<PAGE>
                    U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB

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

For the quarterly period ended July 31, 1998
                               --------------

[ ]       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: 000-20685
                        ----------------------------------------------

                             American Wagering, Inc.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


             Nevada                                   88-0344658
----------------------------------          --------------------------------
(State or other jurisdiction of                       (IRS Employer
 incorporation or organization)                    Identification No.)

                    675 Grier Drive, Las Vegas, Nevada 89119
--------------------------------------------------------------------------------
                    (Address of principal executive office)


                                 (702) 735-0101
--------------------------------------------------------------------------------
                          (Issuer's telephone number)


--------------------------------------------------------------------------------
        (Former name, former address and former fiscal year, if changed
                                since last year)



         Check whether the issuer (1) filed reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.


Yes __X__   No ____


         The number of shares of Common Stock outstanding as of September 2, 
1998 was 7,779,733.






<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                            AMERICAN WAGERING, INC.
                     UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                      July 31,                  January
                                                                                        1998                      1998
                                                                                  --------------            ---------------
                                     ASSETS
CURRENT ASSETS:                                                                                                 
<S>                                                                               <C>                       <C>               
    Cash                                                                          $    1,323,834            $    2,092,894    
    Short-term investments                                                             1,121,435                 5,409,723 
    Accounts receivable, net of allowance for doubtful accounts                                                            
     of $54,511 and $69,736                                                              183,513                   333,660 
    Inventories, net of obsolescence reserve of $188,225 and $188,225                    520,527                   557,439 
    Prepaid expenses and other current assets                                            580,721                   451,347 
                                                                                  --------------            -------------- 
TOTAL CURRENT ASSETS                                                                   3,730,030                 8,845,063 
                                                                                                                           
PROPERTY AND EQUIPMENT, net                                                            3,761,936                 3,885,390 
                                                                                                                           
INTANGIBLE ASSETS, net                                                                   939,486                   628,184 
                                                                                                                           
DEPOSITS AND OTHER ASSETS                                                                771,798                   280,157   
                                                                                                                           
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS                                        1,116,418                 1,153,146 
                                                                                   -------------             ------------- 
TOTAL ASSETS                                                                       $  10,319,668             $  14,791,940 
                                                                                   =============             ============= 
                                                                                                                           
                      LIABILITIES AND STOCKHOLDERS' EQUITY                                                                 
CURRENT LIABILITIES:                                                                                         
    Current portion of long-term debt                                              $      55,640             $     549,254 
    Accounts payable                                                                     720,523                 1,476,892 
    Accrued expenses                                                                     623,883                   860,710   
    Unpaid winning tickets                                                               367,649                 1,441,041 
    Shareholder notes payable                                                          1,892,424                 1,486,912   
    Other current liabilities                                                            957,463                   583,090   
    Net current liabilities of discontinued operations                                   763,913                 1,158,649 
                                                                                   -------------             ------------- 
TOTAL CURRENT LIABILITIES                                                              5,381,495                 7,556,548      
                                                                                                                           
LONG-TERM DEBT:                                                                                                            
    Shareholder notes payable                                                                ---                   946,212     
    Long-term debt, less current portion                                               1,908,799                 1,942,239 
                                                                                   -------------             ------------- 
TOTAL LONG-TERM DEBT                                                                   1,908,799                 2,888,451 
                                                                                                                  
                         COMMITMENTS AND CONTINGENCIES                                                                     
STOCKHOLDERS' EQUITY:                                                                                                      
    Preferred stock -- $.01 par value; authorized 25,000,000 shares;                                                    
      issued and outstanding: none                                                           ---                       ---    
    Common stock -- $.01 par value; authorized  25,000,000 shares;                                                         
      issued and outstanding: 7,840,833 and 7,840,833                                     78,408                    78,408 
    Additional paid-in capital                                                        14,047,296                14,047,296     
    Accumulated deficit                                                              (10,800,620)               (9,778,763)  
    Less: treasury stock at cost, 54,900 shares                                         (295,710)                      --- 
                                                                                   -------------             ------------- 
TOTAL STOCKHOLDERS' EQUITY                                                             3,029,374                 4,346,941 
                                                                                   -------------             ------------- 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                         $  10,319,668             $  14,791,940 
                                                                                   =============             ============= 
</TABLE>
                                                                              
                                                                             
Note: The consolidated balance sheet at January 31, 1998 has been derived from
the audited financial statements at that date. 

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


                                      -1-
<PAGE>

                             AMERICAN WAGERING, INC
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE THREE MONTHS ENDED JULY 31, 1998 AND 1997

<TABLE>
<CAPTION>

                                                                                     1998                       1997
                                                                                     ----                       ----


<S>                                                                               <C>                       <C>            
REVENUES                                                                          $1,633,413                $1,983,033     

OPERATING COSTS AND EXPENSES:
         Direct costs                                                              1,269,424                 1,666,957
         Research and development                                                    139,388                   164,810
         Selling, general and administrative                                       1,136,254                   540,869
         Depreciation and amortization                                               167,261                   136,543
                                                                                  ----------                 ---------

TOTAL OPERATING COSTS AND EXPENSES                                                 2,712,327                 2,509,179
                                                                                  ----------                 ---------

OPERATING LOSS                                                                    (1,078,914)                 (526,146)

OTHER INCOME (EXPENSE):                                                              
         Interest income                                                              34,692                   106,831        
         Other income                                                                 78,593                    43,988          
         Equity in earnings (loss) from investment in joint venture                  (86,866)                      ---          
         Interest expense                                                            (82,139)                 (108,938) 
                                                                                  ----------                 ---------
                                                                                                                          
TOTAL OTHER INCOME (EXPENSE)                                                         (55,720)                   41,881
                                                                                  ----------                 ---------

LOSS FROM CONTINUING OPERATIONS
      BEFORE PROVISION (BENEFIT) FOR INCOME TAXES                                 (1,134,634)                 (484,265)          

PROVISION (BENEFIT) FOR INCOME TAXES                                                     ---                       ---
                                                                                  ----------                  ---------

LOSS FROM CONTINUING OPERATIONS                                                   (1,134,634)                 (484,265)

LOSS FROM DISCONTINUED OPERATIONS                                                        ---                  (223,970)
                                                                                  ----------                  ---------
                                                                                     
NET LOSS                                                                         $(1,134,634)               $ (708,235)
                                                                                 ===========                 ==========

LOSS PER SHARE OF COMMON STOCK

    Loss from continuing operations
      Basic                                                                       $    (0.15)               $    (0.06)
      Diluted                                                                     $    (0.15)               $    (0.06)

    Loss from discontinued operations
      Basic                                                                       $      ---                $    (0.03)       
      Diluted                                                                     $      ---                $    (0.03)       
                                                                                  
    Net loss
      Basic                                                                       $    (0.15)               $    (0.09)       
      Diluted                                                                     $    (0.15)               $    (0.09) 
      
