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<PAGE>

                                    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, 1997

                                       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, 1998
---------------------                             --------------
  $.01 par value                                10,000,000 shares

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<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, 1997 and
        June 30, 1997 ..................................................  1
    Consolidated Statements of Operations and Retained Earnings
        (Deficit) for the Three-Month Periods Ended
        December 31, 1997 and 1996 and for the Six-Month Periods
        Ended December 31, 1997 and 1996 ...............................  2
    Consolidated Statements of Cash Flows for the Six-Month
        Periods Ended December 31, 1997 and 1996 .......................  3
    Notes to Consolidated Financial Statements .........................  4

ARIZONA CHARLIE'S, INC
    Balance Sheets as of December 31, 1997 and June 30, 1997............ 10
    Statements of Operations and Retained Earnings (Deficit) for the
        Three-Month Periods Ended December 31, 1997
        and 1996 and for the Six-Month Periods Ended
        December 31, 1997 and 1996.......................................11
    Statements of  Cash Flows for the Six-Month Periods
        Ended December 31, 1997 and 1996.................................12
    Notes to Financial Statements........................................13

SUNSET COIN, INC
    Balance Sheets as of December 31, 1997 and June 30, 1997.............19
    Statements of Income and Retained Earnings for the Three-Month
        Periods Ended December 31, 1997 and 1996 and for the
        Six-Month Periods Ended December 31, 1997 and 1996...............20
    Statements of Cash Flows for the Six-Month Periods Ended
        December 31, 1997 and 1996.......................................21
    Notes to Financial Statements........................................22

CAPITOL QUEEN & CASINO, INC
    Balance Sheets as of December 31, 1997 and June 30, 1997.............27
    Statements of Loss Incurred During the Development Stage
        for the Three-Month Periods Ended  December 31, 1997
        and 1996 and for the Six-Month Periods Ended  December
        31, 1997 and 1996 and for the period  from  January 20,
        1993 (the date of inception) through December 31, 1997...........28
    Statements of Cash Flows for the for Six-Month Periods Ended
        December 31, 1997 and 1996  and for the period from January 20,
        1993 (the date of inception) through December 31, 1997...........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 5  Other Information ............................................46
    Item 6  Exhibits and Reports on Form 8-K..............................47

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

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<PAGE>

                      BECKER GAMING, INC. AND SUBSIDIARIES

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



                                     ASSETS


                                                    December 31,        June 30,
                                                        1997              1997
                                                    ------------    ------------
                                                    (Unaudited)

Current assets:

 Cash and cash equivalents .......................      $ 10,386       $  7,394
 Restricted cash, in escrow account ..............            42             41
 Trade and other accounts receivable .............           480            374
 Current portion of receivables from related
   parties .......................................            50             22
 Inventories .....................................           730            665
 Prepaid expenses ................................           878          1,119
 Current portion of notes receivable .............           280            256
 Assets held for sale ............................            --            382
                                                        --------       --------
     Total current  assets .......................        12,846         10,253
                                                        --------       --------
Property and equipment:
 Land improvements ...............................         1,628          1,628
 Building and improvements .......................        38,282         38,284
 Leasehold improvements ..........................         1,260            663
 Furniture and equipment .........................        30,176         29,013
                                                        --------       --------
                                                          71,348         69,588

 Less, accumulated depreciation ..................       (22,344)       (21,266)
                                                        --------       --------
                                                          49,004         48,322
 Land ............................................           208            208
 Construction in progress ........................           --             443
                                                        --------       --------
     Net property and  equipment .................        49,212         48,973
                                                        --------       --------

Other assets:

 Assets held for sale ............................         7,754          7,754
 Notes receivable, less current portion, net......           482            268
 Receivables from related parties, less
   current portion ...............................           165            165
 Deposits and other ..............................         1,197          1,187
 Financing costs, net ............................         2,075          2,409
                                                        --------       --------
     Total other assets ..........................        11,673         11,783
                                                        --------       --------
     Total assets ................................      $ 73,731       $ 71,009
                                                        ========       ========

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

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

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


                                                   December  31,        June 30,
                                                         1997             1997
                                                   ------------     ------------
                                                     (Unaudited)

Current  liabilities:
 Trade accounts payable ..........................      $  1,108       $  1,355
 Construction accounts payable ...................          --              443
 Accrued interest ................................         7,434          9,998
 Accrued expenses ................................         4,385          3,125
 Notes payable ...................................          --              106
 Current portion of subordinated notes
   payable to stockholders .......................           800            800
 Current portion of long term debt ...............           523            887
 Long-term debt classified as current due to
   default under covenants, net of
   unamortized original issue discount of
   $1,852 and $2,092, respectively ...............        18,148         72,908
 Current portion of obligations under capital
    leases .......................................           222            138
                                                         --------       --------
     Total current liabilities ...................        32,620         89,760

Prepetition liabilities not subject to compromise:
 Current portion of capital lease obligations ....            26           --
 Current portion of long-term debt ...............         1,105           --
 Capital lease obligations, less current portion .            73           --
 Long-term debt, less current portion ............         1,269           --
                                                         --------       --------
     Total prepetition liabilities of wholly owned
       subsidiary not subject to compromise ......         2,473           --

Prepetition liabilities subject to compromise:
 Trade accounts payable ..........................         2,327           --
 Accrued interest ................................         7,070           --
 Long-term debt classified as current due to
   default under covenants .......................        55,000           --
 Subordinated notes payable to stockholders,
   less current portion ..........................         5,000           --
                                                         --------       --------
     Total prepetition liabilities of wholly
       owned subsidiary subject to compromise ....        69,397           --

Long-term debt, less current portion .............         1,566          2,314
Subordinated notes payable to stockholders, less
  current portion ................................         3,000          8,000
Obligations under capital leases, less current
  portion .......................................             36             98
                                                        --------       --------
     Total liabilities ...........................       109,092        100,172
                                                        --------       --------

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) .....................       (44,467)       (38,269)
                                                        --------       --------
     Total stockholder's equity (deficit) ........       (35,361)       (29,163)
                                                        --------       --------
     Total liabilities and
     stockholder's equity (deficit) ..............      $ 73,731       $ 71,009
                                                        ========       ========


The  accompanying  notes are an integral  part of these  consolidated  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,
                                                         1997              1996
                                                 ------------      ------------
Revenues:
   Gaming ..................................     $     13,531     $     14,468
   Food and beverage .......................            4,199            4,624
   Hotel ...................................              840              924
   Gift shop ...............................              206              138
   Other ...................................              373              407
                                                 ------------     ------------
        Gross revenues .....................           19,149           20,561
Less, promotional allowances ...............           (1,955)          (2,637)
                                                 ------------     ------------
        Net revenues .......................           17,194           17,924

Operating expenses:
   Gaming ..................................            4,783            4,962
   Food and beverage .......................            4,724            4,377
   Hotel ...................................              405              330
   Gift shop ...............................              179              126
   Advertising and promotion ...............            1,363            1,396
   General and administrative ..............            4,971            5,028
   Rent expense paid to related party ......              123              106
   Depreciation and  amortization ..........            1,099            1,030
                                                 ------------     ------------
        Total operating expenses ...........           17,647           17,355
                                                 ------------     ------------
        Operating (loss)income ..............            (453)             569
                                                 ------------     ------------
Other income (expenses):
   Development costs .......................             ( 75)            ( 61)
   Interest income .........................               17               38
   Interest expense (reflecting contractual 
     interest of wholly owned subsidiary
     for the three-months ended December
     31, 1997 of $3,036)....................           (2,084)          (2,676)
   Other, net ..............................              (30)             (11)
                                                 ------------     ------------
        Total other income (expense) .......           (2,172)          (2,688)
                                                 ------------     ------------
        Loss before income taxes and
          reorganization items .............           (2,625)          (2,119)
   Reorganization items of wholly owned
          subsidiaries .....................             (103)            --
                                                 ------------     ------------
        Loss before income taxes ...........           (2,728)          (2,119)
   Provision for income taxes ..............             --               --
                                                 ------------     ------------
        Net loss ...........................           (2,728)          (2,119)

        Retained earnings (deficit),
        beginning of period ................          (41,739)         (30,123)
                                                 ------------     ------------

        Retained earnings (deficit),
        end of period ......................     $    (44,467)    $    (32,242)
                                                 ============     ============

   Basic and siluted earnings per common share:

        Net loss ...........................     $      (0.27)    $      (0.21)
                                                 ============     ============
        Weighted average common
        shares outstanding .................       10,000,000       10,000,000
                                                 ============     ============

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

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

                                                  Six Months Ended December 31,
                                                         1997              1996
                                                 ------------      ------------
Revenues:
   Gaming ..................................     $     27,066      $     28,677
   Food and beverage .......................            8,324             9,428
   Hotel ...................................            1,488             1,685
   Gift shop ...............................              367               269
   Other ...................................              629               678
                                                 ------------      ------------
        Gross revenues .....................           37,874            40,737
Less, promotional allowances ...............           (3,874)           (5,221)
                                                 ------------      ------------
        Net revenues .......................           34,000            35,516

Operating expenses:
   Gaming ..................................            9,132            10,063
   Food and beverage .......................            9,020             8,736
   Hotel ...................................              742               736
   Gift shop ...............................              317               184
   Advertising and promotion ...............            2,401             2,728
   General and administrative ..............           10,718            10,509
   Rent expense paid to related party ......              258               210
   Depreciation and amortization ...........            2,176             2,051
                                                 ------------      ------------
        Total operating expenses ...........           34,764            35,217
                                                 ------------      ------------
        Operating (loss)income .............             (764)              299
                                                 ------------      ------------
Other income (expenses):
   Development costs .......................             (218)             (134)
   Interest income .........................               30                69
   Interest expense ........................
   Interest expense (reflecting contractual 
     interest of wholly owned subsidiary
     for the three-months ended December
     31, 1997 of $3,036)....................           (5,098)           (5,414)
   Other, net ..............................              (45)               41
                                                 ------------      ------------
        Total other income (expense) .......           (5,331)           (5,438)
                                                 ------------      ------------
     Loss before income taxes and
       reorganization items ................           (6,095)           (5,139)
   Reorganization items of wholly owned
          subsidiaries .....................             (103)             --
                                                 ------------      ------------
        Loss before income taxes ...........           (6,198)           (5,139)
Provision for income taxes .................             --                --
                                                 ------------      ------------
        Net loss ...........................           (6,198)           (5,139)

        Retained earnings (deficit),
        beginning of period ................          (38,269)          (27,103)
                                                 ------------      ------------

        Retained earnings (deficit),
        end of period ......................     $    (44,467)    $     (32,242)
                                                 ============      ============

   Basic and siluted earnings per common share:

        Net loss ...........................     $      (0.62)    $      (0.51)
                                                 ============     ============
        Weighted average common
        shares outstanding .................       10,000,000       10,000,000
                                                 ============     ============



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

                      BECKER GAMING, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Dollars In Thousands)
                                   (Unaudited)

                                                   Six Months Ended December 31,
                                                             1997          1996
                                                         --------      --------
Cash flows from operating activities:
  Net (loss) income.................................     $ (6,198)     $ (5,139)
  Adjustments to reconcile net loss to net cash
     provided by operating activities:
     Depreciation and amortization .................        2,176         2,051
     Amortization of original issue discount .......          240           269

(Increase) decrease in operating assets:
    Receivables ....................................         (106)         (247)
    Receivables from related parties ...............          (28)         (245)
    Inventories ....................................          (65)          (67)
    Prepaid expenses ...............................          241           438
    Deposits and other assets ......................          372           165

Increase (decrease) in operating liabilities:
    Accounts payable ...............................        1,637          (248)
    Accrued expenses ...............................        5,766         3,583
                                                         --------      --------
        Total adjustments ..........................       10,233         5,699
                                                         --------      --------
        Net cash provided by operating activities ..        4,035           560
                                                         --------      --------
Cash flows from investing activities:
  Capital expenditures .............................       (1,330)         (393)
  Proceeds from sale of equipment ..................          377         3,233
  Issuance of notes receivable .....................         (429)          --
  Payments of notes receivable .....................          191            31
                                                         --------      --------
    Net cash provided by (used in)
     investing activities ..........................       (1,191)        2,871
                                                         --------      --------

Cash flows from financing activities:
  Proceeds from notes payable ......................          800          --
  Payments under notes payable .....................         (634)         (274)
  Payments under capital lease obligations .........          (18)       (1,846)
                                                         --------      --------
    Net cash provided by (used in)
     financing activities ..........................         148        (2,120)
                                                         --------      --------
    Net increase in cash and cash equivalents ......        2,992         1,311
Cash and cash equivalents, beginning of period .....        7,394         6,745
                                                          --------      --------
Cash and cash equivalents, end of period ...........     $ 10,386      $  8,056
                                                         ========      ========
Supplemental cash flow disclosures:
   Interest paid, net of amount capitalized ........     $    305      $  2,784
                                                         ========      ========
   Assets acquired through issuance of
     long-term debt and capital leases..............     $  1,126      $   --
                                                         ========      ========


The  accompanying  notes are an integral  part of these  consolidated  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-month  and six-month  periods ended December 31, 1997 are
not  necessarily  indicative  of the results  that may be expected  for the year
ended  June  30,  1998.  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, 1997.

