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

                                   Form 10-Q/A

                                 Amendment No. 1
                             (Part I; Items 1 and 2)

(Mark One)


  X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-----
 ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 OR


     TRANSITION  REPORT PURSUANT  TO  SECTION  13 OR  15(d)  OF  THE  SECURITIES
-----
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                TO


Commission file number 0-19322


                          POWERHOUSE TECHNOLOGIES, INC.
              (Formerly known as Video Lottery Technologies, Inc.)
             (Exact name of registrant as specified in its charter)


         Delaware                                                     81-0470853
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)



2311 South Seventh Avenue
Bozeman, Montana                                                           59715
(Address of principal executive officers)                             (Zip code)


                                 (406) 585-6600
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  report(s),  and (2) has  been  subject  to such  filing
requirements for the past 90 days.  Yes    X     No
                                         -----       -----

Applicable  only to  issuers  involved  in  bankruptcy  proceedings  during  the
preceding five years:

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.  Yes       No
                          -----      -----

Applicable only to corporate issuers:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable  date.  10,318,730  shares of Common
Stock, $.01 par value, outstanding as of March 31, 1997.

                                      - 1 -

<PAGE>



                          POWERHOUSE TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                                      INDEX


PART I.     FINANCIAL INFORMATION
                                                                            Page

ITEM 1.     Financial Statements

            Consolidated Statements of Operations
            Three Months Ended March 31, 1997 and 1996                         4

            Consolidated Balance Sheets
            March 31, 1997 and December 31, 1996                               5

            Consolidated Statement of Stockholders' Equity
            Three Months Ended March 31, 1997                                  6

            Consolidated Statements of Cash Flows
            Three Months Ended March 31, 1997 and 1996                         7

            Notes to Consolidated Financial Statements                         8

ITEM 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                         13

Signatures                                                                    18

                                      - 2 -

<PAGE>



     Powerhouse Technologies,  Inc. (the "Company") was incorporated in Delaware
in  May  1991.  The  Company  acts  as  a  holding  company  for  eleven  active
corporations. Unless the context otherwise requires, references to the "Company"
or "PTI" refer to Powerhouse Technologies, Inc. and its subsidiaries; references
to "AWI" refer to Automated Wagering  International,  Inc., one of the Company's
three principal operating  subsidiaries,  which provides on-line lottery systems
and services primarily to governmental lottery authorities;  references to "VLC"
refer to  Video  Lottery  Consultants,  Inc.,  another  of the  Company's  three
principal operating subsidiaries, which designs, manufactures and markets casino
and video lottery gaming  machines and central  control  systems;  references to
"UWS" or "United Tote" refer to United  Wagering  Systems,  Inc.,  the Company's
third principal operating  subsidiary whose operating units provide computerized
pari-mutuel  wagering  systems  for horse and  greyhound  racetracks,  off-track
betting  facilities and jai alai frontons.  The Company also owns and operates a
racetrack  facility in Sunland Park, New Mexico,  which is accounted for as part
of the UWS operating  segment.  References to the  "Subsidiaries"  refer to AWI,
VLC, UWS and the other subsidiaries of the Company.

     Certain statements in this Report on Form 10-Q constitute  "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933 and
Section  21E of  the  Securities  Exchange  Act of  1934.  Such  forward-looking
statements  involve  known and unknown  risks,  uncertainties  and other factors
which may cause the actual results,  performance or achievements of the Company,
or  industry  results,  to be  materially  different  from any  future  results,
performance,  or  achievements  expressed  or  implied  by such  forward-looking
statements. Such factors include, among others, the following:  general economic
and  business  conditions;   competitive  factors  in  the  industry,  including
additional  competition  from  existing  competitors  or future  entrants to the
industry; social and economic conditions;  local, state and federal regulations;
changes in business strategy or development  plans; the Company's  indebtedness;
quality of management;  availability,  terms and deployment of capital; business
abilities and judgment of personnel;  availability of qualified  personnel;  and
other factors.

                                      - 3 -

<PAGE>



                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                            STATEMENTS OF OPERATIONS
                    (in thousands except for per share data)
<TABLE>
<CAPTION>
                                                                   Three Months Ended March 31,
                                                                   ----------------------------
                                                                     1997               1996
                                                                     ----               ----
<S>                                                                <C>                 <C>

REVENUES:
         On-line lottery                                           $22,994             23,232
         Gaming machine and route operations                        17,739             14,811
         Wagering systems and racetrack operations                   7,271              6,702
                                                                   -------             ------
                  Total revenues                                    48,004             44,745
                                                                   -------             ------

COSTS AND EXPENSES:
         On-line lottery                                            15,155             14,500
         Gaming machine and route operations                         9,238              8,181
         Wagering systems and racetrack operations                   5,639              5,403
         Selling, general and administrative                         7,694              7,679
         Research and development                                    2,497              1,192
         Other charges                                                 ---              6,000
         Depreciation and amortization                               6,035              5,865
                                                                   -------             ------
                  Total costs and expenses                          46,258             48,820
                                                                   -------             ------

Earnings (loss) from operations                                      1,746             (4,075)
                                                                   -------             ------

OTHER INCOME (EXPENSE):
         Interest and other income                                     235                489
         Interest expense                                             (994)              (936)
                                                                   -------             ------

                                                                      (759)              (447)
                                                                   -------             ------

Earnings (loss) before income taxes and extraordinary items            987             (4,522)

Income tax (expense) benefit                                          (703)               985
                                                                   -------             ------

Net earnings (loss) before extraordinary items                         284             (3,537)

Extraordinary gain, net                                             13,269              4,014
                                                                   -------             ------

Net earnings                                                       $13,553                477
                                                                   =======             ======

Net earnings (loss) per share:
         Before extraordinary items                                  $ .03               (.28)
         From extraordinary items                                     1.26                .32
                                                                     -----               ----
                                                                     $1.29                .04
                                                                     =====               ====

Weighted average shares                                             10,498             12,601
                                                                    ======             ======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      - 4 -

<PAGE>



                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                 BALANCE SHEETS
                        (in thousands except share data)
<TABLE>
<CAPTION>
                                                                    March 31,         December 31,
                                                                      1997               1996
                                                                      ----               ----
<S>                                                                 <C>                 <C>