</TABLE>                        
              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      -2-
<PAGE>

                             AMERICAN WAGERING, INC
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                1998               1997
                                                                                ----               ----
<S>                                                                         <C>                <C>        
REVENUES                                                                    $ 3,968,781        $ 3,686,380

OPERATING COSTS AND EXPENSES:
         Direct costs                                                         2,634,423          2,943,388
         Research and development                                               278,660            260,927
         Selling, general and administrative                                  1,627,699          1,023,533
         Depreciation and amortization                                          331,557            295,494    
                                                                            -----------        -----------

TOTAL OPERATING COSTS AND EXPENSES                                            4,872,339          4,523,342
                                                                            -----------        -----------

OPERATING LOSS                                                                 (903,558)          (836,962)

OTHER INCOME (EXPENSE):
         Interest income                                                        100,093            208,017
         Other income                                                           162,052             99,686
         Equity in earnings (loss) from investment in joint venture            (197,181)                --
         Interest expense                                                      (183,264)          (212,466)
                                                                            -----------        -----------

TOTAL OTHER INCOME (EXPENSE)                                                   (118,300)            95,237 
                                                                            -----------        -----------

LOSS FROM CONTINUING OPERATIONS
      BEFORE PROVISION (BENEFIT) FOR INCOME TAXES                            (1,021,858)          (741,725)  

PROVISION (BENEFIT) FOR INCOME TAXES                                                 --                 -- 
                                                                            -----------        -----------

LOSS FROM CONTINUING OPERATIONS                                              (1,021,858)          (741,725) 

LOSS FROM DISCONTINUED OPERATIONS                                                    --           (383,390)  
                                                                            -----------        -----------

NET LOSS                                                                    $(1,021,858)       $(1,125,115)
                                                                            ===========        ===========

LOSS PER SHARE OF COMMON STOCK

    Loss from continuing operations
      Basic                                                                 $     (0.13)       $     (0.09)
      Diluted                                                               $     (0.13)       $     (0.09)

    Loss from discontinued operations
      Basic                                                                 $        --        $     (0.05)
      Diluted                                                               $        --        $     (0.05)

    Net loss
      Basic                                                                 $     (0.13)       $     (0.14)
      Diluted                                                               $     (0.13)       $     (0.14)


The accompanying notes are an integral part of these consolidated financial statements
</TABLE>

                                      -3-



<PAGE>

                             AMERICAN WAGERING, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>

                                                                                     1998                       1997
                                                                                ------------               ------------
<S>                                                                                  <C>                        <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                        $ (1,021,858)              $ (1,125,115)
                                                                                ------------               ------------
     Adjustments to reconcile net loss to cash
          used in operating activities:
     Depreciation and amortization                                                   424,598                    456,066 
     Equity in (earnings) loss from investment in joint venture                      197,181                        ---
     Discontinued operations                                                        (424,459)                    33,594
     Provision (benefit) for doubtful accounts                                      (256,460)                   (24,500)
     Changes in assets and liabilities:
     Decrease (increase) in assets:
           Accounts Receivable                                                       432,041                   (157,801)
           Inventory                                                                  42,054                    (84,685)
           Prepaid expenses and other current assets                                (100,211)                   (50,077)
     Increase (decrease) in liabilities:
           Accounts payable                                                         (920,683)                   489,339
           Accrued expenses                                                         (294,588)                   (88,538)
           Unpaid winning tickets                                                 (1,073,391)                  (311,096)
           Other current liabilities                                                 372,347                    307,326
                                                                                ------------               ------------
     Total adjustments                                                            (1,601,571)                   569,628   
                                                                                ------------               ------------
         Net cash used in operating activities                                    (2,623,429)                  (555,487) 
                                                                                ------------               ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                           (159,876)                  (750,808)
     Purchase of assets of affiliate                                                (524,404)                       ---
     Expenditures capitalized as intangible assets                                       ---                    (42,439)
     Increase in investment in joint venture                                        (195,117)                  (427,359)
     Proceeds from joint venture partner                                                 ---                    500,000
     (Increase) decrease in short-term investments                                 4,288,289                   (167,386)  
     Deposits and other assets                                                      (163,112)                    69,773
                                                                                ------------               ------------ 
         Net cash provided by (used in) investing activities                       3,245,780                   (818,219)
                                                                                ------------               ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
       Repayments of long-term debt                                               (1,095,701)                  (167,962)
       Purchase of treasury stock                                                   (295,710)                       ---
                                                                                ------------               ------------
         Net cash used in financing activities                                    (1,391,411)                  (167,962) 
                                                                                ------------               ------------
 
NET DECREASE IN CASH AND CASH EQUIVALENTS                                       $   (769,060)              $ (1,541,668)
                                                                                ============               ============

CASH AND CASH EQUIVALENTS, beginning of period                                  $  2,092,894               $  3,276,642
                                                                                ============               ============

CASH AND CASH EQUIVALENTS, end of period                                        $  1,323,834               $  1,734,974
                                                                                ============               ============

SUPPLEMENTAL CASH FLOW DISCLOSURE:
       Cash paid for interest                                                   $    308,439               $    341,325
                                                                                ============               ============
       Cash paid for income taxes                                               $        ---               $    136,000
                                                                                ============               ============
</TABLE>

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


                                      -4-

<PAGE>

                            AMERICAN WAGERING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997


1.    Summary of Business and Significant Accounting Policies
      
      The accompanying unaudited consolidated financial statements do not
      include all information and disclosures requird under generally accepted
      accounting principles. However, in the opinion of management, the
      accompanying financial statements contain all adjustments (consisting only
      of normal recurring adjustments) considered necessary to present fairly
      the financial position, results of operations and cash flows, of the
      Company for the periods presented required under generally accepted
      accounting principles. The financial statements as of and for the years
      ended January 31, 1998 and 1997 and the notes thereto included in the
      Comapany's Annual Report on Form 10-KSB should be read in conjunction with
      these interim financial statements.

      In August 1995, American Wagering Inc., a Nevada corporation, (the
      "Company") was formed to be a holding company, for Leroy's Horse and
      Sports Place ("LHSP") and Leroy's Hotel Corporation ("LHC"). Immediately
      prior to the closing of the initial public offering by American Wagering,
      Inc., the stockholders of LHSP and LHC exchanged their shares in those
      companies for shares of American Wagering, Inc. These transactions are
      referred to as the "Reorganization."

      LHSP was incorporated under the laws of the State of Nevada on November
      14, 1977. The Company operates its main race and sports book located on
      the premises of LHC in Las Vegas, Nevada. In addition, LHSP operates
      sports books throughout the state of Nevada in licensed gaming
      establishments not owned by LHSP. The Company leases the square footage
      necessary to conduct its operations at the non-Company owned gaming
      establishments. As of July 31, 1998 and 1997 the Company had 47 and 41
      locations, respectively.

