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

                                    FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549
                            -----------------------


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

                 For the quarterly period ended: December 31, 1996

                                       OR

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


                         Commission file number 33-76368

                               BECKER GAMING, INC.
                              -------------------
             (Exact name of registrant as specified in its charter)

     Nevada                                                 88-0303849
     ------                                                 ----------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                         Identification No.)

740 S. Decatur
Las Vegas, Nevada                                           89107
-----------------                                           -----
(Address of principal                                    (Zip Code)
 executive offices)

                                 (702) 258-5200

              (Registrant's telephone number, including area code)

                                 Not Applicable
                                 --------------
             (Former name, former address and former fiscal year if


                           changed since last report)

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,  and (2) has been subject to such filing  requirements
for the past 90 days.

     YES [X]                                        NO [ ]


Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

                                                  Outstanding at
Class of common stock                            January 31, 1997
---------------------                             --------------
  $.01 par value                                10,000,000 shares

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

                      BECKER GAMING, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                                      INDEX


PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements (Unaudited)

                                                                        Page

BECKER GAMING, INC. AND SUBSIDIARIES
    Consolidated Balance Sheets as of December 31, 1996 and
        June 30, 1996 ..................................................  1
    Consolidated Statements of Operations and Retained Earnings
        (Deficit) for the Three-Month Periods Ended
        December 31, 1996 and 1995 and for the Six-Month Periods
        Ended December 31, 1996 and 1995 ...............................  2
    Consolidated Statements of Cash Flows for the Six-Month
        Periods Ended December 31, 1996 and 1995 .......................  3
    Notes to Consolidated Financial Statements .........................  4

ARIZONA CHARLIE'S, INC
    Balance Sheets as of December 31, 1996 and June 30, 1996............ 10
    Statements of Operations and Retained Earnings (Deficit) for the
        Three-Month Periods Ended December 31, 1996
        and 1995 and for the Six-Month Periods Ended
        December 31, 1996 and 1995.......................................11
    Statements of  Cash Flows for the Six-Month Periods
        Ended December 31, 1996 and 1995.................................12
    Notes to Financial Statements........................................13

SUNSET COIN, INC
    Balance Sheets as of December 31, 1996 and June 30, 1996.............19
    Statements of Income and Retained Earnings for the Three-Month
        Periods Ended December 31, 1996 and 1995 and for the
        Six-Month Periods Ended December 31, 1996 and 1995...............20
    Statements of Cash Flows for the Six-Month Periods Ended
        December 31, 1996 and 1995.......................................21
    Notes to Financial Statements........................................22

CAPITOL QUEEN & CASINO, INC
    Balance Sheets as of December 31, 1996 and June 30, 1996.............27
    Statements of Loss Incurred During the Development Stage
        for the Three-Month Periods Ended  December 31, 1996
        and 1995 and for the Six-Month Periods Ended  December
        31, 1996 and 1995 and for the period  from  January 20,
        1993 (the date of inception) through December 31, 1996...........28
    Statements of Cash Flows for the for Six-Month Periods Ended
        December 31, 1996 and 1995  and for the period from January 20,
        1993 (the date of inception) through December 31, 1996...........29
    Notes to Financial Statements........................................30


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



    Becker Gaming, Inc....................................................35
    Arizona Charlie's, Inc................................................35
    Sunset Coin, Inc......................................................41
    Capitol Queen & Casino, Inc...........................................44

Part II.  Other Information
    Item 1  Legal Proceedings.............................................45
    Item 6  Exhibits and Reports on Form 8-K..............................47

Signatures................................................................48

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

                      BECKER GAMING, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    (Dollars In Thousands, Except Share Data)



                                     ASSETS


                                                    December 31,        June 30,
                                                        1996              1996
                                                    ------------    ------------
                                                    (Unaudited)

Current assets:

 Cash and cash equivalents .......................      $  8,056       $  6,745
 Restricted cash, in escrow account ..............            40             40
 Trade and other accounts
   receivable ....................................           821            626
 Receivables from related parties ................            51             33
 Inventories .....................................           797            729
 Prepaid expenses ................................           806          1,244
 Current portion of notes
   receivable ....................................           127            153
 Assets held for sale ............................            --          3,233
                                                        --------       --------
     Total current  assets .......................        10,698         12,803
                                                        --------       --------
Property and equipment:
 Land improvements ...............................         1,628          1,628
 Building and improvements .......................        38,282         38,282
 Leasehold improvements ..........................           983            983
 Furniture and equipment .........................        28,173         27,773
                                                        --------       --------
                                                          69,066         68,666

 Less, accumulated depreciation ..................       (20,714)       (19,078)
                                                        --------       --------
                                                          48,352         49,588
 Land ............................................           208            208
                                                        --------       --------
     Net property and  equipment .................        48,560         49,796
                                                        --------       --------

Other assets:

 Assets held for sale ............................         7,754          7,754

 Notes receivable, less ..........................           440            472
   current portion, net
 Receivables from related parties, less ..........           165            165
   current portion
 Deposits and other ..............................         1,572          1,375
 Financing costs, net ............................         2,769          3,112
                                                        --------       --------
     Total other assets ..........................        12,700         12,878
                                                        --------       --------
     Total assets ................................      $ 71,958       $ 75,477
                                                        ========       ========

<PAGE>

                 LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)


                                                   December  31,        June 30,
                                                         1996             1996
                                                   ------------     ------------
                                                     (Unaudited)

Current  liabilities:
 Trade accounts payable ..........................      $  1,608       $  1,761
 Accrued expenses ................................         9,982          6,409
 Notes payable ...................................          --              110
 Current portion of
   subordinated notes
   payable to stockholders .......................           800            800
 Current portion of
   long term debt ................................           433            381
 Long-term debt classified as
    current, net of unamortized
    original issue discount of
    $2,204 and $2,474,  respectively .............        72,796         72,526
 Current portion of obligations
    under capital leases .........................           166          1,960
                                                        --------       --------
     Total current liabilities ...................        85,785         83,947

Long-term debt, less
  current portion ................................         1,164          1,330
Subordinated notes payable
 to stockholders,
 less current portion ............................         8,000          8,000
Obligations under capital
 leases, less current portion ....................           145            197
                                                        --------       --------
     Total liabilities ...........................        95,094         93,474
                                                        --------       --------

Commitments and contingencies Stockholders' equity(deficit):

 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 ......................         9,006          9,006
 Retained earnings (deficit) .....................       (32,242)       (27,103)
                                                        --------       --------
     Total stockholders' equity (deficit) ........       (23,136)       (17,997)
                                                        --------       --------
     Total liabilities and
     stockholders' equity(deficit) ...............      $ 71,958       $ 75,477
                                                        ========       ========


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

                      BECKER GAMING, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND RETAINED EARNINGS (DEFICIT)
                  (Dollars In Thousands, Except Per Share Data)
                                   (Unaudited)



                                                 Three Months Ended December 31,
                                                         1996              1995
                                                 ------------      ------------
Revenues:
   Gaming ..................................     $     14,468      $     16,046
   Food and beverage .......................            4,624             4,601
   Hotel ...................................              924               771
   Gift shop ...............................              138               153
   Other ...................................              407               230
                                                 ------------      ------------
        Gross revenues .....................           20,561            21,801
Less, promotional allowances ...............           (2,637)           (2,379)
                                                 ------------      ------------
        Net revenues .......................           17,924            19,422

Operating expenses:
   Gaming ..................................            3,746             4,746
   Food and beverage .......................            5,498             5,547
   Hotel ...................................              425               417
   Gift shop ...............................              126               127
   Advertising and promotion ...............            1,396             1,184
   General and administrative ..............            5,028             5,331
   Rent expense paid to related party ......              106               109
   Depreciation and  amortization ..........            1,030             1,137
                                                 ------------      ------------
        Total operating expenses ...........           17,355            18,598
                                                 ------------      ------------
        Operating income ...................              569               824
                                                 ------------      ------------
Other income(expenses):
   Development costs .......................             ( 61)             (702)
   Interest income .........................               38                28
   Interest expense ........................           (2,676)           (2,668)
   Other, net ..............................              (11)               (6)
                                                 ------------      ------------
        Total other income (expense) .......           (2,688)           (3,348)
                                                 ------------      ------------
        Loss before income taxes ...........           (2,119)           (2,524)
Provision for income taxes .................             --                --
                                                 ------------      ------------
        Net loss ...........................           (2,119)           (2,524)

        Retained earnings (deficit),
        beginning of period ................          (30,123)          (17,472)
                                                 ------------      ------------

        Retained earnings(deficit),
        end of period ......................     ($    32,242)     ($    19,996)
                                                 ============      ============

        Net loss per share of
        common stock .......................     $      (0.21)     $      (0.25)
                                                 ============      ============
        Weighted average common
        shares outstanding .................       10,000,000        10,000,000
                                                 ============      ============
<PAGE>


                                                  Six Months Ended December 31,
                                                         1996              1995
                                                 ------------      ------------
Revenues:
   Gaming ..................................     $     28,677      $     31,371
   Food and beverage .......................            9,428             8,913
   Hotel ...................................            1,685             1,493
   Gift shop ...............................              269               307
   Other ...................................              678               549
                                                 ------------      ------------
        Gross revenues .....................           40,737            42,633
Less, promotional allowances ...............           (5,221)           (4,468)
                                                 ------------      ------------
        Net revenues .......................           35,516            38,165

Operating expenses:
   Gaming ..................................            7,643             8,896
   Food and beverage .......................           10,988            10,761
   Hotel ...................................              904               816
   Gift shop ...............................              184               234
   Advertising and promotion ...............            2,728             2,388
   General and administrative ..............           10,509            10,672
   Rent expense paid to related party ......              210               205
   Depreciation and amortization ...........            2,051             2,264
                                                 ------------      ------------
        Total operating expenses ...........           35,217            36,236
                                                 ------------      ------------
        Operating income ...................              299             1,929
                                                 ------------      ------------
Other income(expenses):
   Development costs .......................             (134)             (868)
   Interest income .........................               69                32
   Interest expense ........................           (5,414)           (5,249)
   Other, net ..............................               41                36
                                                 ------------      ------------
        Total other income (expense) .......           (5,438)           (6,049)
                                                 ------------      ------------
        Loss before  income taxes ..........           (5,139)           (4,120)
Provision for income taxes .................             --                --
                                                 ------------      ------------
        Net loss ...........................           (5,139)           (4,120)