ASSETS
     Current assets:
         Cash and cash equivalents                                  $  4,233              4,322
         Restricted short-term deposits                                1,364              1,364
         Accounts receivable, net                                     19,865             19,353
         Current installments of notes receivable, net                 3,064              2,818
         Inventories                                                  17,196             18,297
         Prepaid expenses                                              1,305              1,027
         Income tax refund receivable                                    ---              3,551
         Deferred income taxes                                        10,292             15,500
                                                                    --------            -------
     Total current assets                                             57,319             66,232
                                                                    --------            -------

     Property, plant and equipment                                   148,553            153,124
         Less accumulated depreciation                               (75,919)           (78,417)
                                                                    --------            -------
              Net property, plant and equipment                       72,634             74,707
                                                                    --------            -------

     Restricted cash deposits                                          2,537              2,521
     Notes receivable, excluding current installments                  2,398              2,216
     Goodwill, net                                                     9,929             10,134
     Intangible and other assets, net                                 11,767             12,233
                                                                    --------            -------
                                                                    $156,584            168,043
                                                                    ========            =======
LIABILITIES
     Current liabilities:
         Notes payable                                              $  1,650              7,650
         Current installments of long-term debt                       10,683             10,604
         Accounts payable                                              5,924              6,646
         Accrued expenses                                             14,354             13,249
         Income taxes payable                                          4,028                ---
                                                                    --------            -------
              Total current liabilities                               36,639             38,149
                                                                    --------            -------

     Long-term debt, excluding current installments                   32,360              9,312
     Other liabilities                                                   ---             38,025
     Deferred income taxes                                            10,724             10,326
                                                                    --------            -------
              Total liabilities                                       79,723             95,812
                                                                    --------            -------

Commitments and contingencies

STOCKHOLDERS' EQUITY
     Preferred stock, $.01 par value.  Authorized 10,000,000
         shares; no shares issued                                        ---                ---
     Series A Junior Preferred stock, $.01 par value, convertible
         non-cumulative.  Authorized 1,912,728 shares                     19                 19
     Common stock, $.01 par value.  Authorized 25,000,000
         shares                                                          109                108
     Paid-in capital                                                  97,891             97,765
     Treasury stock                                                   (9,100)               ---
     Deferred restricted stock compensation                             (367)              (417)
     Accumulated deficit                                             (11,691)           (25,244)
                                                                    --------            -------
              Total stockholders' equity                              76,861             72,231
                                                                    --------            -------
                                                                    $156,584            168,043
                                                                    ========            =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      - 5 -

<PAGE>



                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                        STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                           Series A
                           Preferred                                                Restricted                        Total
                             Stock        Common                                     Stock           Accumu-          Stock-
                              par          Stock        Paid-in       Treasury       Compen-          lated          holders'
                             value        par value      Capital        Stock        sation          Deficit          Equity
--------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>           <C>          <C>            <C>             <C>            <C>             <C>

December 31,                  $19           108          97,765            ---          (417)          (25,244)        72,231
  1996

Net earnings                  ---           ---             ---            ---           ---            13,553         13,553

EDS settlement                ---             1             126         (9,100)          ---               ---         (8,973)

Amortization of
  deferred
  restricted stock
  compensation                ---           ---             ---            ---            50               ---             50
                             ----          ----          ------         ------          ----           -------         ------

March 31, 1997                $19           109          97,891         (9,100)         (367)          (11,691)        76,861
                              ===           ===          ======         ======          ====           =======         ======
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

1997 Share Data
                                  Series A                        Treasury                   Common
Balance                     Preferred Stock Issued                  Stock*                 Stock Issued
-------                     ----------------------                  ------                 ------------
<S>                                  <C>                            <C>                       <C>
Beginning of period                  1,913                             ---                    10,829
EDS settlement                         ---                          (2,458)                       35
                                     -----                          ------                    ------

End of period                        1,913                          (2,458)                   10,864
                                     =====                          ======                    ======
</TABLE>

*Includes 1,913 Series A Preferred Stock and 545 of Common Stock.

          See accompanying notes to consolidated financial statements.


                                      - 6 -

<PAGE>



                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                     Three Months Ended March 31,
                                                                     ----------------------------
                                                                        1997               1996
                                                                        ----               ----
<S>                                                                   <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings                                                     $13,553                 477
     Adjustments to reconcile net earnings to net cash
         provided by operating activities:
         Depreciation and amortization                                  6,035               5,865
         Other charges                                                    ---               6,000
         Extraordinary gain, net                                      (13,269)             (4,014)
         Other, net                                                        31                  18
     Changes in operating assets and liabilities:
         Receivables, net                                                (940)               (217)
         Inventories                                                    3,778              (6,724)
         Prepaid expenses                                                (277)                 63
         Accounts payable                                                (722)             10,118
         Accrued expenses                                              (1,231)             (2,605)
         Income taxes                                                   4,504                 668
                                                                      -------              ------
Net cash provided by operating activities                              11,462               9,649
                                                                      -------              ------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Capital expenditures                                          (2,141)             (2,682)
         Expenditures on intangible and other noncurrent assets          (375)             (2,772)
         Proceeds from sales of equipment                                   5                  15
         Change in restricted cash deposits                               (16)                580
                                                                      -------              ------
Net cash used in investing activities                                  (2,527)             (4,859)
                                                                      -------              ------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Net payments on notes to banks                                (6,000)             (4,550)
         Proceeds from issuance of long-term debt                         ---               4,251
         Repayments of long-term debt                                  (3,024)             (3,193)
                                                                      -------              ------

Net cash used in financing activities                                  (9,024)             (3,492)
                                                                      -------              ------

Net (decrease) increase in cash and cash equivalents                      (89)              1,298
                                                                      -------              ------

Cash and cash equivalents, beginning of period                          4,322               1,993
                                                                      -------              ------

Cash and cash equivalents, end of period                              $ 4,233               3,291
                                                                      =======              ======
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      - 7 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   Presentation

          The  consolidated   financial   statements  include  the  accounts  of
     Powerhouse  Technologies,   Inc.  and  subsidiaries  (the  "Company").  All
     significant  intercompany balances and transactions have been eliminated in
     consolidation.