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


2)   Arizona Charlie's, Inc. Bankruptcy Filing:

Arizona  Charlie's,  Inc.,  ("AC"),  is a wholly owned subsidiary of BGI and the
source of the majority of BGI's  operating  revenues and cash flows. On November
14, 1997, AC filed a voluntary petition under Chapter 11 of the U.S.  Bankruptcy
Code with the United  States  Bankruptcy  Court for the  District of Nevada (the
"Bankruptcy  Court") in Las Vegas, Nevada in order to provide it protection from
creditors  while it  attempts  to  negotiate  a  settlement  with the holders of
certain debt.

During  the  course  of the  bankruptcy  proceeding  AC  has  been  involved  in
litigation with certain of its creditors.  Specifically,  the holders of the CQC
Notes (as  defined  in Note 3)  asserted a claim  against  AC under its  limited
guaranty  of the CQC Notes  for the full  deficiency  which  might  arise  after
proceeds from the sale of CQC's assets are applied to the CQC Notes. On November
14,  1997,  AC filed a complaint  to declare its  obligations  under the limited
guaranty discharged or alternatively to avoid the limited guaranty.  The trustee
under the indenture  with respect to the CQC Notes  answered this  complaint and
denies that the limited  guaranty has been satisfied and denies that the limited
guaranty is avoidable.  With the concurrence of the Bankruptcy Court, AC and the
trustee have agreed to defer  litigation on this issue until early March 1998 to
give the  parties an  opportunity  to explore  an  overall  settlement  of their
disputes.

In  addition,  holders of the AC Notes (as  defined in Note 3) claim a valid and
enforceable lien in all of AC's assets, including all real property and personal
property which comprise Arizona Charlie's Hotel and Casino. On February 2, 1998,
AC filed a motion disputing  certain aspects of the liens claimed by the holders
of the AC Notes and seeking for the  Bankruptcy  Court to determine the value of
the collateral securing the AC Note holders' claims. A response from the holders
of the AC Notes is due by February 25, 1998 and the Bankruptcy  Court has set an
initial hearing for March 6, 1998.

On February  17,  1998,  AC filed a Plan of  Reorganization  (the "Plan") and an
accompanying   Disclosure  Statement  (the  "Disclosure   Statement")  with  the
Bankruptcy  Court. The Plan provides for a restructure of the claims against AC,
which AC believes  will allow its  business to continue  successfully.  The Plan
also is structured to provide certain  creditors with the option of receiving up
front cash in lieu of deferred  payments over several  years.  For example,  the
Plan  provides  the  holders  of the AC  Notes  with  the  option  of  receiving
$45,000,000 in cash on the Plan's  effective date in full  satisfaction of their
allowed  claims  or  payment  of a higher  amount  over  time.  Likewise,  trade
unsecured  creditors  can elect to  receive  cash on the  effective  date in the
amount of 80% of their allowed claims in lieu of a 100% payout over time.

AC expects,  but no assurance can be given, to receive funding for the Plan from
several sources.  First, AC anticipates  receiving up to $50,000,000 from United
Healthcare  Financial  Services  for use in making  cash  payments  to  electing
creditors.  Second, AC will receive  $1,500,000 in cash plus the release of over
$7,000,000 in claims from certain  affiliates of AC,  including the Company,  in
return for  retaining  their equity  interests in AC.  Finally,  AC will use net
income generated by the casino to help fund the Plan.
<PAGE>

The holders of claims and  interests  of AC are  permitted  to vote to accept or
reject the Plan. A hearing on the  Disclosure  Statement has been  scheduled for
March 27, 1998. If the Disclosure Statement is approved by the Bankruptcy Court,
the creditors thereafter will be requested to vote to accept or reject the Plan,
and a hearing  will be held in due course on  confirmation  of the Plan.  At the
hearing,  the  Bankruptcy  Court will  consider  whether the Plan  satisfies the
various  requirements  of the Bankruptcy  Code.  The Bankruptcy  Court also will
receive and  consider a ballot  report  which will  present a tally of the votes
accepting or rejecting the Plan cast by those entitled to vote. Therefore, given
these contingencies, there can be no assurances that the Plan as submitted by AC
will be confirmed.

Interest expense on the AC Notes and the subordinated  notes payable to prior AC
stockholders  has not been  recognized  since AC's November 14, 1997  bankruptcy
petition  date as it not probable that  post-petition  interest for the AC Notes
will be an allowed claim in these proceedings.

Reorganization items presented in the consolidated  statements of operations and
retained earnings  (deficit) are comprised of expense incurred by AC as a result
of AC's  reorganization  under  Chapter 11 of  Bankruptcy  Code.  Such  expenses
consisted  entirely  of  professional  fees for the  three-month  and  six-month
periods ended December 31, 1997.

3) 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.

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

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

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

As of December 31, 1997, AC was in default of certain debt  covenants  under the
Indenture  governing  the AC Notes.  These  covenant  violations  include  (i) a
failure  to meet a minimum  Fixed  Charge  Coverage  ratio,  as  defined  in the
Indenture;  (ii)  advances by AC to Becker  Gaming,  Inc.  which exceed  amounts
allowed for under the Indenture  (which advances remain  outstanding at December
31, 1997);  (iii) beginning in the fourth quarter of fiscal 1997,  exceeding the
amount of new indebtedness allowed for under the Indenture;  (iv) beginning with
the quarter  ending  December 31, 1995, AC has not met the Minimum  Tangible Net
Worth Ratio of 1.5 to 1.0, as defined in the Indenture;  and (v) AC did not make
its required  semi-annual  interest  payments of  $3,300,000 on May 15, 1997 and
November 15, 1997. In addition,  beginning with the quarter ending  December 31,
1995, AC has not met the Minimum Tangible Net Worth  requirement  defined in the
Indenture.  Under the terms of the  Indenture,  AC was  technically  required to
offer to buy back  $44,000,000 of the  outstanding AC Notes at December 31, 1997
due to the failure to meet this covenant,  increasing by $5,500,000  each fiscal
quarter.  AC has not made  such  offer.  As a result  of  these  defaults  under
covenants  and demand for payment  made by the  Trustee,  the AC Notes have been
classified as currently payable in the accompanying financial statements.

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

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

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

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,  1997,  CQC  had a net  deficit  of
approximately $19,900,000.

The AC Indenture contains covenants that, among other things,  limit the ability
of AC and, in certain cases,  SC, to pay dividends or management  fees, or incur
additional  indebtedness.  At December 31, 1997 approximately $2,300,000 of SC's
net assets  were  restricted  by such  Indenture  covenants;  while AC had a net
deficit of approximately $21,100,000.
<PAGE>

In connection with the decision to abandon the project,  CQC had entered into an
Asset  Purchase  Agreement  dated April 10, 1995,  for the sale of its assets to
Aerie  Riverboat  Casinos of Missouri,  Inc. at a purchase price of $18,000,000,
which  price  exceeded  the  carrying  value  of the CQC  assets.  However,  the
consummation of the Aerie purchase  agreement was subject to the satisfaction of
several conditions which could not be satisfied timely, including, among others,
that Jefferson City consent to the assignment of its Development  Agreement with
CQC,  that  Aerie be found  preliminarily  suitable  to hold a  Missouri  Gaming
license,  and that riverboat gaming is legally permitted in Jefferson City. As a
result,  the  agreement  with  Aerie was  terminated  without  penalty  when the
December 31, 1995 expiration  date passed.  As more fully described in Note 4, a
further  write-down in the carrying value of the riverboat was recognized in the
third  quarter  of fiscal  1996,  after the  election  in  Jefferson  City,  the
expiration of the Aerie contract, and due to deteriorating market conditions.

CQC continues to market its riverboat  assets to  prospective  buyers.  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.  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, 1997 financial statements of the Company do not include any
adjustment that might result from the outcome of this uncertainty.

4).  Assets Held For Sale:

At December 31, 1997, 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.


5)   Becker Gaming Group Property Transactions:

Becker Gaming Group ("BGG") another wholly owned subsidiary of BGI, entered into
an  agreement to sell one of it's bars  "Cantina  Charlie's"  to a  prospective,
unrelated buyer. The sale, which was consummated on November 21, 1997,  resulted
in a gain on sale of assets of approximately  $16,000. A new BGG bar, "Charlie's
Saloon" opened on December 19, 1997.


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



<PAGE>
                             ARIZONA CHARLIE'S, INC.

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

                                     ASSETS


                                              December 31,    June 30,
                                                     1997        1997
                                                 --------    --------
                                                 (unaudited)
Current assets:

   Cash and cash equivalents .................   $  8,029    $  5,481
   Restricted cash, in escrow account ........         10          10
   Trade and other accounts receivable .......        332         240
   Receivable from related parties ...........      2,920       2,665
   Inventories ...............................        592         529
   Prepaid expenses ..........................        791         985
                                                 --------    --------
     Total current assets ....................     12,674       9,910
                                                 --------    --------

Property and equipment:

   Building and improvements .................     37,490      37,490
   Furniture and equipment ...................     24,712      23,916
   Land improvements .........................      1,629       1,629
                                                 --------    --------
                                                   63,831      63,035
   Less, accumulated  depreciation ...........    (19,383)    (18,303)
                                                 --------    --------
                                                   44,448      44,732
   Land ......................................        208         208
                                                 --------    --------
       Net property and equipment ............     44,656      44,940
                                                 --------    --------

Other assets:

   Receivable from related party, noncurrent..        210         210
   Deposits and other ........................        544         544
   Note receivable from related party.........      4,416       4,416
   Financing costs, less accumulated
   amortization of $2,204 at December 31,
   1997 and $1,923 June 30, 1997 .............      1,657       1,937
                                                 --------    --------
       Total other  assets ...................      6,827       7,107
                                                 --------    --------
       Total assets ..........................   $ 64,157    $ 61,957
                                                 ========    ========


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


                             ARIZONA CHARLIE'S, INC.