      LHC owns and operates a 150 room Howard Johnson's hotel (the "Hotel") and,
      through its wholly owned subsidiary B-P Food Corporation, an International
      House of Pancakes restaurant located in Las Vegas, Nevada. Additionally,
      LHSP operates a 5,600 square foot casino containing approximately 69
      electronic gaming devices including slot machines, video poker machines
      and multi-game video machines adjacent to the Hotel and restaurant
      (collectively the "Hotel/Casino").

      In March 1995, LHC purchased fifty-percent interests in certain entities,
      which owned and operated the Hotel/Casino, located in Las Vegas, Nevada.
      The related entities were BSRB Resort Hotels (a Nevada general
      partnership) and B-P Food Corporation (a Nevada corporation which was
      wholly-owned by BSRB Resort Hotels). The purchase was financed by a bank
      note executed by LHSP for approximately $1.1 million.

      In February 1996, the stockholders of LHSP purchased a fifty-percent
      interest in the stock of B-P Gaming Corporation (a Nevada corporation),
      which was contributed to the Company in connection with the
      Reorganization.

      On May 15, 1996, the Company purchased the remaining fifty-percent
      interest in BSRB Resort Hotels and B-P-Gaming Corporation ("B-P") for
      $3,601,000 in cash and the assumption of certain liabilities and B-P
      Gaming was subsequently dissolved.

      On October 25, 1996, the Company acquired from Autotote Corporation
      ("AC"), all of the shares of capital stock of Autotote CBS, Inc.
      (subsequently renamed Computerized Bookmaking Systems, Inc. ("CBS")),
      along with certain software and licensing rights pursuant to a Stock
      Transfer Agreement between the Company and AC. In consideration the
      Company paid $3 million in cash to AC and agreed to guarantee, pursuant to
      a Guaranty Agreement, CBS's


                                      -5-
<PAGE>

      obligation under its current mortgage of approximately $2 million on the
      real estate and building in Las Vegas, Nevada where the Company currently
      maintains its corporate offices.


      CBS designs, installs and maintains sports and race book equipment,
      software and computer systems for the sports betting industry. CBS is also
      50% partner in a joint venture that owns and operates Mega$ports, Inc.
      ("Mega$ports") which offers a pari-mutuel sports wagering system. The
      Mega$ports joint venture began full operations in July 1997. CBS recorded
      an equity in loss in joint venture of $197,000 for the six months ended
      July 31, 1998.

      On April 22, 1998, the Company determined it would concentrate its
      business efforts on its core competency, sports wagering, and is currently
      seeking a qualified buyer for the hotel, food and beverage segment of
      American Wagering, Inc. In the accompanying consolidated financial
      statements as of, and for the three and six months ended July 31, 1998 and
      1997 the results of the hotel, food and beverage operations have been
      accounted for as discontinued operations. (See Note 2)

      On July 28, 1998, the Company acquired certain assets from Advanced
      Computer Services, Inc. ("ACS") including software and customer lists
      pursuant to an Asset Purchase Agreement between the Company and ACS. In
      consideration the Company paid $500,000 in cash to ACS and agreed to pay
      the remaining purchase price of $250,000 in the Company's common stock
      upon satisfaction of certain conditions. The Company's two new
      subsidiaries, AWI Sports Systems, Inc. ("AWISSI") and AWI Hotel Systems,
      Inc. ("AWIHSI") acquired the Nevada Sports wagering software and Hotel
      systems software, repectively from ACS. The Company owns 80% of AWISSI and
      51% of AWIHSI. The sole shareholder of ACS will own the remaining 20% of
      AWISSI and 49% of AWIHSI. Pursuant to a Settlement Agreement between the
      Company and ACS, the litigation between the parties has been settled.
      AWISSI and AWIHSI will assume certain contractual obligations of ACS,
      including all customer contracts.

      Significant Accounting Policies

      Short-Term Investments

      Short-term investments consist of liquid investments, such as treasury
      bills, with a maturity of six months or less and are carried at cost
      adjusted for discount amortization.

      Inventories

      Inventories are stated at the lower of cost (based on the first in,
      first-out method) or market.

      Depreciation and Amortization

      Property and equipment are depreciated by use of both the straight line
      and accelerated methods over their estimated useful lives.

      Intangible Assets

      Intangible assets include software and rights for manufacturing and
      distribution which are being amortized over 7 years and the excess of the
      cost over the fair market value of net assets of acquired companies which
      are being amortized over the periods expected to be benefited or


                                      -6-
<PAGE>

      approximately 25 years. Accumulated amortization was $255,058 and $195,050
      at July 31, 1998 and January 31, 1998, respectively.

      The realizability of intangible assets is evaluated periodically as events
      or circumstances warrant. Such evaluations are based on various analyses,
      including cash flow and profitability projections that incorporate, as
      applicable, the impact on existing Company business. The analyses
      necessarily involve significant management judgment to evaluate the
      capacity of an acquired business to perform within projections.

      Period Results Not Indicative of the Full Year

      The results of operations for the six months ended July 31, 1998 and 1997
      are not necessarily indicative of the results to be expected for the full
      fiscal year.

      Revenue Recognition

      With respect to the horse and sports wagering segment, in accordance with
      industry practice, the Company recognizes race and sports wagering
      revenues as the net win from such wagering activities, which is the
      difference between gaming wins and losses. Wagers received on future race
      and sporting events are reflected as a liability and are not recognized as
      revenues until the event has taken place. Sports wagering revenues are
      recognized based on the results of a completed sporting event. With
      respect to the Systems segment, the Company recognizes revenue when the
      software and hardware are installed at the customer location. Maintenance
      fee revenue is recognized as the services are provided.

      Research and Development

      The Company expenses all costs associated with the research and
      development of computerized software as incurred.

      Advertising

      The Company expenses all costs associated with advertising as incurred.

      Earnings Per Share

      The Financial Accounting Standards Board issued Statement of Financial
      Accounting Standards No. 128 -"Earnings Per Share" ("SFAS No. 128") which
      became effective for periods ending after December 15, 1997 and replaces
      historically reported earnings per share with "basic" earnings per share
      and "diluted" earnings per share. Basic earnings per share is computed by
      dividing net income by the weighted average number of shares outstanding
      during the period, while diluted earnings per share reflects the
      additional dilution for all potentially dilutive securities, such as stock
      options, except that in the event of losses from continuing operations,
      no effect is given to potentially issuable securities as effects of this
      issuance would be anti-dilutive.

