capital lease obligations ....       (14)        (4)       (32)
                                                  --------   --------   --------

    Net cash provided by  (used in) financing
   activities .................................       693       (212)     2,019
                                                 --------   --------   --------
    Net increase (decrease) in cash and cash
   equivalents ................................       890       (813)     1,390

Cash and cash equivalents, beginning of
  the year ....................................     4,591      5,404      4,014
                                                 --------   --------   --------

Cash and cash equivalents, end of the year ....  $  5,481   $  4,591   $  5,404
                                                 ========   ========   ========

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

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

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

                          NOTES TO FINANCIAL STATEMENTS



1.Summary Of Significant Accounting Policies:

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

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

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

     *    Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
       formed to develop a riverboat casino in Jefferson City, Missouri
       (the "Capitol Queen").

     *     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.


Subsequent  to the  Reorganization,  certain  overhead  expenses  of the Company
(primarily related to executive  compensation),  have been eliminated.  However,
effective  June 1, 1994,  the Company is required to pay a management fee to BGI
in connection  with  executive  services  equal to a percentage of the Company's
gross  operating  revenues.  Under the AC Indenture,  no management fees will be
paid by AC until AC has attained a specified fixed charge coverage ratio of 2.25
to 1. However, such fees accrue without interest, until paid. See Note 9 of AC's
Notes to Financial Statements.


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

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


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

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

<TABLE>
                                                Years Ended June 30,
<CAPTION>
                                          1997             1996             1995
                                          ----             ----             ----
<S>                                 <C>              <C>              <C>
Hotel .......................       $  349,000       $  261,000       $  164,000
Food and Beverage ...........        4,094,000        3,824,000        2,260,000
                                     ---------        ---------        ---------

                                    $4,443,000       $4,085,000       $2,424,000
                                    ==========       ==========       ==========
</TABLE>


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

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

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

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

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

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

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

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

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

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

Certain preopening costs,  consisting  principally of personnel costs,  training
and other costs directly  associated  with the opening of a new  hotel-casino or
significant  expansions of the existing hotel-casino are capitalized and charged
to expense over a period not to exceed one year  following the  commencement  of
related operations. During the year ended June 30, 1994, the Company capitalized
$27,000 of preopening  costs which were amortized during the year ended June 30,
1995 after the expansion was completed. During the years ended June 30, 1997 and
1996, the Company did not capitalize any preopening costs.

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

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

In connection  with the  Reorganization,  beginning June 1, 1994, the Company is
included in the  consolidated  federal income tax returns filed by BGI. AC's tax
allocation  is based on the amount of tax it would  incur if it filed a separate
return.

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

Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.

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

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


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

CQC was formed to develop,  own and operate the "Capitol Queen" riverboat casino
and related land-based  facilities in Jefferson City, Missouri. On September 28,
1994, CQC was notified that its application for a gaming license was rejected by
the Missouri Gaming Commission (the "Commission").  At the time CQC was notified
of the Commission's decision,  construction of the riverboat under contract with
a shipbuilder was almost completed.  CQC had also obtained the necessary permits
for the  land-based  development  portion of the project and  performed  certain
dredging and other site preparation work. Immediately following the Commission's
decision,  management  temporarily  suspended further development of the Capitol
Queen project,  pending an appeal of the decision and legal remedies potentially
available to the Company.

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

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

The remaining CQC Notes require annual interest payments of $2,400,000,  payable
in equal installments  semi-annually on May 15 and November 15. CQC was not able
to make its scheduled  interest payments of $1,200,000 on November 15, 1995, May
15, 1996,  November 15, 1996 and May 15, 1997 and AC (which has  guaranteed  the
CQC Notes as more fully described below) did not have available funds to advance
on behalf of CQC.

Concurrent with the issuance of the CQC Notes, AC completed a private  placement
debt financing of  $55,000,000  in principal  amount of 12% First Mortgage Notes
due November 15, 2000 (the "AC Notes").  The AC Notes  require  annual  interest
payments of $6,600,000,  payable in equal  installments  semi-annually on May 15
and  November  15. AC was not able to make its  scheduled  interest  payment  of
$3,300,000  on May 15,  1997 and SC (which has  guaranteed  the AC Notes as more
fully described  below) did not have available funds to advance on behalf of AC.
AC is also in  default  of  certain  covenants  under the AC Notes as more fully
described in Note 6. AC is  restricted  from selling  assets under the covenants
governing the AC Notes and management believes that access to additional capital
from other sources is restricted as result of the above-described circumstances.
AC does not have sufficient financial resources (including a guarantee of the AC
Notes by SC, as more fully  described  below) to repay the AC Notes on a current
basis and satisfy its guarantee  obligation (as more fully described below) with
respect to the CQC Notes.

The CQC Notes are  guaranteed by AC (which  guarantee is subject to release only
upon  licensing of the Capitol Queen,  which is not expected).  The AC Notes are
guaranteed by SC (which  guarantee is subject to release upon  completion of the
Expansion, which management believes has been satisfied, and the attainment of a
fixed-coverage  ratio  by AC of  2.25  to 1  following  the  completion  of  the
Expansion, which has not been satisfied). The amount and extent of AC's guaranty
of the CQC Notes is in dispute. Legal counsel has advised management that, under
the  terms of CQC  indenture  regarding  fraudulent  conveyance,  the  guarantee
liability of AC is not expected to be material.

On July 3, 1997 CQC received a notice of  acceleration  (the  "Notice") from the
trustee and collateral agent for the CQC Notes.  Pursuant to section 6.02 of the
indenture  governing the CQC Notes,  due to certain  violations of the indenture
(as  more  fully  described  above),  all  of  the  outstanding  CQC  Notes  are
immediately  due and  payable  together  with all  accrued  and unpaid  interest
thereon.

On September 5, 1997, AC received a notice of acceleration  from the trustee and
collateral  agent for the AC Notes.  Pursuant to section  6.02 of the  indenture
governing  the AC Notes,  due to certain  violations  of the  indenture (as more
fully  described in Note 6), all of the outstanding AC Notes are immediately due
and payable together with all accrued and unpaid interest thereon.

CQC continues to market its riverboat assets to prospective  buyers.  Management
of the Company, AC and CQC are currently undergoing discussions with an informal
committee  representing  the  holders  of  the  AC  Notes  and  CQC  Notes  (the
"Bondholder  Committee")  regarding  a  proposed  restructuring  plan.  Based on
current  market  conditions,  management  does not expect that CQC will generate
sufficient  funds  through  the  sale of its  assets  to  repurchase  all of the
outstanding CQC Notes. The proposed  restructuring plan therefore  contemplates,
amongst other terms and conditions,  (i)  liquidation of CQC's remaining  assets
for the benefit of the CQC  bondholders,  (ii) a limited  cash  payment by AC as
full and complete satisfaction of AC's guaranty of the CQC Notes, and (iii) AC's
issuance of a reduced amount of new notes as full and complete  satisfaction  of
the existing AC Notes.  However,  no  satisfactory  offers for the riverboat are
currently  available,  and no agreement  has been  reached  with the  Bondholder
Committee regarding the proposed restructuring plan. Accordingly,  these matters
raise  substantial doubt about the ability of AC to continue as a going concern.
The final outcome of these matters is not  presently  determinable  and the June
30, 1997  financial  statements of AC do not include any  adjustment  that might
result from the outcome of this uncertainty.



3.Supplemental Cash Flow Information:

The following are  supplemental  disclosures  of cash flow  information  for the
years ended June 30, 1997, 1996 and 1995:


<TABLE>
<CAPTION>
                                               1997         1996         1995
                                               ----         ----         ----
<S> ..................................   <C>          <C>          <C>
Interest paid, net of amounts
  capitalized ........................   $3,747,000   $7,116,000   $7,115,000
                                         ==========   ==========   ==========

Capitalized lease obligations
  incurred ...........................   $   17,000   $   34,000   $    9,000
                                         ==========   ==========   ==========
Assets acquired through issuance of
  long-term debt ................ ....   $1,748,000   $     --     $     --
                                         ==========   ==========   ==========
Net transfer of assets and related
  liabilities from Becker Gaming, Inc.   $     --     $     --     $   25,000
                                         ==========   ==========   ==========
</TABLE>

4.Accrued Expenses:

Major classes of accrued  expenses  consist of the following as of June 30, 1997
  and 1996:

<TABLE>
<CAPTION>
                                                1997         1996
                                                ----         ----

     <S>                                  <C>          <C>
     Wages payable and accrued salaries   $  824,000   $  811,000
     Accrued vacation .................      336,000      306,000
     Group insurance ..................      447,000      352,000
     Gaming taxes .....................      221,000      239,000
     Payroll and other taxes ..........      356,000      405,000
     Charlie Card slot club liability .      221,000            -
     Progressive slot and table games .
      liability .......................      124,000       88,000
     Other accrued expenses ...........      113,000      128,000
                                             -------      -------
                                          $2,642,000   $2,329,000
                                          ==========   ==========
</TABLE>


5.Notes Payable:

Notes payable consist of the following as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                                           1997         1996
                                                           ----         ----
<S>                                                  <C>          <C>
 Related parties:
      Notes payable to SC with interest at 5.56%
      uncollateralized and due May 1998 ............ $2,250,000   $2,250,000

      Note payable to SC with interest at 4.50%
      uncollateralized and due January, 1998 .....      900,000         -

 Nonrelated parties:
      5.96% note payable in monthly
      installments of $21,616, including interest,
      through December, 1997, uncollateralized ....  $  106,000   $  110,000
                                                     ----------   ----------

                                                      3,256,000    2,360,000

                   Less current portion ...........  (3,256,000)  (2,360,000)

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

6.Long-Term Debt:

Long-term debt consists of the following as of June 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                                      1997          1996
                                                      ----          ----
<S>                                            <C>           <C>
12.75% note payable with interest and
     principle due in monthly installments
     through May, 2002 collateralized by
     various slot equipment of AC and
     personal guarantees of the
     stockholders BGI ......................   $ 1,540,000   $     -

Othernotes  payable due in monthly  principle  
     only installments  through June,
     1998 collateralized by slot
     machine equipment of the company ......       208,000         -

12%  First  Mortgage  Notes Due November 15, 
     2000 (the "AC Notes") with interest
     payable semiannually classified as 
     currently payable due to defaults under
     covenants (see below) .................    55,000,000    55,000,000
                                                ----------    ----------
                                                56,748,000    55,000,000

                    Less current portion ...   (55,464,000)  (55,000,000)

                                               $ 1,284,000   $     -
                                               ===========   ============
</TABLE>


On November 18, 1993, the Company completed a private placement of the AC Notes.
The  offering  generated  net  proceeds  of  approximately   $33,684,000  (after
deducting  debt  financing  costs and  approximately  $16,791,000  used to repay
principal  and accrued  interest to a bank which was due and payable on November
18,  1993).  The AC Notes are  guaranteed  by SC (which  guarantee is subject to
release upon  completion of the  Expansion  which  management  believes has been
satisfied and the attainment of a fixed coverage ratio by the Company of 2.25 to
1, following the completion of the Expansion,  which has not been satisfied) and
are  collateralized  by a first mortgage on  substantially  all of assets of the
Company, including the Expansion.