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


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)



                                               December 31,   June 30,
                                                     1997        1997
                                                 --------    --------
                                               (unaudited)


Current liabilities:
   Trade accounts payable ....................   $    527    $  1,047
   Accrued expenses ..........................      3,578       2,642
   Accrued interest ..........................        102       4,522
   Management fees due Becker Gaming, Inc. ...         83       5,347
   Notes payable, current portion.............         --         106
   Notes payable to related party ............         --       3,150
   Current portion of capital leases
     obligations .............................         --          12
   Current portion of long-term debt .........         --         464
   Long-term debt classified as current due
     to default under covenants ..............         --      55,000
                                                 --------    --------
           Total current liabilities .........     4,290      72,290
                                                 --------    --------
Prepetition liabilities not subject to
   compromise:
   Current portion of capital lease
     obligations .............................         26         --
   Current portion of long-term debt .........      1,105         --
   Capital lease obligations, less current
     portion .................................         73         --
   Long-term debt, less current portion ......      1,269         --
                                                 --------    --------
     Total prepetition liabilities not
       subject to compromise .................      2,473         --
                                                 --------    --------
Prepetition liabilities subject to compromise:
   Trade accounts payable ....................      2,327         --
   Management fees due Becker Gaming, Inc. ...      5,583         --
   Accrued interest ..........................      7,445         --
   Notes payable to related party ............      3,150         --
   Long-term debt classified as current due
     to default under covenants ..............     55,000         --
   Subordinated notes payable to prior
     stockholders ............................      5,000         --
                                                 --------    --------
     Total prepetition liabilities subject to
     compromise ..............................     78,505         --
                                                 --------    --------
   Long-term debt, less current portion ......         --      1,284
   Subordinated notes payable to prior
     stockholders ............................         --      5,000
   Capital lease obligations, less current
     portion .................................         --         29
                                                 --------    --------
     Total liabilities                             85,268     78,603
                                                 --------    --------
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) ................   (21,580)    (17,115)
                                                 --------    --------

           Total stockholders' equity
           (deficit) .........................   (21,111)    (16,646)
                                                 --------    --------

           Total liabilities  and
           stockholders' equity (deficit) ....  $ 64,157    $ 61,957
                                                 ========    ========


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,
                                                           1997            1996
                                                       --------        --------
Revenues:
  Gaming .......................................       $ 11,522        $ 12,296
  Food and beverage ............................          3,232           3,533
  Hotel ........................................            840             924
  Gift shop ....................................            206             138
  Other ........................................            267             392
                                                       --------        --------
      Gross revenues ...........................         16,067          17,283
Less, promotional allowances ...................         (1,627)         (2,238)
                                                       --------        --------
      Net revenues .............................         14,440          15,045
                                                       --------        --------

Operating expenses:
  Gaming .......................................          4,375           4,448
  Food and beverage ............................          3,681           3,166
  Hotel ........................................            405             330
  Gift shop ....................................            179             126
  Advertising and promotion ....................          1,310           1,323
  Provision for losses on related party
     receivables ...............................             15              61
  General and administrative ...................          4,228           4,236
  Management fee - Becker Gaming, Inc. .........            161             173
  Rent expense paid to related party ...........             57              56
  Depreciation and amortization ................            920             861
                                                       --------        --------
      Total operating expenses .................         15,331          14,780
                                                       --------        --------
      Operating income (loss)...................           (891)            265
                                                       --------        --------

Other income (expenses):
  Gain (loss) on sale of assets ................             50              --
  Interest income ..............................             69              69
  Interest expense (contractual interest for the
     three-months ended Deceber 31, 1997 of
     $2,030) ...................................         (1,078)         (1,810)
  Other, net ...................................              9               9
                                                       --------        --------
      Total other income (expenses) ............           (950)         (1,732)
                                                       --------        --------
      Loss before income taxes and
         reorganization items ..................         (1,841)         (1,467)
Reorganization items ...........................           (103)             --
                                                       --------        --------
      Loss before income taxes .................         (1,944)         (1,467)
Provision for income tax .......................             --              --
                                                       --------        --------
      Net loss .................................         (1,944)         (1,467)

Retained earnings (deficit),
  beginning of period ..........................        (19,636)        (12,214)
                                                       --------        --------

Retained earnings (deficit),
   end of period ...............................       ($21,580)       ($13,681)
                                                       ========        ========


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)

                                                   Six Months Ended December 31,
                                                           1997            1996
                                                       --------        --------
Revenues:
  Gaming .......................................       $ 23,096        $ 24,525
  Food and beverage ............................          6,360           7,034
  Hotel ........................................          1,488           1,685
  Gift shop ....................................            367             269
  Other ........................................            514             650
                                                       --------        --------
       Gross revenues ..........................         31,825          34,163
 Less, promotional allowances ..................         (3,212)         (4,433)
                                                       --------        --------
      Net revenues .............................         28,613          29,730
                                                       --------        --------

Operating expenses:
  Gaming .......................................          8,289           8,978
  Food and beverage ............................          6,969           6,331
  Hotel ........................................            742             736
  Gift shop ....................................            317             184
  Advertising and promotion ....................          2,328           2,612
  Provision for losses on related party
     receivables ...............................             94             134
  General and administrative ...................          9,063           8,850
  Management fee - Becker Gaming, Inc. .........            318             342
  Rent expense paid to related party ...........            113             111
  Depreciation and amortization ................          1,830           1,719
                                                       --------        --------
      Total operating expenses .................         30,063          29,997
                                                       --------        --------
      Operating income (loss)...................         (1,450)           (267)
                                                       --------        --------

Other income (expenses):
  Gain on sale of assets .......................             45              --
  Interest income ..............................            138             137
  Interest expense (contractual interest for the
     three-months ended December 31, 1997 of
     $2,030) ...................................         (3,109)         (3,620)
  Other, net ...................................             14              39
                                                       --------        --------
      Total other income (expenses) ............         (2,912)         (3,444)
                                                       --------        --------
      Loss before income taxes and
          reorganization items .................         (4,362)         (3,711)
Reorganization items ...........................           (103)            --
                                                       --------        --------
      Loss before income taxes .................         (4,465)         (3,711)
Provision for income tax .......................            --              --
                                                       --------        --------
      Net loss .................................         (4,465)         (3,711)

Retained earnings (deficit),
  beginning of period ..........................        (17,115)         (9,970)
                                                       --------        --------

Retained earnings (deficit),
  end of period ................................       ($21,580)       ($13,681)
                                                       ========        ========


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,
                                                               1997        1996
                                                           --------    --------
Cash flows from operating activities:
    Net loss ...........................................   ($ 4,467)   ($ 3,711)

Adjustments to reconcile net loss to net
     cash  provided  by  operating activities:
    Provision for losses on related
     party receivables .................................         94         134
    Depreciation and amortization ......................      1,830       1,719

(Increase) decrease in operating assets:
    Trade and other accounts receivable ................        (92)         (6)
    Inventories ........................................        (63)        (50)
    Prepaid expenses ...................................        194         414
    Deposits and other .................................         -           (8)

Increase (decrease) in operating liabilities:
    Accounts payable ...................................      1,807        (277)
    Management fees due to Becker Gaming, Inc. .........        319         342
    Accrued expenses ...................................      3,961       2,509
                                                           --------    --------
       Total adjustments ...............................      8,050       4,793
                                                           --------    --------
        Net cash provided by operating activities ......      3,583       1,082
                                                           --------    --------

Cash flows from investing activities:
    Capital expenditures ...............................       (480)       (199)
    Increase in receivable from related parties ........       (349)       (387)
    Proceeds from assets sales .........................         74          --
                                                           --------    --------
       Net cash provided by used in
          investing activities .........................       (755)       (586)
                                                           --------    --------

Cash flows from financing activities:
    Payments under notes payable .......................       (262)       (110)
    Payments under capital lease obligations ...........        (18)         (7)
                                                           --------    --------
       Net cash provided by used in
          financing activities .........................       (280)       (117)
                                                           --------    --------
       Net increase (decrease)in cash and cash
         equivalents                                          2,548         379
Cash and cash equivalents, beginning of the period .....      5,481       4,591
                                                           --------    --------
Cash and cash equivalents, end of the period ...........   $  8,029    $  4,970
                                                           ========    ========
Supplemental cash flow disclosures:
    Interest paid, net of amount capitalized ...........   $    101    $  2,499
                                                           ========    ========
  Assets acquired through issuance of long-term
     debt and capital leases ...........................   $    858    $    --
                                                           ========    ========


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-month  and six-month  periods ended
December  31, 1997 are not  necessarily  indicative  of the results  that may be
expected for the year ended June 30, 1998.  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, 1997.

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


2)   Arizona Charlie's, Inc. Bankruptcy Filing:

On November 14, 1997, AC filed a voluntary petition under Chapter 11 of the U.S.
Bankruptcy  Code with the United  States  Bankruptcy  Court for the  District of
Nevada  (the  "Bankruptcy  Court") in Las  Vegas,  Nevada in order to provide it
protection  from creditors  while it attempts to negotiate a settlement with the
holders of certain debt.

During the course of the bankruptcy  proceeding the Company has been involved in
litigation with certain of its creditors.  Specifically,  the holders of the CQC
Notes (as  defined in Note 3) asserted a claim  against  the  Company  under its
limited  guaranty  of the CQC Notes for the full  deficiency  which  might arise
after  proceeds  from the sale of CQC's assets are applied to the CQC Notes.  On
November 14,  1997,  the Company  filed a complaint  to declare its  obligations
under the limited  guaranty  discharged  or  alternatively  to avoid the limited
guaranty. The trustee under the indenture with respect to the CQC Notes answered
this  complaint  and denies that the limited  guaranty  has been  satisfied  and
denies  that the limited  guaranty is  avoidable.  With the  concurrence  of the
Bankruptcy Court, the Company and the trustee have agreed to defer litigation on
this issue until early March 1998 to give the parties an  opportunity to explore
an overall settlement of their disputes.

In  addition,  holders of the AC Notes (as  defined in Note 3) claim a valid and
enforceable lien in all of the Company's assets, including all real property and
personal property which comprise Arizona Charlie's Hotel and Casino. On February
2, 1998,  the  Company  filed a motion  disputing  certain  aspects of the liens
claimed by the holders of the AC Notes and seeking for the  Bankruptcy  Court to
determine the value of the collateral  securing the AC Note holders'  claims.  A
response  from the holders of the AC Notes is due by  February  25, 1998 and the
Bankruptcy Court has set an initial hearing for March 6, 1998.

On February 17, 1998,  the Company filed a Plan of  Reorganization  (the "Plan")
and an accompanying  Disclosure Statement (the "Disclosure  Statement") with the
Bankruptcy  Court. The Plan provides for a restructure of the claims against the
Company,  which the  Company  believes  will  allow  its  business  to  continue
successfully.  The Plan also is structured to provide certain creditors with the
option of  receiving  up front cash in lieu of deferred  payments  over  several
years.  For  example,  the Plan  provides  the  holders of the AC Notes with the
option of receiving  $45,000,000  in cash on the Plan's  effective  date in full
satisfaction  of their  allowed  claims or payment of a higher amount over time.
Likewise,  trade unsecured  creditors can elect to receive cash on the effective
date in the amount of 80% of their allowed  claims in lieu of a 100% payout over
time.

The Company  expects,  but no assurance can be given, to receive funding for the
Plan from  several  sources.  First,  the Company  anticipates  receiving  up to
$50,000,000  from United  Healthcare  Financial  Services for use in making cash
payments to electing  creditors.  Second, the Company will receive $1,500,000 in
cash plus the release of over  $7,000,000  in claims from certain  affiliates of
the Company,  including BGI, in return for retaining  their equity  interests in
the Company. Finally, the Company will use net income generated by the casino to
help fund the Plan.
<PAGE>

The holders of claims and  interests  of the Company  are  permitted  to vote to
accept  or reject  the Plan.  A hearing  on the  Disclosure  Statement  has been
scheduled  for March 27, 1998.  If the  Disclosure  Statement is approved by the
Bankruptcy  Court, the creditors  thereafter will be requested to vote to accept
or reject the Plan, and a hearing will be held in due course on  confirmation of
the Plan. At the hearing,  the Bankruptcy  Court will consider  whether the Plan
satisfies the various  requirements of the Bankruptcy Code. The Bankruptcy Court
also will receive and consider a ballot report which will present a tally of the
votes accepting or rejecting the Plan cast by those entitled to vote. Therefore,
given these contingencies, there can be no assurances that the Plan as submitted
by the Company will be confirmed.

Interest expense on the AC Notes and the subordinated  notes payable to prior AC
stockholders  has not been  recognized  since AC's November 14, 1997  bankruptcy
petition  date as it not probable that  post-petition  interest for the AC Notes
will be an allowed claim in these proceedings.

Reorganization  items  presented in the  statements of  operations  and retained
earnings  (deficit) are comprised of expense  incurred by AC as a result of AC's
reorganization  under Chapter 11 of  Bankruptcy  Code.  Such expenses  consisted
entirely of professional  fees for the  three-month and six-month  periods ended
December 31, 1997.