        Retained earnings (deficit),
        beginning of period ................          (27,103)          (15,876)
                                                 ------------      ------------

        Retained earnings(deficit),
        end of period ......................     ($    32,242)     ($    19,996)
                                                 ============      ============

        Net loss per share of
        common stock .......................     $      (0.51)     $      (0.41)
                                                 ============      ============
        Weighted average common
        shares outstanding .................       10,000,000        10,000,000
                                                 ============      ============


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

                      BECKER GAMING, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Dollars In Thousands)
                                   (Unaudited)

                                                   Six Months Ended December 31,
                                                             1996          1995
                                                         --------      --------
Cash flows from operating activities:
  Net loss .........................................     $ (5,139)     $ (4,120)
  Adjustments to reconcile net loss to net
     cash (used in) provided by operating
     activities:
     Depreciation and amortization .................        2,051         2,264
     Amortization of original issue discount .......          269           267
     Net loss on sale of assets ....................           --            17

(Increase) decrease in operating assets:
    Receivables ....................................         (247)          245
    Receivables from related parties ...............         (245)          183
    Inventories ....................................          (67)           10
    Prepaid expenses ...............................          438           444
    Deposits and other assets ......................          165           101

Increase (decrease) in operating liabilities:
    Accounts payable, net of amounts for
     capital expenditures ..........................         (248)           45
    Accrued expenses ...............................        3,583         1,473
                                                         --------      --------
            Total adjustments ......................        5,699         5,049
                                                         --------      --------
        Net cash provided by
        operating activities .......................          560           929
                                                         --------      --------

Cash flows from investing activities:
  Capital expenditures, net of
   construction accounts payable ...................         (393)         (463)
  Proceeds from sale of equipment ..................        3,233            33
  Issuance of notes receivable .....................           --           (31)
  Payments of notes receivable .....................           31            30
                                                         --------      --------
    Net cash provided by (used in)
     investing activities ..........................        2,871          (431)
                                                         --------      --------

Cash flows from financing activities:
  Proceeds from notes payable ......................           --           177
  Payments under notes payable .....................         (274)         (326)
  Payments under capital lease obligations .........       (1,846)         (430)
                                                         --------      --------
    Net cash used in financing activities
                                                           (2,120)         (579)
                                                         --------      --------
    Net increase in cash and cash equivalents ......        1,311           (81)
Cash and cash equivalents,
 beginning of period ...............................        6,745         6,656
                                                         --------      --------
Cash and cash equivalents,
 end of period .....................................     $  8,056      $  6,575
                                                         ========      ========

Supplemental cash flow disclosures:

   Interest paid, net of amount capitalized ........     $  2,784      $  3,868
                                                         ========      ========
   Income taxes paid ...............................           $-            $-
                                                         ========      ========
   Capitalized lease obligations incurred ..........           $-      $     70
                                                         ========      ========

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

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



1)   Basis of Presentation:

     The accompanying  consolidated  financial statements of Becker Gaming, Inc.
("BGI" or the "Company") are unaudited and have been prepared in accordance with
generally accepted accounting  principles for interim financial  information and
with  the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all  adjustments  and normal  recurring  accruals
considered  necessary  for a fair  presentation  have been  included.  Operating
results for the three and  six-month  periods  ended  December  31, 1996 are not
necessarily  indicative  of the results  that may be expected for the year ended
June 30, 1997. The accompanying  unaudited consolidated financial statements and
footnotes should be read in conjunction with the financial  statements  included
in the Company's annual report on Form 10-K for the year ended June 30, 1996.

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

     Capitol Queen and Casino,  Inc. ("CQC"),  a wholly owned subsidiary of BGI,
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 substantially  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.

<PAGE>


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


     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 (the "CQC  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
repurchase of $20,000,000 principal amount of 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 remain 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 each of
November 15, 1995, May 15, 1996, and November 15, 1996. Arizona Charlie's,  Inc.
("AC"), another wholly owned subsidiary of BGI and a guarantor of the CQC Notes,
does not have funds  available to advance on behalf of CQC at December 31, 1996.
AC is restricted from selling assets under the covenants governing its 12% First
Mortgage  Notes due November 15, 2000 (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  to satisfy its  guarantee  obligation  with respect to the CQC Notes.
However,  in January 1997 Management has taken steps to increase  profitably and
generate  additional cash flow at AC, including  down-sizing  employee  staffing
levels and  associated  payroll costs in certain  departments.  Other  operating
departments   have  been  combined  to  eliminate   supervisory  and  management
positions. Also, the existing restaurants and food facilities are being analyzed
to determine if the current pricing  structures are meeting the overall goals of
attracting a sufficient  number of casino patrons as designed and  entertainment
events  including  headliner  concerts,  lounge acts,  and  professional  boxing
matches are being reevaluated to determine if these events attract the necessary
casino patrons desired.  However,  no assurance can be made regarding the future
performance of AC. Such  performance may be affected or influenced by prevailing
economic conditions and financial,  business and competitive factors, many which
are beyond AC's control.

<PAGE>

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

     As of December 31, 1996, AC is in default of certain debt  covenants  under
the  Indenture  (the "AC  Indenture")  governing  the AC Notes.  These  covenant
violations  include (i) a failure to meet a minimum fixed charge coverage ratio,
as  defined in the AC  Indenture,  and (ii)  advances  by AC to BGI in excess of
amounts  permitted under the AC Indenture.  Such advances remain  outstanding at
December 31, 1996. In addition,  beginning with the quarter ending  December 31,
1995, AC has not met the minimum tangible net worth requirement set forth in the
AC Indenture.  Under the terms of the AC  Indenture,  AC is required to offer to
buy back $22,000,000 of the outstanding AC Notes at December 31, 1996 due to the
failure to meet this  covenant,  and such amounts  shall  increase by $5,500,000
each fiscal quarter so long as AC is in default of the covenant. AC has not made
such offer and does not intend to do so while  discussions  with the  Bondholder
Committee described below are in process. As a result of these covenant defaults
under covenants,  the AC Notes have been classified as currently  payable in the
accompanying financial statements.

     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, BGI  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 December 31, 1996, CQC had a net deficit of
approximately $16,000,000.

     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,  Sunset Coin, Inc.  ("SC"),  another wholly
owned  subsidiary  of BGI and a guarantor of the AC Notes,  to pay  dividends or
management fees, or incur additional indebtedness.  At December 31, 1996, AC had
a net deficit of  approximately  $13,000,000  and  $1,700,000 of SC's net assets
were restricted by such indenture covenants.

<PAGE>

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

     CQC  continues to market its  riverboat  assets to  prospective  buyers and
management is continuing its discussions with an informal committee representing
the holders of the AC Notes and CQC notes (the "Bondholder Committee") regarding
a proposed  restructuring  plan. Based on current market conditions,  management
does not expect that CQC will generate  sufficient funds through the sale of its
assets  to  repurchase  all  of  the   outstanding   CQC  Notes.   The  proposed
restructuring plan therefore contemplates the issuance of additional AC Notes to
fulfill AC's guarantee  obligation for remaining  principal and accrued interest
of the CQC Notes after applying sale proceeds.  However,  no satisfactory offers
for the  riverboat are  currently  available,  and no agreement has been reached
with  the  Bondholder  Committee  regarding  the  proposed  restructuring  plan.
Accordingly,  these  matters  raise  substantial  doubt about the ability of 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 December  31, 1996  financial  statements  of the Company do not include any
adjustment that might result from the outcome of this uncertainty.

     Management of AC has taken several steps to overcome the substantial  doubt
as to its ability  continue as a going concern  including  reducing  expenses as
previously  described,  eliminating  costs  associated  with the maintenance and
operation of the BGI airplane that was sold in July, 1996, the on-going attempts
to sell the CQC riverboat and use the proceeds to retire  indebtedness,  pursuit
of new business  development  activities  to  strengthen  BGI's  position in the
gaming  market,   and  continuing   negotiations  with  an  informal   committee
representing  the  holders  of the AC Notes and CQC  Notes to reach a  favorable
restructure of such Notes.

3)   Assets Held For Sale:

     At  December  31,  1996,  BGI had  $7,754,000  of  assets  held  for  sale,
consisting  of land and  riverboat  assets which were written down to a carrying
value  based on  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.

     Also,  on July 26, 1996,  the Company sold its  corporate  aircraft for net
proceeds  of  approximately  $3,200,000  and  retired  a related  capital  lease
obligation of approximately $1,800,000.  During the quarter ended June 30, 1996,
the Company  recognized  a write-down  in the carrying  value of the aircraft of
approximately  $440,000 based upon the difference between the carrying value and
the contracted sales price.

================================================================================
<PAGE>
                             ARIZONA CHARLIE'S, INC.