          The  consolidated   balance  sheet  as  of  March  31,  1997  and  the
     consolidated  statements of operations  and cash flows for the  three-month
     periods  ended March 31, 1997 and 1996 and the  consolidated  statement  of
     stockholders'  equity for the three-month  period ended March 31, 1997 have
     been prepared by the Company,  without audit. In the opinion of management,
     all  adjustments  (consisting of normal  recurring  accruals)  necessary to
     present fairly the financial position, results of operations and cash flows
     as of and for the periods  indicated  have been made. The December 31, 1996
     consolidated   balance  sheet  was  derived  from  consolidated   financial
     statements  audited  by  KPMG  Peat  Marwick  LLP in  connection  with  the
     Company's annual audit.

     b.   Earnings (Loss) Per Common Share

          Earnings  per common share is computed by dividing net earnings by the
     weighted  average number of common shares  outstanding and the common stock
     equivalents of convertible  preferred  stock and stock options  outstanding
     using the treasury stock method. Common stock equivalents are excluded from
     the loss per share calculation when the effect is anti-dilutive.

     c.   Reclassifications

          Certain  reclassifications  have  been  made to the  1996  amounts  to
     conform to the 1997 presentation. See Note 3.

     d.   Adoption of Accounting Pronouncement

          The  Company  adopted  Statement  of  Financial  Accounting  Standards
     ("SFAS") No. 125,  "Accounting  for  Transfers  and  Servicing of Financial
     Assets and  Extinguishments of Liabilities" (the "Statement") issued by the
     Financial  Accounting  Standards  Board  ("FASB")  in June 1996,  effective
     January  1,  1997.  This  Statement  provides   consistent   standards  for
     distinguishing  transfers of financial assets that are sales from transfers
     that are secured  borrowings.  The  adoption  did not have an effect on the
     Company's financial position or results of operations.

     e.   Accounting Pronouncements Not Yet Adopted

          In February 1997, the FASB issued SFAS No. 128,  "Earnings per Share",
     which simplifies the standards for computing  earnings per share ("EPS") by
     replacing the presentation of primary EPS with a presentation of basic EPS.
     SFAS No.  128  requires  dual  presentation  of basic  and  diluted  EPS by
     entities with complex  capital  structures.  Basic EPS includes no dilution
     and is computed by dividing income available to common  stockholders by the
     weighted-average  number  of  common  shares  outstanding  for the  period.
     Diluted EPS reflects the potential  dilution of securities that could share
     in the earnings of an entity. SFAS No. 128 replaces  Accounting  Principles
     Board  Opinion 15 and is  effective  for  financial  statements  issued for
     periods ending after  December 15, 1997. The Company has a complex  capital
     structure per SFAS No. 128.  Consequently,  the generation of earnings from
     continuing  operations  will  result  in a dual  presentation  of basic and
     diluted  EPS.  The  Statement  requires  restatement  of prior  period  EPS
     presentations.

          The Company has  capitalized  start-up costs in  conjunction  with its
     long-term contracts in the on-line lottery and wagering systems segments in
     accordance with Statement of Position (SOP) 81-1.

                                      - 8 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS


     The AICPA Accounting  Standards  Executive  Committee  (AcSEC) approved for
     issuance the SOP, Reporting on the Costs of Start-Up Activities, which will
     require  that  costs  incurred  during  a  start-up   activity   (including
     organization costs) be expensed as incurred.  Before issuance, the SOP must
     be  reviewed  and  cleared  by the FASB.  If  cleared  by the  FASB,  it is
     anticipated  that the final SOP would be released in the second  quarter of
     1998 and be effective for fiscal years  beginning  after December 15, 1998.
     Depending on the level of the Company's start-up activities, this change in
     accounting method may be material.

2.   EDS SETTLEMENT

     In January 1994,  Electronic  Data Systems  Corporation  ("EDS")  purchased
545,454  shares of the Company's  Common Stock and 1,912,728  shares of Series A
Junior  Preferred  Stock  (Series A Preferred  Stock),  each at a share price of
$27.50.  The Series A  Preferred  Stock  carries  dividend  rights  equal to the
Company's Common Stock, is non-voting, and is convertible to 1,912,728 shares of
Common Stock after ninety days prior written notice.

     In conjunction with the stock sale to EDS in 1994, the Company entered into
a ten-year  agreement  with EDS which,  among  other  things,  called for EDS to
provide  to  the  Company  enhanced   computing,   communications,   system  and
engineering  and  field   maintenance   services  under  the  lottery   services
subsidiary's  on-line lottery  contracts.  In 1996, the Company withheld certain
payments to EDS  primarily  due to EDS  performance  issues and related  on-line
lottery customer disputes.  In mid-1996 the contract with EDS was terminated and
EDS filed a complaint  against the Company seeking payment of outstanding  fees.
On January 30, 1997,  the Company and EDS settled all claims  against each other
and  agreed to  transition  the EDS  services  to the  Company.  The  settlement
resulted  in a net  of  taxes  extraordinary  gain  on  debt  extinguishment  of
approximately  $13,269,000 for the Company.  The terms of the settlement include
the receipt by the Company of all of the common and  preferred  shares  owned by
EDS  (545,454  common  and  1,912,728   preferred  shares)  certain  inventories
(approximately  $1,200,000)  and property,  plant and  equipment  (approximately
$2,700,000)  used in the provision of EDS services to on-line lottery  customers
and the  extinguishment  of  approximately  $38,000,000 of  outstanding  fees in
return for a note payable with a present value of $26,100,000.  The note payable
calls for  interest  payments  only for the first  two years and  principal  and
interest payments in years three through seven  (maturity).  The note is secured
by the  2,458,182  shares  of  redeemed  Common  and  Preferred  Stock,  certain
inventories,  fixed  assets  and  software  technology  and  carries  prepayment
provisions  upon the  disposal of  substantially  all the assets or stock of the
Company or certain of its  subsidiaries.  The transition of the EDS services and
related  employees to the Company is  anticipated  to be completed in the second
quarter of 1997.