      The weighted-average number of common and common equivalent shares used in
      the calculation of basic and diluted earnings per share consisted of the
      following:



                                      -7-
<PAGE>

<TABLE>
<CAPTION>
                                            Three Months Ended         Six Months Ended
                                                  July 31,                July 31,
                                              1998       1997           1998       1997
                                              ----       ----           ----       ----                                     
<S>                                           <C>         <C>            <C>        <C>
Weighted-average common shares                 
outstanding (used in the computation of         
basic earnings per share                    7,792,330  7,837,500     7,812,547   7,837,500
                                            =========  =========     =========   =========

</TABLE>

      Use of Estimates

      Financial statements prepared in accordance with generally accepted
      accounting principles require the use of management estimates. The most
      significant estimates with regard to these financial statements relate to
      setting and adjusting lines on sporting events. The sports book operator
      is betting as a principal against its patrons. Therefore, if the "book" of
      wagers placed on an event is not balanced the sports book operator is
      significantly at risk for the outcome of a sporting event. Although sports
      book operators attempt to keep the book in balance by adjusting the
      betting line, the risk of a non-balanced book is inherent in the operation
      of a sports book. To the extent that a book on a particular event is not
      balanced, the book-making operation, like its patrons, is gambling on the
      outcome of an event.

      Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of
      the Company and its wholly-owned subsidiaries. All significant
      inter-company balances and transactions have been eliminated. The
      financial results for acquisitions are included in the consolidated
      financial statements from the date of acquisition. Investments in 50% or
      less owned joint ventures are accounted for under the equity method.

      Reclassifications

      Certain amounts in the 1997 consolidated financial statements have been
      reclassified to conform to the 1998 presentation. These reclassifications
      had no effect on the Company's net loss.

      Income Taxes

      The Company records income taxes in accordance with Statement of Financial
      Accounting Standards No. 109, "Accounting for Income Taxes." ("SFAS No.
      109") Under SFAS No. 109, deferred income taxes are calculated using the
      asset and liability method. Under the asset and liability method, deferred
      income taxes are measured using enacted statutory tax rates expected to


                                      -8-
<PAGE>

      apply to taxable income in the years in which these temporary differences
      are expected to be recovered or settled.

      Due to the Company's loss there was no provision for income taxes 
      recorded. On January 31, 1998 the Company had $2,029,132 of operation loss
      carryforwards available to reduce future taxable income which will expire
      in 2013.


2.    Discontinued Operations

      On April 22, 1998, the Company determined it would concentrate its
      business efforts on its core competency, sports wagering, and is currently
      seeking a qualified buyer for the hotel, food and beverage segment of
      American Wagering, Inc. In the accompanying consolidated financial
      statements as of, and for the three and six months ended July 31, 1998 and
      1997 the results of the hotel, food and beverage operations have been
      accounted for as discontinued operations.

      The estimated loss on the disposal of this segment is $862,000 consisting
      of an estimated loss on disposal of the business of $246,000 and a
      provision of $616,000 for anticipated operating losses during the phase
      out period.

      These operations had operating revenues of $795,000 and $832,000 for the
      three months ended July 31, 1998 and 1997, respectively, with operating
      losses for the same periods of $41,000 and $113,000 respectively.
      Identifiable assets of the hotel, food and beverage operations were $3.7
      million as of July 31, 1998 and January 31, 1998. These operations had
      operating revenues of $1,570,000 and $1,745,000 for the six months ended
      July 31, 1998 and 1997, respectively, with operating losses for the same
      periods of $131,000 and $157,000 respectively. The components of assets
      and liabilities of discontinued operations included in the accompanying
      consolidated balance sheets are as follows:



                                                      July 31,       January 31,
                                                        1998            1998
                                                        ----            ---- 
     Current assets                                 $   194,285     $   162,878
     Accounts payable, accrued expenses and other      (958,198)     (1,321,527)
                                                    -----------     -----------
     Net current liabilities                        $  (763,913)    $(1,158,649)
                                                    ===========     ===========
     Property, plant and equipment, net             $ 3,473,459     $ 3,546,725
     Other non-current assets                               ---             ---
     Non-current liabilities                         (2,357,041)     (2,393,579)
                                                    -----------     -----------
     Net long-term assets                           $ 1,116,418     $ 1,153,146
                                                    ===========     ===========

     The condensed statements of operations relating to the discontinued
     operations are presented below:


                                       -9-
<PAGE>

<TABLE>
<CAPTION>

                                                Three Months Ended          Six Months Ended
                                                      July 31,                   July 31,
                                                1998        1997           1998          1997
                                                ----        ----           ----          ----
<S>                                             <C>         <C>          <C>           <C>       
      Revenues                                 795,406  $   832,324     $1,570,261    $1,744,856
      Costs and Expenses                       961,330    1,056,294      1,961,354     2,128,246
                                             ---------  -----------     ----------    ---------- 
      Loss before income taxes                (165,924)    (223,970)      (391,093)     (383,390)
      Provision (benefit) for income taxes         ---          ---            ---           ---
                                             ---------   ----------     ----------    ----------
      Net loss                               $(165,924)  $ (223,970)    $ (391,093)   $ (383,390)
                                             =========   ==========     ==========    ==========
</TABLE>
      In conjunction with the proposed sale of the hotel facility, the Company
      intends to negotiate a leaseback of, and continue to operate, the casino,
      which will serve as the Company's principal gaming location.


3.    Capital Stock

      The Company's Board of Directors approved a program to repurchase up to
      250,000 shares of the Company's common stock from time to time in the open
      market. As at July 31, 1998, 54,900 shares had been repurchased pursuant
      to this program. The timing and amount of future share repurchases, if any
      will depend on various factors, including market conditions, available
      alternative investments and the Company's financial position.


4.    Business Segments

      The Company's primary operations are reported in the following three
      segments: Horse and Sports Wagering, Casino and Computerized Bookmaking
      Systems, AWI Sports Systems and AWI Hotel Systems ("Systems"). The Hotel,
      Food and Beverage business segment has been presented as discontinued
      operations in the accompanying consolidated financial statements (See
      Note 2).

      The Horse and Sports Wagering segment consists of licensed bookmaking
      operations with the largest number of sports books in the state of Nevada.
      As at July 31, 1998, in addition to its main location, the Company
      operated 46 race and sports books located within licensed gaming
      establishments owned by other companies throughout the state of Nevada.
      The Horse and Sports wagering segment leases the square footage necessary
      to conduct its operations at these non-company owned establishments.

      The Casino segment includes a 5,600 square foot casino within the Howard
      Johnson Hotel containing approximately 69 electronic gaming devices
      including slot machines, video poker machines and multi-game video
      machines.

      The Systems segment includes Computerized Bookmaking Systems, AWI Sports
      Systems and AWI Hotel Systems which designs, installs and maintains race
      and sports book equipment, software and computer systems to the sports
      betting and hotel industries. Computerized Bookmaking Systems is a 50%


                                      -10-
<PAGE>

      partner in the joint venture, Mega$ports. Mega$ports offers a
      pari-mutuel sports wagering system.