               (A Wholly Owned Subsidiary Of Becker Gaming, Inc. )
                                 BALANCE SHEETS
                             (Dollars In Thousands)



                                     ASSETS


                                              December 31,    June 30,
                                                     1996        1996
                                                 --------    --------
                                                 (unaudited)
Current assets:

   Cash and cash equivalents .................   $  4,970    $  4,591
   Restricted cash, in escrow account ........         10          10
   Trade and other accounts receivable .......        479         473
   Receivable from related  parties ..........      2,567       1,539
   Inventories ...............................        625         575
   Prepaid expenses ..........................        704       1,118
                                                 --------    --------
     Total current assets ....................      9,355       8,306
                                                 --------    --------

Property and equipment:

   Building and improvements .................     37,488      37,488
   Furniture and equipment ...................     22,774      22,575
   Land improvements .........................      1,628       1,628
                                                 --------    --------
                                                   61,890      61,691
   Less, accumulated  depreciation ...........    (17,659)    (16,218)
                                                 --------    --------
                                                   44,231      45,473
   Land ......................................        208         208
                                                 --------    --------
       Net property and equipment ............     44,439      45,681
                                                 --------    --------

Other assets:

   Receivable from related party, noncurrent..        210         987
   Deposits and other ........................        452         460
   Note receivable from related party.........      4,416       4,416
   Financing costs, less accumulated
   amortization of $1,643 at December 31,
   1996 and $1,366 June 30, 1996 .............      2,230       2,507
                                                 --------    --------
       Total other  assets ...................      7,308       8,370
                                                 --------    --------
       Total assets ..........................   $ 61,102    $ 62,357
                                                 ========    ========
<PAGE>

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)



                                               December 31,   June 30,
                                                     1996        1996
                                                 --------    --------
                                               (unaudited)


Current liabilities:
   Trade accounts payable ....................   $  1,175    $  1,452
   Accounts payable to related parties .......          3           4
   Accrued expenses ..........................      5,832       3,323
   Management fees due Becker Gaming, Inc. ...      5,024       4,682
   Notes payable .............................         --         110
   Notes payable to related party ............      2,250       2,250
   Current portion of obligations
     under capital leases ....................         11          15
   Long-term debt classified as current due
     to default under covenants ..............     55,000      55,000
                                                 --------    --------
           Total current liabilities .........     69,295      66,836

Subordinated notes payable to prior
  stockholders ...............................      5,000       5,000
Obligations under capital leases,
  less current portion .......................         19          22
                                                 --------    --------
           Total liabilities .................     74,314      71,858
                                                 --------    --------

Commitments and contingencies

Stockholders' equity (deficit):
  Common stock, no par value,
   2,500 shares authorized, 1,000
   shares issued and outstanding .............        469         469

  Retained earnings (deficit) ................    (13,681)     (9,970)
                                                 --------    --------

           Total stockholders' equity
           (deficit) .........................    (13,212)     (9,501)
                                                 --------    --------

           Total liabilities  and
           stockholders' equity (deficit) ....   $ 61,102    $ 62,357
                                                 ========    ========


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

            STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
                             (Dollars In Thousands)
                                   (Unaudited)



                                                 Three Months Ended December 31,
                                                           1996            1995
                                                       --------        --------
Revenues:
  Gaming .......................................       $ 12,296        $ 13,642
  Food and beverage ............................          3,533           3,390
  Hotel ........................................            924             771
  Gift shop ....................................            138             153
  Management fee from affiliates ...............            691             725
  Other ........................................            392             215
                                                       --------        --------
      Gross revenues ...........................         17,974          18,896
Less, promotional allowances ...................         (2,238)         (1,945)
                                                       --------        --------
      Net revenues .............................         15,736          16,951
                                                       --------        --------

Operating expenses:
  Gaming .......................................          3,232           4,100
  Food and beverage ............................          4,287           4,140
  Hotel ........................................            425             417
  Gift shop ....................................            126             127
  Advertising and promotion ....................          1,323           1,145
  General and administrative ...................          4,297           4,876
  Management fee - Becker Gaming, Inc. .........            864             906
  Rent expense paid to related party ...........             56              54
  Depreciation and amortization ................            861             893
                                                       --------        --------
      Total operating expenses .................         15,471          16,658
                                                       --------        --------
      Operating income (loss)...................            265             293
                                                       --------        --------

Other income (expenses):
  Gain (loss) on sale of assets .................            --             (14)
  Interest income ..............................             69              75
  Interest expense .............................         (1,810)         (1,762)
  Other, net ...................................              9              10
                                                       --------        --------
      Total other expenses .....................         (1,732)         (1,691)
                                                       --------        --------
      Income (loss) before taxes ...............         (1,467)         (1,398)
Provision for income tax .......................             --              --
                                                       --------        --------
      Net (loss) income .........................      ($ 1,467)       ($ 1,398)

Retained earnings (deficit),
  beginning of period ..........................        (12,214)         (7,246)
                                                       --------        --------

Retained earnings (deficit),
   end of period ...............................       ($13,681)       ($ 8,644)
                                                       ========        ========
<PAGE>



                                                   Six Months Ended December 31,
                                                           1996            1995
                                                       --------        --------
Revenues:
  Gaming .......................................       $ 24,525        $ 26,533
  Food and beverage ............................          7,034           6,463
  Hotel ........................................          1,685           1,493
  Gift shop ....................................            269             307
  Management fee from affiliates ...............          1,367             725
  Other ........................................            650             515
                                                       --------        --------
       Gross revenues ..........................         35,530          36,036
 Less, promotional allowances ..................         (4,433)         (3,614)
                                                       --------        --------
      Net revenues .............................         31,097          32,422
                                                       --------        --------

Operating expenses:
  Gaming .......................................          6,558           7,638
  Food and beverage ............................          8,583           8,015
  Hotel ........................................            904             816
  Gift shop ....................................            184             234
  Advertising and promotion ....................          2,612           2,321
  General and administrative ...................          8,984           9,674
  Management fee - Becker Gaming, Inc. .........          1,709           1,763
  Rent expense paid to related party ...........            111             108
  Depreciation and amortization ................          1,719           1,779
                                                       --------        --------
      Total operating expenses .................         31,364          32,348
                                                       --------        --------
      Operating income (loss)...................           (267)             74
                                                       --------        --------

Other income (expenses):
  Gain (loss) on sale of assets ................             --             (11)
  Interest income ..............................            137             144
  Interest expense .............................         (3,620)         (3,475)
  Other, net ...................................             39              35
                                                       --------        --------
      Total other expenses .....................         (3,444)         (3,307)
                                                       --------        --------
      Income (loss) before taxes ...............         (3,711)         (3,233)
Provision for income tax .......................           --              --
                                                       --------        --------
      Net (loss) income ........................       ($ 3,711)       ($ 3,233)

Retained earnings (deficit),
  beginning of period ..........................         (9,970)         (5,411)
                                                       --------        --------

Retained earnings (deficit),
  end of period ................................       ($13,681)       ($ 8,644)
                                                       ========        ========


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

                            STATEMENTS OF CASH FLOWS
                             (Dollars In Thousands)

                                   (Unaudited)


                                                   Six Months Ended December 31,
                                                               1996        1995
                                                           --------    --------
Cash flows from operating activities:
    Net income (loss) ..................................   ($ 3,711)   ($ 3,233)

    Adjustments to reconcile net income
    (loss) to net cash provided by
    operating activities:
    Depreciation and amortization ......................      1,719       1,779
    Provision for losses on related
     party receivables .................................        134       2,152
    (Gain) loss on sale of equipment ...................         --          11

(Increase) decrease in operating assets:
    Receivables ........................................         (6)     (2,728)
    Inventories ........................................        (50)         (8)
    Prepaid expenses ...................................        414         406
    Deposits and other .................................         (8)        (13)

Increase (decrease) in operating liabilities:
    Accounts payable, net of amounts for
     capital expenditures ..............................       (277)         88
    Accrued expenses ...................................      2,509         246
    Management fees due to Becker Gaming, Inc. .........      1,709       1,762
                                                           --------    --------
       Total adjustments ...............................      6,160       3,695
                                                           --------    --------
        Net cash provided by operating activities ......      2,449         462
                                                           --------    --------

Cash flows from investing activities:
    Capital expenditures, net of amounts in
     accounts payable ..................................       (199)        (77)
    Increase in receivable from Becker Gaming, Inc. ....       (417)         --
    Increase in  management fee receivable from Becker
    Gaming, Inc. .......................................     (1,367)       (725)
    Payments from related party receivable..............         30          --
    Proceeds from assets sales .........................         --          12
                                                           --------    --------
       Net cash provided by (used in)
          investing activities .........................     (1,953)       (790)
                                                           --------    --------

Cash flows from financing activities:
    Principal payments on notes payable ................       (110)       (121)
    Payments under capital lease obligations ...........         (7)         (3)
                                                           --------    --------
       Net cash provided by (used in)
          financing activities .........................       (117)       (124)
                                                           --------    --------
       Net increase in cash and cash equivalents .......        379        (452)
Cash and cash equivalents, beginning of the period .....      4,591       5,404
                                                           --------    --------
Cash and cash equivalents, end of the period ...........   $  4,970    $  4,952
                                                           ========    ========
Supplemental cash flow disclosures:
    Interest paid, net of amount capitalized ...........   $  2,499    $  3,558
                                                           ========    ========
    Income taxes paid ..................................         --          --
                                                           ========    ========
    Capital lease obligations incurred .................         --          --
                                                           ========    ========


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

<PAGE>

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

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



1)   Basis of Presentation:

     Arizona  Charlie's,  Inc.  ("AC"  or  the  "Company")  is  a  wholly  owned
subsidiary of Becker Gaming, Inc. ("BGI"). The accompanying financial statements
of AC have been  prepared  in  accordance  with  generally  accepted  accounting
principles for interim  financial  information and with the instructions to Form
10-Q and Article 10 of Regulation S-X.  Accordingly,  they do not include all of
the  information  and  footnotes  required  by  generally  accepted   accounting
principles for complete financial statements. In the opinion of management,  all
adjustments  and  normal  recurring  accruals  considered  necessary  for a fair
presentation  have been included.  Operating results for the three and six-month
periods ended  December 31, 1996 are not  necessarily  indicative of the results
that may be expected for the year ended June 30, 1997.  The unaudited  financial
statements  should be read in  conjunction  with the  financial  statements  and
footnotes  included in AC's  annual  report on Form 10-K for the year ended June
30, 1996.

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

     AC has guaranteed the payment of principal of and interest on the 12% First
Mortgage  Notes due November 15, 2000 (the "CQC" Notes") issued by Capitol Queen
& Casino,  Inc.  ("CQC").  An aggregate of $20,000,000  in principal  amount and
$3,600,000 in past due interest are outstanding on the CQC Notes at December 31,
1996. CQC was formed to develop,  own and operate the "Capitol Queen"  riverboat
casino and  related  land-based  facilities  in  Jefferson  City,  Missouri.  On
September 28, 1994, CQC was notified that its  application  for a gaming license
was rejected by the Missouri Gaming Commission (the  "Commission").  At the time
CQC was notified of the  Commission's  decision,  construction  of the riverboat
under  contract with a shipbuilder  was  substantially  completed.  CQC had also
obtained the necessary  permits for the  land-based  development  portion of the
project  and  performed  certain  dredging  and  other  site  preparation  work.
Immediately  following  the  Commission's   decision,   Management   temporarily
suspended further development of the Capitol Queen project, pending an appeal of
the decision and legal remedies potentially available to the Company.