3.   DISCONTINUED OPERATIONS

     On  May  3,  1994,  the  Company  completed  the  purchase  of  all  of the
outstanding  stock of  United  Wagering  Systems,  Inc.  ("UWS").  The  original
purchase  price  included  the  issuance of  $10,000,000  notes,  payable over a
three-year period.

     During the fourth quarter 1994 and the first quarter 1995, certain negative
developments   affecting  UWS  and  the  pari-mutuel  wagering  industry  became
increasingly  apparent.  During  1995,  the  Company did not pay  principal  and
interest  obligations under the terms of the promissory notes to the sellers. On
March 25, 1996, the Company  reached an agreement with the sellers  settling all
outstanding  claims  and  disputes,   including  dismissal  of  all  outstanding
litigation, resulting in a $4,014,000 gain on debt extinguishment.

     The  Company,  in the fourth  quarter  1995,  made a decision  to sell UWS,
exclusive  of the  racetrack  in  Sunland  Park,  New  Mexico;  however,  due to
operational improvements and industry and market conditions, the Company decided
to no longer actively pursue the disposal of the wagering  systems  segment.  In
accordance  with the  requirements  outlined in Financial  Accounting  Standards
Board Emerging Issues Task Force issue No. 90-16  "Accounting  for  Discontinued
Operations  Subsequently  Retained,"  the results of  operations of the wagering
systems segment have been  reclassified to continuing  operations in all periods
presented.

                                      - 9 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS


4.   INVENTORIES

     A summary of inventory follows:

                                             March 31,          December 31,
                                               1997                 1996
                                               ----                 ----
         Manufacturing:
              Raw materials                $ 4,585,000            5,462,000
              Work-in-process                  628,000              733,000
              Finished goods                 9,588,000           11,322,000
         Customer service and other          2,395,000              780.000
                                           -----------           ----------
                                           $17,196,000           18,297,000
                                           ===========           ==========

5.   LONG-TERM DEBT
<TABLE>
<CAPTION>
                                                                                     March 31,          December 31,
                                                                                       1997                1996
                                                                                       ----                ----
<S>                                                                                <C>                   <C>
     Note payable  at  prime  with  interest  only  payments  through  1998.
        Thereafter  due  in  monthly  installments,   including  interest,
        through January 2004. Secured by certain inventories and
        property and equipment and treasury stock                                  $26,150,000                  ---
     8.25% note payable in monthly installments, including interest,
        through September 2001 (see Note 3)                                          5,465,000            5,729,000
     7.2% to 10.4% capital lease obligations, due in monthly install-
        ments of $4,573 to $26,567 including interest, maturing
        through November 1999                                                        1,458,000            1,753,000
     9.0% note payable in monthly installments including interest
        through December 1998, secured by assets leased to others                    4,200,000            5,164,000
     LIBOR plus 2.25% notes payable in equivalent monthly installments
        of $250,000 plus interest through February 1998.  Secured by
        stock of subsidiaries                                                        5,770,000            7,270,000
                                                                                   -----------           ----------

                                                                                    43,043,000           19,916,000

     Less current installments                                                      10,683,000           10,604,000
                                                                                   -----------           ----------

     Long-term debt, excluding current installments                                $32,360,000            9,312,000
                                                                                   ===========           ==========
</TABLE>

     The aggregate maturities of long-term debt are as follows:

     Twelve months  ending March 31,
        1998                                             $10,683,000
        1999                                               4,070,000
        2000                                               7,000,000
        2001                                               6,518,000
        2002                                               5,830,000
        Thereafter                                         8,942,000
                                                         ===========

6.   COMMITMENTS AND CONTINGENCIES

     The  Company  periodically  sells  notes  receivable  from  gaming  machine
equipment  sales to banks and other third parties.  The notes are secured by the
underlying equipment. The receivables sold are subject to recourse provisions in
the event of default by the  primary  obligor.  The  outstanding  balance of the
notes  receivable sold with recourse was  approximately  $2,899,000 at March 31,
1997.  The Company has  established  reserves  for  estimated  losses  under the
recourse provisions. At March 31, 1997, the Company

                                     - 10 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS


had guaranteed or pledged  security for the indebtedness of others in the amount
of approximately $3,304,000 (including $2,899,000 notes receivable sold to banks
and other third parties).

     The Company is obligated to provide services and/or equipment under certain
of its  contracts.  In addition,  the various  state  on-line  lottery and video
gaming  contracts  contain  provisions under which the Company may be subject to
monetary penalties for central computer downtime,  terminal failures,  delays in
servicing  inoperable  terminals  within specified time periods and ticket stock
shortages  among other things.  The Company accrues any net losses in fulfilling
the terms of these  contracts  when the loss is probable  and can be  reasonably
estimated.  At March 31, 1997 and December 31, 1996,  respectively,  the Company
had accrued liabilities of approximately  $2,408,000 and $3,115,000 representing
billings and estimated costs to fulfill its obligations to deliver  products and
services under certain customer contracts.

     The Company is currently  conducting a comprehensive review of its computer
systems to identify  the systems that could be affected by the "Year 2000" issue
and is developing  an  implementation  plan to resolve the issue.  The Year 2000
issue is pervasive and complex,  as virtually  every  computer  operation of the
Company,  including  both internal  systems and systems  delivered to customers,
will be affected in some way by the  roll-over  of the  two-digit  year value to
"00."  Computer   systems  that  do  not  properly   recognize  date-  sensitive
information  could generate  erroneous data or cause a complete  system failure.
The Company  believes that,  with  modification  of existing  computer  systems,
updates by vendors and conversion to new software in the ordinary  course of its
business, the Year 2000 issue will not pose significant operational problems for
the Company's computer systems.  However,  if such modifications and conversions
are not  completed  timely or properly,  the Year 2000 issue may have a material
impact on the business and operations of the Company. The costs of modifications
and  conversions  are not  anticipated  to be  material,  but  will  principally
represent a  re-deployment  of  existing  or  otherwise  planned  resources.  No
assurance  can be given that the Company  will  successfully  avoid any problems
associated with the Year 2000 issue.