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

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

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

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

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

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

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

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

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

As of December 31, 1997, AC was in default of certain debt  covenants  under the
indenture  governing  the AC Notes.  These  covenant  violations  include  (i) a
failure  to meet a minimum  Fixed  Charge  Coverage  ratio,  as  defined  in the
Indenture;  (ii)  advances by AC to Becker  Gaming,  Inc.  which exceed  amounts
allowed for under the Indenture  (which advances remain  outstanding at December
31, 1997);  (iii) beginning in the fourth quarter of fiscal 1997,  exceeding the
amount of new indebtedness allowed for under the Indenture;  (iv) beginning with
the quarter  ending  December 31, 1995, AC has not met the Minimum  Tangible Net
Worth Ratio of 1.5 to 1.0, as defined in the Indenture;  and (v) AC did not make
its required  semi-annual  interest  payments of  $3,300,000 on May 15, 1997 and
November 15, 1997. In addition,  beginning with the quarter ending  December 31,
1995, AC has not met the Minimum Tangible Net Worth  requirement  defined in the
Indenture.  Under the terms of the  Indenture,  AC was  technically  required to
offer to buy back  $44,000,000 of the  outstanding AC Notes at December 31, 1997
due to the failure to meet this covenant,  increasing by $5,500,000  each fiscal
quarter.  As a result of these defaults  under  covenants and demand for payment
made by the Trustee,  the AC Notes have been classified as currently  payable in
the accompanying financial statements.

CQC continues to market its riverboat  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.  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, 1997 financial  statements of AC do
not  include  any  adjustment  that  might  result  from  the  outcome  of  this
uncertainty.


4)     Related-Party Transactions:

AC has advanced to BGI an aggregate of  approximately  $6,489,000  to fund BGI's
operating  expenses  from June 1994 through  December  1997 of which  $4,416,000
represented  notes receivable that are interest bearing and have been classified
as noncurrent  based on  management's  expectation  for the timing of repayments
from BGI. At December  31, 1997,  accrued  interest  receivable  on the interest
bearing portion of the advances to BGI totaled  $760,000.  The matters described
in Notes 2 and 3 raise  substantial  doubt about the ability of BGI's  principal
subsidiaries  (and,  thus  BGI) to  continue  as a going  concern.  Accordingly,
management of the Company believes it is reasonably  possible that a portion, or
the entire  balance,  of the notes  receivable  from BGI will be  uncollectible.
However,  an  estimate  of  the  loss  cannot  presently  be  determined  and no
adjustment  has been made to the carrying value or  classification  of the notes
receivable at December 31, 1997.


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

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

                                 BALANCE SHEETS
                             (Dollars In Thousands)


                                     ASSETS


                                                        December 31,   June 30,
                                                                1997       1997
                                                             -------    -------
                                                         (Unaudited)
Current assets:
  Cash ...................................................   $   909    $   707
  Current portion of notes receivable ....................        44        222
  Note receivable from related party .....................     3,150      3,150
  Advances to related parties ............................       415        312
  Other receivables ......................................        39         27
  Interest receivables from related party ................       396        313
  Prepaid expenses .......................................        30         45
                                                             -------    -------
      Total current assets ...............................     4,983      4,776
                                                             -------    -------
Property and equipment:
  Building and leasehold improvements ....................       174        174
  Furniture, fixtures and equipment ......................     3,252      3,068
                                                             -------    -------
                                                                3,426      3,242
  Less, accumulated depreciation .........................    (1,624)    (1,604)
                                                             -------    -------
      Net property and equipment .........................     1,802      1,638
                                                             -------    -------

Notes receivable, less current portion ...................         5         18

Other assets, less accumulated
  amortization of $11 at December 31, 1997,
  and $37 at June 30, 1997 ...............................        71         75
                                                             -------    -------
      Total other assets .................................        76         93

      Total assets .......................................   $ 6,861    $ 6,507
                                                             =======    =======



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

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

                                 BALANCE SHEETS
                             (Dollars In Thousands)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                        December 31,  June 30,
                                                               1997     1997
                                                             ------   ------
                                                        (Unaudited)
Current liabilities:
  Trade accounts payable .................................   $   77   $   13
  Accrued expenses .......................................       19       39
  Accrued taxes payable to related party .................      859      779
  Current portion of long term debt ......................      408      322
                                                             ------   ------
       Total current liabilities .........................    1,363    1,153


Long-term liabilities:
   Long-term debt, less current portion ..................      245      305
   Subordinated notes payable to
     former stockholders .................................    3,000    3,000
                                                             ------   ------
      Total liabilities ..................................    4,608    4,458
                                                             ------   ------

Commitments and contingencies

Stockholder's equity:
  Common stock, no par value, 2,500
  shares authorized, 400 shares
  issued and outstanding .................................       27       27
Retained earnings ........................................    2,226    2,022
                                                             ------   ------
      Total stockholder's equity .........................    2,253    2,049
                                                             ------   ------

      Total liabilities and stockholder's equity .........   $6,861   $6,507
                                                             ======   ======

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,
                                              1997       1996
                                           -------    -------
Revenues:
    Slot route:
       From locations controlled
          by related parties ...........   $   619    $   608
       Other ...........................        33         32

    Slot service fees:
       From related parties ............        21         21
       Other ...........................         8          8
                                           -------    -------
         Total revenues ................       681        669

Operating expenses:
    Slot route and service .............       335        341
    General and administrative .........        68          7
    Management fee - Becker Gaming, Inc.        34         35
    Depreciation and amortization ......        78         72
                                           -------    -------
       Total operating expenses ........       515        455
                                           -------    -------
Operating income .......................       166        214
                                           -------    -------
Other income (expense):
    Interest income ....................        47         48
    Interest expense ...................       (91)       (94)
    Other income .......................        24         25
                                           -------    -------
       Total other income (expense) ....       (20)       (21)
                                           -------    -------
Income before income tax ...............       146        193
Provision for income tax ...............       (41)       (57)
                                           -------    -------
Net income .............................       105        136
Retained earnings,
beginning of period ....................     2,121      1,529
                                           -------    -------
Retained earnings, end of
period .................................   $ 2,226    $ 1,665
                                           =======    =======
<PAGE>


                                       Six Months Ended  December 31,
                                              1997       1996
                                           -------    -------
Revenues:
    Slot route:
       From locations controlled
          by related parties ...........   $ 1,218    $ 1,175
       Other ...........................        67         66

    Slot service fees:
       From related parties ............        42         42
       Other ...........................        16         16
                                           -------    -------
         Total revenues ................     1,343      1,299

Operating expenses:
    Slot route and service .............       699        688
    General and administrative .........        97         30
    Management fee - Becker Gaming, Inc.        68         68
    Depreciation and amortization ......       156        142
                                           -------    -------
       Total operating expenses ........     1,020        928
                                           -------    -------
Operating income .......................       323        371
                                           -------    -------
Other income (expense):
    Interest income ....................        94         95
    Interest expense ...................      (181)      (185)
    Other income .......................        48         49
                                           -------    -------
       Total other income (expense) ....       (39)       (41)
                                           -------    -------

Income before income tax ...............       284        330
Provision for income tax ...............       (80)       (96)
                                           -------    -------
Net income .............................       204        234
Retained earnings,
beginning of period ....................     2,022      1,431
                                           -------    -------
Retained earnings,
end of period ..........................   $ 2,226    $ 1,665
                                           =======    =======


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,
                                             1997       1996
                                          -------    -------
Cash flows from operating activities:
    Net income ........................   $   204    $   234

Adjustments  to  reconcile  net  
     income to net cash  provided  
     by  operating activities:
     Depreciation and amortization ....       156        142

(Increase) decrease in operating assets:
    Other receivables .................       (12)        --
    Prepaid expenses ..................        15         13

Increase (decrease) in operating liabilities:
     Accounts payable .................        64        (44)
     Accrued expenses .................        60         77
                                          -------    -------
         Total adjustments ............       283        188
                                          -------    -------

         Net cash provided by
          operating activities ........       487        422
                                          -------    -------

Cash flows from investing activities:
   Capital expenditures ...............      (116)       (99)
   Proceeds from sales of equipment ...        68         --
   Decrease (increase) in related
     party notes receivable ...........      (186)       (87)
   Repayments of notes receivable .....       191         31
                                          -------    -------
        Net cash used in
          investing activities ........       (43)      (155)
                                          -------    -------
Cash flows from financing activities:

    Proceeds from notes payable .......        --         91
    Principal payments on notes payable      (242)      (154)
                                          -------    -------
        Net cash used in
          financing activities ........      (242)       (63)
                                          -------    -------

        Net increase in cash ..........       202       204

Cash, beginning of period .............       707      1,122
                                          -------    -------
Cash, end of period ...................   $   909    $ 1,326
                                          =======    =======

Supplemental cash flow disclosures:
    Interest paid .....................   $   179    $   186
                                          =======    =======
    Assets acquired through issuance
     of long-term debt                    $   268    $    91
                                          =======    =======

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 a 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, 1997 are not necessarily  indicative of the
results that may be expected for the year ended June 30, 1998. 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, 1997.

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

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

SC has guaranteed the payment of interest and  $55,000,000  principal  amount of
12% First  Mortgage  Notes due  November 15, 2000 issued by AC (the "AC Notes").
Arizona Charlie's,  Inc. ("AC") was in default of certain covenants under the AC
Notes as of December  31,  1997.  On  September  5, 1997 AC received a notice of
acceleration  from the trustee and collateral agent for the AC Notes, and all of
the  outstanding  AC Notes are  immediately  due and payable  together  with all
accrued and unpaid  interest  thereon.  In  addition,  AC has provided a limited
guaranty  of notes  payable  issued by CQC (the "CQC  Notes"),  (the  amount and
extent of which guaranty is in dispute) of which  $20,000,000  principal  amount
are outstanding at December 31, 1997. Capitol Queen and 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.  These matters raise  substantial
doubt about the ability of SC to continue as a going concern.  The final outcome
of these  matters  is not  presently  determinable  and the  December  31,  1997
financial  statements of SC do not include any adjustment that might result from
the outcome of this uncertainty.

On November 14, 1997, AC filed a voluntary petition under Chapter 11 of the U.S.
Bankruptcy  Code with the United  States  Bankruptcy  Court for the  District of
Nevada  (the  "Bankruptcy  Court") in Las  Vegas,  Nevada in order to provide it
protection  from creditors  while it attempts to negotiate a settlement with the
holders of certain debt.

During  the  course  of the  bankruptcy  proceeding  AC  has  been  involved  in
litigation  with certain of its creditors.  Specifically  the holders of the CQC
Notes  asserted a claim  against AC under its limited  guaranty of the CQC Notes
for the full deficiency  which might arise after proceeds from the sale of CQC's
assets are applied to the CQC Notes.  On November 14, 1997, AC filed a complaint
to  declare  its   obligations   under  the  limited   guaranty   discharged  or
alternatively  to avoid the limited  guaranty.  The trustee  under the indenture
with  respect to the CQC Notes  answered  this  complaint  and  denies  that the
limited  guaranty  has been  satisfied  and denies that the limited  guaranty is
avoidable. With the concurrence of the Bankruptcy Court, AC and the trustee have
agreed to defer  litigation  on this issue  until  early  March 1998 to give the
parties an opportunity to explore an overall settlement of their disputes.
<PAGE>

In addition,  holders of the AC Notes claim a valid and enforceable  lien in all
of AC's assets, including all real property and personal property which comprise
Arizona  Charlie's  Hotel and Casino.  On  February  2, 1998,  AC filed a motion
disputing  certain  aspects of the liens  claimed by the holders of the AC Notes
and seeking for the  Bankruptcy  Court to determine the value of the  collateral
securing  the AC Note  holders'  claims.  A response  from the holders of the AC
Notes is due by February  25, 1998 and the  Bankruptcy  Court has set an initial
hearing for March 6, 1998.

On February  17,  1998,  AC filed a Plan of  Reorganization  (the "Plan") and an
accompanying   Disclosure  Statement  (the  "Disclosure   Statement")  with  the
Bankruptcy  Court. The Plan provides for a restructure of the claims against AC,
which AC believes  will allow its  business to continue  successfully.  The Plan
also is structured to provide certain  creditors with the option of receiving up
front cash in lieu of deferred  payments over several  years.  For example,  the
Plan  provides  the  holders  of the AC  Notes  with  the  option  of  receiving
$45,000,000 in cash on the Plan's  effective date in full  satisfaction of their
allowed  claims  or  payment  of a higher  amount  over  time.  Likewise,  trade
unsecured  creditors  can elect to  receive  cash on the  effective  date in the
amount of 80% of their allowed claims in lieu of a 100% payout over time.