      The following summarizes the segment information for the Company:
<TABLE>
<CAPTION>


                        Three
                        Months    Horse and     
                         Ended     Sports
                       July 31,   Wagering    Wagering     Systems     Corporate        Total
                       --------  ----------   --------   ----------    ---------      ----------   
 <S>                      <C>     <C>        <C>           <C>         <C>              <C>       
 Revenues                1998    $  810,728   $153,573   $  669,111  $      ---       $1,633,413
                         1997       862,051    136,866      984,116         ---        1,983,033
                                                                     
Operating                1998      (199,312)    26,553     (346,619)   (559,641)      (1,078,914)
Income (Loss)*           1997      (363,039)     3,977      184,237    (351,321)        (526,146)

Capital                  1998        89,961        ---        4,518      13,989          108,468
Expenditures             1997       378,607        ---       21,669      31,893          432,169

Depreciation and         1998        77,436      5,624       71,604      12,597          167,261
Amortization             1997        56,429      4,001       71,726       4,387          136,543

Identifiable             1998     2,245,015    310,379    5,153,821   1,494,035        9,203,250

Assets       January 31, 1998     2,974,576    336,910    4,564,546   5,762,762       13,638,794
</TABLE>
<TABLE>
<CAPTION>
                     Six Months    Horse and        
                        Ended       Sports
                       July 31,    Wagering      Casino     Systems     Corporate       Total
                     ----------  -----------    --------  ----------   ----------   -----------
<S>                      <C>     <C>            <C>       <C>          <C>          <C>        
Revenues                 1998    $2,124,819     $300,636  $1,543,326   $      ---   $ 3,968,781
                         1997     1,823,285      289,955   1,573,140          ---     3,686,380

Operating                1998        58,227      49,838    (109,298)    (902,325)     (903,558) 
Income (Loss)*           1997      (449,674)      36,300     208,435     (632,023)     (836,962)

Capital                  1998        96,028          ---      13,452       30,623       140,103
Expenditures             1997       489,097          ---      38,310       38,516       565,923

Depreciation and         1998       152,128       11,249     143,893       24,288       331,557
Amortization             1997        96,537        8,003     182,598        8,357       295,495

Identifiable             1998     2,245,015      310,379   5,153,821    1,494,035     9,203,250
Assets      January  31, 1998     2,974,576      336,910   4,564,546    5,762,762    13,638,794
</TABLE>
* Operating income (loss) does not include the allocation of corporate
management fees. The management fees are equal to 9.5% of each operating
Company's gross operating revenues.

Comparative financial data for the hotel, food and beverage operations, reported
as discontinued operations, is as follows:

Revenues were $795,000 and $832,000 for the three months ended July 31, 1998 and
1997, respectively. Operating losses were $41,000 and $113,000, for the three
months ended 1998 and 1997, respectively. Capital Expenditures were $1,000 and
$139,000 for the three months ended July 31, 1998 and 1997, respectively.
Depreciation and Amortization was $56,000 and $75,000


                                      -11-
<PAGE>

for the three months ended July 31, 1998 and 1997, respectively. Identifiable
assets were $3,668,000 and $3,710,000 as at July 31, 1998 and January 31, 1998,
respectively. Revenues were $1,570,000 and $1,745,000 for the six months ended
July 31, 1998 and 1997, respectively. Operating losses were $131,000 and
$157,000, for the six months ended July 31, 1998 and 1997, respectively. Capital
Expenditures were $20,000 and $185,000 for the six months ended July 31, 1998
and 1997, respectively. Depreciation and Amortization was $93,000 and $161,000
for the six months ended July 31, 1998 and 1997, respectively.

Item 2. Management's Discussion and Analysis or Plan of Operation.

Results of Operations

Fiscal Quarter ended July 31,1998 compared to the Fiscal Quarter ended July
31,1997

Revenues for the Fiscal Quarter ended July 31,1998 ("Second Quarter of Fiscal
1999"), were $1,633,000 a decrease of $350,000 or 17.7% from revenues of
$1,983,000 for the Fiscal Quarter ended July 31,1997 ("Second Quarter of Fiscal
1998"). The decrease in revenues was primarily attributed to the decline in
CBS equipment sales.

Revenues from CBS operations were approximately $669,000 for the Second Quarter
of Fiscal 1999, a decrease of $315,000 or 32.0% from revenues of $984,000 for
the Second Quarter of Fiscal 1998. The decrease in equipment sales between
fiscal quarters was partly offset by increased ticket paper sales. Revenues from
horse and sports wagering were approximately $811,000 for the Second Quarter of
Fiscal 1999, a decrease of $51,000 or 5.9% from revenues of $862,000 for the
Second Quarter of Fiscal 1998. The decrease in horse and sports wagering
revenues was principally due to unfavorable variances of sportsbook locations
operating in both periods ("same store") offset by the net increase of six
additional sports book locations between quarters. Revenues of $784,000 for the
Second Quarter of Fiscal 1999 at same store locations decreased $47,000 or 5.7%
from revenues of $831,000 for the Second Quarter of Fiscal 1998. Unfavorable
variances from baseball and boxing at all locations combined was $300,000 offset
by favorable variances from all other wagering of $249,000. Handle (the total
amount wagered at the Company's sports and race books) for the Second Quarter of
Fiscal 1999 was $20,707,000, an increase of $2,314,000 or 12.6% from the handle
of $18,393,000 for the Second Quarter of Fiscal 1998. The increase in handle was
principally due to a higher volume of wagering at same store locations and a net
increase of six more sportsbook locations operating during the Second Quarter of
Fiscal 1999 than were operating during Second Quarter of Fiscal 1998. Handle of
$17,993,000 for the Second Quarter of Fiscal 1999 at same store locations
increased $1,184,000 or 7.0% over the handle of $16,809,000 for the Second
Quarter of Fiscal 1998. Handle of $2,714,000 for the Second Quarter of Fiscal
1999 at the locations that were not operating in both periods increased
$1,130,000 or 71.3% from the handle of $1,584,000 for the Second Quarter of
Fiscal 1997. The Company believes the increase in handle is additionally
attributed to an increase in baseball wagering between fiscal quarters. An
increase or decrease in handle is not necessarily indicative of an increase or
decrease in revenues or profits. Net win percentage (revenues divided by handle)
for all race and sports wagering was 3.9% for the Second Quarter of Fiscal 1999
a decrease of 17.0% compared to a net win percentage for all race and sports
wagering of 4.7% for the Second Quarter of Fiscal 1998. Net win percentage
fluctuates depending on the outcome of various sporting events within the
reporting period. The decrease in the net win percentage between the fiscal
quarters was attributed to unfavorable results in baseball and boxing offset by
favorable results in all other sports. Revenues from Casino operations of
$154,000 for the Second Quarter of Fiscal 1999 increased $17,000 or 12.4% as
compared to revenues of $137,000 for the Second


                                      -12-
<PAGE>

Quarter of Fiscal 1998. The increase in revenues for the casino operation
between fiscal quarters was due to marketing efforts to increase play by local
customers.