As of June 30,  1997,  AC is in  default  of certain  debt  covenants  under the
Indenture  governing  the AC Notes.  These  covenant  violations  include  (i) a
failure  to meet a minimum  Fixed  Charge  Coverage  ratio,  as  defined  in the
Indenture;  (ii)  advances by AC to Becker  Gaming,  Inc.  which exceed  amounts
allowed for under the Indenture  (which advances remain  outstanding at June 30,
1997);  (iii)  beginning  in the fourth  quarter of fiscal 1997,  exceeding  the
amount of new indebtedness allowed for under the Indenture;  (iv) beginning with
the quarter  ending  December 31, 1995, AC has not met the Minimum  Tangible Net
Worth Ratio of 1.5 to 1.0, as defined in the Indenture;  and (v) AC did not make
its required  semi-annual  interest  payment of  $3,300,000  on May 15, 1997. In
addition,  beginning with the quarter  ending  December 31, 1995, AC has not met
the Minimum Tangible Net Worth requirement  defined in the Indenture.  Under the
terms  of the  Indenture,  AC is  technically  required  to  offer  to buy  back
$33,000,000  of the  outstanding AC Notes at June 30, 1997 due to the failure to
meet this covenant,  increasing by $5,500,000  each fiscal  quarter.  AC has not
made such  offer and does not  intend  to do so while the  discussions  with the
Bondholder  Committee  are in  process.  As a  result  of these  defaults  under
covenants  and demand for payment  made by the  Trustee,  the AC Notes have been
classified  as  currently  payable  in the  accompanying  financial  statements.
Management's plans are more fully described in Note 2.

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

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

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

Maturities of long-term debt at June 30, 1997 (including the AC Notes which have
been classified as current) are as follows:


<TABLE>
<S>                     <C>
      1998              $55,464,000
      1999                  270,000
      2000                  304,000
      2001                  348,000
      2002                  362,000
Thereafter                      -
                        -----------

                        $56,748,000
                        ===========
</TABLE>


7.Income Taxes:

For the fiscal years ended June 30, 1997,  1996 and 1995,  the Company  incurred
net operating  losses for federal income tax purposes,  and  accordingly,  these
financial statements do not include a provision for federal income taxes.

The components  included in determining the provision for income taxes are shown
below for the years ended June 30, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                             1997           1996           1995
                                             ----           ----           ----
<S>                                   <C>            <C>            <C>
Tax provision at federal income tax
     statutory rate ...............   $(2,429,000)   $(1,550,000)   $(1,678,000)

Increase (decrease) in taxes
     resulting from:
     Unrecognized tax benefit from
     net operating losses .........     2,373,000      1,489,000      1,633,000
     Other ........................        56,000         61,000         45,000
                                           ------         ------         ------

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


Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes,  and the amounts used for income tax purposes. The major components of
deferred  tax  liabilities  and  assets  as of June 30,  1997  and 1996  were as
follows: <TABLE> <CAPTION>
                                                  1997           1996
                                                  ----           ----
Liabilities
-----------
<S>                                        <C>            <C>
Depreciation ...........................   $   960,000    $   542,000
                                           -----------    -----------


Assets
------
Allowances for bad debts ...............       820,000        745,000
Federal net operating loss carryforwards     5,836,000      3,119,000
                                             ---------      ---------

         Total deferred tax assets .....     6,656,000      3,864,000

Valuation allowance ....................    (5,696,000)    (3,322,000)
                                            ----------     ----------

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

As of June 30, 1997, the Company had a federal net operating  loss  carryforward
of approximately $17,165,000 which expires between 2009 and 2012.

8.Leases And Commitments:

The Company has entered into capital lease agreements whereby the Company leases
various equipment under three-and five-year leases which expire at various dates
through 2001.

Property and  equipment  includes the  following  property  leased under capital
leases as of June 30, 1997 and 1996:

<TABLE>
<CAPTION>
                                    1997        1996
                                    ----        ----
<S>                             <C>         <C>
Equipment ...................   $ 60,000    $ 43,000
Less accumulated depreciation     (9,000)     (3,000)
                                  ------      ------

                                $ 51,000    $ 40,000
                                ========    ========
</TABLE>


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

Future  minimum  lease  payments,  by year and in the  aggregate,  under capital
leases and  noncancellable  operating  leases with initial or remaining terms of
one year or more consist of the following at June 30, 1997:

<TABLE>
<CAPTION>
                                                 Capital Lease  Operating Leases
                                                 -------------  ----------------
<S>                                                    <C>          <C>
1998                                                   15,000       $226,000
1999                                                   15,000           --
2000                                                   14,000           --
2001                                                    4,000           --
----                                                    -----          -----

       Total minimum lease payments ..........       $ 48,000       $226,000
                                                                    ========

Less amount representing interest ............         (7,000)
                                                        -----
       Present value of net minimum
        lease payments .......................         41,000

Less current portion .........................        (12,000)
                                                      -------

       Obligations under capital leases              $ 29,000
                                                     ========
</TABLE>

Aggregate  rental  expense under  operating  leases for the years ended June 30,
1997, 1996 and 1995 was $222,000, $217,000 and $191,000, respectively.

The  following  balances due to or from related  parties  existed as of June 30,
1997 and 1996. The identified related parties are stockholders of the Company or
affiliated companies related through common ownership.

<TABLE>
                                  June 30, 1997
================================================================================
<CAPTION>
                                   Current     Noncurrent      Notes
                               Receivables    Receivables    Receivable
                               -----------    -----------   -----------
<S>                            <C>            <C>           <C>
Former Stockholders of the
Company .....................  $    22,000    $   165,000          --
BGI .........................    2,584,000           --     $ 4,416,000
Sunset Coin .................      (63,000)          --            --
Becker Vending ..............      (15,000)          --            --
Becker Enterprises ..........        1,000           --            --
CQC .........................    1,213,000           --       1,200,000
BGG:
    Charlie's Lakeside ......        5,000           --            --
    Charlie's Bar ...........       16,000           --            --
    Cantina Charlie's .......       19,000           --            --
    Cariba Charlie's ........       26,000         45,000          --
    Charlie's Saloon ........       11,000           --            --
    Charlie's Down Under ....       59,000           --            --

                               -----------    -----------   -----------
Total .......................    3,878,000        210,000     5,616,000

Less:  Allowance for doubful
        collection of amounts
        due from CQC ........   (1,213,000)          --      (1,200,000)
                               -----------    -----------   -----------


                               $ 2,665,000    $   210,000   $ 4,416,000
                               ===========    ===========   ===========
</TABLE>
<TABLE>
<CAPTION>
                                   Management
                                    Fee and                  Subordinated
                                    Accounts      Notes        Notes
                                    Payable      Payable      Payable
                                    ----------   ----------   ----------
<S>                                <C>          <C>          <C>
Former Stockholders of the
Company .........................   $     --     $     --     $5,000,000
BGI .............................    5,347,000         --           --
Sunset Coin .....................         --      3,150,000         --
Becker Vending ..................         --           --           --
Becker Enterprises ..............         --           --           --
CQC .............................         --           --           --
BGG:
    Charlie's Lakeside ..........         --           --           --
    Charlie's Bar ...............         --           --           --
    Cantina Charlie's ...........         --           --           --
    Cariba Charlie's ............         --           --           --
    Charlie's Saloon ............         --           --           --
    Charlie's Down Under ........         --           --           --

                                    ----------   ----------   ----------
Total ...........................    5,347,000    3,150,000    5,000,000

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

                                    ----------   ----------   ----------
                                    $5,347,000   $3,150,000   $5,000,000
                                    ==========   ==========   ==========
</TABLE>
<TABLE>
                                  June 30, 1996
================================================================================
<CAPTION>
                                     Current        Noncurrent       Notes
                                    Receivables     Receivables    Receivable
                                    -----------    -----------   -----------

<S>                                 <C>            <C>           <C>
Former Stockholders of the
Company ..........................  $    14,000    $   165,000   $      --
BGI ..............................    1,400,000        747,000     4,416,000
Sunset Coin ......................       47,000           --            --
Becker Vending ...................         --             --            --
Becker Enterprises ...............        1,000           --            --
CQC ..............................      993,000           --       1,200,000
BGG:
    Charlie's Lakeside ...........       (7,000)          --            --
    Charlie's Bar ................       10,000           --            --
    Cantina Charlie's ............       11,000           --            --
    Cariba Charlie's .............       13,000         75,000          --
    Charlie's Saloon .............        6,000           --            --
    Charlie's Down Under .........       44,000           --            --
                                    -----------    -----------   -----------
Total ............................    2,532,000        987,000     5,616,000
Less:  Allowance for doubful
        collection of amounts
        due from CQC .............     (993,000)          --      (1,200,000)
                                    -----------    -----------   -----------
                                    $ 1,539,000    $   987,000   $ 4,416,000
                                    ===========    ===========   ===========
</TABLE>
<TABLE>
<CAPTION>

                                     Management Fee             Subordinated
                                      and Accounts    Notes        Notes
                                         Payable     Payable      Payable
                                      ----------   ----------   ----------

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

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

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


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


CHSC owns the land on which the  Company's  administrative  offices  are located
and,  prior to the  Reorganization,  CLC owned  the land on which the  Company's
operations  are  located.  Rent  expense  paid to CHSC and CLC and  included  in
results of operations of the Company was $222,000, $217,000 and $191,000 for the
years ended June 30, 1997, 1996 and 1995, respectively.  The rental fees include
the cost of insurance, taxes and common area maintenance on the land.

Receivables from BGG, stockholders of the Company and BGI bear interest at 8.0%,
4.5% and 6.0%, respectively.  Interest income from related parties was $265,000,
$245,000  and  $168,000  for the  years  ended  June 30,  1997,  1996 and  1995,
respectively.

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

During the years ended June 30, 1995 and 1997, the Company  borrowed  $2,250,000
and $900,000,  respectively  from SC for general  working capital  purposes.  As
described in Note 5 these  obligations are due in 1998 with interest  payable at
5.56% and 4.50%, respectively.

Interest expense  incurred under related party notes was $651,000,  $633,000 and
$550,000 for the years ended June 30, 1997, 1996 and 1995,  respectively.  As of
June 30, 1997 and 1996 accrued  interest  expense  under related party notes was
$397,000 and $169,000, respectively.

In May, 1995, CQC borrowed $1,200,000 from AC in order to have funds to make the
semi-annual interest payment due on the CQC Notes. The borrowing was executed as
an  uncollateralized  note payable to AC due May, 1996 with interest at the rate
of  5.56%.  Due to the  current  financial  condition  of  CQC,  management  has
determined  that  collectibility  of the note, and of other advances of $301,000
(1995),   $692,000  (1996)  and  $220,000  (1997)  made  to  CQC,  is  doubtful.
Accordingly, provisions were made to fully reserve the advances and note payable
and losses  have been  recorded  in the  accompanying  financial  statements  as
payments under guarantee obligations.