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

<PAGE>

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

     CQC financed the Capitol Queen project  through the issuance of $40,000,000
in principal amount of CQC Notes. As of January 1, 1995, the Indenture (the "CQC
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  repurchase of $20,000,000  principal  amount of 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 remain 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 each of
November  15, 1995,  May 15, 1996 and November 15, 1996.  AC does not have funds
available  to advance on behalf of CQC at December 31,  1996.  AC is  restricted
from selling  assets under the covenants  governing its 12% First Mortgage Notes
due November 15, 2000 (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
to satisfy its guarantee  obligation with respect to the CQC Notes.  However, in
January  1997  Management  has taken steps to increase  profitably  and generate
additional cash flow at AC, including  down-sizing  employee staffing levels and
associated  payroll costs in certain  departments.  Other operating  departments
have been combined to eliminate supervisory and management positions.  Also, the
existing  restaurants and food facilities are being analyzed to determine if the
current  pricing  structures  are  meeting  the overall  goals of  attracting  a
sufficient  number  of casino  patrons  as  designed  and  entertainment  events
including headliner  concerts,  lounge acts, and professional boxing matches are
being  reevaluated  to determine if these events  attract the  necessary  casino
patrons  desired.  However,  no  assurance  can be  made  regarding  the  future
performance of AC. Such  performance may be affected or influenced by prevailing
economic conditions and financial,  business and competitive factors, many which
are beyond AC's control.

     As of December 31, 1996, AC is in default of certain debt  covenants  under
the  Indenture  (the "AC  Indenture")  governing  the AC Notes.  These  covenant
violations  include (i) a failure to meet a minimum fixed charge coverage ratio,
as  defined in the AC  Indenture,  and (ii)  advances  by AC to BGI in excess of
amounts permitted under the AC Indenture.

<PAGE>

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

     Such  advances  remain  outstanding  at December  31,  1996.  In  addition,
beginning with the quarter ending  December 31, 1995, AC has not met the minimum
tangible net worth requirement,  set forth in the AC Indenture.  Under the terms
of the AC  Indenture,  AC is  required to offer to buy back  $22,000,000  of the
outstanding  AC Notes at  December  31,  1996 due to the  failure  to meet  this
covenant,  and such amount shall  increase by $5,500,000  each fiscal quarter so
long as AC is in  default of the  covenant.  AC has not made such offer and does
not  intend  to do so  while  the  discussions  with  the  Bondholder  Committee
described below are in process. As a result of these covenants defaults,  the AC
Notes have been classified as currently  payable 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.

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

     CQC  continues to market its  riverboat  assets to  prospective  buyers and
management is continuing its discussions with an informal committee representing
the holders of the AC Notes and CQC notes (the "Bondholder Committee") regarding
a proposed  restructuring  plan. Based on current market conditions,  management
does not expect that CQC will generate  sufficient funds through the sale of its
assets  to  repurchase  all  of  the   outstanding   CQC  Notes.   The  proposed
restructuring plan therefore contemplates the issuance of additional AC Notes to
fulfill AC's guarantee  obligation for remaining  principal and accrued interest
of the CQC Notes after applying sale proceeds.  However,  no satisfactory offers
for the  riverboat are  currently  available,  and no agreement has been reached
with  the  Bondholder  Committee  regarding  the  proposed  restructuring  plan.
Accordingly,  these matters raise  substantial  doubt about the ability of AC to
continue as a going concern. The final outcome of these matters is not presently
determinable and the December 31, 1996 financial statements of AC do not include
any adjustment that might result from the outcome of this uncertainty.

<PAGE>

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

     Management of AC has taken several steps to overcome the substantial  doubt
as to its ability  continue as a going concern  including  reducing  expenses as
previously  described,  eliminating  costs  associated  with the maintenance and
operation of the BGI airplane that was sold in July, 1996, the on-going attempts
to sell the CQC riverboat and use the proceeds to retire  indebtedness,  pursuit
of new business  development  activities  to  strengthen  BGI's  position in the
gaming  market,   and  continuing   negotiations  with  an  informal   committee
representing  the  holders  of the AC Notes and CQC  Notes to reach a  favorable
restructure of such Notes.

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

<PAGE>

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

                                 BALANCE SHEETS
                             (Dollars In Thousands)


                                     ASSETS


                                                        December 31,   June 30,
                                                                1996       1996
                                                             -------    -------
                                                         (Unaudited)
Current assets:
  Cash ...................................................   $ 1,326    $ 1,122
  Current portion of notes receivable ....................        91        117
  Note receivable from related party .....................     2,250      2,250
  Other receivables ......................................       274        274
  Prepaid expenses .......................................        33         46
                                                             -------    -------
      Total current assets ...............................     3,974      3,809
                                                             -------    -------


Property and equipment:
  Building and leasehold improvements ....................       174        174
  Furniture, fixtures and equipment ......................     2,984      2,885
                                                             -------    -------
                                                                3,158      3,059
  Less, accumulated depreciation .........................    (1,478)    (1,370)
                                                             -------    -------
      Net property and equipment .........................     1,680      1,689
                                                             -------    -------

Notes receivable, less current
  portion ................................................       175        194

Advances to related parties ..............................       188        111

Other assets, less accumulated
  amortization of $31 at December 31, 1996,
  and $24 at June 30 , 1996 ..............................        81         88
                                                             -------    -------

      Total assets .......................................   $ 6,098    $ 5,891
                                                             =======    =======
<PAGE>


                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                        December 31,  June 30,
                                                               1996     1996
                                                             ------   ------
                                                        (Unaudited)
Current liabilities:
  Trade accounts payable .................................   $    1   $   44
  Accrued expenses .......................................      686      608
  Current portion of long term debt ......................      332      279
                                                             ------   ------
       Total current liabilities .........................    1,019      931


Long-term liabilities:
   Long-term debt, less current portion ..................      387      502
   Subordinated notes payable to
     former stockholders .................................    3,000    3,000
                                                             ------   ------
      Total liabilities ..................................    4,406    4,433
                                                             ------   ------

Commitments and contingencies

Stockholders' equity:
  Common stock, no par value, 2,500
  shares authorized, 400 shares
  issued and outstanding .................................       27       27
Retained earnings ........................................    1,665    1,431
                                                             ------   ------
      Total stockholders' equity .........................    1,692    1,458
                                                             ------   ------

      Total liabilities and stockholders'
      equity .............................................   $6,098   $5,891
                                                             ======   ======

The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
                                SUNSET COIN, INC.
               (A Wholly Owned Subsidiary of Becker Gaming, Inc.)


                   STATEMENTS OF INCOME AND RETAINED EARNINGS
                             (Dollars in Thousands)



                                       Three Months Ended December 31,
                                              1996       1995
                                           -------    -------
Revenues:
    Slot route:
       From locations controlled
          by related parties ...........   $   608    $   576
       Other ...........................        32         33

    Slot service fees:
       From related parties ............        21         24
       Other ...........................         8          8
                                           -------    -------
         Total revenues ................       669        641

Operating expenses:
    Slot route and service .............       341        307
    General and administrative .........         7          9
    Management fee - Becker Gaming, Inc.        35         33
    Depreciation and amortization ......        72         76
                                           -------    -------
       Total operating expenses ........       455        425
                                           -------    -------
Operating income .......................       214        216
                                           -------    -------
Other income (expense):
    Interest income ....................        48         42
    Interest expense ...................       (94)      (104)
    Other income .......................        25         13
                                           -------    -------
       Total other income (expense) ....       (21)       (49)
                                           -------    -------
Net income before income tax ...........       193        167
Provision for income tax ...............       (57)       (57)
                                           -------    -------
Net income .............................       136        110
Retained earnings,
beginning of period ....................     1,529      1,163
                                           -------    -------
Retained earnings, end of
period .................................   $ 1,665    $ 1,273
                                           =======    =======
<PAGE>


                                       Six Months Ended  December 31,
                                              1996       1995
                                           -------    -------
Revenues:
    Slot route:
       From locations controlled
          by related parties ...........   $ 1,175    $ 1,143
       Other ...........................        66         74

    Slot service fees:
       From related parties ............        42         48
       Other ...........................        16         16
                                           -------    -------
         Total revenues ................     1,299      1,281

Operating expenses:
    Slot route and service .............       688        614
    General and administrative .........        30         27
    Management fee - Becker Gaming, Inc.        68         67
    Depreciation and amortization ......       142        149
                                           -------    -------
       Total operating expenses ........       928        857
                                           -------    -------
Operating income .......................       371        424
                                           -------    -------
Other income (expense):
    Interest income ....................        95         82
    Interest expense ...................      (185)      (203)
    Other income .......................        49         35
                                           -------    -------
       Total other income (expense) ....       (41)       (86)
                                           -------    -------

 Net income before income tax ..........       330        338
Provision for income tax ...............       (96)      (115)
                                           -------    -------
Net income .............................       234        223
Retained earnings,
beginning of period ....................     1,431      1,050
                                           -------    -------
Retained earnings,
end of period ..........................   $ 1,665    $ 1,273
                                           =======    =======


The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
                                SUNSET COIN, INC.
               (A Wholly Owned Subsidiary of Becker Gaming, Inc.)


                            STATEMENTS OF CASH FLOWS
                             (Dollars In Thousands)

                                   (Unaudited)


                                       Six Months Ended December 31,
                                             1996       1995
                                          -------    -------
Cash flows from operating activities:
    Net income ........................   $   234    $   223

    Adjustments  to  reconcile  net  income to net cash  provided  by  operating
     activities:
     Depreciation and amortization ....       142        149
     Gain on sales of equipment .......        --         13

(Increase) decrease in operating assets:
    Other receivables .................        --         16
    Prepaid expenses ..................        13         13

Increase (decrease) in operating liabilities:
     Accounts payable .................       (44)       (58)
     Notes payable ....................        91         --
     Accrued expenses .................        77        222
                                          -------    -------
         Total adjustments ............       279        355
                                          -------    -------

         Net cash provided by
          operating activities ........       513        578
                                          -------    -------

Cash flows from investing activities:
   Capital expenditures ...............       (99)      (285)
   Proceeds from sales of equipment ...        --         12
   Decrease (increase) in related
     party notes receivable ...........       (10)        --
   Decrease (increase) in advances
     to related parties ...............       (77)       (24)
   Repayments of notes receivable .....        31         39
                                          -------    -------
        Net cash used in
          investing activities ........      (155)      (258)
                                          -------    -------
Cash flows from financing activities:

    Proceeds from notes payable .......        --        177
    Principal payments on notes payable      (154)      (161)
                                          -------    -------
        Net cash (used in) provided by
          financing activities ........      (154)        16
                                          -------    -------

        Net increase in cash ..........       204        336

Cash, beginning of period .............     1,122        506
                                          -------    -------
Cash, end of period ...................   $ 1,326    $   842
                                          =======    =======

Supplemental cash flow disclosures:
    Interest paid .....................   $   186    $   204
                                          =======    =======
    Income taxes paid .................        $-         $-
                                          =======    =======

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

                                SUNSET COIN, INC.
               (A wholly owned subsidiary of Becker Gaming, Inc.)