AC expects,  but no assurance can be given, to receive funding for the Plan from
several sources.  First, AC anticipates  receiving up to $50,000,000 from United
Healthcare  Financial  Services  for use in making  cash  payments  to  electing
creditors.  Second, AC will receive  $1,500,000 in cash plus the release of over
$7,000,000 in claims from certain  affiliates of AC, including SC, in return for
retaining  their  equity  interests  in AC.  Finally,  AC will  use  net  income
generated by the casino to help fund the Plan.

The holders of claims and  interests  of AC are  permitted  to vote to accept or
reject the Plan. A hearing on the  Disclosure  Statement has been  scheduled for
March 27, 1998. If the Disclosure Statement is approved by the Bankruptcy Court,
the creditors thereafter will be requested to vote to accept or reject the Plan,
and a hearing  will be held in due course on  confirmation  of the Plan.  At the
hearing,  the  Bankruptcy  Court will  consider  whether the Plan  satisfies the
various  requirements  of the Bankruptcy  Code.  The Bankruptcy  Court also will
receive and  consider a ballot  report  which will  present a tally of the votes
accepting or rejecting the Plan cast by those entitled to vote. Therefore, given
these contingencies, there can be no assurances that the Plan as submitted by AC
will be confirmed.


3) Related-Party Transactions:

Note  receivable  from related party consists of $3,150,000 of  uncollateralized
advances made by the Company to AC for general working capital purposes.  Due to
the present financial condition of AC, as described in Note 2, management of the
Company  believes  it is  reasonably  possible  that a  portion,  or the  entire
balance, of the notes receivable from AC will be uncollectible. In addition, the
Plan of  Reorganization  contemplates  SC's  forgiveness of the notes receivable
from AC. However,  there is no assurance that the Plan of Reorganization will be
confirmed by the Court,  an estimate of the loss cannot  presently be determined
and,  accordingly,  no  adjustment  has  been  made  to the  carrying  value  or
classification  of the note receivable at December 31, 1997.  Interest earned by
SC on the notes  receivable  from AC was $41,000 and $83,000 for the three-month
and six-month periods ended December 31, 1997 as compared to $31,000 and $63,000
for the same periods in 1996. The interest receivable from AC and payables to AC
are included in other receivables and advances to related parties, respectively.





================================================================================
<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,
                                                                1997      1997
                                                             -------   -------
                                                         (Unaudited)
Current assets:
  Restricted cash, in escrow account ....................    $    32   $    31
                                                             -------   -------

      Total current assets ...............................        30        31
                                                             -------   -------

Other assets:
  Assets held for sale ...................................     7,754     7,754
  Financing costs, net of accumulated
    amortization of $512 at December 31,
    1997 and $445 at June 30, 1997 .......................       405       472
                                                              -------   -------

      Total other assets .................................     8,159     8,226
                                                             -------   -------

      Total assets .......................................   $ 8,191   $ 8,257
                                                             =======   =======


                  LIABILITIES & STOCKHOLDERS' EQUITY(DEFICIT)

                                                      December 31,    June 30,
                                                              1997        1997
                                                          --------    --------
                                                       (Unaudited)

Current liabilities:
  Advances from related parties .......................   $  1,352     $ 1,226
  Accrued interest ....................................      7,353       5,788
  Notes payable to related parties ....................      1,200       1,200
  Long-term debt classified as current due to default
    under covenants, net of unamortized original issue
    discount of $2,204 and $2,474, respectively .......     18,148      17,908
                                                          --------    --------

         Total current liabilites .....................     28,053      26,122
                                                          --------    --------
         Total liabilities ............................     28,053      26,122
                                                          --------    --------

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 ........    (32,594)    (30,597)
                                                          --------    --------
      Total stockholder's equity (deficit) ............    (19,862)    (17,865)
                                                          --------    --------

      Total liabilities and stockholder's
         equity (deficit)..............................   $  8,191    $  8,257
                                                          ========    ========


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

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





                                Three Months Ended December 31,
                                        1997       1996
                                     -------    -------
Revenues .........................        $-         $-

Operating expenses:
  Amortization of financing and
    other costs ..................        34         33
  Abandonment loss ...............        --         --
  Development costs ..............        47         61
                                     -------    -------

      Total operating expenses ...        81         94
                                     -------    -------

Operating loss ...................       (81)       (94)

Other income (expenses):
  Interest income ................         1         --
  Interest expense ...............      (915)      (752)
  Interest capitalized ...........        --         --
                                     -------    -------

Total other income (expense) .....      (914)      (752)
                                     -------    -------

Net loss before extraordinary item
                                        (995)      (846)
                                     -------    -------

Extraordinary item:
  Loss on early retirement of
    debt (no income tax benefit
    available) ...................      --         --
                                     -------    -------
   Net loss ......................     $(995)     $(846)
                                     =======    =======

<PAGE>


                                                                  For The Period
                                                                January 20, 1993
                                                                    (The Date Of
                                                                      Inception)
                                            Six Months              Through
                                         Ended December 31,       December 31,
                                         1997        1996            1997
                                     --------    --------    ------------------
Revenues ...........................       $-          $-                    $-


Operating expenses:
  Amortization of financing and
    other costs ....................       67          66                 1,541
  Abandonment loss .................       --          --                10,426
  Development costs ................      126         134                 2,117
                                     --------    --------    ------------------

      Total operating expenses .....      193         200                14,084
                                     --------    --------    ------------------
Operating loss                           (193)       (200)              (14,084)

Other income (expenses):
  Interest income ..................        1        --                   1,267
  Interest expense .................   (1,805)     (1,504)              (16,371)
  Interest capitalized .............     --          --                     683
                                     --------    --------    ------------------

Total other income (expense) .......   (1,804)     (1,504)              (14,421)


Net loss before extraordinary item .   (1,997)     (1,704)              (28,505)
                                     --------    --------    ------------------
Extraordinary item:
  Loss on early retirement of
     debt (no income tax benefit ...
     available) ....................     --          --                  (4,089)
                                     --------    --------    ------------------

   Net loss ........................ $ (1,997)   $ (1,704)   $          (32,594)
                                     ========    ========    ==================


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

Cash flows from development stage activities:
 Net loss ....................................   $(1,997)   $(1,704)
 Adjustments to reconcile net loss
    to net cash provided by (used in)
    development stage activities:
 Amortization of financing and other costs ...        67         66
 Amortization of original issue discount .....       240        270
 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 ....     1,565      1,234
 Increase in advances from related parties ...       126        134
                                                 -------    -------
       Total adjustments .....................     1,998      1,704
                                                 -------    -------
       Net cash provided by (used in)
         development stage activities ........         1         --
                                                 -------    -------

Cash flows from investing activities:
 Capital expenditures, net of
  construction accounts payable ..............       --         --
 Decrease in deposits and other assets .......       --         --
 Capitalization of preopening costs ..........       --         --
 Development costs ...........................       --         --
 Net (additions to) reductions
    in restricted cash equivalents ...........       (1)        --
                                                 -------    -------
     Net cash provided by
       (used in) investing activities ........       (1)        --
                                                 -------    -------

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

     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 ...        $-         $-
                                                 ========   ========
 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, 1997
                                                           --------

Cash flows from development stage activities:
 Net loss ...................................              $(32,594)
 Adjustments to reconcile net loss
    to net cash provided by (used in)
    development stage activities:
 Amortization of financing and other costs ..                 1,541
 Amortization of original issue discount ....                 2,529
 Abandonment losses and write-downs of assets
     held for salee..........................                10,486
 Extraordinary loss on retirement of debt ...                 4,089
 Increase in accounts payable
  and accruals, net of amounts
  for capital expenditures ..................                 7,365
 Increase in advances from related parties ..                 1,340
                                                           --------
       Total adjustments ....................                27,350
                                                           --------
       Net cash provided by (used in)
         development stage activities .......                (5,244)
                                                           --------

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 ..........                   (33)
                                                           --------
     Net cash provided by
       (used in) investing activities .......               (13,922)
                                                           --------

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



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 a  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 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, 1997 are not necessarily  indicative of the
results  that may be expected for the year ended June 30,  1998.  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, 1997.

2)   Arizona Charlie's, Inc. Bankruptcy Filing:

Arizona  Charlie's,  Inc.,  ("AC"),  a wholly  owned  subsidiary  of BGI, is the
limited  guarantor  of certain  debt of CQC. On November  14,  1997,  AC filed a
voluntary petition under Chapter 11 of the U.S.  Bankruptcy Code with the United
States  Bankruptcy Court for the District of Nevada (the "Bankruptcy  Court") in
Las Vegas,  Nevada in order to provide it  protection  from  creditors  while it
attempts to negotiate a settlement with the holders of certain debt.

During  the  course  of the  bankruptcy  proceeding  AC  has  been  involved  in
litigation  with certain of its creditors.  Specifically  the holders of the CQC
Notes (as  defined  in Note 3)  asserted a claim  against  AC under its  limited
guaranty  of the CQC Notes  for the full  deficiency  which  might  arise  after
proceeds from the sale of CQC's assets are applied to the CQC Notes. On November
14,  1997,  AC filed a complaint  to declare its  obligations  under the limited
guaranty discharged or alternatively to avoid the limited guaranty.  The trustee
under the indenture  with respect to the CQC Notes  answered this  complaint and
denies that the limited  guaranty has been satisfied and denies that the limited
guaranty is avoidable.  With the concurrence of the Bankruptcy Court, AC and the
trustee have agreed to defer  litigation on this issue until early March 1998 to
give the  parties an  opportunity  to explore  an  overall  settlement  of their
disputes.

In  addition,  holders of the AC Notes (as  defined in Note 3) claim a valid and
enforceable lien in all of AC's assets, including all real property and personal
property which comprise Arizona Charlie's Hotel and Casino. On February 2, 1998,
AC filed a motion disputing  certain aspects of the liens claimed by the holders
of the AC Notes and seeking for the  Bankruptcy  Court to determine the value of
the collateral securing the AC Note holders' claims. A response from the holders
of the AC Notes is due by February 25, 1998 and the Bankruptcy  Court has set an
initial hearing for March 6, 1998.
<PAGE>

On February  17,  1998,  AC filed a Plan of  Reorganization  (the "Plan") and an
accompanying   Disclosure  Statement  (the  "Disclosure   Statement")  with  the
Bankruptcy  Court. The Plan provides for a restructure of the claims against AC,
which AC believes  will allow its  business to continue  successfully.  The Plan
also is structured to provide certain  creditors with the option of receiving up
front cash in lieu of deferred  payments over several  years.  For example,  the
Plan  provides  the  holders  of the AC  Notes  with  the  option  of  receiving
$45,000,000 in cash on the Plan's  effective date in full  satisfaction of their
allowed  claims  or  payment  of a higher  amount  over  time.  Likewise,  trade
unsecured  creditors  can elect to  receive  cash on the  effective  date in the
amount of 80% of their allowed claims in lieu of a 100% payout over time.

AC expects,  but no assurance can be given, to receive funding for the Plan from
several sources.  First, AC anticipates  receiving up to $50,000,000 from United
Healthcare  Financial  Services  for use in making  cash  payments  to  electing
creditors.  Second, AC will receive  $1,500,000 in cash plus the release of over
$7,000,000 in claims from certain affiliates of AC, including BGI, in return for
retaining  their  equity  interests  in AC.  Finally,  AC will  use  net  income
generated by the casino to help fund the Plan.

The holders of claims and  interests  of AC are  permitted  to vote to accept or
reject the Plan. A hearing on the  Disclosure  Statement has been  scheduled for
March 27, 1998. If the Disclosure Statement is approved by the Bankruptcy Court,
the creditors thereafter will be requested to vote to accept or reject the Plan,
and a hearing  will be held in due course on  confirmation  of the Plan.  At the
hearing,  the  Bankruptcy  Court will  consider  whether the Plan  satisfies the
various  requirements  of the Bankruptcy  Code.  The Bankruptcy  Court also will
receive and  consider a ballot  report  which will  present a tally of the votes
accepting or rejecting the Plan cast by those entitled to vote. Therefore, given
these contingencies, there can be no assurances that the Plan as submitted by AC
will be confirmed.