The Company has advanced to BGI an aggregate of approximately $6,364,000 to fund
BGI's  operating  expenses from June 1994 through June 1997 of which  $4,416,000
represented  notes receivable that are interest bearing and have been classified
as noncurrent  based on  management's  expectation  for the timing of repayments
from BGI. At June 30, 1997, accrued interest  receivable on the interest bearing
portion of the advances to BGI totaled $636,000. The matters described in Note 2
raise substantial doubt about the ability of BGI's principal  subsidiaries (and,
thus BGI) to continue as a going concern. Accordingly, management of the Company
believes it is reasonably possible that a portion, or the entire balance, of the
notes  receivable from BGI will be  uncollectible.  However,  an estimate of the
loss cannot  presently  be  determined  and no  adjustment  has been made to the
carrying value or classification of the notes receivable at June 30, 1997.

At June 30,  1997,  the Company  owed BGI  approximately  $5,347,000  in accrued
management fees. Under the terms of the indenture  governing the AC Notes, these
fees  cannot be paid to BGI until a specified  fixed  charge  coverage  ratio is
achieved.

Due to the decision to suspend development of CQC's riverboat casino project and
sell its assets,  the majority of BGI's management and  administrative  services
are  anticipated to benefit AC in the future.  Accordingly,  in late March 1995,
BGI  transferred   approximately   40  employees   involved  in  accounting  and
administrative  functions  from  BGI  to AC.  These  employees  were  originally
employees  of  AC  and  were   transferred  to  BGI  in  June  1994,   when  the
Reorganization  became effective.  In connection with this transfer,  in October
1995, the Company  temporarily reduced the amount of the BGI management fee to a
net 1.0% of AC's gross revenues (previously 5.0% of gross revenues) based on the
reduction  in services it will  receive  from BGI in the  future.  Such  reduced
management fees continue to be in effect at June 30, 1997.

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


10.Contingencies:

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

11.    Defined Contributions Plan:

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

The Company  recorded  charges  for  contributions  of  $548,000,  $495,000  and
$395,000 for the years ended June 30, 1997, 1996 and 1995, respectively.


12.  Fair Value of Financial Instruments:

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

Management is unable to determine a fair value for the  outstanding  $55,000,000
principal  amount of 12% First  Mortgage  Notes due November 15, 2000 of Arizona
Charlie's, Inc. (the "AC Notes") or the outstanding $20,000,000 principal amount
($17,908,000  carrying  amount at June 30, 1997) of 12% First Mortgage Notes due
November 15, 2000 of Capitol Queen and Casino, Inc. (the "CQC Notes"), which are
guaranteed  by AC. As of June 30,  1997 the  effective  interest  rate of the AC
Notes  was 12%.  It is not  practicable  to  determine  the fair  value of these
financial   instruments  due  to  the  debt  covenant   violations  and  related
uncertainties  involved  in  negotiations  with the  holders of AC Notes and CQC
Notes, as more fully discussed in Note 2.

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


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


To the Board of Directors
Sunset Coin, Inc.


We have audited the financial statements and the financial statement schedule of
Sunset Coin, Inc. (a wholly owned  subsidiary of Becker Gaming,  Inc.) listed in
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial  statements and financial  statement
schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Sunset Coin, Inc. as of June
30, 1997 and 1996, and the results of its operations and its cash flows for each
of the  three  years in the  period  ended  June  30,  1997 in  conformity  with
generally  accepted  accounting  principles.  In addition,  in our opinion,  the
financial  statement  schedule referred to above, when considered in relation to
the  basic  financial  statements  taken as a  whole,  presents  fairly,  in all
material respects, the information required to be included therein.

The accompanying financial statements and financial statement schedule have been
prepared  assuming that Sunset Coin,  Inc. will continue as a going concern.  As
discussed in Note 2 to the financial  statements,  the Company is obligated as a
guarantor of certain of the  indebtedness of Arizona  Charlie's,  Inc. ("AC"), a
company affiliated through common ownership, and such indebtedness is in default
of certain of its covenants  and demand has been made for  immediate  payment of
the debt. AC is currently  negotiating a restructuring of this  indebtedness and
management's  plans  are  described  in Note 2.  Should  AC be  unsuccessful  in
modifying  this  indebtedness,  the Company may be required to then  satisfy its
guarantee  obligation.  The Company does not have sufficient resources available
to satisfy such  obligation.  These  matters raise  substantial  doubt about the
ability of Sunset Coin,  Inc. to continue as a going concern.  The final outcome
of these matters is not presently  determinable  and the June 30, 1997 financial
statements of Sunset Coin,  Inc. do not include any adjustment that might result
from the outcome of this uncertainty.


/(s)/ Coopers & Lybrand L.L.P.
------------------------------
Coopers & Lybrand L.L.P.

Las Vegas, Nevada
August 22, 1997, except for Note 2,
as to which the date is
September 5, 1997
================================================================================

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

                                 BALANCE SHEETS
                          As Of June 30, 1997 And 1996
                             (Dollars In Thousands)
================================================================================

                       ASSETS
                                                             1997          1996
                                                          -------       -------

Current assets:
  Cash .............................................      $   707       $ 1,122
  Current portion of notes receivable, net .........          222           117
  Notes receivable from related party ..............        3,150         2,250
  Advances to related parties ......................          312           111
  Other receivables ................................           27           105
  Interest receivable from related party ...........          313           169
  Prepaid expenses .................................           45            46
                                                          -------       -------
      Total current assets .........................        4,776         3,920
                                                          -------       -------
Property and equipment:

  Building and leasehold improvements ..............          174           174
  Furniture, fixtures and equipment ................        3,068         2,885
                                                          -------       -------

                                                            3,242         3,059
  Less, accumulated depreciation ...................       (1,604)       (1,370)
                                                          -------       -------
         Net property and equipment ................        1,638         1,689
                                                          -------       -------

Notes receivable, less current portion, net ........           18           194
Other assets, less accumulated amortization
  of $37 (1997) and $24 (1996) .....................           75            88
                                                          -------       -------

      Total other assets ...........................           93           282
                                                          -------       -------

      Total assets .................................      $ 6,507       $ 5,891
                                                          =======       =======


  LIABILITIES AND STOCKHOLDER'S EQUITY
                                                                 1997       1996
                                                               ------     ------

Current liabilities:
  Trade accounts payable .................................     $   13     $   44
  Accrued expenses .......................................         39         55
  Accrued taxes payable to related party .................        779        553
  Current portion of long- term debt .....................        322        279
                                                               ------     ------
        Total current liabilities ........................      1,153        931
                                                               ------     ------

Long-term liabilities:
   Long-term debt, less current portion ..................        305        502
   Subordinated notes payable to
     prior stockholders ..................................      3,000      3,000
                                                               ------     ------

      Total liabilities ..................................      4,458      4,433
                                                               ------     ------

Commitments and contingencies


Stockholder's equity:
  Common stock, no par value, 2,500 shares
   authorized, 400 shares issued and outstanding .........         27         27
  Retained earnings ......................................      2,022      1,431
                                                               ------     ------

      Total stockholder's equity .........................      2,049      1,458
                                                               ------     ------

      Total liabilities and stockholder's
      equity .............................................     $6,507     $5,891
                                                               ======     ======


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

================================================================================
                                SUNSET COIN, INC.
               (A Wholly Owned Subsidiary Of Becker Gaming, Inc.)

                              STATEMENTS OF INCOME
                             (Dollars In Thousands)
================================================================================

                                                     Year Ended
                                                      June 30,
                                      ----------------------------------------
                                           1997          1996        1995
                                      -----------   -----------  -----------
Revenues:
  Slot route:
    From locations controlled by
      related parties .............       $2,424        $2,370       $2,331
    Other .........................          126           153          279

  Slot service fees:
    From related parties ..........           85            93           77
    Other .........................           32            33           55
                                      -----------   -----------   -----------
         Total revenues ...........        2,667         2,649        2,742

Operating expenses:
  Slot route and service ..........        1,350         1,311        1,112
  General and administrative ......           51            86          103
  Management fee -
    Becker Gaming, Inc. ...........          140           137          150
  Depreciation and amortization ...          288           298          249
                                      -----------   -----------   -----------
         Total operating
           expenses ...............        1,829         1,832        1,614
                                      -----------   -----------   -----------

         Operating income .........          838           817        1,128
                                      -----------   -----------   -----------

Other income (expense):
  Interest income .................          191           171          146
  Interest expense ................         (366)         (398)        (356)
  Rental and other income .........          153           102          101
  Net gain (loss)on sales of
    equipment .....................            1          (115)         (13)
                                      -----------   -----------   -----------
         Total other income
           (expense) ..............          (21)         (240)        (122)
                                      -----------   -----------   -----------
         Income before
           income taxes ...........          817           577        1,006

Provision for income taxes ........         (226)         (196)        (318)
                                      -----------   -----------   -----------
         Net income ...............         $591          $381         $688
                                      ===========   ===========   ===========


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

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

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

                        STATEMENT  OF  STOCKHOLDER'S  EQUITY For The Years Ended
                June 30, 1997, 1996 And 1995
                             (Dollars In Thousands)
================================================================================


                                                         Common
                                                          Stock
                                           -----------------------------------
                                                      Shares         Amount
                                                      ------         ------



Balances, June 30, 1994 ................                 400         $   27


  Net income ..........................                 --             --
                                                      ------         ------

Balances, June 30, 1995 ................                 400             27


  Net income ...........................                --             --
                                                      ------         ------

Balances, June 30, 1996 ................                 400             27
                                                      ------         ------

  Net income ..........................                 --             --
                                                      ------         ------

Balance, June 30, 1997 .................                 400         $   27
                                                      ======         ======



                                                            Retained
                                                            Earnings     Total
                                                             -------    -------


Balances, June 30, 1994 ..................................   $   362    $   389


  Net income ............................................        688        688
                                                             -------    -------

Balances, June 30, 1995 ..................................     1,050      1,077


  Net income .............................................       381        381
                                                             -------    -------

Balances, June 30, 1996 ..................................     1,431      1,458
                                                             -------    -------

  Net income ............................................        591        591
                                                             -------    -------

Balance, June 30, 1997 ...................................   $ 2,022    $ 2,049
                                                             =======    =======


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

================================================================================
                                SUNSET COIN, INC.
               (A Wholly Owned Subsidiary of Becker Gaming, Inc.)