     The Company  typically posts bid,  litigation,  and  performance  bonds for
on-line  lottery  contracts.  At March 31, 1997,  the Company had  collateral in
support of the various bonds outstanding  consisting of $3,350,000 of restricted
deposits and $9,500,000 of  irrevocable  standby  letters of credit.  Should the
Company fail to meet  contractually  specified  obligations  during the contract
term, the lottery authority may assess damages and exercise its right to collect
on the  applicable  bond.  The  Company has had  disputes  with  customers  over
implementation schedules,  deliverables and other issues. The Company works with
these  customers to resolve these  differences;  however,  should the Company be
unable to resolve any disputes in a mutually  satisfactory  manner,  the Company
may  suffer  negative  consequences  in its  relationships  with these and other
customers and its pursuit of future  business.  The ultimate cost to the Company
of such  damages  (if any)  would be net of its  claims  under  risk  management
policies.

     Historically, the Company has met its cash flow requirements primarily with
cash provided by operations,  public  offerings of equity  securities,  and from
borrowings  from  financial  institutions.  The Company,  in 1996, was named the
successful  bidder for a new on-line lottery  contract with the Florida lottery.
The award by the Florida  Lottery has been  protested  by a  competitor.  If the
award is upheld, the Company will begin negotiations of a new contract.  Sizable
capital  expenditures  in excess of current  capital  sources may be required in
advance  of any  anticipated  capital  generated  by the new  Florida  contract,
accordingly, the Company may need additional financing, the availability and the
terms of which are subject to various uncertainties, with no assurance that such
financing can be obtained.

     The  recovery  of a  significant  amount  of the  Company's  investment  of
approximately $20.0 million in the racetrack operations in New Mexico is largely
contingent upon the  implementation of gaming legislation in the state. On March
21, 1997, the New Mexico legislature voted to allow casino gaming at pari-mutuel
racetracks in New Mexico, including the Company's racetrack in Sunland Park, New
Mexico.  The bill allows,  among other things,  the operation of up to 300 video
gaming  machines per pari-mutuel  racetrack  facility for up to twelve hours per
day. The  implementation  of gaming is subject to the timing and satisfaction of
conditions of the  legislation,  including  the state's  formation of a separate
commission to oversee the gaming

                                     - 11 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS


and other regulatory  matters  (including the grant of necessary licenses to the
Company).  Consequently,  the Company does not anticipate that any revenues will
be generated from the approved gaming until early 1998.

     A significant percentage of the Company's consolidated revenues are derived
from  sales  to  customers  in  jurisdictions  that  have  enacted   legislation
permitting various types of gaming.  Such enacted  legislation may change due to
political and economic  conditions  within the  jurisdiction  which could have a
material  adverse  effect upon the Company's  financial  position and results of
future operations.

     International  sales  denominated  in  foreign  currencies   accounted  for
approximately  $4.4 million or 9% of the Company's  total revenues for the three
months  ended March 31, 1997 and $16.6  million or 9% of total  revenues for the
fiscal year ended  December 31, 1996.  Management  can give no  assurances  that
changes in currency and exchange rates will not materially  affect the Company's
revenues,  costs, cash flows and business practices and plans.  Additional risks
inherent in the Company's  international  business activities  generally include
unexpected changes in regulatory requirements, tariffs and other trade barriers,
delays in  receiving  payments on accounts  receivable  balances,  reimbursement
approvals   (both   governmental   and   private),   difficulties   in  managing
international operations, potentially adverse tax consequences,  restrictions on
repatriation  of earnings  and the burdens of  complying  with a wide variety of
foreign laws and  regulations.  In addition,  the Company's  foreign  operations
would be affected by general economic conditions in the international markets in
which the Company does business, such as a prolonged economic downturn in Europe
or the Asian-Pacific  region.  There can be no assurances that such factors will
not  have a  material  adverse  effect  on the  Company's  future  international
revenues and,  consequently,  on the Company's  business,  financial  condition,
results of operations or cash flows. The Company has not historically  attempted
to hedge the risks of fluctuating  exchange rates given the currencies  involved
and the terms of payment granted to its customers.

     As previously  reported,  a purported class action,  alleging violations of
the federal  antitrust  laws,  was filed in June 1994,  in the federal  district
court in South  Dakota  against the Company and certain  video  lottery  machine
operators in South Dakota by a group of other video lottery  machine  operators,
alleging,  among other  things,  a  combination  and  conspiracy  to  unlawfully
restrain  trade in video  lottery  machines  by  fixing  lease  prices  for such
machines,  allocating  territories  and  refusing to deal with other  operators.
Unspecified treble damages were sought,  along with injunctive relief to bar the
alleged  practices.  On November 6, 1996,  the court  granted the  Company's and
other defendants' motion for summary judgment and dismissed, with prejudice, all
claims of the plaintiffs.  In December 1996,  plaintiffs filed an appeal of this
ruling with the Eighth Circuit of the U. S. Court of Appeals. The Company cannot
predict the outcome of the appeal.

     The Company is involved in various other claims and legal  actions  arising
in the  ordinary  course  of  business.  In the  opinion  of  management,  after
consultation with legal counsel, the ultimate disposition of these other matters
will not have a material adverse effect on its consolidated  financial  position
or results of operations.

                                     - 12 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     Revenue  from  the  on-line  lottery  segment   consists   primarily  of  a
contractual  percentage  of  lottery  ticket  sales in seven  states  as well as
revenue  from  on-line  lottery   equipment  sales.  The  segment  revenue  will
experience  fluctuations  depending on relative sizes of jackpots and the number
of  terminals  on-line  and  selling  tickets in the states in which the Company
operates. The Company expects on-line lottery services revenue to continue to be
a significant component of total revenues.  On-line lottery revenue is generated
by the Company's AWI subsidiary.