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



1)   Basis of Presentation:

     Sunset Coin,  Inc.  ("SC" or the  "Company") is wholly owned  subsidiary of
Becker Gaming,  Inc. ("BGI").  The accompanying  financial  statements of SC are
unaudited  and  have  been  prepared  in  accordance  with  generally   accepted
accounting   principles  for  interim   financial   information   and  with  the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  all adjustments and normal recurring accruals considered  necessary
for a fair  presentation  have been  included.  Operating  results for the three
month  and  six-month  periods  ended  December  31,  1996  are not  necessarily
indicative of the results that may be expected for the year ended June 30, 1997.
The accompanying  unaudited financial statements and footnotes should be read in
conjunction  with the  financial  statements  included in the  Company's  annual
report on Form 10-K for the year ended June 30, 1996.



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

     SC has guaranteed the payment of the  $55,000,000  principal  amount of and
interest on the 12% First  Mortgage Notes due November 15, 2000 (the "AC Notes")
issued by Arizona  Charlie's,  Inc.  ("AC"),  another wholly owned subsidiary of
BGI.  AC is in  default  of  certain  covenants  under  the  Indenture  (the "AC
Indenture")  governing the AC Notes as of December 31, 1996. In addition, AC has
guaranteed  the payment of  principal  and  interest on certain  mortgage  notes
issued by CQC (the "CQC Notes").  An aggregate  $20,000,000 in principal  amount
and $3,600,000 in past due interest are outstanding on the CQC Notes at December
31, 1996.  Capitol Queen & Casino,  Inc. ("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 (i)
the  modification  of  covenants  under  the AC  Indenture  to cure the  current
defaults and (ii) the issuance of additional AC Notes to fulfill AC's  guarantee
obligation  for  remaining  principal  of and accrued  interest on the CQC Notes
after applying sale proceeds.  However, no satisfactory offers for the riverboat
are currently  available,  and no agreement has been reached with the holders of
the AC Notes and CQC Notes regarding the proposed restructuring plan.

<PAGE>

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


     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, which the Company does not have sufficient
resources to satisfy.  Accordingly,  these matters raise substantial doubt about
the ability of the Company to continue as a going concern.  The final outcome of
these matters is not presently  determinable and the December 31, 1996 financial
statements of the Company do not include any  adjustment  that might result from
the outcome of this uncertainty.

     Management of AC has taken several steps to overcome the substantial  doubt
as to its ability  continue as a going concern  including  reducing  expenses as
previously  described,  eliminating  costs  associated  with the maintenance and
operation of the BGI airplane that was sold in July, 1996, the on-going attempts
to sell the CQC riverboat and use the proceeds to retire  indebtedness,  pursuit
of new business  development  activities  to  strengthen  BGI's  position in the
gaming  market,   and  continuing   negotiations  with  an  informal   committee
representing  the  holders  of the AC Notes and CQC  Notes to reach a  favorable
restructure of such Notes.

================================================================================
<PAGE>
                          CAPITOL QUEEN & CASINO, INC.
                 (A Development Stage Company And A Wholly Owned
                       Subsidiary of Becker Gaming, Inc.)

                                 BALANCE SHEETS
                    (Dollars In Thousands, Except Share Data)


                                     ASSETS


                                                        December 31,    June 30,
                                                                1996      1996
                                                             -------   -------
                                                         (Unaudited)
Current assets:


  Cash and cash equivalents ..............................   $  --     $    --
   Restricted cash, in escrow account ....................        30        30
                                                             -------   -------

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

Other assets:


  Assets held for sale ...................................     7,754     7,754

  Financing costs, net of accumulated
    amortization of $378 at December 31,
    1996 and $312 at June 30, 1996 .......................       539       605
  Deposits and other assets ..............................        60        60
                                                             -------   -------

      Total other assets .................................     8,353     8,419
                                                             -------   -------

      Total assets .......................................   $ 8,383   $ 8,449
                                                             =======   =======


                  LIABILITIES & STOCKHOLDERS' EQUITY(DEFICIT)

                                                      December 31,    June 30,
                                                              1996        1996
                                                          --------    --------
                                                       (Unaudited)

Current liabilities:

  Advances from related parties .......................   $  1,140     $ 1,006
  Accrued interest ....................................      4,009       2,775
  Notes payable to related parties ....................      1,200       1,200
  Long-term debt classified as current,
    net of unamortized original issue discount
    of $2,204 and $2,474, respectively ................     17,796      17,526
                                                          --------    --------
         Total liabilities ............................     24,145      22,507
                                                          --------    --------

Commitments and contingencies

Stockholders' 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 ........    (28,494)    (26,790)
                                                          --------    --------
      Total stockholders' equity (deficit) ............    (15,762)    (14,058)
                                                          --------    --------

      Total liabilities and stockholders'
         equity(deficit) ..............................   $  8,383    $  8,449
                                                          ========    ========


The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
                          CAPITOL QUEEN & CASINO, INC.
                 (A Development Stage Company And A Wholly Owned
                       Subsidiary of Becker Gaming, Inc.)

            STATEMENTS OF LOSS INCURRED DURING THE DEVELOPMENT STAGE
                             (Dollars In Thousands)
                                   (Unaudited)





                                Three Months Ended December 31,
                                        1996       1995
                                     -------    -------
Revenues .........................        $-         $-

Operating expenses:
  Amortization of financing and
    other costs ..................        33         33
  Abandonment loss ...............        --         --
  Development costs ..............        61        702
                                     -------    -------

      Total operating expenses ...        94        735
                                     -------    -------

Operating loss ...................       (94)      (735)

Other income (expenses):
  Interest income ................        --         --
  Interest expense ...............      (752)      (729)
  Interest capitalized ...........        --         --
                                     -------    -------

Total other income (expense) .....      (752)      (729)
                                     -------    -------

Net loss before extraordinary item
                                        (846)    (1,464)
                                     -------    -------

Extraordinary item:
  Loss on early retirement of
    debt (no income tax benefit
    available) ...................      --         --
                                     -------    -------
   Net loss ......................     $(846)   $(1,464)
                                     =======    =======

<PAGE>


                                                                  For The Period
                                                                January 20, 1993
                                                                    (The Date Of
                                                                      Inception)
                                            Six Months              Through
                                         Ended December 31,      December 31,
                                         1996        1995            1996
                                     --------    --------    ------------------
Revenues ...........................       $-          $-                    $-


Operating expenses:
  Amortization of financing and
    other costs ....................       66          66                 1,407
  Abandonment loss .................       --          --                10,426
  Development costs ................      134         868                 1,845
                                     --------    --------    ------------------

      Total operating expenses .....      200         934                13,678
                                     --------    --------    ------------------
Operating loss                           (200)      (934)               (13,678)

Other income (expenses):
  Interest income ..................       --         --                  1,265
  Interest expense .................   (1,504)     (1,415)              (12,675)
  Interest capitalized .............     --          --                     683
                                     --------    --------    ------------------

Total other income (expense) .......   (1,504)     (1,415)              (10,727)


Net loss before extraordinary item .   (1,704)     (2,349)              (24,405)
                                     --------    --------    ------------------
Extraordinary item:
  Loss on early retirement of
     debt (no income tax benefit ...
     available) ....................     --          --                  (4,089)
                                     --------    --------    ------------------

   Net loss ........................ $ (1,704)   $ (2,349)   $          (28,494)
                                     ========    ========    ==================


The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
                          CAPITOL QUEEN & CASINO, INC.

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

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





                                                      Six Months Ended
                                                         December 31,
                                                    1996       1995
                                                 -------    -------

Cash flows from development stage activities:
 Net loss ....................................   $(1,704)   $(2,349)
 Adjustments to reconcile net loss
    to net cash provided by (used in)
    development stage activities:
 Amortization of financing and other costs ...        66         66
 Amortization of original issue discount .....       270        267
 Abandonment losses and write-downs of assets
    held for sale ............................        --         --
 Extraordinary loss on retirement of debt ....        --         --
 Increase in accounts payable
  and accruals, net of amounts
  for capital expenditures ...................     1,234      1,005
 Increase in advances from related parties ...       134        653
                                                 -------    -------
       Total adjustments .....................     1,704      1,991
                                                 -------    -------
       Net cash used in development
         stage activities ....................        --       (358)
                                                 -------    -------

Cash flows from investing activities:
 Capital expenditures, net of
  construction accounts payable ..............       --         --
 Decrease in deposits and other assets .......       --        313
 Capitalization of preopening costs ..........       --         --
 Development costs ...........................       --         --
 Net (additions to) reductions
    in restricted cash equivalents ...........       --         --
                                                 -------    -------
     Net cash provided by
       (used in) investing activities ........       --        313
                                                 -------    -------

Cash flows from financing activities:
 Principal payments on First
    Mortgage Notes ...........................       --         --
 Proceeds from issuance of First
    Mortgage Notes, net of financing costs ...       --         --
 Proceeds from borrowings under
    notes payable to  related parties ........       --         --
 Equity contribution from Becker Gaming, Inc.        --         --
      relating to sale of warrants ...........       --         --
                                                 -------    -------
     Net cash provided by financing activities       --         --
                                                 -------    -------

     Net (decrease) increase in
         cash and cash  equivalents ..........       --        (45)