                            STATEMENTS OF CASH FLOWS
                             (Dollars In Thousands)
================================================================================

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

                                                     1997       1996       1995
                                                  -------    -------    -------
Cash flows from operating activities:
  Net income ...................................  $   591    $   381    $   688
                                                  -------    -------    -------
  Adjustments  to  reconcile  net  income  to net  cash  provided  by  operating
    activities:
    Provision for losses on notes receivable ...     --           44        44
    Depreciation and amortization ..............      288        298       249
    Net loss on sales of equipment .............       (1)       115        13

  (Increase) decrease in operating assets:
     Other receivables .........................       78         (3)       (5)
     Interest receivable from related party ....     (144)      (125)      (44)
     Prepaid expenses ..........................        1       --          (2)
     Other assets ..............................     --          (6)       (59)

  Increase (decrease)in operating liabilities:
     Accounts payable ..........................      (31)       (25)       (6)
     Accrued expenses ..........................      (16)       128       158
     Accrued taxes payable to related ..........      226        196       102
                                                  -------    -------    -------

        Total adjustments ......................      401        622       450
                                                  -------    -------    -------

        Net cash provided by operating
         activities ............................      992      1,003     1,138
                                                  -------    -------    -------
Cash flows from investing activities:
  Capital expenditures .........................      (63)      (208)   (1,142)
  Proceeds from sales of equipment .............       19         12        26
  Increase in related parties notes receivable .     (900)        --    (2,250)
  Increase (decrease) in advances to
   related parties .............................     (201)       (72)       96
  Issuance of notes receivable .................     --         --         (25)
  Repayments of notes receivable ...............       71         88       161
                                                  -------    -------    -------

        Net cash provided by (used in)
         investing activities ..................   (1,074)      (180)   (3,134)
                                                  -------    -------    -------
Cash flows from financing activities:
  Proceeds from notes payable ..................     --          109       738
  Principal payments on notes payable ..........     (333)      (316)     (176)
                                                   -------    -------   -------
        Net cash used (provided)
         in financing activities ...............     (333)      (207)      562
                                                  -------    -------    -------
        Net increase in cash ...................     (415)       616    (1,434)

Cash, beginning of year ........................    1,122        506     1,940
                                                  -------    -------    -------
Cash, end of year ..............................  $   707    $ 1,122    $  506
                                                  =======    =======    =======

Supplemental cash flow disclosures:

 Interest paid .................................  $   395    $   395    $  352
                                                  =======    =======    =======
 Assets acquired through issuance of
   long-term debt ..............................  $   180    $    69    $  --
                                                  =======    =======    =======

 Income taxes paid .............................  $  --      $  --      $   102
                                                  =======    =======    =======

 Assets acquired by forgiveness of
  accounts receivable ..........................  $  --      $    49    $  --
                                                  =======    =======    =======


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

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


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

                          NOTES TO FINANCIAL STATEMENTS




1.Summary Of Significant Accounting Policies:

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

Sunset Coin,  Inc. ("SC" or the  "Company")  operates a slot route in Las Vegas,
Nevada. The Company owns slot machines which it places in licensed locations. In
addition, the Company provides slot machine maintenance services to other owners
of slot machines pursuant to service  agreements.  At June 30, 1997, the Company
had route and service agreements with 32 slot locations which have between 4 and
35 slot machines each.

Effective June 1, 1994, the  stockholders  of SC exchanged all of their stock in
the Company for stock of Becker Gaming, Inc. ("BGI") (the "Reorganization"), and
SC became a wholly  owned  subsidiary  of BGI. BGI has no  independent  business
activities other than providing  management and administrative  services to, and
exploring and  developing  business  opportunities  for, its  subsidiaries,  and
serves as a holding company for SC and the following entities:

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

     *    Capitol Queen & Casino, Inc. ("CQC"), a Missouri corporation
       formed to develop a riverboat casino in Jefferson City, Missouri
       (the "Capitol Queen").

     * 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.

Effective  June 1, 1994,  the Company pays a management fee to BGI in connection
with executive and  administrative  services equal to 5% of the Company's  gross
operating revenues.


Revenue
-------

The primary source of revenue is from slot route  participation  agreements with
unaffiliated  locations  in which  the  Company  recognizes  as slot  revenue  a
predetermined  percentage  (operator's  share) of the net win from Company-owned
machines at the slot locations.  In accordance with industry  practice,  net win
from slot  activities  consists of the slot drop less  jackpots  and fills.  The
percentage  of the net win that the  Company and the slot  locations  receive is
determined by individual participation agreements between the parties.

In addition,  the Company also generates revenue under slot service  agreements.
Under  the  agreements,  the  Company  receives  a fixed  fee and  certain  cost
reimbursements in exchange for maintaining proprietor-owned slot machines.

The Company's participation agreements and slot service agreements range between
1 and 9 years in length and expire, subject to renewal, at various dates through
2003.  At June 30, 1997,  221  (approximately  85%) of the machines  operated or
serviced by the Company were installed at unaffiliated  locations  controlled by
the stockholders of BGI (as lessor), through restrictive lease provisions.

Property And Equipment, And Depreciation
----------------------------------------

Property and equipment are stated at cost. Expenditures for additions,  renewals
and betterments are capitalized and expenditures for repairs and maintenance are
charged to expense as incurred.  Upon retirement or disposal of assets, the cost
and accumulated  depreciation are eliminated from the accounts and the resulting
gain or loss is  credited  or charged to income.  Depreciation  is  computed  by
either the straight-line or declining balance method over estimated useful lives
of 5 to 10 years for  furniture,  fixtures and  equipment  or, for buildings and
leasehold  improvements,  the lesser of the useful  life or the lease term which
range from 5 to 40 years.

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.


Income Tax Status
-----------------

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

In connection  with the  Reorganization,  beginning June 1, 1994, the Company is
included in the  consolidated  federal income tax returns filed by BGI. SC's tax
allocation  is based on the amount of tax it would  incur if it filed a separate
return.

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

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

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

Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.


2. Guarantee Obligation, Management's Plans, and Going Concern:

SC has guaranteed the payment of interest and  $55,000,000  principal  amount of
12% First Mortgage Notes due November 15, 2000 issued by AC (the "AC Notes"). AC
is in default of certain  covenants  under the AC Notes as of June 30, 1997, and
on September 5, 1997 AC received a notice of  acceleration  from the trustee and
collateral  agent  for the AC  Notes,  and all of the  outstanding  AC Notes are
immediately  due and  payable  together  with all  accrued  and unpaid  interest
thereon. In addition, AC has guaranteed the payment of interest and principal of
notes  payable  issued by CQC,  (the  amount and extent of which  guaranty is in
dispute) of which $20,000,000 principal amount are outstanding at June 30, 1997.
CQC is a  development  stage company which has abandoned its project to develop,
own and operate a riverboat  casino,  and is  currently  attempting  to sell its
assets to prospective  buyers.  Based on current market  conditions,  management
does not expect that CQC will generate  sufficient funds through the sale of its
assets to repurchase all of the outstanding CQC Notes. A proposed  restructuring
plan therefore contemplates, amongst other terms and conditions, (i) liquidation
of CQC's remaining assets for the benefit of the CQC bondholders, (ii) a limited
cash payment by AC as full and complete  satisfaction  of AC's  guarantee of the
CQC Notes,  and (iii) AC's issuance of a reduced amount of new notes as full and
complete  satisfaction of the existing AC Notes. However, no satisfactory offers
for the  riverboat are  currently  available,  and no agreement has been reached
with  the  holders  of the  AC  Notes  and  CQC  Notes  regarding  the  proposed
restructuring plan.

Should AC be unable to complete  its  restructuring  plan,  it will not have the
financial  resources  to repay the AC Notes and honor its  guarantee  obligation
under the CQC Notes.  The  Company  would thus  likely be  required to honor its
guarantee  obligation of the AC Notes,  and the Company does not have sufficient
resources  to  satisfy  such  obligation.   Accordingly,   these  matters  raise
substantial  doubt about the ability of SC to continue as a going  concern.  The
final outcome of these matters is not  presently  determinable  and the June 30,
1997 financial  statements of SC do not include any adjustment that might result
from the outcome of this uncertainty.


3. Related-Party Transactions:

In  anticipation  of  the  January  1,  1994  termination  of  the  Company's  S
corporation election,  on December 24, 1993, the Company distributed  $3,000,000
to its stockholders,  representing previously taxed,  undistributed income. This
distribution  was immediately  loaned back to the Company by the stockholders in
the form of subordinated notes payable, which bear interest at an annual rate of
10%, payable  monthly,  with the entire principal amount due on January 1, 2001.
Interest  expense  incurred by SC under the notes payable to prior  shareholders
was $300,000,  $300,000 and $300,000 for the years ended June 30, 1997, 1996 and
1995, respectively.

The payment of the SC stockholder notes is subordinated to any payments required
to be made by SC under its guarantee of the AC Notes.

The Company is involved in numerous other  transactions  with companies  related
through common  ownership.  Such  related-party  transactions  are summarized as
follows:

<TABLE>
Arizona Charlie's, Inc.
-----------------------
<CAPTION>
                                                                        June 30,
                                                           1997             1996
                                                          ----             ----
<S>                                                <C>              <C>
Uncollateralized notes receivable from AC
    (interest at 5.56% and 4.50%)due May 1998
    and Janaury, 1998 respectively ...........     $ 3,150,000      $ 2,250,000
                                                   ===========      ===========
Interest receivable from AC ..................         313,000          169,000
                                                       =======          =======
Payables to  AC ..............................            -             (46,000)
                                                       =======          =======
Receivables from AC ..........................          67,000             -
                                                       =======          =======
</TABLE>


The  uncollateralized  notes receivable from AC result from advances made by the
Company to AC for general working capital purposes. Due to the present financial
condition of AC, as described in Note 2,  management of the Company  believes it
is  reasonably  possible  that a portion,  or the entire  balance,  of the notes
receivable  from AC will be  uncollectible.  However,  an  estimate  of the loss
cannot  presently be determined  and no adjustment has been made to the carrying
value or  classification  of the notes  receivable  at June 30,  1997.  Interest
earned by SC on the notes receivable from AC was $144,000,  $125,000 and $44,000
for the years ended June 30,  1997,  1996 and 1995,  respectively.  The interest
receivable  from AC and  payables to AC are  included in other  receivables  and
advances to related parties, respectively.

<TABLE>

Becker Gaming Group
-------------------
<CAPTION>
                                                                        June 30,
                                                           1997             1996
                                                           ----             ----
<S>                                                   <C>              <C>
Advances to BGG ...............................       $ 235,000        $ 149,000
                                                      =========        =========
</TABLE>


The  Company  has  executed  slot  service  agreements  with  each  of  the  BGG
restaurant/bar  locations  under which SC provides slot machine  maintenance and
other  services for a fixed fee. Fees paid by BGG to SC under the agreements are
included in slot service fee revenue in the  accompanying  financial  statements
and totaled approximately  $85,000,  $93,000 and $77,000 in 1997, 1996 and 1995,
respectively.

During  1991,  SC  purchased  the  assets  of  a  restaurant/bar   facility  for
approximately  $525,000 for use by BGG. The Company entered into an agreement to
lease  (as  lessor)  the  facility  (d.b.a.  Charlie's  Saloon)  to BGG under an
agreement  which was  terminated  when the  facility was closed due to loss of a
third-party  lease on April 21,  1996.  In  connection  with the  closing of the
facility,  certain leasehold improvements and equipment were abandoned,  and the
Company recognized a loss of $101,000 in 1996 representing the net book value of
the related  assets.  The liquor  license  with net book value of $60,000 is the
only remaining  asset from the closed  facility and will be transferred to a new
BGG location which is anticipated to open in late 1997.

Total lease  payments for the years ended June 30, 1997,  1996 and 1995 included
as rental  income in the  accompanying  financial  statements  amounted to $-0-,
$64,000  and  $89,000,  respectively.  The total  cost of  depreciation  expense
related to the Charlie's Saloon facility included in the accompanying  financial
statements  of Sunset Coin totaled $-0-,  $17,000 and $22,000 in 1997,  1996 and
1995, respectively.