     Revenue from the gaming machine and route  operations  segment  consists of
sales and lease of video gaming machines,  sales of parts,  central control site
hardware  and  software,  service  of  terminals,  license  fees,  and  from the
operation of gaming machine routes.  Route operations revenue consists primarily
of gaming  machine  wagers net of pay-outs to patrons  and state  gaming  taxes.
Revenue  from  gaming  machine  sales  is  subject  to  potentially  significant
fluctuations.  When  and if new  jurisdictions  approve  legislation  for  video
lottery  gaming  operations  or forms of casino  gaming,  and if the  Company is
awarded a contract in any such jurisdictions, the segment may experience a surge
in sales  revenue  that may or may not  decline  dramatically  depending  on the
jurisdiction  and gaming venue.  Gaming  machine and route  operations  includes
lease  revenue  which is derived  from the lease of  terminals to the Oregon and
Rhode Island  lotteries which  implemented  video lottery  programs in 1992. The
Rhode  Island  program is a limited  form of video  lottery  at two  pari-mutuel
facilities.  In December 1995 the Company began leasing video gaming machines to
the Delaware  Lottery.  The Company  expects video lottery and route  operations
revenue to continue to be a major  component of total  revenues.  Gaming machine
revenue is primarily generated by the Company's VLC subsidiary.

     Revenue  from  wagering  systems  and  racetrack  operations  is  generated
primarily from a contractual percentage of handle processed through computerized
pari-mutuel  wagering systems from approximately 124 contracts in North America,
international sales and lease of pari-mutuel wagering systems, and ownership and
operation of a racetrack in Sunland Park, New Mexico.  While on-track attendance
and handle from pari-mutuel wagering in the United States has markedly decreased
over the last  decade as  jurisdictions  have  legalized  other forms of gaming,
there has also been a substantial  increase in simulcast and off-track  wagering
handle  during the same  period.  Due to the  significant  increase of alternate
forms of gaming during the last several  years,  there can be no assurance  that
such historical patterns will remain the same in the future, nor can the Company
predict the magnitude of any  resulting net economic  effects on this segment of
its business.  The Company  expects  wagering  systems and racetrack  operations
revenue to be a significant  component of total revenues.  Wagering  systems and
racetrack operations revenue is generated by the Company's UWS subsidiary.

     Gross  profit for each  segment  is herein  defined  as  revenues  for that
segment less the corresponding  costs and expenses  (excluding  depreciation and
amortization  expense  and any  special or other  charges).  Costs and  expenses
related to on-line  lottery  revenue  include  all  direct  costs and  allocated
indirect  costs  involved in  operating  the on-line  lottery  equipment in each
jurisdiction  in which the Company has a contract as well as costs of  equipment
sales, inclusive of materials, labor and allocated manufacturing overhead. Costs
and  expenses  related  to  gaming  machine  revenue  include  direct  costs  of
production,  including labor, and allocated  manufacturing  overhead.  Costs and
expenses related to route operations  include the locations owners' share of the
net machine revenues.  Costs and expenses related to wagering systems operations
include  direct and allocated  indirect costs  associated  with the operation of
totalisator  equipment at the  racetracks at which the Company has a contract as
well as direct costs of equipment sales.

     Selling,  general  and  administrative  expenses  consist  of labor  costs,
professional  fees, repairs and maintenance  expense,  promotion and advertising
costs,  occupancy  and other  costs,  other  than  those  included  in costs and
expenses  applicable  to the  determination  of gross profit as defined above or
research and development as discussed below.

     Research and development costs represent costs incurred to gain and develop
new knowledge  applicable to the Company's  various gaming systems  inclusive of
software and hardware technology. Included

                                     - 13 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES


in the costs are  labor,  material,  consulting,  occupancy  and other  expenses
associated  with the research and  development  efforts.  Development  costs are
capitalized in accordance with Statement of Financial Accounting Standards Board
Statement No. 86 for certain software developed for sale or lease.

     Other charges include  special and unusual charges  recorded by the Company
for restructurings,  asset valuation impairments,  liquidated damage assessments
and other  contract  losses.  The Company  excludes these other charges from the
calculation of gross profit due to the nature of each charge as disclosed in the
discussion of gross profit margin for each segment of the Company's  operations.
Such other  charges  are  considered  special  and unusual in nature and are not
associated  with the revenue stream of any segment of the Company's  operations.
Accordingly,  the Company  believes  that the inclusion of such other charges in
the  determination  of gross profit would not be indicative of past,  current or
anticipated future gross profit margins.

First Quarter 1997 Compared with First Quarter 1996
---------------------------------------------------

     Total revenue in the first quarter 1997 increased by $3.3 million (7.3%) to
$48.0 million from $44.7 million in the first quarter 1996. Overall gross profit
increased by $1.3  million  (7.8%) to $18.0  million  from $16.7  million in the
first  quarter  1996.  The  Company  had net  earnings  from  operations  before
extraordinary  items of $.3 million as compared to a net loss of $3.5 million in
the first  quarter  1996.  The  increase  is  primarily  attributable  to higher
revenues and gross margin from the gaming machine segment and the absence of the
other special charges recorded in the first quarter 1996.

     In  conjunction  with the stock  sale to EDS (see  Note 2 to the  Financial
Statements), the Company entered into a ten-year agreement with EDS which, among
other  things,  called  for EDS to provide to the  Company  enhanced  computing,
communications,  system and engineering and field maintenance services under the
lottery services  subsidiary's  on-line lottery contracts.  In 1996, the Company
withheld  certain  payments to EDS primarily due to EDS  performance  issues and
related on-line lottery customer disputes. In mid-1996 the contract with EDS was
terminated  and EDS filed a complaint  against the  Company  seeking  payment of
outstanding  fees.  On January 30, 1997,  the Company and EDS settled all claims
against each other and agreed to transition the EDS services to the Company. The
settlement   resulted  in  an   extraordinary   gain  (net  of  taxes)  on  debt
extinguishment of approximately $13.3 million for the Company.

     On March 25, 1996, the Company reached an agreement with the sellers of UWS
settling all outstanding claims and disputes between them,  including  dismissal
of all outstanding  litigation,  and a restructuring  and reduction of the notes
payable,   resulting   in  an   extraordinary   gain  (net  of  taxes)  on  debt
extinguishment of $4.0 million.