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

Cash and cash equivalents,
    end of period ............................       --         --
                                                 ========    ========

Supplemental cash flow disclosures:
 Interest paid, net of amounts capitalized ...        $-         $-
                                                 ========    ========
 Original issue discount that
    did not affect cash ......................        $-         $-
                                                 ========    ========
 Equity contribution by Becker Gaming
    that did not affect cash .................        $-         $-
                                                 ========    ========
<PAGE>

                                                       For The Period
                                                      January 20, 1993
                                                        (The Date Of
                                                         Inception)
                                                           Through
                                                         December 31,
                                                                            1996
                                                           --------

Cash flows from development stage activities:
 Net loss ...................................              $(28,494)
 Adjustments to reconcile net loss
    to net cash provided by (used in)
    development stage activities:
 Amortization of financing and other costs ..                 1,407
 Amortization of original issue discount ....                 2,177
 Abandonment losses and write-downs of assets
     held for salee..........................                10,426
 Extraordinary loss on retirement of debt ...                 4,089
 Increase in accounts payable
  and accruals, net of amounts
  for capital expenditures ..................                 4,021
 Increase in advances from related parties ..                 1,128
                                                           --------
       Total adjustments ....................                23,248
                                                           --------
       Net cash used in development
         stage activities ...................                (5,246)
                                                           --------

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

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

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

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

Cash and cash equivalents,
    end of period ...........................                   $-
                                                           ========
Supplemental cash flow disclosures:
 Interest paid, net of amounts capitalized ..              $  5,807
                                                           ========

 Original issue discount that
    did not affect cash .....................              $  7,500
                                                           ========

 Equity contribution by Becker Gaming
    that did not affect cash ................              $  5,232
                                                           ========



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

<PAGE>

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

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



1)   Basis of Presentation:

     Capitol  Queen & Casino,  Inc.  ("CQC" or the  "Company")  is wholly  owned
subsidiary of Becker Gaming, Inc. ("BGI"). The accompanying financial statements
of CQC have been  prepared in  accordance  with  generally  accepted  accounting
principles for interim  financial  information  and with the instruction to Form
10-Q and Article 10 of Regulation S-X.  Accordingly,  they do not include all of
the  information  and  footnotes  required  by  generally  accepted   accounting
principles for complete financial statements. In the opinion of management,  all
adjustments  and  normal  recurring  accruals  considered  necessary  for a fair
presentation  have been included.  Operating results for the three and six-month
periods ended  December 31, 1996 are not  necessarily  indicative of the results
that may be expected for the year ended June 30, 1997.  The unaudited  financial
statements  should be read in  conjunction  with the  financial  statements  and
footnotes  included in CQC's annual  report on Form 10-K for the year ended June
30, 1996.


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  substantially  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.

<PAGE>

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

     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 (the "CQC  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
repurchase of $20,000,000 principal amount of 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 remain 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 each of
November 15, 1995, May 15, 1996 and November 15, 1996. Arizona  Charlie's,  Inc.
("AC"), another wholly owned subsidiary of BGI and a guarantor of the CQC Notes,
does not have funds  available to advance on behalf of CQC at December 31, 1996.
Further,  AC does  not  have  sufficient  financial  resources  to  satisfy  its
guarantee  obligation with respect to the CQC Notes,  particularly because AC is
in default of covenants  under the Indenture  governing  its 12% First  Mortgage
Notes due November 15, 2000 (the "AC Notes").

     As mentioned  previously,  CQC's  obligations  under the CQC  Indenture was
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.

<PAGE>

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


     The CQC Notes are not subject to mandatory redemption, except upon a change
of control, or other circumstances as defined in the CQC Indenture.  The Company
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,  BGI  consummates  an initial  public  offering of its common
stock, the Company may also redeem the CQC Notes at a premium of 108%.

     The CQC 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.

     CQC  continues to market its  riverboat  assets to  prospective  buyers and
management is continuing its discussions with an informal committee representing
the holders of the AC Notes and CQC Notes (the "Bondholder Committee") regarding
a proposed  restructuring  plan. Based on current market conditions,  management
does not expect that CQC will generate  sufficient funds through the sale of its
assets  to  repurchase  all  of  the   outstanding   CQC  Notes.   The  proposed
restructuring plan therefore contemplates the issuance of additional AC Notes to
fulfill AC's guarantee  obligation for remaining  principal and accrued interest
of the CQC Notes after applying sale proceeds.  However,  no satisfactory offers
for the  riverboat are  currently  available,  and no agreement has been reached
with  the  Bondholder  Committee  regarding  the  proposed  restructuring  plan.
Accordingly,  these matters raise  substantial doubt about the ability of CQC to
continue as a going concern. The final outcome of these matters is not presently
determinable  and the December 31, 1996  financial  statements of the Company do
not  include  any  adjustment  that  might  result  from  the  outcome  of  this
uncertainty.

     Management of AC has taken several steps to overcome the substantial  doubt
as to its ability  continue as a going concern  including  reducing  expenses as
previously  described,  eliminating  costs  associated  with the maintenance and
operation of the BGI airplane that was sold in July, 1996, the on-going attempts
to sell the CQC riverboat and use the proceeds to retire  indebtedness,  pursuit
of new business  development  activities  to  strengthen  BGI's  position in the
gaming  market,   and  continuing   negotiations  with  an  informal   committee
representing  the  holders  of the AC Notes and CQC  Notes to reach a  favorable
restructure of such Notes.


3)   Assets Held For Sale:

     At  December  31,  1996,  CQC had  $7,754,000  of  assets  held  for  sale,
consisting  of land and  riverboat  assets which were written down to a carrying
value  based on  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.

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                       OF FINANCIAL CONDITION AND RESULTS
                                  OF OPERATION

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

     The Company  serves as a holding  company for, and provides  management and
administrative  services  to,  the Becker  family  gaming  interests,  including
Arizona Charlie's,  Inc. ("AC"),  Sunset Coin, Inc. ("SC"),  Becker Gaming Group
("BGG"), and Capitol Queen & Casino, Inc. ("CQC").


     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 "Capitol Queen & Casino, Inc. - General" and "Notes to
Financial Statements - Capitol Queen & Casino, Inc."

     As a result of the events adversely impacting CQC's ability to complete and
open the Capitol  Queen,  significant  doubt  exists about the ability of CQC to
continue as a going concern. Similar doubt exists with respect to AC and SC as a
result of their guarantees of the CQC Notes and the AC Notes, respectively.  AC,
SC and CQC  represent  the  Company's  principal  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.


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

General

     AC's  revenues are derived  largely from gaming  activities  at its Arizona
Charlie's  casino-hotel,  and,  to a lessor  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 department  operating  losses. 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.

<PAGE>

            Results of Operations for the three and six-months ended
                           December 31, 1996 and 1995

     Results from  operations  at AC decreased  for both the three and six-month
periods ended December 31, 1996 compared to the same periods in 1995 as a result
of decreased gaming revenues in the more recent periods. Operating expenses also
decreased  for both the  three-month  and six-month  periods ended  December 31,
1996, primarily as a result of reduced payroll expenses in the gaming department
and reduced General and Administrative  expenses associated with the maintenance
and operation of the corporate airplane sold in July, 1996.

     Net revenues at AC decreased by $1,215,000,  or 7.2%,  from  $16,951,000 to
$15,736,000 for the  three-month  period ended December 31, 1996 compared to the
three-month  period  ended  December  31,  1995.  In the  same  period-to-period
comparison,   operating  expenses,   including  depreciation  and  amortization,
decreased by 7.1% to $15,471,000  from  $16,658,000.  This resulted in a $28,000
decrease  in  operating  income from  $293,000  to $265,000  for the more recent
period.

     Net revenues at AC decreased by $1,325,000,  or 4.1%,  from  $32,422,000 to
$31,097,000  for the  six-month  period ended  December 31, 1996 compared to the
six-month  period  ended  December  31,  1995.  In  the  same   period-to-period
comparison,   operating  expenses,   including  depreciation  and  amortization,
decreased by 3.0% to $31,364,000 from  $32,348,000.  This resulted in a $341,000
decrease in operating  income from $74,000 to an operating  loss of $267,000 for
the more recent period.

     The largest  portion of the revenue  decrease  for the  three-month  period
ended December 31, 1996 is attributable to gaming revenues, specifically, gaming
machine  revenues,   which  decreased  9.3%  from  $11,365,000  to  $10,308,000,
reflecting  lower levels of play from  patrons.  Revenues  from table games also
decreased 6.0% from $1,267,000 to $1,191,000 during the 1996 three-month  period
and race and sports book revenues  decreased  $32,700 or 3.6% reflecting  lessor
play from patrons. Bingo revenues also decreased by $162,000 for the three-month
period  ended  December  31, 1996 when  compared to the same period of the prior
year. The largest  portion of the decrease in revenues for the six- month period
ended December 31, 1996 is  attributable to gaming revenues which decreased 7.6%
from $26,533,000 to $24,525,000. Specifically, gaming machine revenues decreased
$1,515,000 or 6.8% from  $22,295,000 to  $20,780,000.  Revenues from table games
decreased $30,000 or 1.2%, from $2,435,000 to $2,405,000,  and revenues from the
race & sports book decreased  $153,000,  or 9.5%, from $1,613,000 to $1,460,000.
Bingo  revenues also  decreased by $278,000  during the  six-month  period ended
December 31, 1996  compared to the same period of the prior year.  The decreases
for both the 1996 three-month and six-month  periods are the result of increased
competition  from  surrounding  hotel/casinos  that appeal to Arizona  Charlie's
"local" patron base. <PAGE>

     Food and Beverage  revenues  increased  4.2% from  $3,390,000 to $3,533,000
during the  three-month  period  ended  December  31, 1996  compared to the same
period in the prior year. The increase in revenues is primarily 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 the food and beverage department are the result
of casino  promotion  and  marketing  efforts  to  attract,  reward  and  retain
qualified  patrons.  For the six-month  period ended  December 31, 1996,  food &
beverage revenues  increased $571,000 or 8.8% from $6,463,000 to $7,034,000 when
compared to the six-month  period of the prior year, also reflecting an increase
primarily  due to  increased  complimentary  sales  in  the  food  and  beverage
departments.