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

     CQC was formed to develop,  own and operate the "Capitol  Queen"  riverboat
casino and  related  land-based  facilities  in  Jefferson  City,  Missouri.  On
September 28, 1994, CQC was notified that its  application  for a gaming license
was rejected by the Missouri Gaming Commission (the  "Commission").  At the time
CQC was notified of the  Commission's  decision,  construction  of the riverboat
under contract with a shipbuilder  was almost  completed.  CQC had also obtained
the necessary permits for the land-based  development portion of the project and
performed  certain  dredging  and  other  site  preparation  work.   Immediately
following the Commission's  decision,  management  temporarily suspended further
development of the Capitol Queen project,  pending an appeal of the decision and
legal remedies potentially  available to the Company.  Costs associated with the
development of the project which had been deferred during the development  stage
were written-off in the fourth quarter of the fiscal year ended June 30, 1994.

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

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

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

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

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

On July 3, 1997 the Company  received a notice of  acceleration  (the  "Notice")
from the trustee  and  collateral  agent for the CQC Notes.  Pursuant to section
6.02 of the Indenture, due to certain violations of the Indenture by the Company
(as more fully described above) all of the outstanding CQC Notes are immediately
due and  payable,  together  with  all  accrued  and  unpaid  interest  thereon.
Accordingly,  the CQC  Notes  have  been  classified  as  currently  payable  at
September 30, 1997.

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

In connection with the decision to abandon the project,  CQC had entered into an
Asset  Purchase  Agreement  dated April 10, 1995,  for the sale of its assets to
Aerie  Riverboat  Casinos of Missouri,  Inc. at a purchase price of $18,000,000,
which  price  exceeded  the  carrying  value  of the CQC  assets.  However,  the
consummation of the Aerie purchase  agreement was subject to the satisfaction of
several conditions which could not be satisfied timely, including, among others,
that Jefferson City consent to the assignment of its Development  Agreement with
CQC,  that  Aerie be found  preliminarily  suitable  to hold a  Missouri  gaming
license,  and that riverboat gaming is legally permitted in Jefferson City. As a
result,  the  agreement  with  Aerie was  terminated  without  penalty  when the
December 31, 1995 expiration  date passed.  As more fully described in Note 4, a
further  write-down in the carrying value of the riverboat was recognized in the
fourth  quarter of fiscal  1996,  after the  election  in  Jefferson  City,  the
expiration of the Aerie contract, and due to deteriorating market conditions.

CQC continues to market its riverboat  assets to  prospective  buyers.  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.  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, 1997 financial statements of CQC do
not  include  any  adjustment  that  might  result  from  the  outcome  of  this
uncertainty.


4)   Assets Held For Sale:

At December 31, 1997, 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").

      On November 14, 1997,  AC filed a voluntary  petition  under Chapter 11 of
the U.S.  Bankruptcy  Code  with the  United  States  Bankruptcy  Court  for the
District of Nevada  (the  "Bankruptcy  Court") in Las Vegas,  Nevada in order to
provide it protection from creditors while it attempts to negotiate a settlement
with the holders of certain debt.

     On February 17, 1998, AC filed a Plan of Reorganization (the "Plan") and an
accompanying   Disclosure  Statement  (the  "Disclosure   Statement")  with  the
Bankruptcy  Court. The Plan provides for a restructure of the claims against AC,
which AC believes will allow its business to continue successfully.  See Further
discussion under Arizona Charlie's, Inc. _ Claims by Trustee.

      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 and other  uncertainties  regarding
AC's  ability  to pay  such  fees  are  resolved.  In  addition,  AC's  Plan  of
Reorganization  contemplates  BGI's  forgiveness of all such accrued  management
fees. 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 departmental 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, 1997 and 1996
                           --------------------------

      Results from  operations  at AC decreased for both the three and six-month
periods ended December 31, 1997 compared to the same periods in 1996 as a result
of decreased  gaming,  restaurant and hotel revenues in the more recent periods.
Operating  expenses  increased  slightly for both the  three-month and six-month
periods ended December 31, 1997, primarily as a result of increased depreciation
and natural inflationary tendencies.

     Net  revenues at AC decreased by $605,000,  or 4.0%,  from  $15,045,000  to
$14,440,000 for the  three-month  period ended December 31, 1997 compared to the
three-month  period  ended  December  31,  1996.  In the  same  period-to-period
comparison,   operating  expenses,   including  depreciation  and  amortization,
increased by 3.7% to $15,331,000 from $14,780,000. This resulted in a $1,156,000
decrease in operating  income from $265,000 to an operating loss of $891,000 for
the more recent period.

      Net revenues at AC decreased by $1,117,000,  or 3.8%, from  $29,730,000 to
$28,613,000  for the  six-month  period ended  December 31, 1997 compared to the
six-month  period  ended  December  31,  1996.  In  the  same   period-to-period
comparison,   operating  expenses,   including  depreciation  and  amortization,
increased by 0.2% to $30,063,000 from $29,997,000.  This resulted in an increase
in operating  loss of $1,183,000  from  operating loss of $267,000 to $1,450,000
for the more recent period.

      The largest  portion of the revenue  decrease for the  three-month  period
ended December 31, 1997 is attributable to gaming revenues, specifically, gaming
machine   revenues,   which  decreased  6.6%  from  $10,308,000  to  $9,628,000,
reflecting  lower levels of play from  patrons.  Revenues  from table games also
decreased  $169,000  or 14.2%  from  $1,191,000  to  $1,022,000  during the 1997
three-month  period  offset by an increase  in race and sports book  revenues of
$134,000 or 15.5%.  This resulted from reduced craps and twenty-one  play offset
by  increased  sports  book  wagering.  The largest  portion of the  decrease in
revenues for the six-month  period ended  December 31, 1997 is  attributable  to
gaming   revenues  which   decreased  5.8%  from   $24,525,000  to  $23,096,000.
Specifically,   gaming  machine  revenues   decreased   $967,000  or  4.6%  from
$20,780,000  to  $19,813,000.  Revenues from table games  decreased  $375,000 or
15.6%,  from $2,405,000 to $2,030,000,  and revenues from the race & sports book
increased  $122,000,  or 8.4%, from $1,460,000 to $1,582,000.  The decreases for
both the 1997  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,  partially  offset by the  increased  sports book wagering
during the 1997 football season over the 1996 football season.

      Food  and  Beverage  revenues  also  decreased  8.5%  from  $3,533,000  to
$3,232,000 during the three-month period ended December 31, 1997 compared to the
same period in the prior year.  The decrease in revenues is primarily due to the
reduction in complimentary sales in the food department. Such sales are included
in revenues at retail value and are then  deducted as a  promotional  allowance.
For the six-month  period ended  December 31, 1997,  food and beverage  revenues
decreased  $674,000 or 9.6% from  $7,034,000 to $6,360,000  when compared to the
six-month period of the prior year, also reflecting a decrease  primarily due to
reduced complimentary sales in the food and beverage departments.

     Hotel revenues  decreased  9.1% from $924,000 to $840,000  during the three
months ended December 31, 1997 compared to the same three-month  period in 1996.
The  decrease is  primarily  due to a  reduction  in the  occupancy  rate of 80%
compared to 84 % despite an increased  average  room rate of $47.58  compared to
$45.55 for the 1996  three-month  period.  During  the  six-month  period  ended
December 31, 1997, hotel revenues decreased by $197,000 or 11.7% from $1,685,000
to  $1,488,000  compared to the same  six-month  period of 1996.  The  decreased
revenue is also due to a reduction in the occupancy rate of 76%, compared to 88%
despite an increased average room rate of $43.24 compared to $42.98 for the 1996
six-month period.

      Gift shop revenues  increased  49.3% from $138,000 to $206,000  during the
three-month  period ended December 31, 1997 compared to the same period in 1996.
During  the  six-month  period  ended  December  31,  1997,  gift shop  revenues
increased  $98,000,  or 36.4%,  from  $269,000 to $367,000  compared to the same
period in 1996.  The increases are primarily due to additional  operating  hours
and increased AC logo items and tobacco sales in the 1997 periods.
<PAGE>

     Other revenues,  which principally include entertainment cover charges, ATM
commissions,  and revenues from PBX and banquets,  decreased 31.9% from $392,000
to $267,000 for the  three-month  period ended December 31, 1997 compared to the
same period in 1996.  During the six month period ended December 31, 1997, other
revenues  decreased by $136,000 or 20.9% from  $650,000 to $514,000  compared to
the same  six-month  period  of  1996.  The  decreases  in the  three-month  and
six-month periods reflect lower  entertainment cover charge and banquet revenues
resulting from fewer concerts and banquets  partially offset by increased boxing
events that occurred in the 1997 periods.

      Gaming expenses decreased by $73,000 and $689,000,  or 1.6% and 7.7%, from
$4,448,000 and $8,978,000 to $4,375,000 and  $8,289,000,  respectively,  for the
three-month  and six-month  periods  ended  December 31, 1997 as compared to the
same periods in 1996. The lower levels of expense reflect reductions in staffing
levels in the slot and  table  games  departments  and  decreased  complimentary
expenses.

      Food and beverage  expenses  increased by $515,000 and $638,000,  or 16.3%
and  10.1%,  from  $3,166,000  and  $6,331,000  to  $3,681,000  and  $6,969,000,
respectively,  for the three-month and six-month periods ended December 31, 1997
when  compared to the same periods in 1996,  as a result of  increased  food and
beverage  costs and an  increase in salaries  and wages.  As a result,  food and
beverage  expenses  represented  113.9% and 109.6% of food and beverage revenues
for the  three-month  and six-month  periods ended December 31, 1997 compared to
89.6% and 90.0% of the food and beverage revenues for the same periods in 1996.

      Hotel expenses  increased by $75,000 and $6,000,  or 22.7% and 0.8%,  from
$330,000  and  $736,000  to  $405,000  and  $742,000,   respectively,   for  the
three-month  and six-month  periods  ended  December 31, 1997 as compared to the
same periods in 1996, reflecting additional repairs and maintenance costs in the
1997  three-month  period that were associated with the original 100 rooms built
in 1988, plus the additional costs of room linens and supplies. Net contribution
by the hotel  department  (hotel  revenues  less hotel  operating  expenses) was
$435,000 and $746,000 for the three-month  and six-month  periods ended December
31, 1997 as compared to $594,000 and $949,000 for the same periods in 1996.

     General and  administrative  expenses  decreased by $8,000 and increased by
$213,000,  or (0.2)% and 2.4%,  from $4,236,000 and $8,850,000 to $4,228,000 and
$9,063,000  respectively,  for  the  three-month  and  six-month  periods  ended
December  31,  1997 as  compared  to the same  periods  in 1996.  The  six-month
increase is primarily due to the creation of the "Charlie Card Club"  department
in May 1997 to better evaluate and reward qualified  patrons with  complimentary
items for slots,  table games,  race and sports play.  During the 1997 six-month
period,   the  "Charlie   Card  Club"   accrued   $486,000  for  future   patron
complimentaries earned by patron play in the casino.

      Advertising and promotional expenses decreased by $13,000 and $284,000, or
1.0% and 10.9%,  from  $1,323,000  and  $2,612,000 to $1,310,000  and $2,328,000
during the three-month and six-month periods ended December 31, 1997 as compared
to the same period in 1996. The increased levels of promotional  expenditures in
1996 did not attract the  additional  volume of customer  activity  anticipated.
During 1997,  management  believes  that  seasonal  promotions  are necessary to
compete with the newer  hotel/casinos that are located close in proximity to AC,
but at reduced levels from 1996.  These  promotional  reductions  were partially
offset by an increased level of local newspaper advertising.

      Depreciation and amortization  increased by $59,000 and $111,000,  or 6.8%
and 6.5%,  from $861,000 and  $1,719,000 to $920,000 and  $1,830,000  during the
three-month  and six-month  periods ended December 31, 1997 when compared to the
same periods in 1996, as a result of increased  depreciation expenses associated
with the purchases of new slot machines and the computerized  slot reporting and
player tracking system.