Direct costs were $1,269,000 for the Second Quarter of Fiscal 1999, a decrease
of $398,000 or 23.9% from direct costs of $1,667,000 for the Second Quarter of
Fiscal 1998. Direct costs include product and installation cost of sales, labor
costs, gaming taxes and supplies, rent, advertising, franchise fees, and other
costs. Direct costs associated with horse and sports wagering were $908,000 for
the Second Quarter of Fiscal 1999, a decrease of $203,000 or 18.3% as compared
to direct costs of $1,111,000 for the Second Quarter of Fiscal 1998. The
decrease in direct costs associated with horse and sports wagering was primarily
due to lower advertising, gaming taxes and other expenses associated with the
sports book operations. Offsetting the transition costs associated with the new
operating system installed in 1998 are operating costs associated with a net
increase of six sportsbooks between fiscal quarters. Direct costs of CBS were
$237,000 for the Second quarter of fiscal 1999 a decrease of $190,000 or 44.5%
as compared to direct costs of $427,000 for the Second Quarter of Fiscal 1998.
The decrease is principally attributed to reduced equipment costs associated
with lower equipment sales. Direct costs associated with Casino operations were
$121,000 for the Second Quarter of Fiscal 1999 a decrease of $7,000 or 5.7% as
compared to direct costs of $128,000 for the Second Quarter of Fiscal 1998.
Direct costs as a percentage of revenues was 77.7% for the Second Quarter of
Fiscal 1999 a decrease of 7.6% as compared to direct costs as a percentage of
revenues of 84.1% for the Second Quarter of Fiscal 1998. This decrease is
principally due to lower advertising and gaming taxes of the sports wagering
segment.

Research and Development expenses were $139,000 for the Second Quarter of Fiscal
1999, a decrease of $26,000 or 15.8%, as compared to research and development
expenses of $165,000 for the Second Quarter of Fiscal 1999. These expenses
relate exclusively to CBS and are attributed to software and hardware
development for new products.

Selling, general and administrative expenses were $1,136,000 for the Second
Quarter of Fiscal 1999, an increase of $595,000 or 110.0% from selling, general
and administrative expenses of $541,000 for the Second Quarter of Fiscal 1998.
The increase in selling, general and administrative expenses was principally due
to unfavorable variances at CBS. CBS administrative expenses were $567,000 for
the Second Quarter of Fiscal 1999, an increase of $431,000 or 316.9% compared to
$136,000 for the Second Quarter of Fiscal 1997. The unfavorable variance was
principally due to reserves associated with the Mega$ports joint venture and
legal costs associated with litigation, licensing and acquisitions. Selling,
general and administrative costs associated with the horse and sports wagering
were $24,000 for the Second Quarter of Fiscal 1999, a decrease of $33,000 or
57.9%, from selling, general and administrative costs of $57,000 for the Second
Quarter of Fiscal 1998. The decrease between fiscal quarters is primarily
attributed to lower legal, repairs, supplies and labor costs. Selling, general
and administrative expenses at the Corporate level were $545,000 for the Second
Quarter of Fiscal 1999, an increase of $198,000 or 57.1% as compared to selling,
general and administrative expenses of $347,000 for the Second Quarter of Fiscal
1998. The unfavorable variance between the fiscal quarters was principally due
to increased labor costs due to increases in staff and costs associated with the
terminated acquisition of Imagineering Systems, Inc. Selling, general and
administrative expenses were 69.6% of revenues for the Second Quarter of Fiscal
1999 an increase of 155.9% compared to 27.2% for the Second Quarter of Fiscal
1998. The unfavorable variance in selling, general and administrative expenses
as a percentage of revenue between the fiscal quarters was principally due to
increased expenses at CBS.

                                      -13-
<PAGE>

Depreciation and amortization was $167,000 for the Second Quarter of Fiscal
1999, an increase of $30,000 or 21.9% from depreciation and amortization of
$137,000 for the Second Quarter of Fiscal 1998. The increase in depreciation
expense is principally due to capital expenditures associated with the horse and
sports operations.

Other expense of $56,000 for Second Quarter of Fiscal 1999, varied unfavorably
by $98,000, or 233.3%, from other income of $42,000 in the Second Quarter of
Fiscal 1998. The unfavorable variance between other expense and other income was
principally due to equity in loss from the Mega$ports joint venture.

Net loss from continuing operations for the Second Quarter of Fiscal 1999 of
$1,135,000 varied unfavorably by $651,000 compared to the net loss from
continuing operations of $484,000 for Second Quarter of Fiscal 1998. Net loss
from horse and sports wagering operations of $241,000 for the Second Quarter of
Fiscal 1999 varied favorably by approximately $169,000 as compared to the net
loss of $410,000 for the Second Quarter of Fiscal 1998. The favorable
variance was principally due to lower operating costs and expenses of $215,000.
The net income from the Casino operations of $26,000 for the Second Quarter of
Fiscal 1998 varied favorably by $22,000 as compared to the net income of $4,000
for the Second Quarter of Fiscal 1998. The net loss from CBS operations for the
Second Quarter of Fiscal 1998 was approximately $469,000 compared to net income
of $148,000 for the Second Quarter of Fiscal 1998. The net loss from the
Corporate Entities of $529,000 for the Second Quarter of Fiscal 1999 varied
unfavorably by $274,000 as compared to net loss of $255,000 for the Second
Quarter of Fiscal 1998.

Discontinued Operations

On April 27, 1998, the Company determined to concentrate its business efforts on
its core competency; sports wagering and is seeking a qualified buyer from the
Hotel, food and beverage operations ("discontinued operations"). In the
Company's consolidated financial statement for and as of the Second Quarter of
Fiscal 1999 and 1998, the results of the Hotel, food and beverage operation has
been accounted for as discontinued operations.

Revenues from discontinued operations were $795,000 for the Second Quarter of
Fiscal 1999, an decrease of $37,000 or 4.4%, as compared to revenues of $832,000
for the Second Quarter of Fiscal 1998.

Direct costs associated with discontinued operations were $628,000 for the
Second Quarter of Fiscal 1999, a decrease of $44,000 or 6.5%, as compared to
direct costs of $672,000 for the Second Quarter of Fiscal 1998. The decrease in
direct costs is primarily due to reduction in advertising and housekeeping
expenses.

Selling, general, and administration expenses associated with discontinued
operations were $171,000 for the Second Quarter of Fiscal 1999, a decrease of
$15,000 or 8.1%, as compared to selling, general and administration expenses of
$186,000 for the Second Quarter of Fiscal 1998.

The net loss from discontinued operations of $166,000 for the Second Quarter of
Fiscal 1999 varied favorably from the net loss of $224,000 for the Second
Quarter of Fiscal 1998. The net loss from discontinued operations for the Second
Quarter of Fiscal 1999 was charged against a reserve of $616,000 established in
fiscal year 1998.


                                      -14-
<PAGE>

Six Months Ended July 31, 1998 Compared to the Six Months Ended July 31, 1997.

Revenues for the six months ended July 31,1998 were $3,969,000, an increase of
$283,000 or 7.7% from revenues of $3,686,000 for the six months ended July
31,1997. The increase in revenues was primarily attributed to the horse and
sports operation.