In 1995, SC purchased and leased  personal  property to be used by BGG in one of
its bar operations (d.b.a.  Charlie's Bar Down Under). The purchase was financed
with  long-term  debt, as more fully  described in Note 5. The net investment in
the assets leased to Charlie's Down Under as of June 30, 1997 and 1996 is listed
below:

<TABLE>
<CAPTION>
                                                           1997            1996
                                                           ----            ----
<S>                                                   <C>             <C>
Building and improvements .....................       $ 174,000       $ 174,000
Furniture, fixtures and equipment .............         550,000         550,000
                                                        -------         -------
                                                        724,000         724,000
Less, accumulated depreciation ................        (138,000)        (76,000)
                                                       --------        --------

                                                      $ 586,000       $ 648,000
                                                      =========       =========
</TABLE>


On April 1, 1995,  Charlie's Bar Down Under (the Lessee)  entered into a 10 year
lease  agreement  with SC for the  above  property  at an annual  lease  cost of
$95,000.  BGG did not make any  rental  payments  under the lease  from the time
Charlie's  Down Under  opened  through  March 31,  1996,  and the  rentals  were
forgiven,  without recourse,  by the Company. Due to the related-party nature of
the above transaction, SC recognized no income (as lessor) or loss through March
31, 1996 in the  accompanying  financial  statements for this  agreement.  Total
lease  payments  for the years ended June 30,  1997 and 1996  included as rental
income in the accompanying  financial statements amounted to $95,000 and $24,000
respectively.

The terms of the Charlie's Down Under lease require BGG to pay all taxes, normal
maintenance  and  insurance  on the  facility.  The total  cost of  depreciation
expense  related  to the  Charlie's  Bar Down  Under  facility  included  in the
accompanying financial statements of SC totaled $61,000, $61,000 and $15,000 for
the years ended June 30, 1997, 1996 and 1995 respectively.

<TABLE>
Becker Gaming, Inc.
-------------------
<CAPTION>
                                                                        June 30,
                                                         1997               1996
                                                        ----               ----
<S>                                                   <C>                <C>
Advances to BGI ...........................           $7,000             $8,000
                                                      ======             ======
Tax provisions payable to BGI (Note 6) ....         $779,000           $553,000
                                                    ========           ========
</TABLE>



SC pays  management  fees to BGI at 5% of the gross gaming  revenues,  effective
with the  Reorganization  on June 1, 1994. Total management fees included in the
accompanying financial statements were $140,000,  $137,000 and $150,000 in 1997,
1996 and 1995, respectively.


4. Notes Receivable:

Notes receivable  consist of loans to various  proprietors who have entered into
slot route  agreements  with the Company.  Such advances are  primarily  used to
finance long-term facility improvements to the slot locations and are as follows
at June 30, 1997 and 1996:
<TABLE> 
<CAPTION>
                                                           1997           1996
                                                           ----           ----
<S>                                                   <C>            <C>
Prime plus 2.5% note receivable,
due in weekly payments of $675
including interest through August
1998, collateralized by assets of
the related slot location ...................         $  47,000      $  75,000

10% note receivable,  due in weekly payments of $650 including  interest through
January 2003,
paid-in full in July, 1997 ..................           157,000        175,000

Other collateralized and  uncollateralized  notes with varying interest rates up
to prime plus 2.5%, due at various
dates through December 2003 .................            36,000        149,000
                                                        -------        -------

                                                        240,000        399,000
     Allowance for doubtful accounts ........              -           (88,000)
                                                        -------        -------

                                                        240,000        311,000
          Less, current maturities ..........          (222,000)      (117,000)
                                                       --------       --------

                                                      $  18,000      $ 194,000
                                                      =========      =========
</TABLE>


5. Long-Term Debt:

Long-term debt consists of the following at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                                           1997         1996
                                                           ----         ----
<S>                                                   <C>          <C>
Prime plus 1.5%,  $1.5 million  revolving
line of credit  available  through June 1994,  
(line  expired and not  renewed);
amounts  outstanding under the line of credit 
at June 30, 1995 were converted to
a term note payable with interest and  principal 
due monthly  through June 1998,
collateralized by substantially all of the assets 
of SC and personal  guarantees
of the stockholders of Becker
Gaming, Inc. ......................................   $  33,000    $ 113,000

Prime plus 1.5%,  term note payable  with  
interest  and  principal  due monthly
through  January 1, 2001,  collateralized  by 
security  agreement dated July 15,
1994 and a right to lien without notice on all 
property and deposit  accounts of
SC Borrowings made under a non-revolving line
of credit agreement (see below) ...................     115,000      162,000

Prime plus 2.0%,  term note payable  with  
interest  and  principal  due monthly
through April 23, 2000,  collateralized  by a 
security  agreement dated July 15,
1994 and a right to lien without notice on all 
property and eposits  accounts of
SC. Borrowings made under a non-revolving
line of credit agreement (see below) ..............     192,000      262,000

Prime plus 2.0%,  term note payable  with  
interest  and  principal  due monthly
through April 23, 2000,  collateralized  by a 
security  agreement dated July 15,
1994 and a right to lien without notice on all 
property and deposit  accounts of
SC. Borrowings made under a non-revolving line of 
credit agreement (see below) ......................      88,000      119,000

Prime plus 1.5%,  term note payable  with  
interest  and  principal  due monthly
through April 10, 2001,  collateralized  by 
security  agreement dated October 2,
1995 and a right to lien without notice on all 
property and deposit  accounts of
SC. Borrowings made under a non-revolving line of 
credit agreement (see below) .......................     73,000      102,000

Other  notes  payable due in monthly  installments  
including  interest  through
April, 1998 collateralized by slot machine equipment 
of the Company and BGG .............................    126,000       23,000
                                                         ------       ------

                                                        627,000      781,000
       Less, current portion ......................    (322,000)    (279,000)
                                                       --------     --------

                                                      $ 305,000    $ 502,000
                                                      =========    =========
</TABLE>


In July 1994,  the  Company  entered  into an  agreement  with a bank for a $1.2
million  non-revolving line of credit.  Each advance was evidenced by a separate
promissory  note with a maturity  date not  exceeding 66 months from the date of
the respective advance. The Company was able to request advances through October
28,  1995 at which  time the  Company's  right to  receive  advances  under  the
agreement was terminated until the defaults under the AC Notes and CQC Notes are
cured.  Advances under the agreement bear interest at rates ranging from 1.5% to
2.0% plus the bank's prime rate.

The $1.2 million  non-revolving  line of credit includes an acceleration  clause
which would cause the full amount of the obligation to become due on demand if a
material  adverse  change  occurs  in the  SC's  financial  condition,  business
operations, ownership or management.


Maturities of long-term debt at June 30, 1997 are as follows:
<TABLE>
<S>                 <C>                           <C>
                    1998                          $322,000
                    1999                           180,000
                    2000                           120,000
                    2001                             5,000
                    ----                             -----

                                                  $627,000
                                                  ========
</TABLE>

6. Income Taxes:

The  components of the income tax provision  are  summarized  for June 30, 1997,
1996 and 1995 as follows:
<TABLE>
<CAPTION>
                                           1997       1996       1995
                                           ----       ----       ----

Current:
<S>                                    <C>        <C>        <C>
   Federal .........................   $226,000   $196,000   $318,000
Deferred:
   Federal .........................       --         --         --
                                       --------   --------   --------

          Total income tax provision   $226,000   $196,000   $318,000
                                       ========   ========   ========
</TABLE>


The components  included in determining the provision for income taxes are shown
below:
<TABLE>
<CAPTION>
                                       1997         1996         1995
                                    ---------    ---------    ---------
<S>                                 <C>          <C>          <C>
Tax provision at federal
  income tax statutory rate .....   $ 285,000    $ 202,000    $ 342,000

Other ...........................     (59,000)      (6,000)     (24,000)
                                    ---------    ---------    ---------

        Income tax provision
         per statements of income   $ 226,000    $ 196,000    $ 318,000
                                    =========    =========    =========
</TABLE>



Differences between the carrying amounts of assets and liabilities for financial
reporting  purposes,  and the amounts used for income tax purposes were nominal.
Accordingly, deferred taxes have not been recognized.


7. Leases and Commitments:

Future minimum operating lease commitments at June 30, 1997, are as follows:

<TABLE>
<S>                        <C>                    <C>
                           1998                   $35,200
                           1999                    33,200
                           2000                    11,200
                           2001                     9,700
                           2002                     5,200
                                                   ------

                                                 $ 94,500
                                                 ========
</TABLE>

Aggregate rent expense was $46,000,  $40,000 and $38,000 in 1997, 1996 and 1995,
respectively.


8. Contingencies:

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

9.   Employee Benefit Plans:

The Company  participates  in a 401(k)  Defined  Contribution  Plan (the "Plan")
sponsored by AC which covers substantially all employees of SC. Participants may
contribute  up to 10% of their annual  compensation  to the Plan,  up to certain
limits  prescribed by the Internal Revenue  Service.  The Company matches 25% of
each eligible employee's  contribution up to a maximum of 6% of their individual
earnings.  In addition,  the Company  contributes  an amount equal to 2% of each
participant's earnings. The Plan went into effect July 1, 1990.

The Company recorded charges for  contributions of $21,000,  $19,000 and $15,000
for the years ended June 30, 1997, 1996 and 1995, respectively.


10.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 the  approximately
market interest rates of these instruments.


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


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

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


We have audited the financial statements and the financial statement schedule of
Capitol  Queen & Casino,  Inc. (a  development  stage company and a wholly owned
subsidiary of Becker Gaming, Inc.) listed in Item 14(a) of this Form 10-K. These
financial  statements and financial statement schedule are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Capitol Queen & Casino, Inc. as
of June 30, 1997 and 1996, and its loss incurred  during the  development  stage
and its cash  flows for each of the three  years in the  period  ended  June 30,
1997,  and for the period from January 20, 1993 (the date of inception)  through
June 30, 1997, in conformity with generally accepted accounting  principles.  In
addition,  in our opinion,  the financial  statement schedule referred to above,
when considered in relation to the basic financial  statements taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.

The accompanying financial statements 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.  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, 1997  financial  statements of the
Company do not include any adjustment that might result from the outcome of this
uncertainty.


/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.