      Gift shop expenses increased by $53,000 and $133,000,  or 42.1% and 72.3%,
to $179,000  and  $317,000  for the  three-month  and  six-month  periods  ended
December  31, 1997  compared to $126,000 and $184,000 for the same period of the
prior year reflecting  additional payroll expenses  associated with the expanded
hours of operation  and  increases  in  wholesale  item costs and higher cost of
sales from increased revenues.
<PAGE>

      Management fees to BGI decreased by $12,000 and $24,000, or 6.9% and 7.0%,
to $161,000  and  $318,000  for the  three-month  and  six-month  periods  ended
December  31, 1997 from  $173,000 and $342,000 for the same periods in the prior
year.  Currently,  management fees are equal to 1.0% of gross revenues of AC. As
such,  decreased  gross  revenues  bring  about  lower  management  fees.  Since
inception of the management fees agreement,  management fees payable to BGI have
been and  continue to be accrued by AC, and may not be paid under the  Indenture
governing  the AC Notes until such time that AC meets a specified  fixed charged
coverage  ratio.  Rent expense paid to related parties  increased  slightly from
$56,000 to $57,000 and $111,000 to $113,000 reflecting normal annual adjustments
to the base rents.

      Interest expense amounted to $1,078,000 and $3,109,000 for the three-month
and  six-month  periods  ended  December  31, 1997  compared to  $1,810,000  and
$3,620,000  for the same periods in the prior year. The decrease of $732,000 and
$511,000,  or 40.4% and  14.1%,  respectively,  were due to the  elimination  of
accrued interest and penalties on the AC Notes during the  post-petition  period
in regard to the Chapter 11 Bankruptcy  protection  filing on November 14, 1997.
The decrease of interest  expense was partially  offset by  additional  interest
costs in the pre-petition  period associated with the AC Notes due to additional
default interest expense and penalties associated with the May 15, 1997 interest
payment which was not made, and additional  interest costs  associated  with the
financing  of  the  computerized  slot  reporting  and  player  tracking  system
purchased in May,  1997. The $50,000 and $45,000 gains on sale of assets for the
three-month and six-month  periods ending December 31, 1997 was primarily due to
the sale of older slot machines.



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  $21,500,000.  Due to low operating  margins and high depreciation
costs,  management does not anticipate that AC will generate  taxable income for
this fiscal year.


Liquidity and Capital Resources
-------------------------------

      At December  31, 1997,  AC had a working  capital  deficit of  $66,252,000
compared to a working  capital  deficit of  $62,380,000  at June 30,  1997.  The
decrease in working capital in the amount of $3,872,000 was caused  primarily by
increased  accrued  interest  on the AC Notes  through  the  November  14,  1997
pre-petition  period and accrued management fees payable to BGI, plus additional
short term notes payable for slot machines.

      For the  six-month  period  ended  December  31,  1997,  cash  provided by
operating activities increased $2,501,000 to $3,583,000, from $1,082,000 for the
same period in 1996.  The increase in the 1997 period is primarily  attributable
to the increased  accrued interest on the AC Notes through the November 14, 1997
pre-petition  period and  increased  accounts  payable  partially  offset by the
increased  net  loss  for  the  current  period  and  an  increase  in  accounts
receivable.

      For the  six-month  period  ended  December  31,  1997,  net cash  used in
investing  activities  increased to $755,000 compared with $586,000 for the same
period in 1996.  The  increase of $169,000  was caused  primarily  by a $281,000
increase in capital  expenditures for the purchase of slot equipment in the more
recent period partially offset by $74,000 in proceeds from sale of assets.

      Cash flows used in financing  activities  for the  six-month  period ended
December 31, 1997  increased to $280,000 from $117,000 for the six-month  period
ended  December  31, 1996.  The increase of $163,000 is primarily  the result of
higher principal payments on additional notes payable.

      AC's long-term  obligations of $6,342,000 at December 31, 1997, 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.  However,  AC has  ceased  accruing  interest  on the AC  Notes  and  the
Stockholder  Notes  as  of  November  14,  1997,  as  it is  not  probable  that
post-petition  interest  for  these  Notes  will  be an  allowed  claim  in AC's
Bankruptcy  proceedings.   Further,  AC  is  expected  to  have  annual  capital
expenditure requirements of approximately $600,000.
<PAGE>

Claims by Trustee
-----------------

      AC currently has  outstanding  $55,000,000 of 12% First Mortgage Notes due
2000.  SC has issued a limited  guaranty  with  respect to the AC Notes (the "SC
Limited  Guaranty").  CQC currently  has  outstanding  $20,000,000  of 12% First
Mortgage  Notes due 2000.  AC has issued a limited  guaranty with respect to the
CQC Notes (the "AC Limited Guaranty"). The amount and extent of AC's guaranty of
the CQC Notes is in dispute due to certain  provisions  of the  Indenture  under
which the CQC Notes were issued,  as well as certain  provisions of State and/or
Federal  Law  that  may  be   applicable   in  or  with   respect  to  financial
restructuring. It is AC's position that, based on advice from legal counsel, its
limited  guaranty  does not  create  a  material  liability  on its part for the
payment of the obligations under the CQC Notes.

     IBJ Schroder Bank & Trust Company,  as Trustee under the  Indentures  under
which such Notes are outstanding, has declared the AC Notes and the CQC Notes to
be in default and has declared all such Notes to be immediately due and payable.
The Trustee has also notified AC that the purported  obligations of AC under its
guaranty have been accelerated and has declared the obligations of AC thereunder
to be due. On November 14, 1997 AC filed a voluntary  petition  under Chapter 11
and sought to  negotiate a  settlement  with the holders of the AC Notes and the
CQC Notes. On February 17, 1998, AC filed the Plan, which is subject to approval
of creditors and the Bankruptcy Court .

       AC is currently in default  under the  Indenture  governing  the AC Notes
because it has not made its required semi-annual interest payments in the amount
of  $3,300,000  due on May 15,  1997  and  November  15,  1997  and has  neither
maintained  the required  minimum level of  consolidated  tangible net worth nor
offered to  repurchase  a portion of the AC Notes as  required  if such  minimum
level of consolidated tangible net worth is not maintained.  In addition, AC has
failed to maintain the minimum consolidated fixed charge coverage ratio required
under the  Indenture  and has  advanced  funds to BGI in  excess of the  amounts
permitted to be so advanced  under the  Indenture.  Also,  AC incurred new notes
payable  (in the  amount of  approximately  $2,545,000)  for the  purchase  of a
computerized reporting and player club system and new slot machines in excess of
the $1,000,000 allowed.

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

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

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

      On November 14, 1997,  AC filed a voluntary  petition  under Chapter 11 of
the U.S.  Bankruptcy  Code  with the  United  States  Bankruptcy  Court  for the
District of Nevada  (the  "Bankruptcy  Court") in Las Vegas,  Nevada in order to
provide it protection from creditors while it attempts to negotiate a settlement
with the holders of the AC Notes and the CQC Notes.

      During the course of the  bankruptcy  proceeding  AC has been  involved in
litigation with certain of its creditors.  Specifically,  the holders of the CQC
Notes  asserted a claim  against AC under its limited  guaranty of the CQC Notes
for the full deficiency which might arise after proceeds from the sales of CQC's
assets are applied to the CQC Notes.  On November 14, 1997, AC filed a complaint
to  declare  its   obligations   under  the  limited   guaranty   discharged  or
alternatively  to avoid the limited  guaranty.  The trustee  under the indenture
with  respect to the CQC Notes  answered  this  complaint  and  denies  that the
limited  guaranty  has been  satisfied  and denies that the limited  guaranty is
avoidable. With the concurrence of the Bankruptcy Court, AC and the trustee have
agreed to defer  litigation  on this issue  until  early  March 1998 to give the
parties an opportunity to explore an overall settlement of their disputes.

      In addition, holders of the AC Notes claim a valid and enforceable lien in
all of AC's assets,  including  all real  property and personal  property  which
comprise  Arizona  Charlie's  Hotel and Casino.  On February 2, 1998, AC filed a
motion  disputing  certain aspects of the liens claimed by the holders of the AC
Notes  and  seeking  for the  Bankruptcy  Court to  determine  the  value of the
collateral  securing the AC Note holders' claims. A response from the holders of
the AC Notes is due by  February  25, 1998 and the  Bankruptcy  Court has set an
initial hearing for March 6, 1998.

     On February 17, 1998, AC filed a Plan of Reorganization (the "Plan") and an
accompanying   Disclosure  Statement  (the  "Disclosure   Statement")  with  the
Bankruptcy  Court. The Plan provides for a restructure of the claims against AC,
which AC believes  will allow its  business to continue  successfully.  The Plan
also is structured to provide certain  creditors with the option of receiving up
front cash in lieu of deferred  payments over several  years.  For example,  the
Plan provides the Bondholders  with the option of receiving  $45,000,000 in cash
on the Plan's  effective  date in full  satisfaction  of their allowed claims or
payment of a higher amount over time.  Likewise,  trade unsecured  creditors can
elect  to  receive  cash on the  effective  date in the  amount  of 80% of their
allowed claims in lieu of a 100% payout over time.

      AC expects, but no assurance can be given, to receive funding for the Plan
from several  sources.  First, AC anticipates  receiving up to $50,000,000  from
United Healthcare Financial Services for use in making cash payments to electing
creditors.  Second, AC will receive  $1,500,000 in cash plus the release of over
$7,000,000 in claims from certain  affiliates of AC,  including the Company,  in
return for  retaining  their equity  interests in AC.  Finally,  AC will use net
income generated by the casino to help fund the Plan.

      The holders of claims and  interests of AC are permitted to vote to accept
or reject the Plan. A hearing on the Disclosure Statement has been scheduled for
March 27, 1998. If the Disclosure Statement is approved by the Bankruptcy Court,
the creditors thereafter will be requested to vote to accept or reject the Plan,
and a hearing will be held in due course before the Court on confirmation of the
Plan.  At the  hearing,  the  Bankruptcy  Court will  consider  whether the Plan
satisfies the various  requirements of the Bankruptcy Code. The Bankruptcy Court
also will receive and consider a ballot report which will present a tally of the
votes accepting or rejecting the Plan cast by those entitled to vote. Therefore,
given these contingencies, there can be no assurances that the Plan as submitted
by AC will be confirmed.
<PAGE>

Impact of the Year 2000 Issue
-----------------------------

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

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


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 five Becker  Gaming Group  ("BGG")
locations and one  additional  location owned by an unrelated  party,  which are
expected to be renewed in general course.


            Results of operations for the three and six-months ended
                           December 31, 1997 and 1996
                           --------------------------

      SC's results of  operations  increased for the  three-month  and six-month
periods ended  December 31, 1997 compared to the same periods in the prior year.
Slot route  revenues  increased  by 1.8% and 3.4% or $12,000 and $44,000 for the
three-month  and  six-month  periods  ended  December 31, 1997 from $669,000 and
$1,299,000 to $681,000 and $1,343,000, respectively. The increase in revenues is
attributable to the addition of two locations in the three-month period and five
locations in the  six-month  period.  The increase in 1997 revenue was partially
offset by the loss of one participation contract in July, 1997 and conversion of
a space lease to a less profitable participation contract.

     The total number of gaming  machines  operated  during the  three-month and
six-month  periods ended December 31, 1997 were 291 compared to 254 in the prior
year.  The total  number  of gaming  machines  from the BGG  locations  that are
serviced by SC was 115 in both the 1997 and 1996 periods. Slot service fees from
BGG for the  three-month  and  six-month  periods  ended  December 31, 1997 were
unchanged at $21,000 and $42,000, respectively, compared to the 1996 periods.
<PAGE>

      Gaming machine route expenses for the  three-month  and six-month  periods
ended  December 31, 1997  decreased by 1.8% to $335,000 and increased by 1.6% to
$699,000  when  compared  to the  same  periods  in the  prior  year.  The  1997
three-month  period decrease was due to the transfer of slot technicians from SC
to AC in October,  1997 since AC became the primary  beneficiary of the services
of such slot  technicians.  The  six-month  period  increase for 1997 was due to
normal wage and payroll tax increases  partially  offset by the slot technicians
transferred to AC.

     General and administrative expenses for the three-month period increased by
871.4% to $68,000 from $7,000,  and for the six-month  period ended December 31,
1997  increased  by 223.3% to $97,000  from  $30,000,  reflecting  increases  in
professional fees and supply expenses. In addition, SC began making payments for
storage,  maintenance  and  insurance  costs to maintain the CQC  riverboat as a
result of AC's Chapter 11 bankruptcy filing.

     Management fees remained virtually unchanged at $34,000 and $68,000 for the
three-month  and six-month  periods ended December 31, 1997 when compared to the
same periods in the prior year.