Revenues from horse and sports wagering was approximately $2,125,000 for the six
months ended July 31, 1998, an increase of $302,000 or 16.6%, from revenues of
$1,823,000 for the six months ended July 31, 1997. The increase in horse and
sports wagering revenues was principally due to favorable variances at same
store locations. Revenues of $2,021,000 for the six months ended July 31, 1998
at same store locations increased $295,000 or 17.1% from revenues of $1,726,000
for the six months ended July 31, 1997. Handle (the total amount wagered at the
Company's sports and race books) for the six months ended July 31, 1998 was
$40,879,000 an increase of $5,031,000 or 14.0% from the handle of $35,848,000
for the six months ended July 31, 1997. The increase in handle is principally
due to the favorable performance of same store locations. Handle of $36,181,000
for six months ended July 31, 1998 at same store locations increased $2,806,000
or 8.4% over the handle of $33,375,000 for the six months ended July 31, 1997.
The remaining increase in handle was principally due to a net increase of six
sportsbook locations in addition to an increase in baseball and basketball
wagering between fiscal years. An increase or decrease in handle is not
necessarily indicative of an increase or decrease in revenues or profits. Net
win percentage (revenues divided by handle) for all race and sports wagering was
5.2% for the six months ended July 31, 1998 an increase of 2.0% compared to a
net win percentage for all race and sports wagering of 5.1% for the six months
ended July 31, 1997. Net win percentage fluctuates depending on the outcome of
various sporting events within the reporting period. The increase in the net win
percentage between fiscal years was primarily attributed to favorable results in
basketball offset by unfavorable results in baseball and boxing. Revenues from
the CBS operations were approximately $1,543,000 for the six months ended July
31, 1998, a decrease of $30,000 or 1.9% as compared to revenues of $1,573,000
for the six months ended July 31, 1997. Revenues from the Casino operation were
approximately $301,000 for the six months ended July 31, 1998 an increase of
$11,000 or 3.8% as compared to revenues of $290,000 for the six months ended
July 31, 1997 principally due to increased play by local customers.

Direct costs were $2,634,000 for six months ended July 31, 1998, a decrease of
$309,000 or 10.5% from direct costs of $2,943,000 for the six months ended July
31, 1997. Direct costs include product and installation cost of sales, labor
costs, gaming taxes and supplies, rent, advertising, franchise fees, and other
costs. The decrease in direct costs was principally due to lower operation costs
of the horse and sports operation and the CBS operation. Direct costs associated
with horse and sports wagering were $1,864,000 a decrease of $217,000 or 10.4%
as compared to direct costs of $2,081,000 for the six months ended July 31,
1997. The decrease in direct costs associated with horse and sports wagering was
primarily due to lower advertising expenditures partly offset by increased
gaming supplies and costs associated with pari-mutuel race wagering. Direct
costs associated with the CBS operations were $526,000 for the six months ended
July 31, 1998 a decrease of $93,000 or 15.0% as compared to direct costs of
$619,000 for the six months ended July 31, 1997. The decrease in direct costs
was primarily due to decreased costs associated with lower sales of race and
sports book equipment. Direct costs associated with the


                                      -15-
<PAGE>

Casino operations were $240,000 for the six months ended July 31, 1998 a
decrease of $3,000 or 1.2% as compared to direct costs of $243,000 for the six
months ended July 31, 1997. Direct costs as a percentage of revenues was 66.4%
for the six months ended July 31, 1998 a decrease of 16.8% as compared to direct
costs as a percentage of revenues of 79.8% for the six months ended July 31,
1997. The decrease in direct costs as a percentage of revenues between fiscal
years is principally attributed to the horse and sports operations.

Research and Development expenses were $278,000 for the six months ended July
31, 1998. An increase of $18,000 or 6.9% for research and development expenses
of $260,000 for the six months ended July 31, 1997. These expenses relate
exclusively to CBS and are attributed to software and hardware development for
new products.

Selling, general and administrative expenses were $1,628,000 for the six months
ended July 31, 1998, an increase of $604,000 or 59.0% from selling, general and
administrative expenses of $1,024,000 for the six months ended July 31, 1997.
The increase in selling, general and administrative expenses was principally due
to unfavorable variances at the corporate levels and CBS. Corporate level
selling, general and administrative expenses were $874,000 for the six months
ended July 31, 1998, an increase of $250,000 or 40.1%, compared to $624,000 for
the six months ended July 31, 1997. The unfavorable variance was principally due
to labor costs, related to additional personnel, costs associated with the
terminated acquisition of Imagineering Systems, Inc. and other professional
services. Selling, general and administrative expenses from the CBS operation
were $704,000 for the six months ended July 31, 1998 an increase of $402,000 or
133.1% as compared to selling, general and administrative expenses of $302,000
for the six months ended July 31, 1997. The increase in selling, general and
administrative expenses is attributed to increased legal expenses associated
with CBS litigation and reserves associated with the investment in the
Mega$ports joint venture. Selling, general and administrative expenses from
horse and sports wagering was $50,000 for the six months ended July 31, 1998, a
decrease of $45,000 or 47.4%, as compared to selling, general and administrative
expenses of $95,000 for the six months ended July 31, 1997. The favorable
variance is principally attributed reduced legal expenses. Selling, general and
administrative expenses were 41.0% of revenues for the six months ended July 31,
1998, an increase of 47.5%, as compared to 27.8% for the six months ended July
31, 1997. The unfavorable variance in selling, general and administrative
expenses as a percentage of revenue between the fiscal quarters was principally
due to increased expenses and reserves at the Corporate levels and CBS,
respectively.

Depreciation and amortization was $332,000 for the six months ended July 31,
1998, an increase of $37,000 or 12.5% from depreciation and amortization of
$295,000 for the six months ended July 31, 1997. An increase in depreciation
expense of $57,000 was due to capital equipment associated with new capital
equipment purchases principally at the horse and sports operation. Partly
offsetting this increase was a decrease of $26,000 in amortization expense at
the CBS level.

Other expense of $118,000 for the six months ended July 31, 1998, varied
unfavorably by $213,000, or 224.2%, compared to other income of $95,000 for the
six months ended July 31, 1997. The unfavorable variance was principally due to
equity in loss from the Mega$ports Joint Venture of $197,000 and a decrease in
interest income of $108,000. Partly offsetting these unfavorable items was an
increase in other income of $62,000 and lower interest expenses of $29,000.