Las Vegas, Nevada
August 22, 1997, except for Note 2,
as to which the date is
September 5, 1997
================================================================================

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

                                 BALANCE SHEETS
                          As Of June 30, 1997 And 1996
                             (Dollars In Thousands)
================================================================================


                                     ASSETS

                                                              1997          1996
                                                           -------       -------
Current assets:

   Restricted cash, in escrow account ..............       $    31       $    30
                                                           -------       -------
      Total current assets .........................            31            30
                                                           -------       -------


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

  Financing costs, net of accumulated
    amortization of $445 (1997) and
    and $312 (1996), respectively ..................           472           605
  Deposits and other assets ........................            -             60
                                                           -------       -------

      Total other assets ...........................         8,226         8,419
                                                           -------       -------


       Total assets ................................       $ 8,257       $ 8,449
                                                           =======       =======



                  LIABILITIES & STOCKHOLDER'S EQUITY(DEFICIT)


                                                               1997         1996
                                                          --------     --------
Current liabilities:
Advances from related parties ........................    $  1,226     $  1,006
Accrued interest .....................................       5,788        2,775

Notes payable to related parties .....................       1,200        1,200
Long-term debt classified as current due to
    default under covenants, net of unamortized
    original issue discount of $2,092 (1997)
    and $2,474 (1996) ................................      17,908       17,526
                                                          --------     --------
        Total current liabilities ....................      26,122       22,507
                                                          --------     --------
        Total liabilities ............................      26,122       22,507
                                                          --------     --------

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 .......     (30,597)     (26,790)
                                                          --------     --------
        Total stockholder's equity (deficit) .........     (17,865)     (14,058)
                                                          --------     --------

       Total liabilities and stockholder's
        equity(deficit) ..............................    $  8,257     $  8,449
                                                          ========     ========

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

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

                          CAPITOL QUEEN & CASINO, INC.
           (A Development Stage Company And A Wholly Owned Subsidiary
                             Of Becker Gaming, Inc.)
            STATEMENTS OF LOSS INCURRED DURING THE DEVELOPMENT STAGE
                             (Dollars In Thousands)
================================================================================


                                                                  For The Period
                                                                January 20, 1993
                                                                    (The Date Of
                                                                      Inception)
                                                                         Through
                                           Year Ended June 30,          June 30,
                                       1997        1996        1995        1997
                                   --------    --------    --------    --------


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

Operating expenses:
 Amortization of financing
  and other costs ..............        133         100         202       1,474
 Abandonment losses and
 write-downs of assets held
 for sale ......................       --         4,392        --        10,426
 Development costs .............        280         504       1,186       1,991
                                   --------    --------    --------    --------
     Total operating expenses ..        413       4,996       1,388      13,891
                                   --------    --------    --------    --------

Operating loss .................       (413)     (4,996)     (1,388)    (13,891)

Other income (expenses):
 Interest income ...............          1        --           610       1,266
 Interest expense ..............     (3,395)     (2,789)     (4,608)    (14,566)
 Interest capitalized ..........       --          --          --           683
                                   --------    --------     --------    --------
Total other expenses ...........     (3,394)     (2,789)     (3,998)    (12,617)
                                   --------    --------     --------    --------

Net loss before
 extraordinary item ............     (3,807)     (7,785)     (5,386)    (26,508)

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

Net loss .......................   $ (3,807)   $ (7,785)   $ (9,475)   $(30,597)
                                   ========    ========    ========    ========


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

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

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

                  STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)

                      For The Period From January 20, 1993
                  (The Date Of Inception) Through June 30, 1997
              And For The Years Ended June 30, 1997, 1996 And 1995
                             (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    $     --       $     --
                                    ===========   ===========    ===========

<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, 1996 ....................   $ 12,732    $(30,597)   $(17,865)
                                               ========    ========    ========


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

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

                            STATEMENTS OF CASH FLOWS
                             (Dollars In Thousands)

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



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

                                                  1997        1996        1995
                                              --------    --------    --------
Cash flows from development stage activities:
  Net loss ................................   $ (3,807)   $ (7,785)   $ (9,475)
                                              --------    --------    --------
  Adjustments to reconcile net loss
   to net cash used in development
   stage activities:
  Amortization of financing and other costs        133         100         202
  Amortization of original issue discount .        382         408         834
  Abandonment losses and write-downs of
   assets held for sale ...................         60       4,392         --
  Extraordinary loss on retirement of debt        --          --         4,089
  Increase(decrease) in accounts payable
   and accruals, net of amounts for
   capital expenditures ...................      3,013       2,238        (216)
  Increase in advances from related
    party payable .........................        220         602         392
                                              --------    --------    --------
        Total adjustments .................      3,808       7,740       5,301
                                              --------    --------    --------
        Net cash provided by (used in)
         development stage activities .....          1         (45)     (4,174)
                                              --------    --------    --------

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

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

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

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

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



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

                                                      1996
                                                  --------
Cash flows from development stage activities:
  Net loss ....................................   $(30,597)
                                                  --------
  Adjustments to reconcile net loss
   to net cash used in development
   stage activities:
  Amortization of financing and other costs ...      1,474
  Amortization of original issue discount .....      2,289
  Abandonment losses and write-downs of
   assets held for sale .......................     10,486
  Extraordinary loss on retirement of debt ....      4,089
  Increase(decrease) in accounts payable
   and accruals, net of amounts for
   capital expenditures .......................      5,800
  Increase in advances from related
    party payable .............................      1,214
                                                  --------
        Total adjustments .....................     25,352
                                                  --------
        Net cash provided by (used in)
         development stage activities .........     (5,245)
                                                  --------

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 ................        (32)
                                                  --------
       Net cash provided by (used in)
        investing activities ..................    (13,921)
                                                  --------

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  integral  part of  these  consolidated  financial
statements.
================================================================================


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

                          NOTES TO FINANCIAL STATEMENTS



1.   Summary Of Significant Accounting Policies:

     Basis Of Presentation

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

     *     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.

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

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

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

     CQC was formed to develop,  own and operate the "Capitol  Queen"  riverboat
casino and  related  land-based  facilities  in  Jefferson  City,  Missouri.  On
September 28, 1994, CQC was notified that its  application  for a gaming license
was rejected by the Missouri Gaming Commission (the  "Commission").  At the time
CQC was notified of the  Commission's  decision,  construction  of the riverboat
under contract with a shipbuilder  was almost  completed.  CQC had also obtained
the necessary permits for the land-based  development portion of the project and
performed  certain  dredging  and  other  site  preparation  work.   Immediately
following the Commission's  decision,  management  temporarily suspended further
development of the Capitol Queen project,  pending an appeal of the decision and
legal remedies potentially  available to the Company.  Costs associated with the
development of the project which had been deferred during the development  stage
were written-off in the fourth quarter of the fiscal year ended June 30, 1994.

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

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

     The remaining CQC Notes require  annual  interest  payments of  $2,400,000,
     payable in equal installments  semi-annually on May 15 and November 15. CQC
     was not able to make its  scheduled  interest  payments  of  $1,200,000  on
     November 15, 1995, May 15, 1996,  November 15, 1996 and May 15, 1997 and AC
     (which has guaranteed  the CQC Notes as more fully  described in below) did
     not have available funds to advance on behalf of CQC.

     Concurrent  with the  issuance  of the CQC Notes,  AC  completed  a private
     placement debt  financing of  $55,000,000 in principal  amount of 12% First
     Mortgage Notes due November 15, 2000 (the "AC Notes"). The AC Notes require
     annual  interest  payments  of  $6,600,000,  payable in equal  installments
     semi-annually  on May 15 and  November  15.  AC was not  able  to make  its
     scheduled  interest payment of $3,300,000 on May 15, 1997 and SC (which has
     guaranteed  the AC  Notes  as more  fully  described  below)  did not  have
     available  funds to  advance  on behalf of AC).  AC is also in  default  of
     certain  covenants under the AC Notes. AC is restricted from selling assets
     under the  covenants  governing the AC Notes and  management  believes that
     access to  additional  capital from other sources is restricted as a result
     of the above-described circumstances. AC does not have sufficient financial
     resources  including  a  guarantee  of the AC Notes by SC,  (as more  fully
     described  below) to repay the AC Notes on a current  basis and satisfy its
     guarantee  obligation (as more fully  described  below) with respect to the
     CQC Notes.

     The CQC Notes are  guaranteed by AC (which  guarantee is subject to release
     only upon  licensing of the Capitol Queen,  which is not expected).  The AC
     Notes are  guaranteed  by SC (which  guarantee  is subject to release  upon
     completion of the Expansion,  which management believes has been satisfied,
     and the attainment of a  fixed-coverage  ratio by AC of 2.25 to 1 following
     the completion of the Expansion,  which has not been satisfied). The amount
     and extent of AC's  guaranty of the CQC Notes is in dispute.  Legal counsel
     has advised  management  that,  under the terms of CQC indenture  regarding
     fraudulent conveyance,  the guarantee liability of AC is not expected to be
     material.

     On July 3,  1997  the  Company  received  a  notice  of  acceleration  (the
     "Notice") from the trustee and collateral agent for the CQC Notes. Pursuant
     to  section  6.02  of the  Indenture,  due  to  certain  violations  of the
     Indenture by the Company (as more fully  described above and in Note 4) all
     of the outstanding CQC Notes are immediately due and payable, together with
     all accrued and unpaid interest  thereon.  Accordingly,  the CQC Notes have
     been classified as currently payable at June 30, 1997.

     On September 5, 1997, AC received a notice of acceleration from the trustee
     and  collateral  agent for the AC Notes.  Pursuant  to section  6.02 of the
     indenture  governing  the  AC  Notes,  due  to  certain  violations  of the
     indenture,  all of the outstanding AC Notes are immediately due and payable
     together with all accrued and unpaid interest thereon.

     In  connection  with the decision to abandon the  project,  CQC had entered
     into an Asset Purchase  Agreement dated April 10, 1995, for the sale of its
     assets to Aerie Riverboat Casinos of Missouri,  Inc. at a purchase price of
     $18,000,000,  which price  exceeded the  carrying  value of the CQC assets.
     However,  the  consummation of the Aerie purchase  agreement was subject to
     the satisfaction of several conditions which could not be satisfied timely,
     including,  among others,  that Jefferson City consent to the assignment of
     its  Development  Agreement  with CQC,  that  Aerie be found  preliminarily
     suitable to hold a Missouri  gaming license,  and that riverboat  gaming is
     legally permitted in Jefferson City. As a result,  the agreement with Aerie
     was terminated  without  penalty when the December 31, 1995 expiration date
     passed.  As more fully  described  in Note 3, a further  write-down  in the
     carrying  value of the  riverboat was  recognized in the fourth  quarter of
     1996,  after the election in Jefferson  City,  the  expiration of the Aerie
     contract, and due to deteriorating market conditions.

      CQC  continues  to market  its  riverboat  assets to  prospective  buyers.
     Management of the Company, AC and CQC are currently undergoing  discussions
     with an informal committee representing the holders of the AC Notes and CQC
     Notes (the "Bondholder Committee") regarding a proposed restructuring plan.
     Based on current  market  conditions,  management  does not expect that CQC
     will generate sufficient funds through the sale of its assets to repurchase
     all of the outstanding CQC Notes. The proposed restructuring plan therefore
     contemplates,  amongst other terms and conditions, (i) liquidation of CQC's
     remaining  assets for the  benefit of the CQC  bondholders,  (ii) a limited
     cash payment by AC as full and complete  satisfaction  of AC's  guaranty of
     the CQC Notes,  and (iii) AC's issuance of a reduced amount of new notes as
     full and  complete  satisfaction  of the  existing  AC Notes.  However,  no
     satisfactory  offers for the  riverboat  are  currently  available,  and no
     agreement  has been reached with the  Bondholder  Committee  regarding  the
     proposed restructuring plan.  Accordingly,  these matters raise substantial
     doubt about the ability of CQC to  continue as a going  concern.  The final
     outcome of these  matters is not  presently  determinable  and the June 30,
     1997 financial  statements of CQC do not include any adjustment  that might
     result from the outcome of this uncertainty.


3.   Construction Project And Related Contingencies:

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

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

     The Company had  contracted  with a  shipbuilder  to construct  the Capitol
     Queen riverboat. The total cost of the riverboat was $11,892,000, including
     construction period interest and other assets.  During the 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.  Such  revised  carrying  value  represents  management's  best
     estimate of the  riverboat's  current net realizable  value in a cash sale,
     based on  information  obtained  from  shipbuilders,  marine  brokers,  and
     purchase offers made to the Company from third parties.