      Depreciation and amortization  increased by 8.3% and 9.9% from $72,000 and
$142,000 to $78,000 and $156,000 for the three-month and six-month periods ended
December 31, 1997,  reflecting increased  depreciation costs associated with the
purchase of additional slot machines and vehicles as compared to 1996.

      During the three-month  and six-month  periods ended December 31, 1997, SC
had other  expenses (net of other income) of  approximately  $20,000 and $39,000
compared to $21,000 and $41,000 for the same periods in 1996. The small decrease
is attributable to reduced interest expense relating to notes payable.

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, 1994. Prior to such termination, SC did not incur or pay their income
tax liability in respect to income of SC. Estimated income taxes payable for the
three-month  and six-month  periods ended  December 31, 1997 amounted to $41,000
and $80,000 from $57,000 and $96,000 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, 1997  increased to $487,000  from  $422,000 for the 1996  six-month
period, due mostly to increases in accounts payable and accrued expenses, offset
by a decrease in net income of $30,000.

      Cash flows used in investing  activities  for the  six-month  period ended
December 31, 1997 amounted to $43,000,  compared to $155,000 for the same period
in 1996. The decrease of $112,000, or 72.3% was due to an increase in repayments
from notes  receivable  of $160,000  and an  increase in proceeds  from sales of
equipment  of  $68,000,  partially  offset  by  an  increase  in  related  party
receivables and increased capital expenditures.
<PAGE>

      Cash flows used in financing activities for the six- months ended December
31, 1997  increased  $179,000 to  $242,000.  The  increase is due to  additional
principal  payments on new and existing notes payable totaling  $242,000 for the
1997  six-month  period,  partially  offset by  $91,000 in  proceeds  from notes
payable in the prior period.

      SC's indebtedness  includes  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 bear interest at annual rates of
approximately  10.89%,  in the case of fixed rate loans, or at prime plus 1.5% ,
in the  case of a  collateralized  line of  credit,  the  outstanding  aggregate
balance of which, $272,000, was converted to a note at July 1, 1994 with monthly
payments through June 1998.

      In  July  1994,  SC  entered  into  an  agreement  with a  bank  for a new
$1,200,000  non-revolving  line of  credit.  Each  advance  under  the  line was
evidenced by a separate  promissory  note with  maturity  date not  exceeding 66
months from the date of the respective  advance  giving rise to the note.  Under
the agreement,  SC originally  could request  advances  through October 28, 1995
only, at which time its rights to advances under the agreement  were  terminated
until the defaults  under the AC and CQC Notes are resolved.  Advances under the
agreement bear interest at rates ranging from the bank's prime rate plus 1.5% to
2.0%. As of December 31, 1997, the amount  outstanding  under the  non-revolving
line of credit totaled $377,000.

      SC's  management  believes that it has  sufficient  funds through the cash
generated by operations to meet its projected needs for existing  operations and
limited  expansion of its gaming machine route business.  Should SC determine to
expand on more than a limited basis,  however, 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 issued a limited guarantee ("The SC Limited Guaranty") for 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.

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



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

     Analysis of  Development  Stage  Activities for the period January 20, 1993
(the date of inception) through December 31, 1997

      CQC was  organized  on January  20,  1993 for the  purpose of  developing,
constructing,  owning and operating the Capitol Queen.  Since  inception,  CQC's
activities  have been  limited  to, in  addition  to the  financing  transaction
described below, the acquisition of a land site in Jefferson City,  Missouri and
the rights to develop the Capitol Queen thereon, the preparation and prosecution
of  applications  to become  licensed to own and  operate  the Capitol  Queen in
Missouri and for all other required  permits and approvals,  the  preparation of
preliminary design plans, drawings and budgets for the project,  construction of
a riverboat vessel and other pre-opening  development  activities.  As of August
1994, CQC suspended the development of the Capitol Queen,  other than completion
of the  riverboat.  As a result of a September  28, 1994 ruling by the  Missouri
Gaming Commission denying CQC's license application, CQC subsequently terminated
the Capitol Queen project and is currently  marketing its assets for sale.  Such
assets include its riverboat and the Jefferson City land site.
<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, 1997,  approximately $32,000 remained in the escrow
account  and an  aggregate  of  $20,000,000  principal  amount  of the CQC Notes
remained outstanding. However, the dates by which CQC previously agreed with the
holders of the CQC Notes to effect the sale of its  assets  and  repurchase  the
remaining CQC Notes have passed.

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

      During the period from inception  through December 31, 1997, CQC had total
operating expenses of $14,084,000 consisting primarily of an abandonment loss of
$6,034,000  arising from the denial of the  company's  license  application  and
management's subsequent decision to terminate the Capitol Queen project and sell
its assets.  Also,  at March,  1996,  CQC  wrote-down  the cost of the riverboat
assets  to  their  net  realizable  value  based  on  estimates  provided  by  a
shipbuilder and marine brokers which resulted in an additional  abandonment loss
of $4,392,000 in the 1996 fiscal year.  Also included in operating  expenses are
amortization  expense  of  $1,541,000  associated  with  debt  issue  costs  and
$2,117,000  of project  development  costs.  For the same  period,  CQC incurred
$16,371,000  of interest  cost,  of which  $683,000  was  capitalized  by CQC as
required by generally accepted accounting  principles,  as part of the riverboat
construction.  CQC earned  interest  income of  $1,267,000  for the period  from
inception to December 31, 1997.

Liquidity and Capital Resources
-------------------------------

      For the period from inception  through December 31, 1997, net cash used in
development  stage  activities  was  $5,244,000.  Cash flows  used in  investing
activities for the period was $13,922,000 which included  $12,936,000 of capital
expenditures related to the construction of the riverboat and acquisition of the
Jefferson  City land site.  At December  31,  1997,  CQC had expended a total of
approximately  $21,810,000 on the  development  and  construction of the Capitol
Queen project including on-going maintenance and insurance costs.

       CQC's  obligations  consist of the $20,000,000 in principal amount of the
outstanding  CQC Notes and past due interest  thereon of  $7,177,500 at December
31, 1997,  which includes  amounts accrued on unpaid  interest.  There can be no
assurance  that CQC,  will be  successful  in its efforts to sell its assets or,
that if a sale  is  effected,  the  proceeds  will be  sufficient  to  fully  or
substantially repay the CQC Notes and accrued interest thereon. Additionally, on
July 3, 1997 CQC received a notice of  acceleration  from the trustee of the CQC
Notes. Moreover,  CQC, because it has not paid certain interest due on its Notes
and has not yet  effected  the  sale of its  assets,  is in  default  of the CQC
Indenture.  As a result of the above items the CQC Notes have been classified as
a current liability as of December 31, 1997 and June 30, 1997.


Claims by Trustee
-----------------

      AC currently has outstanding  $55,000,000 of 12% First Mortgages Notes due
2000.  SC has issued a limited  guaranty  with  respect to the AC Notes (the "SC
Limited  Guaranty").  CQC currently  has  outstanding  $20,000,000  of 12% First
Mortgage  Notes due 2000.  AC has issued a limited  guaranty with respect to the
CQC Notes (the "AC Limited Guaranty"). The amount and extent of AC's guaranty of
the CQC Notes is in dispute due to certain  provisions  of the  Indenture  under
which the CQC Notes were issued,  as well as certain  provisions of State and/or
Federal  Law  that  may  be   applicable   in  or  with   respect  to  financial
restructuring. It is AC's position that, based on advice from legal counsel, its
limited  guaranty  does not  create  a  material  liability  on its part for the
payment of the obligations under the CQC Notes.

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

      On November 14, 1997,  AC filed a voluntary  petition  under Chapter 11 of
the U.S.  Bankruptcy  Code  with the  United  States  Bankruptcy  Court  for the
District of Nevada  (the  "Bankruptcy  Court") in Las Vegas,  Nevada in order to
provide it protection from creditors while it attempts to negotiate a settlement
with the holders of the AC Notes and the CQC Notes.


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,  cash flows, or financial condition of BGI,
CQC, or the Nevada Operating Companies.

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

      On November 14, 1997,  Arizona  Charlie's,  Inc. (the "Company") filed for
bankruptcy  protection in the United States Bankruptcy Court for the District of
Nevada in Las Vegas,  Nevada (the  "Bankruptcy  Court")  under Chapter 11 of the
United States  Bankruptcy  Code (Case No.  97-28781 LBR) to pursue the financial
reorganization  of the Company.  The Company  currently  is operating  under the
Bankruptcy Code as debtor-in-possession. The Bankruptcy Court has entered orders
allowing  the  Company  to  honor  certain  of the  pre-  petition  debts of its
customers (such as hotel room deposits and outstanding  gaming chips) and to pay
the pre-petition wages of its employees.  As a result of this filing the Company
did not experience any material  changes in the operations of Arizona  Charlie's
Hotel & Casino, located in Las Vegas, Nevada, which is owned and operated by the
Company.

      On February  17, 1998,  the Company  filed a Plan of  Reorganization  (the
"Plan") and an accompanying  Disclosure  Statement (the "Disclosure  Statement")
with the  Bankruptcy  Court.  The Plan provides for a restructure  of the claims
against the  Company,  which the  Company  believes  will allow its  business to
continue successfully.  The Plan also is structured to provide certain creditors
with the option of  receiving  up front cash in lieu of deferred  payments  over
several years. For example, the Plan provides the Bondholders with the option of
receiving  $45,000,000 in cash on the Plan's effective date in full satisfaction
of their allowed claims or payment of a higher amount over time. Likewise, trade
unsecured  creditors  can elect to  receive  cash on the  effective  date in the
amount of 80% of their allowed claims in lieu of a 100% payout over time.
<PAGE>

      The Company expects, but no assurance can be given, to receive funding for
the Plan from several sources.  First, the Company  anticipates  receiving up to
$50,000,000  from United  Healthcare  Financial  Services for use in making cash
payments to electing  creditors.  Second, the Company will receive $1,500,000 in
cash plus the release of over  $7,000,000  in claims from certain  affiliates of
the Company, including Becker Gaming, Inc., in return for retaining their equity
interests in the Company.  Finally, the Company will use net income generated by
the casino to help fund the Plan.

     The holders of claims and interests of the Company are permitted to vote to
accept or reject the plan.  After the Disclosure  Statement has been approved by
the  Bankruptcy  Court and there has been  voting on the Plan,  there  will be a
hearing on the Plan to determine whether it should be confirmed. At the hearing,
the  Bankruptcy  Court will  consider  whether  the Plan  satisfies  the various
requirements of the Bankruptcy  Code. The Bankruptcy Court also will receive and
consider a ballot  report which will  present a tally of the votes  accepting or
rejecting  the Plan  cast by those  entitled  to vote.  Therefore,  given  these
contingencies,  there can be no  assurances  that the Plan as  submitted  by the
Company will be confirmed.


Item 5.  Other Information

Bankruptcy or Receivership

       On November 14, 1997,  AC filed for  bankruptcy  protection in the United
States  Bankruptcy  Court for the  District of Nevada in Las Vegas,  Nevada (the
"Bankruptcy  Court") under Chapter 11 of the United States Bankruptcy Code (Case
No.  97-28781 LBR) to pursue the  financial  reorganization  of the Company.  AC
currently is operating  under the Bankruptcy Code as  debtor-in-possession.  The
Bankruptcy  Court  has  entered  orders  allowing  AC to  honor  certain  of the
pre-petition debts of its customers (such as hotel room deposits and outstanding
gaming chips) and to pay the pre-petition wages of its employees. As a result of
the  filing,  the  Company  did  not  experience  any  material  changes  in the
operations of Arizona  Charlie's Hotel & Casino,  located in Las Vegas,  Nevada,
which is owned and operated by the Company.


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  six-months
ended December 31, 1997.

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

<PAGE>

                                   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 23, 1998                  /S/ Bruce F. Becker
         ---------------------             -------------------
                                           Bruce F. Becker
                                           President, Chief Executive
                                           Officer (Principal Executive Officer)






Date:    February 23, 1998                  /S/ Jerry Griffis
         ----------------                   -----------------
                                            Jerry Griffis
                                            Chief Financial Officer
                                            (Principal Financial and
                                            Accounting Officer)
================================================================================
<PAGE>