                                 On-line Lottery

     Revenue from the on-line lottery  segment  decreased by $.2 million (1%) to
$23.0 million from $23.2 million in the first quarter 1996. In the first quarter
1996 the Company  recorded  revenues  from the Arizona  and  Washington  lottery
contracts of approximately $4.0 million. The Arizona contract was terminated and
the  Washington  Lottery  contract  expired  in the  second  quarter  1996.  The
implementation of a video gaming program in Delaware,  which is operated through
the Company's  on-line  lottery system  software  MasterLink(R)  Advanced Gaming
System,  in December  1995 and the  start-up of the  on-line  lottery  system in
Maryland in the third quarter of 1996 has resulted in approximately $3.1 million
of additional  revenue to the Company in the first quarter 1997  offsetting  the
loss of Arizona and Washington contract revenues. Revenues from sales of on-line
lottery  equipment  increased by $.5 million to $.7 million  over first  quarter
1996 levels of $.2 million.

     In 1996,  the  Company  was named the  successful  bidder for a new on-line
lottery  contract  by the Florida  Lottery.  The award has been  protested  by a
competitor. If the award is upheld, the Company will begin negotiations of a new
contract  with  the  Florida  Lottery.  The  previous  contract  had an  initial
expiration date of June 30, 1996. The Company's subsidiary AWI is continuing the
operation of the current  on-line lottery system until the  implementation  of a
new contract.


                                     - 14 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES


     The gross profit margin of the on-line lottery segment was 34% in the first
quarter  1997 as  compared to 38% in the first  quarter  1996.  The  decrease is
primarily  attributable  to lower  margins  attained  on the  revenues  from the
Maryland  contract which was  implemented in the third quarter 1996. The Company
anticipates  the margin levels from the contract with Maryland to improve as the
system operation matures.

     In the quarter  ended March 31, 1996,  the Company  recorded  approximately
$6.0  million of special and other  charges for the  termination  of the Arizona
Lottery contract and disputes with other on-line lottery customers. The disputes
were related to  performance  issues with EDS.  The Company has  excluded  these
charges from the  determination of gross profit due to their nature and believes
the charges are not  indicative  of past,  current or  anticipated  future gross
profit margins.

                       Gaming Machine and Route Operations

     Revenue from the gaming machine and route operations  segment  increased by
$2.9 million  (19.6%) to $17.7  million from $14.8  million in the first quarter
1997. The increase is due to revenues in  jurisdictions in which the Company has
recently been licensed to sell gaming machines  including Nevada, New Jersey and
Minnesota  and   increased   sales  in  Quebec,   Canada.   Increases  in  these
jurisdictions were offset by a decrease in revenues from Alberta, Canada.

     Revenue was  recognized  on shipments  of 2,508 units in the first  quarter
1997 as compared to 1,380 units in the first quarter 1996. Included in the total
units were 75 and 102 royalty unit sales in the first quarters of 1997 and 1996,
respectively. Revenues from sales of units pursuant to royalty arrangements have
minimal related direct costs. The Company  previously earned revenues from sales
of units  under a royalty  arrangement  with an  Australian  company  in certain
Australian  jurisdictions.  the royalty  arrangement  was  terminated  effective
mid-1997. Also included in the first quarter 1997 unit sales were 1,375 units to
the Oregon Lottery that were previously  leased to the Oregon Lottery.  The five
consecutive  one-year  lease terms of the gaming  machines  expired in the first
quarter 1997.  The Company  continues to have 3,375  terminals  under lease with
Oregon  Lottery,  440 terminals  with the Rhode Island Lottery and 275 terminals
under lease agreement with the Delaware Lottery.

     The following table reflects domestic and foreign revenues representing 10%
or more of the  segments  revenues  for the  first  quarters  of 1997  and  1996
(amounts in millions):
<TABLE>
<CAPTION>

                                                         Three Months Ended March 31,
                                                         ----------------------------
                                       1997                1996            $ Change            % Change
                                       ----                ----            --------            --------
<S>                                   <C>                  <C>                <C>               <C>

     Domestic:
        Montana routes                $ 4.4                 4.0                0.4                 10.0
        Oregon                          1.7                 0.1                1.6              1,600.0
        Oregon lease                    1.7                 1.4                0.3                 21.4
        Other lease                     1.3                 1.0                0.3                 30.0
        Other, combined                 4.1                 1.8                2.3                127.8
                                      -----                ----               ----
                                       13.2                 8.3                4.9                 59.0
                                      -----                ----               ----
     Foreign:
        Alberta, Canada                 0.1                 2.5               (2.4)               (96.0)
        Quebec, Canada                  3.1                 1.9                1.2                 63.2
        Other foreign, combined         1.3                 2.1               (0.8)               (38.1)
                                      -----                ----               ----
                                        4.5                 6.5               (2.0)               (30.8)
                                      -----                ----               ----

                                      $17.7                14.8                2.9                 19.6
                                      =====                ====               ====              =======
</TABLE>

     The gross profit margin from the gaming  machine  segment,  which  includes
equipment sales and contract  revenue,  as well as royalty and lease revenue was
48% and 45% for the first  quarters  of 1997 and 1996,  respectively.  The gross
profit margin from route  operations  was 28% in the first  quarters of 1997 and
1996.


                                     - 15 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES


                    Wagering Systems and Racetrack Operations

     Revenue  from  the  wagering  systems  and  racetrack   operations  segment
increased  by $.6 million  (9.0%) to $7.3 million from $6.7 million in the first
quarter 1996. The increase  primarily  reflects higher sales of wagering systems
equipment in the first quarter 1997 over 1996 levels.  Wagering systems services
revenue  was $3.9  million  in the  quarters  ended  March  31,  1997 and  1996,
respectively.  Revenue from the operations of the racetrack in Sunland Park, New
Mexico was $2.2 million and $2.3 million in the first quarters of 1997 and 1996,
respectively.

     The Company  believes that a growing market exists for video lottery gaming
at  pari-mutuel  racetracks,  which have suffered from  declining  attendance in
recent  years due to  proliferation  of casino  gaming  outside of Las Vegas and
Atlantic City. To permit the racing  industry to become more  competitive,  some
states have enacted  legislation that allows video gaming devices at racetracks,
a trend  that the  Company  believes  will  continue.  The  Company  intends  to
participate  in this  growth by  supplying  its  gaming  machines  and  systems,
partnering  with or  purchasing  racetracks  and  owning and  operating  its own
facility,  Sunland Park. The Company is the only full service supplier of gaming
and pari-mutuel systems and services to racetracks in North America and believes
it has a  competitive  advantage  due  to  its  existing  United  Tote  customer
relationships in the pari-mutuel industry.