The net loss from continuing operations for the six months ended July 31, 1998
of $1,022,000


                                      -16-
<PAGE>

varied unfavorably by $280,000 or 37.7% compared to the net loss from continuing
operations of $742,000 for six months ended July 31, 1998. Net loss from horse
and sports wagering operations of $37,000 for the six months ended July 31, 1998
varied favorably by $491,000 or 93.0% as compared to the net loss of $528,000
for the six months ended July 31, 1997. The favorable variance was principally
due to increased revenues of $301,000 and decreased operating costs of $206,000.
The net loss from the CBS operations for the six months ended July 31, 1998 of
$379,000 varied unfavorably by $518,000 or 372.7% as compared to the net
earnings of $139,000 for the six months ended July 31, 1997. The net income from
the Casino operations for the six months ended July 31, 1998 of $50,000 varied
favorably by $14,000 or 38.9% as compared to the net earning of $36,000 for the
six months ended July 31, 1997. The net loss from the Corporate Entities of
$808,000 for the six months ended July 31, 1998 varied unfavorably by $354,000
or 78.0% as compared to net loss of $454,000 for the six months ended July 31,
1997.

Discontinued Operations

On April 27, 1998, the Company determined to concentrate its business efforts on
its core competency; sports wagering and is seeking a qualified buyer from the
Hotel, food and beverage operations ("discontinued operations"). In the
Company's consolidated financial statement for and as of the six months ended
July 31, 1998 and 1997, the results of the Hotel, food and beverage operation
has been accounted for as discontinued operations.

Revenues from discontinued operations were $1,570,000 for the six months ended
July 31, 1998, a decrease of $175,000 or 10.0%, as compared to revenues of
$1,745,000 for the six months ended July 31, 1997. The decrease is principally
due to a decline in room revenues. The hotel's average occupancy rate was 76%
for the six months ended July 31, 1998, a decrease of 2.6% from the average
occupancy rate of 78% for the six months ended July 31, 1997. The hotel's
average daily room rate was approximately $40 for the six months ended July 31,
1998, a decrease of 14.9% from the average daily room rate of $47 for the six
months ended July 31, 1997. These unfavorable variances are principally due to
increased competition of new hotels opening in the Las Vegas area.

Direct costs associated with discontinued operations were $1,227,000 for the six
months ended July 31, 1998, a decrease of $152,000 or 11.0%, as compared to
direct costs of $1,379,000 from the six months ended July 31, 1997. The decrease
in direct costs is principally due to lower housekeeping, labor and advertising
costs.

Selling, general and administration expenses were $381,000, an increase of
$19,000 or 5.2%, as compared to selling, general and administration expenses of
$362,000 for the six months ended July 31, 1997. The increase in selling,
general and administration expenses was primarily due to higher legal expenses.

The net loss from discontinued operations of $391,000 for the six months ended
July 31, 1998, was unfavorable by $8,000 as compared to a net loss of $383,000
for the six months ended July 31, 1997. The net loss from discontinued
operations for the six months ended July 31, 1998 was charged against a reserve
of $616,000 established in fiscal year 1998.

Liquidity and Capital Resources

As of July 31, 1998, working capital was a negative $1,651,000 reflecting the
current maturation of shareholder notes payable and a decrease of short-term
investments.


                                      -17-
<PAGE>

Cash used in operating activities was $2,623,000. Net cash provided by investing
activities amounted to $3,246,000 and is principally attributed to a decrease in
short-term investments. Net cash used in financing activities amounted to
$1,391,000, representing repayments of long-term debt of $1,095,000 and the
purchase of the Company's common stock of $296,000. During the six months ended
July 31, 1998, the Company repaid $541,000 in shareholder notes and paid the
balance of a note due to Pioneer Citizens Bank of Nevada of $480,000 which was
borrowed in March 1995 and loaned to LHC to acquire the initial 50% of the
Hotel/Casino.

Management believes that the Company will be able to satisfy its cash
requirements for at least the next twelve months without having to raise
additional funds.

Year 2000 Compliance

Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. The Company is assessing both the
internal readiness of its computer systems and the compliance of its computer
products and software sold to customers for handling the year 2000. The Company,
if necessary, expects to implement successfully the systems and programming
changes necessary to address year 2000 issues, and does not believe that the
cost of such actions will have a material effect on the Company's results of
operations or financial condition. There can be no assurance, however, that
there will not be a delay in, or increased costs associated with, the
implementation of such changes, and the Company's inability to implement such
changes could have an adverse effect on future results of operations.

Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.

The Statements contained in this document which are not historical facts contain
forward looking information with respect to plans, projections or future
performance of the Company, the occurrence of which involve certain risks and
uncertainties, including that the Company takes financial risks on the outcome
of sporting events as a principal betting against its patrons and uncertainties
detailed in the Company's filings with the Securities and Exchange Commission.

PART II   -   OTHER INFORMATION

Item 1.       LEGAL PROCEEDINGS
      The information in paragraph eleven of Note 1 to Item I of Part I of this
report is herein incorporated by reference.
Item 2.       CHANGES IN SECURITIES               
      The information in paragraph eleven of Note 1 to Item I of Part I of this
report is herein incorparated by reference.
      The Company believes that the common stock described in Note 1 to Item I
of Part I was exempt from registration under Section 4(2) of the Securities Act
of 1933 because the subject securities were sold to a single person of whom was
believed to have been a sophisticated investor and was purchasing for investment
without a view to further distribution.
Item 3.       DEFAULTS UPON SENIOR SECURITIES               NON APPLICABLE
Item 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On July 29, 1998, the Company held its Annual Meeting of Stockholders (the
"Meeting"). The matters voted upon at the Meeting were the election of directors
and ratification of the appointment of Arthur Andersen LLP as the Company's
independent accountants for the fiscal year ending January 31, 1999.

At the Meeting, the Stockholders were asked to elect five directors with each
director to serve until the next annual meeting of the Stockholders or until the
election and qualification of a respective successor. All of the nominees for
director recommended by the Board of Directors were elected and the results of
the voting were as follows:
<TABLE>
<CAPTION>
<S>                                      <C>                  <C>                  <C>
        Name                            Votes For       Votes Against           Abstentions
        ----                            ---------       -------------           -----------
        Victor J. Salerno               5,365,490            500                     0
        Robert D. Ciunci                5,365,490            500                     0
        Michael Merillat                5,365,490            500                     0
        Robert R. Barengo               5,365,490            500                     0
        Philip P. Hannifin              5,365,490            500                     0
</TABLE>


                                      -18-
<PAGE>

At the Meeting, the Stockholders ratified the appointment of Arthur Andersen LLP
as the Company's independent accountants for the fiscal year ending January 31,
1999, and the outcome of the voting was: 5,361,290 For and 4,700 Abstained.


Item 5.    OTHER INFORMATION                              NON APPLICABLE

Item 6.    EXHIBITS AND REPORTS ON FORM 8-K

Exhibits  -  Financial Data Schedule
        Number           Description                 Method of Filing
       -------           -----------                 ----------------
          27             Financial Data Schedule     Filed Herewith
          (b)   The following report on form 8-K was filed during the quarter
ended July 31, 1998:

           NONE


                                   SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                                        AMERICAN WAGERING, INC.

                                                                (Registrant)



Date: September 14, 1998              By:   /s/ Robert D. Ciunci
                                      -----------------------------------------
                                      Robert D. Ciunci
                                      Executive Vice President and
                                      Chief Financial Officer


                                      -19-