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

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

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


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

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

     In January 1993,  prior to  incorporation,  the stockholders of the Company
     agreed that, upon being licensed in Missouri to own and operate the Capitol
     Queen,  the  Company  would  issue  shares  of its  common  stock  to three
     individuals  who assisted the then existing  stockholders of the Company in
     obtaining  the  rights  to  develop  the  Capitol  Queen  (the  "CQC  Stock
     Agreement").  The  aggregate  amount  of  stock  subject  to the CQC  Stock
     Agreement  represents 5.25% of the outstanding common stock of the Company,
     and was  subject to  increase to 8.25% if the  convention  center  required
     under the  Development  Agreement was not constructed on land controlled by
     the  parties  to the CQC Stock  Agreement.  The  Company  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.

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

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

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

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

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


4.   Long-Term Debt:

     On November  18,  1993,  the Company  completed  a private  placement  debt
     financing of $40,000,000  principal  amount of 12% First Mortgage Notes Due
     November 15, 2000 (the " CQC Notes").  The offering  generated net proceeds
     of approximately  $30,666,000  (after deducting  original issue discount of
     $7,500,000  and  debt  issue  costs).  Interest  on the  Notes  is  payable
     semi-annually.  The Notes are guaranteed by AC (which  guarantee is subject
     to release only upon licensing of the Capitol Queen, which is not expected)
     and are  collateralized  by a first  mortgage on  substantially  all of the
     assets of the Company.

     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 and May 15,  1997.  Such past due  interest,  including
     accrued interest on unpaid  interest,  in the amount of $5,788,000 has been
     accrued in the accompanying financial statements.

     As of January 1, 1995, CQC's obligations under the Indenture  governing the
     CQC Notes were amended with the requisite consent of the holders of the 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.

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, 1997 and 1996, the amounts
     payable to AC by the Company for  additional  advances were  $1,213,000 and
     $993,000, respectively. The advances are non-interest bearing.

     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 $67,000,  $67,000 and $8,000 during the years
     ended June 30, 1997, 1996 and 1995, respectively.  The Company has not paid
     any interest to AC for this obligation.


6.   Income Taxes:

     For the fiscal years June 30, 1997, 1996 and 1995, 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, 1997, 1996, and 1995, net of extraordinary  items,
     are shown below:

<TABLE>
<CAPTION>
                                            1997           1996           1995
                                            ----           ----           ----
<S>                                  <C>            <C>            <C>
Tax provision (benefit) at federal
 income tax statutory rate .......   $(1,294,000)   $(2,647,000)   $(1,831,000)
Unrecognized tax benefit from net
 operating losses ................     1,294,000      2,574,000      1,831,000
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, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>

                                                  1997           1996
                                                  ----           ----
<S>                                        <C>            <C>
Liabilities:                               $      --      $      --
                                           -----------    -----------
Assets:

Federal net operating loss carryforwards     5,877,000      5,500,000
  Valuation allowance for assets held
    for sale ...........................     1,494,000      1,494,000
                                             ---------      ---------
  Total deferred tax assets ............     7,371,000      6,994,000
                                             ---------      ---------
  Valuation allowance ..................    (7,371,000)    (6,994,000)
                                            ----------     ----------
  Net deferred taxes ...................   $      --      $      --
                                           -----------    -----------
</TABLE>


     As of  June  30,  1997,  the  Company  had a  federal  net  operating  loss
     carryforward of  approximately  $17,285,000  which expires between 2009 and
     2012.

7.   Fair Value of Financial Instruments:

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

     Management  is  unable  to  determine  a fair  value  for  the  outstanding
$20,000,000  principal amount ($17,908,000  carrying amount at June 30, 1997) of
12% First Mortgage Notes due November 15, 2000 of Capitol Queen and Casino, Inc.
(the "CQC Notes").  As of June 30, 1997 the  effective  interest rate of the CQC
Notes  was 16%.  It is not  practicable  to  determine  the fair  value of these
financial   instruments  due  to  the  debt  covenant   violations  and  related
uncertainties  involved in negotiations with the holders of the AC Notes and CQC
Notes, as more fully discussed in Note 2.

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

                                                                      SCHEDULE I

                      BECKER GAMING, INC. AND SUBSIDIARIES
                 CONDENSED FINANCIAL INFORMATION OF THE COMPANY

The following condensed financial  statements reflect the parent company (Becker
Gaming,  Inc.) only,  accounting for its wholly owned subsidiaries on the equity
method of  accounting.  All footnote  disclosures  have been  omitted  since the
information has been included in the Company's consolidated financial statements
included elsewhere in this Annual Report an Form 10-K.

                               BECKER GAMING, INC.
                              (PARENT COMPANY ONLY)

                          CONDENSED STATEMENTS OF LOSS
                             (Dollars In Thousands)




                                            Year Ended June 30,
                                 --------------------------------------
                                      1997        1996        1995
                                  --------    --------    --------

Revenues:
 Management fee revenue from
  subsidiaries ................   $  1,323    $  2,125    $  3,787
                                  --------    --------    --------
Operating expenses:
 General and administrative ...      1,194       1,204       3,398
 Depreciation and  amortization         29         253         362
                                  --------    --------    --------
                                     1,223       1,457       3,760
                                  --------    --------    --------
Other income (expenses):
 Interest expense .............       (311)       (441)       (454)
 Interest Income ..............         34        --          --
 Write-down of assets to net
  realizable value ............       --          (439)       --
 Development costs ............     (1,021)       --          --
 Loss on sale of assets .......       --          --           (76)
 Equity interest in loss
  of subsidiaries .............    (10,177)    (11,785)    (13,424)
                                  --------    --------    --------
                                   (11,475)    (12,665)    (13,954)
                                  --------    --------    --------
 Loss before provision for
  income taxes ................    (11,375)    (11,997)    (13,927)
 Provision (benefit) for
  income taxes ................       (209)       (171)       (607)
                                  --------    --------    --------
    Net income (loss) .........    (11,166)    (11,826)    (13,320)
  Retained deficit,
   beginning of year ..........    (34,683)    (22,857)     (9,537)
                                  --------    --------    --------
  Retained deficit,
   end of year ................   $(45,849)   $(34,683)   $(22,857)
                                  ========    ========    ========
--------------------------------------------------------------------------------


                      BECKER GAMING, INC. AND SUBSIDIARIES
                 CONDENSED FINANCIAL INFORMATION OF THE COMPANY

                               BECKER GAMING, INC.
                              (PARENT COMPANY ONLY)

                            CONDENSED BALANCE SHEETS
                             (Dollars In Thousands)


                                                         As of June 30,
                                             -----------------------------------
                                                     1997                1996
                                                 --------            --------
ASSETS

Current assets:
 Cash ..............................             $    429            $     27
 Income taxes receivable
  from subsidiaries ................                  987                 778
 Prepaid expenses ..................                 --                  --
                                                 --------            --------
    Total current assets ...........                1,416                 805
                                                 --------            --------

 Furniture and equipment ...........                  308                 308
 Less accumulated depreciation .....                 (123)               (108))
                                                 --------            --------
    Net property and equipment .....                  185                 200
                                                 --------            --------
Other assets:
 Assets held for sale ..............                 --                 3,233
 Deposits and other ................                  354                 523
 Investments in subsidiaries .......                3,188               2,630
 Management fees receivable from
  subsidiaries .....................               10,123               6,780
 Financing costs, net ..............                 --                  --
                                                 --------            --------
    Total other  assets ............               13,665              13,166
                                                 --------            --------
    Total assets ...................             $ 15,266            $ 14,171
                                                 ========            ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable ..................             $      8            $      1
 Accounts payable to related parties                6,766               3,901
 Accrued expenses ..................                1,137                 624
 Current portion of notes payable ..                4,416               4,416
 Current portion of obligations
  under capital leases .............                 --                 1,858
                                                    -----               -----
    Total current
     liabilities ...................               12,327              10,800
                                                 --------            --------

Obligations under capital leases,
 less current portion ..............                 --                  --
                                                 --------            --------
    Total liabilities ..............               12,327              10,800
                                                 --------            --------

 Common stock, $.01 par value,
  20,000,000 shares authorized,
  10,000,000 shares issued and
  outstanding ......................                  100                 100
 Preferred stock, $1 par value,
  5,000,000 shares authorized,
  none issued and outstanding ......                 --                  --
 Additional paid-in capital ........               48,688              37,954
 Accumulated deficit ...............              (45,849)            (34,683)
                                                 --------            --------
    Total stockholders' equity .....                2,939               3,371
                                                 --------            --------
    Total liabilities and ..........             $ 15,266            $ 14,171
     stockholders' equity ..........             ========            =========

--------------------------------------------------------------------------------
                      BECKER GAMING, INC. AND SUBSIDIARIES
                 CONDENSED FINANCIAL INFORMATION OF THE COMPANY
                               BECKER GAMING, INC.
                              (PARENT COMPANY ONLY)

                       CONDENSED STATEMENTS OF CASH FLOWS
                             (Dollars In Thousands)


                                                    Year Ended June 30,
                                        ----------------------------------------
                                                   1997        1996        1995
                                               --------    --------    --------
Cash flows from operating activities:
 Net loss .............................        $(11,166)   $(11,826)   $(13,320)
                                               --------    --------    --------
Adjustments to reconcile net loss
 to net cash provided by operating
 activities:
 Equity interest in loss
  of subsidiaries .....................          10,177      11,785      13,424
 Depreciation and amortization ........              29         253         362
 Write-down of assets to net
  realizable value ....................
 Loss on sale of assets ...............            --           439          76
 (Increase) decrease in operating assets:
 Income taxes receivable from
  subsidiaries ........................            (209)       (171)       (607)
 Prepaid expenses .....................            --            14           3
 Increase (decrease) in
  operating liabilities:
 Accounts payable .....................               7        (126)        (25)
 Accrued expenses .....................             513         453          90
 Payables to subsidiaries .............           2,865       3,434          22
                                               --------    --------    --------
    Total adjustments .................          13,382      16,081      13,345
                                               --------    --------    --------
    Net cash provided by
     operating activities .............           2,216       4,255          25

Cash flows from investing activities:
 Increase in management fees receivable
  from subsidiaries ...................          (3,343)     (3,405)     (3,109)
 Capital expenditures .................            --           (31)       (118)
 Decrease in deposits and other .......             154        (113)        (48)
 Proceeds from sale of assets .........           3,233        --           662
                                               --------    --------    --------
    Net cash used in
     investing activities .............              44      (3,549)     (2,613)
                                               --------    --------    --------
Cash flows from financing
 activities:
 Proceeds from issuance of
  notes payable .......................            --          --         4,116
 Payments on capital
  lease obligations ...................          (1,858)       (719)     (1,495)
                                               --------    --------    --------
    Net cash provided by (used in)
     financing activities .............          (1,858)       (719)      2,621
                                               --------    --------    --------
    Net increase in cash and cash
     equivalents ......................             402         (13)         33
Cash and cash equivalents,
beginning of period ...................              27          40           7
                                               --------    --------    --------
Cash and cash equivalents, end
of period .............................        $    429    $     27    $     40
                                               ========    ========    ========