     The  recovery  of a  significant  amount  of the  Company's  investment  of
approximately $20.0 million in the racetrack operations in New Mexico is largely
contingent upon the  implementation of gaming legislation in the state. On March
21, 1997, the New Mexico legislature voted to allow casino gaming at pari-mutuel
racetracks in New Mexico, including the Company's racetrack in Sunland Park, New
Mexico.  The bill allows,  among other things,  the operation of up to 300 video
gaming  machines per pari-mutuel  racetrack  facility for up to twelve hours per
day. The  implementation  of gaming is subject to the timing and satisfaction of
conditions of the  legislation,  including  the state's  formation of a separate
commission to oversee the gaming and other  regulatory  matters  (including  the
grant of necessary licenses to the Company).  Consequently, the Company does not
anticipate  that any revenues will be generated  from the approved  gaming until
early 1998.

     The gross profit margin from the wagering systems and racetrack  operations
segment was 22% and 19%,  respectively,  in the first quarters of 1997 and 1996.
The increase is due to higher  margins on sales of wagering  systems  equipment.
The gross  profit  margin on wagering  systems  service  revenue was 33% in both
periods.  The gross profit  margin on sales of equipment  was 48% and 38% in the
quarters ended March 31, 1997 and 1996,  respectively.  The racetrack operations
resulted in a negative  gross  profit  margin of  approximately  8% in the first
quarters of 1997 and 1996.

                       Selling, General and Administrative

     Selling,  general and  administrative  (SG&A) expenses were $7.7 million in
the first  quarters of 1997 and 1996.  As a percentage  of sales,  SG&A expenses
were 16% and 17%,  respectively,  in the first  quarters  of 1997 and 1996.  The
Company expects SG&A levels to be at or above current levels in the near future.

                            Research and Development

     Research  and  development  expense,  net of  amounts  capitalized  for the
development of  MasterLink(R)  Advanced  Gaming System software was $2.5 million
and $1.2  million  in the first  quarters  of 1997 and 1996,  respectively.  The
Company  capitalized  approximately  $.3 million  and $2.2  million in the first
quarters of 1997 and 1996, respectively.

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

     Working  capital,  defined  as current  assets  less  current  liabilities,
decreased  by $7.4 million to $20.7  million from $28.1  million at December 31,
1996.  The decrease is primarily due to an increase in net current  income taxes
payable   resulting  from  pre-tax  earnings  from  all  sources  of  income  of
approximately $23.0 million.  Earnings before interest,  taxes, depreciation and
amortization and extraordinary items was $7.8 million in the

                                     - 16 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES


first  quarter  1997.  Additionally,  the Company  invested an  additional  $2.5
million for property,  plant and  equipment,  and intangible and other assets in
the first quarter 1997,  including $1.7 million for the wagering systems segment
and $.3  million of  additional  capitalized  software  development  relating to
MasterLink(R),  the Company's  central system  software used in both the on-line
and gaming machine segments of the Company.

     Inventories  decreased by $1.1  million to $17.2  million at March 31, 1997
from $18.3 million at December 31, 1996.  The Company  manufactures  inventories
for sale and lease as well as use in the provision of services  under  long-term
contracts.  Inventories  purchased and  manufactured for use in the provision of
services  are  transferred  to  property,  plant and  equipment  when  installed
pursuant to the terms of such long term contracts.

     In the first quarter 1997, the Company reduced the  outstanding  balance of
the  revolving  line of credit  with First  Bank to $1.7  million  leaving  $8.3
million  available for cash advances on the credit facility.  The line of credit
agreement  expires in February  1998.  Additionally,  the Company made principal
payments on long-term  debt of $3.0 million in the first  quarter 1997  reducing
the Company's  interest-bearing  debt level  (including  the  revolving  line of
credit) to $44.7 million.

     During  1996,  the  Company  sold  notes  receivable  from  gaming  machine
equipment  sales,  with a face value of $1.5  million  to banks and other  third
parties. The notes are secured by the underlying equipment. The receivables sold
are  subject to  recourse  provisions  in the event of  default  by the  primary
obligor.  The outstanding balance of the notes receivable sold with recourse was
approximately  $2.9  million at March 31, 1997 and $4.7  million at December 31,
1996. At March 31, 1997,  the Company had a reserve of $0.4 million  established
for any losses under the recourse provisions. At March 31, 1997 and December 31,
1996,  respectively,  the Company had  guaranteed  or pledged  security  for the
indebtedness  of others in the amount of  approximately  $3.3  million  and $5.8
million (including notes receivable sold to banks and other third parties).

     The Company's  on-line  subsidiary,  AWI,  completed  negotiations with the
Minnesota  Lottery  in the  first  quarter  1997  for a new  five-year  contract
commencing  in August 1997.  The on-line  lottery  system  currently in place in
Minnesota  under the current  contract will remain in use under the new contract
and the Company does not anticipate  significant additional capital expenditures
to satisfy the  requirements of the new contract.  In 1996, AWI was named as the
successful bidder for a contract with the Florida Lottery to replace the current
contract with AWI. The award has been  protested by a competitor and the protest
is still pending. If the award is upheld, the Company will begin negotiations of
a new contract which may require significant capital resources in advance of any
anticipated  capital generated by a new contract.  Accordingly,  the Company may
need additional  financing,  the availability and the terms of which are subject
to various uncertainties, with no assurance that such financing can be obtained.

                                     - 17 -

<PAGE>


                 POWERHOUSE TECHNOLOGIES, INC. AND SUBSIDIARIES

SIGNATURES


Pursuant to the  requirements  of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned  thereunto
duly authorized.

                                    POWERHOUSE TECHNOLOGIES, INC.



Date:     February 8, 1998          /S/ SUSAN J. CARSTENSEN
                                    --------------------------------------------
                                    Susan J. Carstensen, Chief Financial Officer
                                    (authorized to sign on behalf of Registrant)

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