     Hotel revenues  increased  19.8% from $771,000 to $924,000 during the three
months ended December 31, 1996 compared to the same three-month  period in 1995.
The increase is primarily due to an increase in occupancy and average room rates
of 84% and $45.55, respectively, compared to 83 % and $40.05 in the 1995 period.
During the six-month period ended December 31, 1996, hotel revenues increased by
$192,000 or 12.9% from  $1,493,000 to $1,685,000  compared to the same six-month
period of 1995. The increased revenue is largely due to an increase in occupancy
and  average  room rates of 88% and  $42.98,  respectively,  compared to 84% and
$38.49 in the 1995 six-month period.

     Gift shop  revenues  decreased  9.8% from  $153,000 to $138,000  during the
three-month  period ended December 31, 1996 compared to the same period in 1995.
During the six-  month  period  ended  December  31,  1996,  gift shop  revenues
decreased  $38,000,  or 12.4%,  from  $307,000 to $269,000  compared to the same
period  in 1995.  The  decreases  are  primarily  due to  reducing  the hours of
operation in the 1996 periods.

     Other revenues,  which principally include entertainment cover charges, ATM
commissions,  and revenues from PBX and banquets,  increased 82.3% from $215,000
to $392,000 for the  three-month  period ended December 31, 1996 compared to the
same period in 1995.  During the six month period ended December 31, 1996, other
revenues  increased by $135,000 or 26.2% from  $515,000 to $650,000  compared to
the same six- month period of 1995. The increases  reflect higher  entertainment
cover charge and banquet revenues resulting from additional  concerts,  banquets
and boxing events that occurred in the 1996 periods.

     Gaming expenses  decreased by $868,000 and $1,080,000,  or 21.2% and 14.1%,
from $4,100,000 and $7,638,000 to $3,232,000 and $6,558,000,  respectively,  for
the three-month and six-month periods ended December 31, 1996 as compared to the
same periods in 1995. The lower levels of expense reflect reductions in staffing
levels in the slot and table games  departments  and  decreased  slot  promotion
expenses, most of which occurred in the 1996 three-month period.
<PAGE>

     Food and Beverage expenses increased by $147,000 and $568,000,  or 3.6% and
7.1%, from $4,140,000 and $8,015,000 to $4,287,000 and $8,583,000, respectively,
for the three- month and six-month periods ended December 31, 1996 when compared
to the same periods in 1995,  as a result of increased  food and beverage  costs
and an increase in salary and wages,  all associated with the increase in food &
beverage  revenues  during  the 1996  periods.  As a result,  food and  beverage
expenses  represented  121.3% and 122.0% of food and  beverage  revenues for the
three-month and six-month periods ended December 31, 1996 compared to 122.1% and
124.0% of the food and beverage revenues for the same periods in 1995.

     Hotel  expenses  increased by $8,000 and $88,000,  or 1.9% and 10.8%,  from
$417,000  and  $816,000  to  $425,000  and  $904,000,   respectively,   for  the
three-month  and six-month  periods  ended  December 31, 1996 as compared to the
same  periods  in 1995,  reflecting  additional  repair  and  maintenance  costs
associated  with the original 100 rooms built in 1988, the  additional  costs of
room linens, and normal wage and salary increases. Net contribution by the hotel
department  (hotel  revenues  less hotel  operating  expenses)  was $499,000 and
$781,000 for the  three-month  and six-month  periods ended December 31, 1996 as
compared to $354,000 and $677,000 for the same periods in 1995.

     General and Administrative  expenses decreased by $579,000 and $690,000, or
11.9% and 7.1%,  from  $4,876,000  and  $9,674,000 to $4,297,000  and $8,984,000
respectively,  for the three-month and six-month periods ended December 31, 1996
as compared to the same periods in 1995. The decreases resulted from a reduction
in entertainment  department costs that are associated with entertainer fees and
equipment rental expense.  Other decreases include reductions of staffing levels
in the security, entertainment, porters and aviation departments and a reduction
in expenses  associated  with the operation of a jet airplane  which was sold in
July 1996. The Company  accrued  management  fees payable to BGI of $864,000 and
$1,709,000 during the three-month and six-month periods ended December 31, 1996.

     Advertising and Promotional expenses increased by $178,000 and $291,000, or
15.6% and 12.5%,  from  $1,145,000  and  $2,321,000 to $1,323,000 and $2,612,000
during the  three-  month and  six-month  periods  ended  December  31,  1996 as
compared to the same period in 1995.  Management  believes that these  increased
levels of promotional  expenditures  in both of the 1996 periods is necessary to
attract and maintain the desired customer levels,  to promote the  entertainment
events,  and support the other  existing  facilities  throughout  the  property.
Management  believes that frequent  promotions are necessary to compete with the
newer  hotel/casinos  that are located  close in  proximity  to AC.  These newer
hotel/casinos appeal and market to the Arizona Charlie's "local" patron base.

     Depreciation and Amortization decreased by $32,000 and $60,000, or 3.6% and
3.4%,  from  $893,000  and  $1,779,000  to $861,000  and  $1,719,000  during the
three-month  and six-month  periods ended December 31, 1996 when compared to the
same periods in 1995, as a result of decreased  depreciation expenses associated
with older assets. <PAGE>

     AC had other expenses of $1,732,000 and $3,444,000 for the  three-month and
six-month   periods  ended  December  31,  1996  compared  with  $1,691,000  and
$3,307,000 for the same periods in 1995. The increases  reflect an adjustment to
correct the calculation of interest associated with the AC Notes.

     In January,  1997  Management  has taken steps to increase  profitably  and
generate  additional cash flow at AC, including  down-sizing  employee  staffing
levels and  associated  payroll costs in certain  departments.  Other  operating
departments   have  been  combined  to  eliminate   supervisory  and  management
positions. Also, the existing restaurants and food facilities are being analyzed
to determine if the current pricing  structures are meeting the overall goals of
attracting a sufficient  number of casino patrons as designed and  entertainment
events  including  headliner  concerts,  lounge acts,  and  professional  boxing
matches are being reevaluated to determine if these events attract the necessary
casino patrons desired.  However,  no assurance can be made regarding the future
performance of AC. Such  performance may be affected or influenced by prevailing
economic conditions and financial,  business and competitive factors, many which
are beyond AC's control.

Income Taxes

     As a result  of the  termination  of its  election  to be  treated  as an S
corporation,  AC is liable  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.  Since  terminating  its S
corporation status, AC generated a net operating loss for income tax purposes of
approximately $12,600,000.  Management anticipates that AC will generate taxable
income  and that its  effective  federal  income tax rate will  approximate  the
statutory  rate of 34%,  prior  to  consideration  of the  benefit  from the net
operating losses, which may be utilized to offset taxable income.


Liquidity and Capital Resources

     At December  31,  1996,  AC had a working  capital  deficit of  $59,940,000
compared to a working  capital  deficit of  $58,530,000  at June 30,  1996.  The
decrease in working capital in the amount of $1,410,000 was caused  primarily by
increased  accrued interest on the AC Notes and accrued  management fees payable
to BGI.

     For the  six-month  period  ended  December  31,  1996,  cash  provided  by
operating  activities  increased  approximately  $1,987,000 to $2,449,000,  from
$462,000  for the same  period  in 1995.  The  increase  in the 1996  period  is
primarily  attributable  to the  increased  accrued  interest  on the AC  Notes,
partially offset by the increase net loss for the current period.
<PAGE>

     For the  six-month  period  ended  December  31,  1996,  net  cash  used in
investing  activities  increased to $1,953,000  for the  six-month  period ended
December  31, 1996  compared  with  $790,000  for the same  period in 1995.  The
increase of $1,163,000  was caused  primarily by a $417,000  increase in related
party  receivable,  an  increase  in capital  expenditures  of  $122,000  and an
increase in management fee receivable of $642,000.

     Cash flows used in  financing  activities  for the six- month  period ended
December 31, 1996 was $117,000, reflecting payments on notes payable and capital
leases.  For the six-month  period ended  December 31, 1995,  cash flows used in
financing activities was $124,000.

     AC's long-term obligations,  approximately $5,019,000 at December 31, 1996,
consist of the stockholder notes and capitalized equipment leases. AC has annual
interest  expense  aggregating  $6,600,000  and $500,000  with respect to the AC
Notes (classified as current due to default under covenants) and the stockholder
notes.  Further, AC is expected to have annual capital expenditure  requirements
of approximately $600,000.

     On November  15, 1996,  AC made an interest  payment due on the AC Notes in
the amount of  $1,100,000,  an amount equal to one-third of the required due. On
December  16,  1996  another  one-third  of the  interest  due in the  amount of
$1,100,000 was paid. The remainder of the interest was paid on January 15, 1997.

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

     In addition, AC has a substantial  contingent obligation resulting from its
guarantee of the CQC Notes,  an aggregate of $20,000,000 in principal  amount of
which  remain  outstanding.  CQC was not  able to make  its  scheduled  interest
payments  of  $1,200,000  due on each of  November  15,  1995,  May 15, 1996 and
November 15, 1996,  and AC did not have funds  available to advance on behalf of
CQC.  Management  of AC and CQC are  currently  undergoing  discussions  with an
informal  committee  representing  the  holders  of the AC Notes  and CQC  Notes
regarding a proposed  restructuring plan, however, an agreement has not yet been
reached.  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 past due interest  thereon.  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 past due 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 past
due interest thereon,  AC will be obligated under its guarantee of the CQC Notes
to fund the shortfall. <PAGE>

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

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

     Management of AC has taken several steps to overcome the substantial  doubt
as to its ability  continue as a going concern  including  reducing  expenses as
previously  described,  eliminating  costs  associated  with the maintenance and
operation of the BGI airplane that was sold in July, 1996, the on-going attempts
to sell the CQC riverboat, and use the proceeds to retire indebtedness,  pursuit
of new business  development  activities  to  strengthen  BGI's  position in the
gaming  market,   and  continuing   negotiations  with  an  informal   committee
representing  the  holders  of the AC Notes and CQC  Notes to reach a  favorable
restructure of such Notes. <PAGE>


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. 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 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  shareholders  and the contracts  with
such locations are expected to be renewed as a matter of general course.