--------------------------------------------------------------------------------
<TABLE>

                                                                     SCHEDULE II

                      BECKER GAMING, INC. AND SUBSIDIARIES
              VALUATION AND QUALIFYING ACCOUNTS For The Years Ended
                          June 30, 1997, 1996 And 1995

<CAPTION>
                                                                 Additions
                                                          ----------------------
                                             Balance at  Charged to   Charged to
                                             Beginning   Costs and    Other
               Description                   of Year     Expenses     Accounts
               -----------                   -------     --------     --------


Allowance for doubtful accounts:
<S>                                        <C>        <C>          <C>
  Year ended June 30, 1997 ..............  $   88,000   $     --     $     --
                                           ========== ==========   ==========

  Year ended June 30, 1996 ..............  $   44,000   $   44,000   $     --
                                             ========== ==========   ==========
  Year ended June 30, 1995 ..............  $    --      $   44,000   $     --
                                             ========== ==========   ==========
</TABLE>
<TABLE>
<CAPTION>
                                                            Balance at
                                                            End of
               Description                     Deductions   Year
               -----------                     ----------   ----
Allowance for doubtful accounts:

<S>                                            <C>          <C>
  Year ended June 30, 1997 .............       $   88,000   $     --
                                               ==========   ==========
  Year ended June 30, 1996 .............       $     --     $   88,000
                                               ==========   ==========

  Year ended June 30, 1995 .............       $     --     $   44,000
</TABLE>
                                             ==========   ==========
<TABLE>

<S>                                        <C>          <C>          <C>
Deferred Tax Asset Valuation Allowance:
  Year ended June 30, 1997 ..............  $8,130,000   $     --     $4,644,000
                                           ==========   ==========   ==========

  Year ended June 30, 1996 ..............  $5,343,000   $     --     $2,787,000
                                           ==========   ==========   ==========

  Year ended June 30, 1995 ..............  $1,378,000   $     --     $3,965,000
                                           ==========   ==========   ==========
</TABLE>
<TABLE>
<CAPTION>
Deferred Tax Asset Valuation Allowance:
<S>                                            <C>          <C>
  Year ended June 30, 1997 .............       $     --     $12,774,000
                                               ==========   ===========

  Year ended June 30, 1996 .............       $     --     $ 8,130,000
                                               ==========   ===========

  Year ended June 30, 1995 .............       $     --     $ 5,343,000
                                               ==========   ===========
</TABLE>

--------------------------------------------------------------------------------
<TABLE>
                                                                     SCHEDULE II

                             ARIZONA CHARLIE'S, INC.
                        VALUATION AND QUALIFYING ACCOUNTS

                For The Years Ended June 30, 1997, 1996 And 1995

<CAPTION>
                                                                       Additions
                                                          ----------------------
                                             Balance at  Charged to   Charged to
                                             Beginning   Costs and    Other
               Description                   of Year     Expenses     Accounts
               -----------                   -------     --------     --------

<S>                                        <C>          <C>          <C>
Allowance for doubtful accounts:

  Year ended June 30, 1997 ..............  $2,193,000   $  220,000   $     --
                                            ==========   ==========   ==========
  Year ended June 30, 1996 ..............  $1,592,000   $  601,000   $     --
                                            ==========   ==========   ==========

  Year ended June 30, 1995 ..............  $     --     $1,592,000   $     --
                                            ==========   ==========   ==========
</TABLE>
<TABLE>
<CAPTION>
                                                            Balance at
                                                            End of
               Description                     Deductions   Year
               -----------                     ----------   ----
<S>                                            <C>          <C>
Allowance for doubtful accounts:

  Year ended June 30, 1997 .............       $     --     $2,413,000
                                               ==========   ==========

  Year ended June 30, 1996 .............       $     --     $2,193,000
                                               ==========   ==========

  Year ended June 30, 1995 .............       $     --     $1,592,000
                                               ==========   ==========
</TABLE>
<TABLE>

Deferred Tax Asset Valuation Allowance:
<S>                                        <C>          <C>          <C>
  Year ended June 30, 1997 ..............  $3,322,000   $     --     $2,374,000
                                            ==========   ==========   ==========

  Year ended June 30, 1996 ..............  $1,840,000   $     --     $1,482,000
                                            ==========   ==========   ==========

  Year ended June 30, 1995 ..............  $  213,000   $     --     $1,627,000
                                            ==========   ==========   ==========
</TABLE>
<TABLE>

Deferred Tax Asset Valuation Allowance:
<S>                                            <C>          <C>
  Year ended June 30, 1997 .............       $     --     $5,696,000
                                               ==========   ==========

  Year ended June 30, 1996 .............       $     --     $3,322,000
                                               ==========   ==========

  Year ended June 30, 1995 .............       $     --     $1,840,000
                                               ==========   ==========
</TABLE>

--------------------------------------------------------------------------------
<TABLE>
                                                                     SCHEDULE II

                                SUNSET COIN, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
                              For The Years Ended
                          June 30, 1997, 1996 And 1995

                                                             Additions
                                                     ------------------------
<CAPTION>
                                        Balance at    Charged to    Charged to
                                        Beginning     Costs and     Other
                 Description            of Year       Expenses      Accounts
--------------------------------------  -----------   -----------   -----------

Allowance for doubtful accounts
<S>                                     <C>           <C>           <C>
 Year ended June 30, 1997 ............  $    88,000   $      --     $      --
                                        ===========   ===========   ===========

 Year ended June 30, 1996 ............  $    44,000   $    44,000   $      --
                                        ===========   ===========   ===========

 Year ended June 30, 1995 ............  $      --     $    44,000   $      --
                                        ===========   ===========   ===========
</TABLE>
<TABLE>
<CAPTION>
                                                     Balance at
                                                      End of
                 Description            Deductions    Year
--------------------------------------  -----------   --------
<S>                                     <C>           <C>
Allowance for doubtful accounts

 Year ended June 30, 1997 ............  $    88,000   $   --
                                        ===========   ========

 Year ended June 30, 1996 ............  $      --     $ 88,000
                                        ===========   ========

 Year ended June 30, 1995 ............  $      --     $ 44,000
                                        ===========   ========
</TABLE>

--------------------------------------------------------------------------------
                                                                     SCHEDULE II

                          CAPITOL QUEEN & CASINO, INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                          For The Years Ended June 30,
                               1997, 1996 And 1995
<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, 1997 ............  $ 6,994,000   $      --     $   377,000
                                        ===========   ===========   ===========

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

 Year ended June 30, 1995 ............  $ 1,181,000   $      --     $ 3,239,000
                                        ===========   ===========   ===========
</TABLE>

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

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

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

 Year ended June 30, 1995 ............  $      --     $ 4,420,000
                                        ===========   ===========
</TABLE>

--------------------------------------------------------------------------------
<TABLE>

                                  EXHIBIT INDEX
                                  -------------

    <S>    <C>
    3.1    Articles of  Incorporation of the Company.*

    3.2    By-Laws of the Company.*

    4.1    Indenture dated November 15, 1993 among Arizona Charlie's, as issuer,
           Sunset Coin,  as  guarantor,  and IBJ Schroder  Bank & Trust  Company
           ("IBJ"), as trustee, as amended by First Supplemental Indenture dated
           January 1, 1995.*

    4.2    Indenture  dated  November 15, 1993 among Capitol  Queen,  as issuer,
           Arizona Charlie's,  as guarantor,  and IBJ, as trustee, as amended by
           First Supplemental Indenture dated January 1, 1995.*

    10.1   Form  of  amended  Warrant   Agreement  among  the  Company  and  the
           purchasers named therein (the "Purchasers").*

    10.2   Fee and Leasehold Deed of Trust,  Assignment of Leases and Subleases,
           Security  Agreement  and Fixture  Filing  dated  November 15, 1993 by
           Arizona  Charlie's  and CLC,  as  grantors,  to Land Title of Nevada,
           Inc., as trustee, for the benefit of IBJ, as collateral agent.*

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

    10.5   Form of Security  Agreements  dated November 15, 1993 between each of
           Arizona Charlie's and Capitol Queen and IBJ, as collateral agent.*

    10.6   Form of Stock Pledge  Agreements dated November 15, 1993 between each
           of Arizona Charlie's and Capitol Queen and IBJ, as collateral agent.*

    10.7   Form of Collateral  Agency  Agreement  dated  November 15, 1993 among
           Arizona  Charlie's,  CLC and IBJ, as trustee and collateral agent and
           between Capitol Queen and IBJ, as trustee and collateral agent.*

    10.8   Promissory  Notes dated December 24, 1993 made by each of the Beckers
           in favor of Arizona Charlie's.*

    10.9   Promissory  Notes dated December 24, 1993 made by each of the Beckers
           in favor of Sunset Coin.*

    10.10  Tax Indemnity Agreement dated December 24, 1993 among
           Arizona Charlie's, Sunset Coin, Becker Gaming Group
           and each of the Beckers.*

    10.11  Registration  Rights  Agreements  dated as of May 31,  1994 among the
           Company and each of the Beckers.*

    10.12  Form of  Management  Agreements  dated as of May 31, 1994 between the
           Company and each of Arizona Charlie's, Capitol Queen, Sunset Coin and
           Becker
           Gaming Group.*

    10.13  Form of Tax  Allocation  Agreements  dated as of May 31, 1994 between
           the Company and each of Arizona Charlie's, Sunset Coin, Becker Gaming
           Group and
           Capitol Queen.*

    10.14  Form of  Consulting  Agreements  dated as of May 31, 1994 between the
           Company and each of Ernest A. Becker,  III, Ernest A. Becker,  IV and
           Barry W.
           Becker.*

    10.15  Employment Agreement dated as of May 31, 1994 between
           the Company and Bruce F. Becker.*

    10.16  Stockholders  Agreements  dated as of May 31,  1994 among each of the
           Beckers.*

    10.17  Leases  dated May 1, 1988 and  August  21,  1990  between  Charleston
           Heights Shopping Center and Arizona Charlie's.*

    10.18  Ground Lease dated December 1, 1986 between Becker Investment Company
           and Becker  Family Trust No. 2 and Becker  Gaming  Group;  Assignment
           dated September 16, 1987 assigning the interest of Becker  Investment
           Company and Becker Family Trust No. 2 to Lakeside
           Partners.*

    10.19  Lease dated August 12, 1986 between Fremont West
           Shopping Center and Becker Gaming Group.*

    10.20  Lease dated July 27, 1988 between Becker Investment
           Co. and Becker Gaming Group.*

    10.21  Lease  dated  September  19,  1994  between   Weddington   Investment
           Partnership and Innerout, Inc.*

    10.22  Lease dated March 24, 1995 between Sunset Coin, Inc.
           and Innerout, Inc.*

    10.23  Lease agreement between Arizona Charlie's, Inc. and
           Bruce F. Becker.*

    10.24  Aircraft  Purchase  Agreement  dated  July 1,  1996  between  Arizona
           Charlie's and Limerick Holdings, LLC.

    21.1   Subsidiaries of the Company.

    27.1   Financial Data Schedule

-----------
<FN>

* Incorporated by reference to the Company's  Registration Statement on Form S-1
(33-76368)  declared effective by the Securities and Exchange  Commission on May
20, 1994.

     (b)  Reports on Form 8-K
          None.
</FN>
</TABLE>