     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  agreements  are  contracts  with six Becker  Gaming  Group  ("BGG")
locations and one  additional  location owned by an unrelated  party,  which are
expected to be renewed in general course except for Charlie's Saloon (a BGG bar)
which discontinued its operations on April 21, 1996.


            Results of operations for the three and six-months ended
                           December 31, 1996 and 1995

     SC's results of  operations  declined for the three and  six-month  periods
ended  December 31, 1996  compared to the same periods in the prior year despite
higher revenues which  increased by 4.3% to $669,000 for the three-month  period
and by 1.4% to $1,299,000 for the six-month period.  The increase in revenues is
attributable to the addition of one participation location.

     The total  number of gaming  machines  operated  during  both the three and
six-month  periods ended December 31, 1996 were 382 compared to 388 in the prior
year.  The total  number  of gaming  machines  from the BGG  locations  that are
serviced by SC was 115, as compared to 130 in the same  periods last year due to
the discontinued operation of the aforementioned BGG bar. Slot service fees from
BGG for the three-month and six-month  periods ended December 31, 1996 decreased
to $21,000 and  $42,000,  from  $24,000 and $48,000 for the same  periods in the
prior year.

     Gaming machine route  expenses for the  three-month  and six-month  periods
ended  December 31, 1996 increased by 11.1% to $341,000 and by 12.1% to $688,000
when  compared  to the same  periods  in the  prior  year  reflecting  increased
salaries and wages and  associated  taxes due to the transfer of management  and
security  personnel from BGI to SC, normal wage and payroll tax  increases,  and
increase in repairs and maintenance of slot machines. <PAGE>

     General and administrative expenses for the three-month period decreased by
22.2% to $7,000 from $9,000,  and for the six-month period increased by 11.1% to
$30,000  from  $27,000,  reflecting  decreases  in  professional  fees  for  the
three-month period and increased office expenses for the six- month period.

     Management  fees  increased by 6.1% and 1.5% to $35,000 and $68,000 for the
three-month  and six-month  periods ended December 31, 1996 when compared to the
same periods in the prior year  attributed to higher revenues in the more recent
periods.

     Depreciation  and  amortization  decreased  by 5.3% and 4.7% to $72,000 and
$142,000 for the  three-month  and six- month periods  ended  December 31, 1996,
reflecting  decreased  depreciation and  amortization  costs associated with the
April 1996 closing of a BGG bar. SC abandoned furniture,  fixtures and equipment
contained in this bar.

     During the  three-month  and six-month  periods ended December 31, 1996, SC
had other  expenses (net of other income) of  approximately  $21,000 and $41,000
compared to $49,000 and $86,000 for the same  periods in 1995.  The  decrease is
attributable to reduced  interest expense relating to four notes payable paid in
various  months  for the  previous  year  ended  June  30,  1996,  for  existing
locations.

Income Taxes

     As a  result  of  the  termination  of  its  election  to be  treated  as S
corporation,  SC became  liable for income taxes on income earned from and after
January 1, 1995. Prior to such termination, SC did not incur or pay their income
tax liability in respect to income of SC.  Estimated  income tax payable for the
three-month  and six-month  periods ended  December 31, 1996 amounted to $57,000
and  $96,000  from  $57,000  and  $115,000 in the same period in the prior year.
These  were  based  on  an  anticipated   effective   federal  income  tax  rate
approximating the statutory rate of 34%.

Liquidity and Capital Resources

     Cash  provided by  operating  activities  for the  six-month  period  ended
December 31, 1996  decreased to $513,000 from $578,000 for the six-month  period
ended December 31, 1995,  mostly due to a net decrease in operating  liabilities
of $40,000 and  depreciation and amortization of $7,000 offset by an increase in
net income of $11,000.

     Cash flows used in  investing  activities  for the six- month  period ended
December 31, 1996  decreased to $155,000 from $258,000  reflecting a decrease in
capital  expenditures  of  $186,000,  and a  decrease  in  repayments  of  notes
receivable of $8,000,  offset by increases in related party notes receivable and
advances to related parties of $10,000 and $53,000 respectively.
<PAGE>

     Cash flows used in financing  activities for the six- months ended December
31, 1996 decreased by $170,000  compared to same period in the prior year due to
the expiration of a line of credit on October 20, 1996.

     Apart from its anticipated  obligation  with respect to the AC Notes,  SC's
indebtedness  includes the  stockholder  notes and notes  collateralized  by its
gaming equipment and other assets. The stockholder notes aggregate $3,000,000 in
principal  amount,  bear  interest at an annual  rate of 10% and mature  January
2001. The  collateralized  notes bears 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,
$272,000  was  converted to a term note at July 1, 1994,  with monthly  payments
through June 1998. SC was able to request  advances  through October 20, 1996 at
which time the  Company's  right to receive  advances  under the  agreement  was
terminated.  In  addition,  SC had term notes of $627,000  due at various  dates
through April 2001, having interest at prime plus 1.5%.

     SC's management  believes that its cash generated by operations to meet its
projected needs for existing operations will be sufficient for 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.  SC has  guaranteed  the
payment of the AC Notes,  which  guarantee is subject to release upon attainment
by AC of a fixed  charge  coverage  ratio of 2.25 to 1. In  connection  with its
guarantee, the Indenture imposes restrictions on the distribution of earnings.

     AC may have  liability  under its  guarantee  of the CQC Notes  beyond that
which it could immediately support, AC may be in default of the AC Notes and SC,
as guarantor of the AC Notes,  would have liability  under its  guarantee.  Such
liability would likely exceed the amount which SC could immediately support.


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

             Analysis of Development Stage Activities for the period January 20,
           1993 (the date of inception) through
                                December 31, 1996

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

     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 December 31, 1996,  approximately $30,000 remained in the escrow
account  and an  aggregate  of  $20,000,000  principal  amount  of the CQC Notes
remained outstanding. However, the dates by which CQC previously agreed with the
holders of the CQC Notes to effect the sale of its  assets  and  repurchase  the
remaining CQC Notes have passed.

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

     During the period from inception  through  December 31, 1996, CQC had total
operating expenses of $13,678,000 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 June 30, 1996,  CQC  wrote-down  the cost of the riverboat
assets  to  their  net  realizable  value  based  on  estimates  provided  by  a
shipbuilder and marine brokers which resulted in an additional  abandonment loss
of $4,392,000 in the 1996 fiscal year.  Also included in operating  expenses are
amortization  expense  of  $1,407,000  associated  with  debt  issue  costs  and
$1,845,000  of project  development  costs.  For the same  period,  CQC incurred
$12,675,000  of interest  cost,  of which  $683,000  was  capitalized  by CQC as
required by generally accepted accounting  principles,  as part of the riverboat
construction.  CQC earned  interest  income of  $1,265,000  for the period  from
inception to December 31, 1996. <PAGE>


Liquidity and Capital Resources

     For the period from inception  through  December 31, 1996, net cash used in
development  stage  activities  was  $5,246,000.  Cash flows  used in  investing
activities for the period was $13,920,000 which included  $12,936,000 of capital
expenditures related to the construction of the riverboat and acquisition of the
Jefferson  City land site.  At January  31,  1997,  CQC had  expended a total of
approximately  $21,600,000 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  $3,600,000 at December
31, 1996.  There can be no assurance  that CQC will be successful in its efforts
to sell  its  assets  or,  that  if a sale is  effected,  the  proceeds  will be
sufficient to fully or  substantially  repay the CQC Notes and accrued  interest
thereon.  Moreover,  CQC because it has not yet effected the sale of its assets,
is in default of the CQC Indenture.  As a result,  the holders of 25% or more in
principal amount of the CQC Notes may cause the CQC Notes to be accelerated,  in
which event they would become  immediately  due and payable in full.  If the CQC
Notes were to be  accelerated,  CQC would not be able to pay the outstanding CQC
Notes without an infusion of capital, which is not expected to be available. CQC
is not  expected  to engage  in any  activities  after  the sale of its  assets,
although it may  continue  to pursue  legal  relief  with  respect to the injury
caused by the ruling of Missouri  Gaming  Commission.  The cost of pursuing such
relief is expected to be borne by Becker Gaming, Inc.


PART II. OTHER INFORMATION

Item 1.  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  or financial  condition of BGI, CQC, or the
Nevada Operating Companies.

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

<PAGE>

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

     On June 26, 1995, the Circuit Court issued a peremptory (permanent) writ of
mandamus similar to the preliminary writ,  declaring the Commission's order void
and  ordering  the  Commission  to  proceed  with  an   investigation  of  CQC's
application  "with all  deliberate  speed."  On July 21,  1995,  the  Commission
appealed the Circuit  Court's  decision to the Missouri Court of Appeals for the
Western District, and on April 30, 1996, a three-judge panel of that Court ruled
that  mandamus  was not the proper  vehicle  for  challenging  the  Commission's
decision.  The Court of Appeals ruled that CQC may obtain  judicial  review only
after an  administrative  proceeding.  The Court of Appeals  also ruled that the
Missouri statutes did not prohibit the Commission from denying a license without
conducting an  investigation,  and that the claim that the Commission  broke its
promise not to deny a license without first investigating  should be raised in a
breach of contract action, not a mandamus petition. The Court of Appeals did not
address the merits;  that is, it did not decide  whether  the  Commission  acted
arbitrarily  or whether its decision was  justified or a breach of its promises.
The Missouri Supreme Court declined to review the decision.  However,  the Court
of Appeals'  ruling had no  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.
<PAGE>

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

<PAGE>


     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.

Item 6.  Exhibits and Reports on Form 8-K

     No exhibits are included herein:

     The Company  did not file any  reports on form 8-K during the  three-months
ended December 31, 1996.
================================================================================
                                   SIGNATURES

Pursuant  to the  requirements  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.
                                                             -------------------
                                                                    (Registrant)





Date:    February 14, 1997                   /S/ Bruce F. Becker
         ---------------------              -------------------

                                            Bruce F. Becker
                                            President, Chief Executive
                                            Officer(Principal Executive Officer)






Date:    February 14, 1997                   /S/ Jerry Griffis
         ----------------                   -----------------
                                            Jerry Griffis
                                            Chief Financial Officer
                                            (Principal Financial and
                                            Accounting Officer)
================================================================================
<PAGE>